ARTICLES
“There’s Danger Here, Cherie!”
1
LIABILITY FOR THE PROMOTION AND
MARKETING OF DRUGS AND MEDICAL
DEVICES FOR OFF-LABEL USES
Richard C. Ausness†
I.
INTRODUCTION
Physicians often prescribe prescription drugs and other
medications for uses that are not approved by the Food and
Drug Administration (“FDA”), and such “off label” prescription
is widely accepted within the medical community as a legitimate form of treatment.2 However, the federal government
discourages off-label prescription and use in various ways. For
example, the FDA restricts the dissemination of information
by drug companies about potential off-label therapies.3 In
addition, federally funded health insurance programs such as
Medicaid do not reimburse health care providers for off-label
uses.4 Because drug companies make large profits from off-label
prescriptions, they are often tempted to illegally promote offlabel uses of their products or to encourage health care
providers to defraud the federal government by seeking reimbursement for off-label uses. This conduct is exceedingly risky
and has cost drug companies hundreds of millions of dollars in
†
Ashland Professor of Law, University of Kentucky; B.A., 1966, and J.D.,
1968, University of Florida; LL.M., 1973, Yale University.
1
Harry Caray, legendary sportscaster for the Chicago Cubs baseball club,
often exclaimed, “There’s danger here, Cherie,” when a home-run hitter for the
opposing team stepped up to the plate.
2
See infra text accompanying notes 9-16.
3
See infra Part II.B.
4
42 U.S.C. §§ 1396b(i)(10), 1396r-8(k)(3) (2000).
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fines and civil penalties. Moreover, the current federal policy
with respect to off-label use not only threatens the pocketbooks
of drug companies, but also adversely affects public health by
discouraging drug companies from publicizing promising offlabel therapies. A revision of the current policy is urgently
needed.
An off-label use is one that is not provided for on the
product’s FDA-approved labeling.5 A doctor makes an off-label
prescription when he or she prescribes a drug or medical device
to treat a medical condition other than the one the drug or
device was approved to treat.6 Off-label prescription also
involves using a different method of applying the treatment as
well as prescribing a drug or device to patient groups other
than those for whom the FDA approved it.7 In addition, offlabel use includes prescriptions for drug dosages that are
different from the recommended dosage or for periods that
exceed the recommended use in the labeling.8
Off-label uses are not necessarily unusual or experimental.9 In fact, they are widely accepted within the medical
community and may sometimes be the most effective treatment
for certain types of medical conditions.10 It is estimated that
between twenty and sixty percent of all prescriptions are for
off-label uses.11 For example, a large percentage of prescriptions
for pediatric use are off-label because many drugs are not
tested or approved for use by children.12 Off-label uses are also
common in cancer therapy and are often considered to be
among the most effective treatments.13 Off-label uses are even
5
Stephanie Greene, False Claims Act Liability for Off-Label Promotion of
Pharmaceutical Products, 110 PENN. ST. L. REV. 41, 43 (2005).
6
Steven R. Salbu, Off-Label Use, Prescription, and Marketing of FDAApproved Drugs: An Assessment of Legislative and Regulatory Policy, 51 FLA. L. REV.
181, 189 (1999).
7
Lars Noah, Constraints on the Off-Label Uses of Prescription Drug
Products, 16 J. PROD. & TOXICS LIAB. 139, 141 (1994).
8
Elizabeth A. Weeks, Is It Worth the Trouble? The New Policy on Dissemination of Information on Off-Label Use Under the Food and Drug Administration
Modernization Act of 1997, 54 FOOD & DRUG L.J. 645, 647 (1999).
9
James M. Beck & Elizabeth D. Azari, FDA, Off-Label Use, and Informed
Consent: Debunking Myths and Misconceptions, 53 FOOD & DRUG L.J. 71, 72 (1998).
10
See Martin Page, CBER Status on Reform Initiatives: Industry Reactions
and Comments, 52 FOOD & DRUG L.J. 193, 195 (1997).
11
Michael I. Krauss, Essay, Loosening the FDA’s Drug Certification
Monopoly: Implications for Tort Law and Consumer Welfare, 4 GEO. MASON L. REV.
457, 472 (1996).
12
Salbu, supra note 6, at 193.
13
William L. Christopher, Off-Label Drug Prescription: Filling the Regulatory Vacuum, 48 FOOD & DRUG L.J. 247, 248-49 (1993).
2008]
“THERE’S DANGER HERE, CHERIE!”
1255
more prevalent in the treatment of AIDS, where between
ninety and one hundred percent of applications are thought to
be off-label.14
Courts have repeatedly held that certain off-label uses
are legitimate forms of therapy.15 The FDA has also tacitly
recognized that off-label uses are legitimate.16 Nevertheless,
the FDA severely restricts the ability of drug manufacturers
to promote off-label uses for their products.17 Thus, drug
companies are forced to circumvent, or even violate, the law if
they wish to inform physicians about beneficial off-label
therapies (and make money from the increased sales of their
products). The drug companies that cross the line and get
caught face substantial civil and criminal liability. This Article
concludes that the current FDA policy should be revised
because it encourages criminal behavior on the part of pharmaceutical companies and deprives physicians of potentially
useful information about new and useful treatments.
Part II examines the FDA’s drug and medical device
approval processes, as well as its regulation of the promotion of
off-label uses under the Food and Drug Modernization Act
and various “guidance” documents issued pursuant to this
legislation. Part II also describes some of the criminal and civil
penalties that can be imposed for violating the FDA’s restrictions on the marketing of off-label uses. Part III discusses
potential liability under the Racketeer Influenced and Corrupt
Organizations Act (“RICO”), with particular attention to two
recent cases, Hamm v. Rhone-Poulenc Rorer Pharmaceuticals,
Inc.18 and In re Neurontin Marketing, Sales Practices, and
Products Liability Litigation.19 Part III will also discuss the
liability of drug companies under the False Claims Act for
directly and indirectly obtaining compensation from the federal
government for the sale of products for off-label uses. Tort
liability is the focus of Part IV. This includes tort claims based
on violations of the Food, Drug and Cosmetic Act, fraudulent
misrepresentation, failure to warn about the risks of particular
off-label uses, and failure to test for risks associated with off14
Salbu, supra note 6, at 194.
See, e.g., Bristol-Meyers Squibb Co. v. Shalala, 91 F.3d 1493, 1500 (D.C.
Cir. 1996); Ortho Pharm. Corp. v. Cosprophar, Inc., 32 F.3d 690, 692 (2d Cir. 1994);
Upjohn Co. v. MacMurdo, 562 So. 2d 680, 683 (Fla. 1990).
16
Beck & Azari, supra note 9, at 77.
17
See infra at II.B.
18
187 F.3d 941 (8th Cir. 1999).
19
433 F. Supp. 2d 172 (D. Mass. 2006).
15
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label uses. Finally, Part V evaluates the FDA’s current policy
concerning the promotion of off-label uses and concludes that it
is too restrictive.
II.
FDA REGULATION OF PHARMACEUTICAL PRODUCTS
A.
The FDA Drug Approval Process
The Federal Food, Drug and Cosmetic Act (“FDCA”)20
authorizes the FDA to regulate the manufacture and marketing of prescription drugs and medical devices.21 Under the
FDCA, the FDA must license any “new drug” before it may be
marketed.22 The approval process begins with the submission of
an Investigational New Drug Application.23 If the application
is approved, the sponsor may proceed with the New Drug
Application (“NDA”) process.24 The first phase of this process
usually involves animal testing to determine toxicity.25 The
drug then undergoes various types of clinical trials on human
subjects.26 When the clinical trials have been completed, the
sponsor must submit an NDA to the FDA for review. The NDA
must include a list of all of the drug’s ingredients, detailed
chemical information, detailed biological information, summaries of clinical testing results, a summary of the risks and
20
21 U.S.C. §§ 301-399 (2000).
See Richard A. Merrill, The Architecture of Government Regulation of
Medical Products, 82 VA. L. REV. 1753, 1764-835 (1996); see also Michael D. Green &
William B. Schultz, Tort Law Deference to FDA Regulation of Medical Devices, 88 GEO.
L.J. 2119, 2127-30 (2000) (discussing the difference between regulations for prescription drugs and medical devices). The FDA also regulates over-the-counter
pharmaceutical products. See Kenneth C. Baumgartner, A Historical Examination of
the FDA’s Review of the Safety and Effectiveness of Over-the-Counter Drugs, 43 FOOD
DRUG COSM. L.J. 463, 465-71 (1988).
22
21 U.S.C. § 355.
23
See id. § 355(i); Center for Drug Evaluation and Research, Drug
Applications, http://www.fda.gov/cder/Regulatory/applications/ind_page_1.htm (last
visited Apr. 24, 2008).
24
Note, A Question of Competence: The Judicial Role in the Regulation of
Pharmaceuticals, 103 HARV. L. REV. 773, 776 (1990). A somewhat different process
applies to the approval of medical devices. See Beck & Azari, supra note 9, at 72-75.
25
James A. Wilsker, Note, One-Half Phen in the Morning/One Fen Before
Dinner: A Proposal for FDA Regulation of Off-Label Uses of Drugs, 6 J.L. & POL’Y 795,
806 (1998).
26
Richard A. Epstein, Regulatory Paternalism in the Market for Drugs:
Lessons from Vioxx and Celebrex, 5 YALE J. HEALTH POL’Y L. & ETHICS 741, 756 (2005).
Clinical trials are usually divided into Phase I, Phase II, and Phase III: Phase I trials
determine whether a small number of test subjects can tolerate various levels of
exposure to the drug; Phase II trials evaluate the safety and effectiveness of the drug
on a larger group of persons for whom the drug is ultimately intended; and Phase III
trials carry out additional tests to determine the drug’s safety and efficacy. Id.
21
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“THERE’S DANGER HERE, CHERIE!”
1257
benefits of the drug, an environmental impact statement,
marketing history, and proposed labeling.27
A drug may only be marketed and labeled for the uses
for which it received approval from the FDA.28 The FDA
requires that a drug’s label include information necessary for
safe and effective use, warnings, precautions, clinical pharmacology, indications, contraindications, and information about
adverse reactions.29 FDA-approved labeling, which is primarily
directed at physicians and other health care providers, is
included as a product package insert and as an entry in the
Physician’s Desk Reference.30 If a manufacturer wishes to add
new approved uses to a drug’s labeling, it must submit a new
NDA to the FDA.31
The FDA’s approval process for medical devices, on the
other hand, is governed by the Medical Device Amendments
(“MDA”).32 The MDA creates three classes of medical devices
that receive different levels of regulation. Class I devices are
merely subject to “general controls” by the FDA.33 Class II
devices are those for which “the general controls by themselves
are insufficient to provide reasonable assurance of the safety
and effectiveness of the device.”34 Class III medical devices are
those (1) for which there is insufficient information to determine that general controls and special controls are adequate to
provide reasonable assurance of safety and effectiveness, and
(2) are purported to be for sustaining human life or preventing
impairment of human health, or present an unreasonable risk
of illness or injury.35
27
21 C.F.R. § 314. 50 (2007); see also Beck & Azari, supra note 9, at 75-76.
Beck & Azari, supra note 9, at 76.
29
Salbu, supra note 6, at 186-87.
30
Edmund Polubinski, III, Note, Closing the Channels of Communication: A
First Amendment Analysis of the FDA’s Policy on Manufacturer Promotion of “OffLabel” Use, 83 VA. L. REV. 991, 995 (1997).
31
Kaspar J. Stoffelmayr, Comment, Products Liability and “Off-Label” Uses
of Prescription Drugs, 63 U. CHI. L. REV. 275, 277 (1996).
32
21 U.S.C. §§ 351-360n (2000).
33
Robert S. Adler & Richard A. Mann, Preemption and Medical Devices: The
Courts Run Amok, 59 MO. L. REV. 895, 913 n.88 (1994). “General controls” under the
MDA include such requirements as maintenance of good manufacturing practices,
sanitary packaging, and accurate labeling. Baker v. Smith & Nephew Richards, Inc.,
No. 95-58737, 1999 WL 811334, at *5 n.14 (Tex. Dist. Ct. 1999). Class I devices include
items such as surgeon’s gloves, eye pads and ice bags. 21 C.F.R. § 880.6050 (2007).
34
21 U.S.C. § 360c(a)(1)(B). Class II devices include items such as tampons,
syringes, and neonatal incubators. 21 C.F.R. §§ 884.5460, 880.5860, 880.5400 (2007).
35
21 U.S.C. § 360c(a)(1)(C). Pacemakers and heart valves are examples of
Class III devices. 21 C.F.R. §§ 870.3610, 870.3925 (2007).
28
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Ordinarily, the manufacturer of a Class III medical
device must submit a premarket approval application (“PMA”)
to the FDA before marketing the device in interstate commerce.36 The PMA must contain a full report of any clinical
investigations that concern the safety or effectiveness of the
device.37 It must also contain “a full statement of the components, ingredients, and properties and of the . . . principles of
operation, of such device.”38 In addition, it must include “a full
description of the methods used in, and the facilities and
controls used for, the manufacture, processing, and, when
relevant, packing and installation of, the device.”39 In the PMA,
the applicant must identify, discuss, and analyze
any other data, information, or report relevant to an evaluation of
the safety and effectiveness of the device known to or that should
reasonably be known to the applicant from any source, foreign or
domestic, including information derived from investigations other
than those proposed in the application and from commercial
marketing experience.40
The PMA must also include specimens of the labeling proposed
to be used for the device.41 A Class III medical device is not
subject to the PMA requirement if (1) it was marketed prior to
the MDA’s enactment42 and a regulation requiring submission
of PMAs has not been issued for the device or (2) it is
“substantially equivalent” to a predicate device, that is, one
marketed prior to the MDA’s enactment.43 Another exception to
the PMA process permits a Class III device that obtains an
Investigational Device Exemption (“IDE”) to be tested on
human subjects without obtaining PMA approval.44
Thus, manufacturers of both prescription drugs and
medical devices must satisfy the FDA that their products are
safe and effective before the agency will approve them for
marketing.
36
21 U.S.C. § 360e.
Id. § 360e(c)(1)(A); 21 C.F.R. § 814.20(b)(8)(i) (2007).
38
21 U.S.C. § 360e(c)(1)(B).
39
Id. § 360e(c)(1)(C).
40
21 C.F.R. § 814.20(b)(8)(ii) (2007).
41
21 U.S.C. § 360e(c)(1)(F).
42
Id. § 360e(b)(1)(A).
43
Id. § 360e(b)(1)(B).
44
See id. § 360j(g). An IDE allows researchers to conduct clinical trials
without first going through a formal PMA process in order to “encourage . . . the
discovery and development of useful devices . . . and maintain optimum freedom for
scientific investigators.” 21 U.S.C. § 360j(g).
37
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B.
“THERE’S DANGER HERE, CHERIE!”
1259
FDA Regulation of the Promotion of Off-Label Uses
by Drug Manufacturers
Although the FDCA authorizes the FDA to regulate the
manufacture and marketing of prescription drugs and medical
devices, the FDA has never claimed any authority to regulate
the practice of medicine.45 Therefore, physicians may use FDAlicensed drugs or medical devices in any way they believe will
benefit their patients and are not limited to approved uses.46
However, the FDA can regulate advertising and promotion
activities by drug manufacturers. In the past, the FDA prohibited manufacturers from promoting a drug for any purpose
that had not been approved.47 A company that promoted
information about uses that had not received FDA approval
was subject to liability for “misbranding.”48 The only exception
to this policy was for the provision of information about offlabel uses when specifically requested by a physician.49 There
were two reasons for the FDA’s prohibition of the dissemination of information about off-label uses. First, the FDA was
concerned that the information about off-label uses provided by
pharmaceutical companies to doctors might be incomplete.50
Second, the FDA believed that allowing drug manufacturers to
furnish such information would encourage them to bypass the
FDA’s NDA process.51
Eventually, the FDA issued guidance documents that
permitted the dissemination of information about off-label uses
in published form and at independent medical education
programs. The first of these guidance documents sought to
control drug manufacturers’ distribution of “enduring materials,” such as textbooks and reprints of journal articles.52 In
1997, Congress enacted the Food and Drug Administration
Modernization Act (“FDAMA”),53 and Section 401 of the Act
45
Polubinski, supra note 30, at 999.
Beck & Azari, supra note 9, at 76.
47
Wilsker, supra note 25, at 808.
48
James O’Reilly & Amy Dalal, Off-Label or Out of Bounds? Prescriber and
Marketer Liability for Unapproved Uses of FDA-Approved Drugs, 12 ANNALS HEALTH
L. 295, 301 (2003).
49
Greene, supra note 5, at 49.
50
Weeks, supra note 8, at 657.
51
Greene, supra note 5, at 48-49.
52
Advertising and Promotion; Guidances, 61 Fed. Reg. 52,800-52,801 (Oct. 8,
1996); see also infra text accompanying notes 56-58.
53
Food and Drug Administration Modernization Act of 1997, Pub. L. No. 105115, § 401, 111 Stat. 2296, 2356 (1997) (codified at 21 U.S.C. § 355 et seq. (2000)).
46
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incorporated the guidance provisions.54 According to FDAMA, a
manufacturer was allowed to provide health care practitioners,
pharmacy benefit managers, health insurance companies,
group health plans, or governmental agencies with information
about the safety, effectiveness, or benefits of an off-label use,
provided that the manufacturer filed a supplemental
application for the proposed off-label use with the FDA.55 In
addition, the information disseminated to these qualified
groups had to be in the form of unabridged peer-reviewed
articles or qualified reference publications.56 Furthermore, the
manufacturer was required to disclose that the use in question
had not been approved or cleared by the FDA.57
In 1997, the FDA also published the “Final Guidance on
Industry-Supported Scientific and Educational Activities”58 to
regulate continuing medical education (“CME”) programs at
which information about off-label uses was presented.59 The
CME Guidance gave FDA approval to CME programs in which
discussion of off-label uses was not influenced by pharmaceutical companies, but disapproved programs in which offlabel uses were discussed when the programs were controlled
or influenced by drug manufacturers.60 To that end, the CME
Guidance identified a number of factors to be considered in
determining whether a program was independent of manufacturer influence and, therefore, permissible.61
As mentioned above, Section 401 of the FDAMA allowed
drug companies to disseminate information about off-label uses
of FDA-approved products, but it expired on September 30,
54
Id.; see 21 U.S.C. § 360aaa to 360aaa-6(a) (2000).
21 U.S.C. § 360aaa(a).
56
Id. § 360aaa-1(a).
57
Id. §360aaa(b)(6)(A)(i).
58
62 Fed. Reg. 64,074 (Dec. 3, 1997).
59
I. Scott Bass et al., Off-Label Promotion: Is FDA’s Final Guidance on
Industry-Supported Scientific and Educational Programs Enforceable?, 53 FOOD &
DRUG L.J. 193, 195 (1998).
60
Greene, supra note 5, at 49.
61
Final Guidance on Industry-Supported Scientific and Educational
Activities, 62 Fed. Reg. 64,074, 64,097-99 (Dec. 3, 1997). These factors include (1) who
controls the content and selects the moderator and speakers; (2) whether drug
manufacturer funding is disclosed; (3) whether unapproved uses will be discussed;
(4) whether the central focus of the program is on one product; (5) the relationship
between the corporate sponsors and the CME provider; (6) the process by which the
audience is selected; (7) the availability of opportunities for meaningful discussion and
questioning; (8) the dissemination of information; (9) the existence of ancillary
promotional activities; and (10) complaints by the provider, participants or attendees
about attempts by the supporting company to influence the program’s content. Id.
55
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1261
2006.62 Filling the regulatory void left by the FDAMA’s
expiration, the FDA promulgated on February 15, 2008 a draft
guidance document entitled “Good Reprint Practices,” which
identifies how drug manufacturers should distribute scientific
or medical journal reprints, articles, or reference works.63 This
draft guidance document provides that the article or reference
work recommending an off-label use should be published by an
organization that has an editorial board.64 In addition, the
publisher should fully disclose conflicts of interest or biases on
the part of any author, contributor, or editor associated with an
article.65 Articles should also be peer reviewed and published in
accordance with established procedures.66 Furthermore, the
draft guidance document discourages the distribution of special
supplements or publications that have been funded by the
manufacturer whose product is discussed in an article.67
Moreover, it provides that the FDA considers articles that are
not supported by credible medical evidence to be false and
misleading and prohibits manufacturers from distributing
them.68 The draft guidance document also requires that the
reprint or reference publication be distributed in unabridged
form.69 Finally, the draft guidance document makes it clear
that the FDA retains its power to determine whether
distribution of an article or publication constitutes promotion of
an unapproved “new use” or whether such a product may be
considered misbranded or adulterated under the Federal Food,
Drug and Cosmetic Act.70
The new FDA policy on the promotion of off-label uses,
beginning with the passage of the FDAMA, is less restrictive
than its previous approach, which prohibited manufacturers
from providing any information about off-label uses unless
physicians specifically asked for it. However, commentators
62
Id.; see supra notes 54-57 and accompanying text (discussing Section 401).
FDA, GUIDANCE FOR INDUSTRY: GOOD REPRINT PRACTICES FOR THE
DISTRIBUTION OF MEDICAL JOURNAL ARTICLES AND MEDICAL OR SCIENTIFIC
REFERENCE PUBLICATIONS ON UNAPPROVED NEW USES OF APPROVED DRUGS AND
APPROVED OR CLEARED MEDICAL DEVICES (2008), available at http://www.fda.gov/oc/op/
goodreprint.html.
64
Id. pt. IV.A.
65
Id.
66
Id.
67
Id.
68
Id.
69
Id. pt. IV.B.
70
Id. pt. III.
63
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have been critical of the guidance documents,71 and it appears
that drug companies have shown little enthusiasm for working
within the structure set forth by the FDA in these documents.
C.
Violations of FDA Regulations
A drug company that improperly promotes its products
for off-label uses will be subject to criminal sanctions and civil
liability.72 The FDA considers unauthorized promotion to be
misbranding.73
The recent experience of Purdue Pharma, manufacturer
of the prescription pain medication OxyContin, illustrates the
perils of misbranding and other violations of the FDCA. The
company was accused of encouraging physicians to prescribe
OxyContin for use every eight hours instead of the twelve-hour
dosage approved by the FDA.74 It eventually agreed to pay
$19.5 million to twenty-six states and the District of Columbia
to settle a civil suit based on its alleged promotion of off-label
use of the painkiller.75 This led Connecticut Attorney General
Richard Blumenthal to declare, “We are raising the bar on offlabel marketing—and other promotion tactics—that lead to
abuse and diversion of prescription drugs.”76 However, Purdue
Pharma suffered an even more serious blow when the U.S.
Department of Justice brought criminal charges against the
company and three of its top executives.77 Federal prosecutors
contended that Purdue Pharma had engaged in a fraudulent
and deceptive marketing campaign that falsely claimed that
71
E.g., Bass et al., supra note 59, at 209-12; Salbu, supra note 6, at 220-21;
Polubinski, supra note 30, at 993, 1031.
72
Violations of the FDCA can result in fines, imprisonment, and civil
penalties. 21 U.S.C. § 333 (2006).
73
Mark A. Ford, Note, Another Use of OxyContin: The Case for Enhancing
Liability for Off-Label Drug Marketing, 83 B.U. L. REV. 429, 438-39 (2003). The Food,
Drug and Cosmetic Act generally considers a drug “misbranded” if its labeling fails
to contain “adequate directions for use.” 21 U.S.C. § 352(f) (2000). When the FDA
approves a prescription drug or medical device for marketing, it approves specific
labeling for the product. If a manufacturer promotes a drug for an unapproved use, its
FDA-approved labeling will not contain any directions for that use and thus will be
misbranded under § 352(f). Ford, supra, at 438.
74
Painkiller’s Maker Settles Complaint, N.Y. TIMES, May 9, 2007, at C6.
75
Id.
76
Press Release, Richard Blumenthal, Attorney General, & Jerry Farrell, Jr.,
Attorney General, [Department of Consumer Protection] Commissioner [Conn.]
Announce Oxycontin Maker Agrees to Halt Illegal Marketing 1 (May 8, 2007),
available at http://www.ct.gov/dcp/lib/dcp/pdf/oxycontin_multistate_settlement.pdf .
77
Barry Meier, Narcotic Maker Guilty of Deceit Over Marketing, N.Y. TIMES,
May 11, 2007, at A1.
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OxyContin, because of its timed-release formula, was more
resistant to abuse and less likely to cause addiction than
competing products such as Percocet.78 The federal government
also charged some company sales representatives with giving
doctors misleading scientific data to support their fraudulent
claims.79
Pursuant to an agreement, Purdue Pharma and the
three corporate officers pleaded guilty to these criminal
charges.80 As part of the plea bargain deal, Purdue Pharma
acknowledged that it had made false statements, and it agreed
to pay $470 million in fines and payments to various state and
federal agencies as well as $130 million to settle civil lawsuits
brought against the company by former patients who claimed
to have become addicted to OxyContin.81 According to federal
prosecutors, the $600 million in fines and civil penalties that
Purdue Pharma agreed to pay amounted to ninety percent of
the profits that it initially made from OxyContin sales.82
Furthermore, as part of the plea bargain deal, the court
sentenced the company to five years’ probation.83
Three company executives also pleaded guilty to
misdemeanor charges of misbranding OxyContin, a violation of
the FDCA that does not require proof that the defendants
intended to defraud doctors or consumers or that they knew
about the wrongdoing of others.84 These officials agreed to pay a
total of $34.5 million in fines.85 At a “lengthy and highly
emotional hearing” in federal district court, parents of those
who had died from overdoses of OxyContin condemned the
company officials and urged the court to reject the plea
agreements and sentence the officials to jail terms.86 However,
the court accepted the plea agreements and only sentenced the
three officials to three years’ probation and 400 hours each of
community service in drug treatment programs.87 Nevertheless,
78
Id.
Id.
80
Id.
81
Id.
82
Barry Meier, Big Part of OxyContin Profit Was Consumed by Penalties,
N.Y. TIMES, June 19, 2007, at C3.
83
Barry Meier, 3 Officials Sentenced in Case Involving OxyContin, N.Y.
TIMES, July 21, 2007, at C4.
84
Id.
85
Meier, supra note 82.
86
Meier, supra note 83.
87
Id.
79
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the judge expressed disappointment that he was unable to send
the defendants to prison because federal prosecutors had not
produced evidence that the company officials were aware of the
wrongdoing at Purdue Pharma.
Purdue Pharma illustrates that pharmaceutical companies and their executive officers who violate FDA regulations
by promoting off-label uses run the risk of incurring huge fines
or even incarceration if they are caught.
III.
LIABILITY BASED ON VIOLATIONS OF THE RACKETEER
INFLUENCED AND CORRUPT ORGANIZATIONS ACT
AND THE FALSE CLAIMS ACT
Two other sources of statutory liability for manufacturers that promote off-label uses for their products are the
Racketeer Influenced and Corrupt Organizations Act (“RICO”)
and the False Claims Act.
A.
RICO
A number of RICO cases have been brought against
pharmaceutical companies for illegally promoting off-label uses
of prescription drugs. Although drug companies have won
several of these cases, others are still in litigation.
1. Elements of RICO
RICO was enacted in 1970 to combat the infiltration of
organized crime into legitimate business enterprises.88 The
statute imposes criminal and civil liability on any person who
invests income from a pattern of racketeering activity in an
enterprise,89 acquires an interest in an enterprise through a
pattern of racketeering activity,90 conducts an enterprise’s
affairs through a pattern of racketeering activity,91 or who
conspires to do any of these things.92 An “enterprise” includes
“any individual, partnership, corporation, association, or other
88
Beth S. Schipper, Note, Civil RICO and Parens Patriae: Lowering
Litigation Barriers Through State Intervention, 24 WM. & MARY L. REV. 429, 431
(1983); see also Bryce A. Jensen, Note, From Tobacco to Health Care and Beyond—A
Critique of Lawsuits Targeting Unpopular Industries, 86 CORNELL L. REV. 1334, 1354
(2001).
89
18 U.S.C. § 1962(a) (2000).
90
Id. § 1962(b).
91
Id. § 1962(c).
92
Id. § 1962(d).
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legal entity, and any union or group of individuals associated in
fact although not a legal entity.”93 RICO defines “racketeering
activity” to include various criminal acts such as mail fraud,
wire fraud, drug trafficking, murder, arson, gambling, extortion, bribery, and embezzlement.94 According to the statute,
a “pattern of racketeering activity” consists of two or more acts
of racketeering that occur within ten years of each other and
that reflect a relationship and continuity in terms of purpose,
results, participants, victims, or methods, but which are
sufficiently distinct so that they amount to more than a single
episode or an isolated occurrence.95 Because at least two of
these offenses must be committed in order make out a claim
under RICO, they are referred to as “predicate acts.”96
There are two types of civil remedies available under
RICO: damages and equitable relief. Any person injured in his
business or property by reason of a RICO violation may sue
for treble damages.97 In addition, a court may grant various
equitable remedies, including restricting the defendants from
engaging in certain activities in the future and even dissolving
or restructuring the enterprise.98 Furthermore, RICO expressly
authorizes the U.S. Attorney General to seek equitable relief in
appropriate cases.99
2. Hamm v. Rhone-Poulenc Rorer Pharmaceuticals, Inc.
Hamm v. Rhone-Poulenc Rorer Pharmaceuticals, Inc.
(“RPR”) illustrates the application of RICO in the context of
off-label drug use promotion.100 The case involved the drugs
Lovenox, Taxotere, Rilutek, and Nasacort AQ.101 An RPR
employee and three former employees brought a civil claim
93
94
95
96
97
98
99
100
Id. § 1961(4).
Id. § 1961(1).
Id. § 1961(5).
Ed Dawson, Note, Legigation, 79 TEX. L. REV. 1727, 1740 (2001).
18 U.S.C. § 1964(c).
Id. § 1964(a).
Id. § 1964(b).
See Hamm v. Rhone-Poulenc Rorer Pharm., Inc., 187 F.3d 941 (8th Cir.
1999).
101
Id. at 946 (8th Cir. 1999). Lovenox was approved for use as a treatment for
blood clotting; Taxotere was approved for cancer therapy; Rilutex was approved for
amyotrophic lateral sclerosis (“ALS,” also known as Lou Gehrig’s disease); and
Nasacort was approved to treat asthma. See Respondent’s Brief in Opposition for
Respondent Rhone-Poulenc Rorer Pharmaceuticals Inc. at 4, Hamm v. Rhone-Poulenc
Rorer Pharm., Inc., 528 U.S. 1117 (2000) (No. 99-803), available at 1999 WL 33632777.
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under RICO against RPR; Genecom, RPR’s advertising agency;
and a number of physicians who allegedly received illegal
payments from RPR. The plaintiffs claimed that RPR illegally
marketed drugs for off-label uses by providing information
about off-label uses to its sales representatives and encouraging them to solicit physicians to prescribe its products for
such uses.102 In addition, according to the plaintiffs, RPR,
through Genecom, engaged physicians who prescribed RPR
products for off-label uses to speak at CME events and paid
them to promote off-label uses.103 The plaintiffs also alleged
that RPR set sales quotas for its staff that implicitly included
off-label sales and that when the plaintiffs reported these
unlawful promotional activities to RPR lawyers, they were told
to rewrite promotional event payment documents and destroy
other evidence of illegal promotions.104
Furthermore, the plaintiffs alleged that RPR and other
defendants also violated RICO by conducting or participating
in a pattern of racketeering activity by obtaining money from
product sales generated by the illegal promotion of off-label
uses of its products.105 The plaintiffs declared that RPR and
other defendants sent promotional materials and obtained or
paid money through the mail, transmitted promotional
materials and made false representations through the use of
interstate telephonic communications, and used the facilities of
interstate commerce to distribute the proceeds gained from
illegal kickbacks and payments made to influence the promotion and use of RPR products.106
Notwithstanding these allegations of wrongdoing, the
lower court dismissed the plaintiffs’ civil RICO claims for lack
of standing,107 and this decision was affirmed on appeal.108 The
court declared that RICO’s civil enforcement provisions
required that a plaintiff be “injured in his [or her] business or
property by reason of a violation of section 1962.”109 Therefore,
in order to have standing to sue under RICO, a plaintiff must
allege (1) an injury to “business or property” (2) caused “by
102
103
104
105
106
107
Hamm, 187 F.3d at 946.
Id.
Id.
Id.
Id.
Hamm v. Rhone-Poulenc Rorer Pharm., Inc., 176 F.R.D. 566, 571 (D. Minn.
1997).
108
109
Hamm, 187 F.3d at 954.
Id. at 951 (quoting 18 U.S.C. § 1964(c)).
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reason of” a RICO violation.110 The court pointed out that the
U.S. Supreme Court held in Sedima, S.P.R.L. v. Imrex Co.111
that plaintiffs must be injured by conduct that constitutes
racketeering activity (that is, predicate acts) and not by other
wrongful acts committed by the defendant to have standing to
sue under RICO.112 This requirement is imposed because the
compensable harm under RICO is the commission of predicate
acts in connection with the conduct of an enterprise.113 In this
case, however, the defendants’ fraudulent scheme to promote
off-label uses of its products had not been directed at the
plaintiffs, but at hospital administrators, physicians, and other
medical personnel who prescribed and purchased RPR’s
pharmaceutical products.114 The court concluded that since the
employees had not been the intended targets of the alleged
racketeering activity, they did not have standing to bring a
civil RICO suit.115
Although the plaintiffs were not directly injured by
RPR’s illegal promotion of off-label uses of its products, they
argued that they suffered the requisite injury to business or
property by alleging that they had been terminated, denied
promotions or raises, and defamed, as well as had lost stock
options, after having criticized or refused to participate in
RPR’s off-label promotion scheme.116 In response, the court
pointed out that it had rejected similar allegations in Bowman
v. Western Auto Supply Co.117 as a viable basis for a civil RICO
lawsuit.118 According to the court in Bowman, “The simple act of
discharging an employee . . . does not constitute racketeering
activity as defined in RICO, and thus does not fall within the
definition of what the Supreme Court has termed ‘predicate
acts’ under RICO.”119 The plaintiffs argued that Bowman did
not bar their RICO claims for defamation or damage to their
business reputations.120 The court, however, declared that the
plaintiffs could only sue under RICO if their injuries were
110
111
112
113
114
115
116
117
118
119
120
Id.
473 U.S. 479, 496-97 (1985).
Hamm, 187 F.3d at 952.
Id. (quoting Sedima, 473 U.S. at 497).
Id.
Id.
Id. at 947.
985 F.2d 383, 385-86 (8th Cir. 1993).
Hamm, 187 F.3d at 952.
Bowman, 985 F.2d at 385-86.
Hamm, 187 F.3d at 953.
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directly caused by RICO violations.121 In this case, since the
plaintiffs were not the targets of the fraudulent scheme, any
damage to the plaintiffs’ business reputations was too indirect
and remotely related to the defendant’s racketeering activities
to support their RICO claim.122
The court also concluded that the plaintiffs lacked
standing because they failed to show any injury to their
“business or property” as required by section 1964(c) of the
RICO statute.123 The court observed that damage to one’s
business reputation is a personal injury and not an injury to
business or property.124 Finally, the court rejected the plaintiffs’
argument that they could bring a conspiracy claim under RICO
as long as their injuries were caused by an overt act in
furtherance of the conspiracy, even though the act in question
was not a predicate act.125 Although the court acknowledged
that there was a circuit split on this issue, it decided to treat
conspiracy the same as other claims for which a predicate act
was required, as the Bowman court had done, because
“[i]mposing the predicate act requirement on civil claims based
on violations of § 1962(d) narrows the focus of those suits to the
specific racketeering activity that lies at the heart of the RICO
statute.”126
Hamm v. Rhone-Poulenc Rorer illustrates some of the
difficulties plaintiffs face in civil RICO cases. However, as the
Neurontin case discussed below shows, RICO may still be a
potential source of liability for drug companies that illegally
promote off-label uses.
3. In re Neurontin Marketing, Sales Practices, and
Products Liability Litigation
In re Neurontin Marketing serves as another example
of how RICO claims may be brought against pharmaceutical
121
Id. (citing Holmes v. Sec. Investor Prot. Corp., 503 U.S. 258, 269-70
(1992)).
122
Id. at 954.
Id.
124
Id. (citing Chicago Heights v. Lobue, 914 F. Supp. 279, 285 (N.D. Ill. 1996);
In re Teledyne Def. Contracting Derivative Litig., 849 F. Supp. 1369, 1372 n.1 (C.D.
Cal. 1993)).
125
Id.
126
Id. (quoting Bowman, 985 F.2d at 388).
123
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companies for promoting off-label uses.127 The case involved a
class action by medical insurers against Pfizer and WarnerLambert Co., alleging that the pharmaceutical companies had
engaged in a “fraudulent scheme to market the prescription
drug Neurontin for a variety of off-label uses.”128 The defendants moved to dismiss both the Amended Class Complaint
and the First Coordinated Amended Complaint.129 A magistrate
judge recommended that the motion be granted in part and
denied in part.130 After a hearing, the district court endorsed
most of the magistrate’s report, holding that the plaintiffs
adequately alleged the existence of an enterprise and a pattern
of racketeering activity.131 In addition, the court concluded that
the plaintiffs had sufficiently alleged the existence of a
conspiracy.132
The court’s opinion primarily focused on whether the
plaintiffs adequately alleged the existence of an “enterprise”
and whether the defendants had engaged in a “pattern of
racketeering activity.” The court noted that the existence of an
enterprise and the pattern of racketeering activity engaged in
by the enterprise are separate and distinct elements of a RICO
claim.133 However, according to the court, “proof of these two
elements need not be separate or distinct but may in fact
‘coalesce.’”134
With regard to the enterprise element, the court
observed that according to the RICO statute, an enterprise
includes “any individual, partnership, corporation, association,
or other legal entity, and any union or group of individuals
associated in fact although not a legal entity.”135 Although the
Supreme Court has declared that this language should be
127
See In re Neurontin Mktg., Sales Practices, & Prods. Liab. Litig., 433 F.
Supp. 2d 172 (D. Mass. 2006).
128
Id. at 176. In 1994, the FDA approved Neurontin for use as an adjunctive
treatment for epilepsy. However, about half of Neurontin prescriptions were for offlabel uses such as pain control and mono-therapy for epilepsy as well as treatment for
bipolar conditions and attention deficit disorder. United States ex rel. Franklin v.
Parke-Davis, Div. of Warner-Lambert Co., 147 F. Supp. 2d 39, 45 (D. Mass. 2001).
129
In re Neurontin, 433 F. Supp. 2d at 176-77.
130
Id.
131
Id. at 178-84.
132
Id. at 184.
133
Id. at 178.
134
Id. (citing United States v. Patrick, 248 F.3d 11, 19 (1st Cir. 2001)).
135
Id. at 177 (quoting 18 U.S.C. § 1961(4)).
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interpreted broadly,136 an enterprise is limited to “a group of
persons associated together for a common purpose of engaging
in a course of conduct.”137
In the Neurontin case, the plaintiffs alleged that the
defendants had created a large association-in-fact type of
enterprise, composed of numerous marketing firms and
physicians, in order to illegally promote off-label uses of
Neurontin.138 As an alternative theory, the plaintiffs claimed
that the defendants had created two smaller enterprises: one
that carried out peer-to-peer selling of Neurontin for off-label
uses and one that produced ghost-written articles promoting
off-label uses of the drug.139 In addition to these theories, the
plaintiffs also contended that the defendants had created
enterprises with various medical marketing firms, with or
without physicians who promoted Neurontin.140 To support
these claims, the plaintiffs alleged that the defendants had
joined together with marketing firms both to host events
designed to promote Neurontin and also to publish articles that
proclaimed the drug’s effectiveness for various off-label uses.141
According to the plaintiffs, the defendants and their medical
marketing partners had organized events designed to tout
Neurontin while giving the appearance of being independent,
and physicians had been paid by the defendants or their
medical marketing firms to speak at these events and describe
the favorable results they had obtained from off-label uses of
Neurontin.142 Lastly, the plaintiffs alleged that the defendants
had selected material from the medical literature about offlabel uses of Neurontin, had sent it to medical marketing firms
who would then write articles based on this material, and then
had paid physicians to take credit as authors of the pieces
when they were published.143
In considering whether the plaintiffs established the
existence of an enterprise, the court first observed that an
enterprise must have a common purpose to satisfy the enterprise requirement. According to the plaintiffs, the common
136
Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 497-98 (1985); United
States v. Turkette, 452 U.S. 576, 586-87 (1981).
137
Turkette, 452 U.S. at 583.
138
In re Neurontin, 433 F. Supp. 2d at 178.
139
Id.
140
Id.
141
Id.
142
Id.
143
Id.
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purpose of each of the alleged enterprises was to market
Neurontin for off-label uses in violation of FDA regulations.144
The magistrate’s report conceded that members of the alleged
enterprises may have shared a common purpose—to promote
off-label uses of Neurontin—but noted that they did not share a
common purpose to commit mail and wire fraud, the predicate
acts alleged by the plaintiffs to support the RICO claim.145 After
observing that “[t]here has been considerable confusion as to
whether the common purpose needs to be illegal,” the court
declared that the complaints adequately alleged an unlawful
common purpose for each of the enterprises, “namely to
illegally promote off-label uses of Neurontin.”146 However, as
the court acknowledged, violation of FDA regulations was not
“actionable” because violations of FDA regulations do not give
rise to a private tort claim against the violator.147
The court distinguished In re Pharmaceutical Industry
Average Wholesale Price Litigation, a case where the plaintiffs
tried to establish the existence of an enterprise composed of
drug manufacturers and publishers of prescription drug price
compendiums.148 In that case, the plaintiffs contended there
was a common purpose between the manufacturers that had
fraudulently inflated the average wholesale prices of drugs and
the publishers of prescription drug compendia listing those
inflated prices.149 However, the court held that the plaintiffs
failed to satisfy the enterprise requirement under RICO
because the publishers had been indifferent to the success of
the drug companies’ fraudulent scheme and had had no intent
themselves to defraud the medical community or the federal
government when they published the price information.150 In
contrast, the plaintiffs in Neurontin alleged that the members
of the enterprise joined together to engage in unlawful conduct
to achieve a shared goal, thereby satisfying the common
purpose element of the pleading.151
In the Neurontin court’s discussion of the enterprise
requirement, it observed that it was not enough for the
144
Id.
Id. at 178-79.
146
Id. at 179-80.
147
Id.; see infra Part IV.A.1.
148
Id.; see In re Pharm. Indus. Average Wholesale Price Litig., 307 F. Supp.
2d 196, 201-03 (D. Mass. 2004).
149
In re Neurontin, 433 F. Supp. 2d at 180.
150
Id.
151
Id. at 180-81.
145
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plaintiffs to demonstrate that the parties had a common goal or
purpose; they must also prove that the alleged enterprise
was “an ongoing organization, not a set of smaller ad-hoc
conspiracies engaged in the same activities independent of
one another.”152 The magistrate’s report found that the drug
manufacturers, medical marketing firms, and physicians did
not work together as part a cohesive group, but instead
resembled a “hub-and-spoke” assemblage of a conspiracy.153 The
court examined the various enterprises identified by the
plaintiffs to determine if any of them could be characterized as
ongoing organizations functioning as continuing units and
concluded that the relationship between the manufacturers of
Neurontin and various marketing firms constituted an ongoing
organization and not merely a series of ad hoc activities.154
In making this determination, the court first examined
the alleged “global enterprise,” consisting of the defendant drug
companies, all of the medical marketing firms, and all of the
physicians who made presentations or wrote articles advocating off-label uses of Neurontin.155 The court agreed with the
magistrate’s report that neither the medical marketing firms
nor the physicians worked together with the defendants as a
cohesive unit; rather, they had formed a hub-and-spoke
operation, with the drug companies at the center managing
several independent relationships.156 According to the court, the
medical marketing firms and the physicians did not constitute
an enterprise for purposes of RICO because there had been no
“rim” to connect all of the spokes of the wheel.157 In other words,
the drug companies had communicated with individual medical
marketing firms and physicians, but individual medical marketing firms and physicians had not communicated with one
another.158 Since the plaintiffs could not show that there was
a network involving all of these drug companies, medical
152
Id. at 182.
Id.
154
Id.
155
Id.
156
Id.
157
Id.
158
Id.; see also VanDenBroeck CommonPoint Mortgage Co., 210 F.3d 696, 700
(6th Cir. 2000); In re Lupron Mktg. & Sales Practices Litig., 295 F. Supp. 2d 148, 174
n.29 (D. Mass. 2003); First Nationwide Bank v. Gelt Funding Corp., 820 F. Supp. 89,
98 (S.D.N.Y. 1993).
153
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marketing firms, and physicians, the court rejected their claim
that a global enterprise existed.159
Next, the court considered whether the alleged various
“sub-entities” devoted to peer-to-peer selling of Neurontin and
publication of articles touting off-label uses of the drug
qualified as enterprises for purposes of RICO.160 The court
concluded that these sub-entities had been composed of the
same parties as the global enterprise and that, once again, the
plaintiffs neither alleged the existence of a general agreement
among these parties to carry out a common purpose nor alleged
that there had been a cohesive network among these parties
to accomplish common goals.161 The court determined consequently that the sub-entity theory suffered from the same
deficiency as the global enterprise allegation under RICO.162
Finally, the court evaluated the plaintiffs’ claim that a
series of smaller enterprises had existed, each comprised of
the drug manufacturers and one of the physicians or marketing firms, effectively making each hub-and-spoke association
a separate enterprise for purposes of RICO.163 The court
concluded that the plaintiffs sufficiently alleged that all the
members of these purported enterprises had shared a common
illegal purpose of promoting off-label uses of Neurontin.164 The
remaining question, therefore, was whether these smaller
associations had been ongoing organizations or merely ad hoc
criminal conspiracies.165 In the case of associations between the
defendant drug companies and medical marketing firms, the
plaintiffs alleged that the defendants had formulated “tactical
plans” with various marketing firms to promote off-label uses
of Neurontin on an ongoing basis and that there had been
regular communication between the defendants and these
firms.166 In addition, there had been financial ties between the
parties as the defendants had transferred money to medical
marketing firms to pay physicians to make presentations and
claim authorship of articles endorsing off-label uses of the
defendants’ product.167 In light of these allegations, the court
159
160
161
162
163
164
165
166
167
In re Neurontin, 433 F. Supp. 2d at 182.
Id.
Id. at 183.
Id.
Id.
Id.
Id.
Id.
Id.
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concluded that the plaintiffs sufficiently pleaded the existence
of ongoing relationships between the defendants and various
medical marketing firms.168
The enterprises referred to in the First Coordinated
Amended Complaint were not limited to the defendants and
various medical marketing firms as they were in the Amended
Class Complaint; they had also included physicians who were
allegedly paid by these marketing firms to promote off-label
uses of Neurontin.169 Accordingly, the court considered whether
physicians who had been paid to promote off-label uses of
Neurontin were also part of these enterprises. Neither
complaint alleged that these physicians knew that they were
part of a “stable” maintained by the drug companies and the
medical marketing firms or that they had been acting with
other physicians in a coordinated effort to promote Neurontin.170 However, the complaints did maintain that some of these
physicians had had ongoing financial relationships with the
defendants and their medical marketing firms and that the
physicians had been essential to the success of the defendants’
scheme.171 Nevertheless, the court concluded that the plaintiffs
failed to allege continuing relationships between any specific
physicians and specific medical marketing firms sufficient
for these physicians to be considered members of a RICO
enterprise.172
As a result of the court’s refusal to dismiss all of the
plaintiffs’ complaints, the case proceeded to discovery, which
will likely be hard fought and protracted.173
168
Id.
Id.
170
Id.
171
Id.
172
Id. at 184. The plaintiffs alleged that the defendants had engaged in a
pattern of racketeering activity by fraudulently promoting off-label uses of Neurontin
through the use of interstate mails and wire communications. Id. at 177. Thus, the
predicate acts alleged were mail fraud and wire fraud. Id. at 179. However, the parties
did not choose to address the predicate acts requirement at this stage of the
proceedings. Instead, the court agreed to allow the plaintiffs to plead the particulars of
the defendants’ use of interstate mails and wires after discovery. Id. at 184 n.5.
173
See In re Neurontin Mktg., Sales Practices & Prod. Liab. Litig., 245 F.R.D.
55 (D. Mass. 2007) (overruling an objection to a motion to compel discovery).
169
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The False Claims Act
The False Claims Act (“FCA”)174 provides another potential source of liability for drug companies that market their
products for off-label uses.
1. Elements of the False Claims Act
The False Claims Act is intended to deter the “submission of false or fraudulent claims to the government, to provide
restitution to the government for money fraudulently taken
from it, and to punish those who defraud the government.”175
The Act imposes liability on any person who “knowingly
presents, or causes to be presented, to . . . the United States
Government . . . a false or fraudulent claim for payment or
approval” or who “knowingly makes, uses, or causes to be made
or used, a false record or statement to get a false or fraudulent
claim paid or approved by the Government.”176 The Act further
provides that any person who submits a false claim will be
liable for treble damages for any loss suffered by the
government.177 In addition, a defendant may be liable for a civil
penalty of $5,000 to $10,000 for each false claim that he or she
submits to the government.178
The Act defines “knowingly” to refer to a person who
“(1) has actual knowledge of the information; (2) acts in
deliberate ignorance of the truth or falsity of the information;
or (3) acts in reckless disregard of the truth or falsity of the
information . . . .”179 Thus, innocent mistake and even ordinary
negligence are defenses to FCA liability.180 The FCA does not
provide a definition of “claim,” but courts have defined it as “a
demand for money or for some transfer of public property.”181
174
31 U.S.C. §§ 3729-3733 (2000).
Lisa Michelle Phelps, Note, Calling Off the Bounty Hunters: Discrediting
the Use of Alleged Anti-Kickback Violations to Support Civil False Claims Actions, 51
VAND. L. REV. 1003, 1007 (1998). The FCA was enacted during the Civil War to combat
procurement fraud and price gouging by army contractors. John Terrence et al., Clear
and Convincing to Whom? The False Claims Act and Its Burden of Proof Standard:
Why the Government Needs a Big Stick, 75 NOTRE DAME L. REV. 1409, 1423 (2000).
176
31 U.S.C. §§ 3729(a)(1)-(2).
177
Id. § 3729(a)(7).
178
Id.
179
31 U.S.C. § 3729(b).
180
Pamela H. Bucy, Growing Pains: Using the False Claims Act to Combat
Health Care Fraud, 51 ALA. L. REV. 57, 61-62 (1999).
181
United States v. McNinch, 356 U.S. 595, 599 (1958).
175
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The term also includes material representations made to avoid
paying money owed to the government.182 Fraud or fraudulent
conduct must be material in the sense that it could influence
the government’s payment decision.183 In addition, there must
be “a causal relationship between the false claim and the
government’s injury.”184
The FCA authorizes private individuals, known as
relators,185 to bring qui tam186 actions on behalf of the U.S.
government.187 Relators may be private citizens, employees of
government contractors, or employees of government agencies
and private companies, including suppliers and competitors of
the defendant.188 In order to maintain a qui tam action, the
relator must comply with the strict procedural requirements of
the FCA.189 The private plaintiff must, for example, serve a copy
of the complaint and disclose substantially all material
evidence in the plaintiff’s possession to the federal government.190 Upon receipt of the complaint, the government may
investigate the claims and may elect to intervene and take over
prosecution of the action.191 The plaintiff’s complaint remains
under seal during the government’s period of investigation.192 If
the government chooses to intervene, the government itself
conducts the civil action.193 If the government chooses not to
intervene in the matter, the private plaintiff has the right to
continue to prosecute the case on behalf of the government.194
However, the relator will not be able to recover attorneys’ fees
182
31 U.S.C. § 3729(a)(7).
Joan H. Krause, Health Care Providers and the Public Fisc: Paradigms of
Government Harm Under the Civil False Claims Act, 36 GA. L. REV. 121, 189 (2001).
184
Id. at 191.
185
Robert L. Vogel, The Public Disclosure Bar Against Qui Tam Suits, 24 PUB.
CONT. L.J. 477, 478 (1995).
186
“Qui tam” is short for “qui tam pro domino rege quam pro si ipso in hac
parte sequitur,” which means “he who sues on behalf of the King as well as for
himself.” Bucy, supra note 180, at 57-58.
187
31 U.S.C. § 3730(b).
188
William E. Kovacic, Whistleblower Bounty Lawsuits as Monitoring Devices
in Government Contracting, 29 LOY. L.A. L. REV. 1799, 1812 (1996).
189
See 31 U.S.C. § 3730(b).
190
Id. § 3730(b)(2).
191
Id.
192
Id. This period is at least sixty days, but the DOJ may seek extensions of
the sixty-day waiting period. Kovacic, supra note 188, at 1817.
193
31 U.S.C. § 3730(b)(4)(A).
194
Id. § 3730(b)(4)(B).
183
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1277
or other litigation expenses if he or she is not successful.195 If
the government successfully prosecutes the action, the relator
is entitled to between 15% and 25% of the government’s
recovery,196 but if the government does not pursue the case and
the relator successfully prosecutes it instead, he or she will be
awarded between 25% and 30% of the judgment.197
Since the FCA’s initial passage in 1863, Congress has
amended it on several occasions. In 1943, Congress prohibited
all qui tam actions based on evidence or information that the
government had when the action was brought.198 After the
amendment was enacted, there was a significant decrease in
the use of the FCA’s qui tam provisions.199 Consequently, in
1986, Congress set out to encourage more private enforcement
actions by increasing financial awards to private plaintiffs,
lowering the plaintiff’s burden of proof, and allowing a private
plaintiff to participate in actions in which the government
elects to intervene.200 At the same time, in order to discourage
“parasitic” lawsuits, Congress added a new jurisdictional
provision to the FCA.201 A qui tam suit may be dismissed for
lack of jurisdiction if the allegations in the FCA complaint have
been previously disclosed publicly or if the lawsuit is based
on the publicly disclosed information.202 Public disclosure
may come from such sources as criminal, civil, or administrative hearings; congressional, administrative, or Government
Accounting Office reports; hearings, audits, or investigations;
and reports in the news media.203 The issue of whether a qui
tam action is “based upon” a public disclosure arises “when the
information contained in the qui tam action has been publicly
disclosed, but the relator has not relied upon it in bringing the
195
Christopher C. Frieden, Comment, Protecting the Government’s Interests:
Qui Tam Actions Under the False Claims Act and the Government’s Right to Veto
Settlements of Those Actions, 47 EMORY L.J. 1041, 1051-52 (1998).
196
31 U.S.C. § 3730(d)(1).
197
Id. § 3730(d)(2).
198
Robert Fabrikant & Glenn E. Solomon, Application of the Federal False
Claims Act to Regulatory Compliance Issues in the Health Care Industry, 51 ALA. L.
REV. 105, 107 (1999).
199
Gregory G. Brooker, The False Claims Act: Congress Giveth and the Courts
Taketh Away, 25 HAMLINE L. REV. 373, 378-79 (2002).
200
Krause, supra note 183, at 133-34; Frederick M. Morgan, Jr. & Julie
Webster Popham, The Last Privateers Encounter Sloppy Seas: Inconsistent OriginalSource Jurisprudence Under the Federal False Claims Act, 24 OHIO N.U. L. REV. 163,
170 (1998).
201
Morgan & Popham, supra note 200, at 168-69.
202
Bucy, supra note 180, at 88.
203
31 U.S.C. § 3730(e)(4) (2000).
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qui tam action.”204 The prevailing rule is that a qui tam action
is “based upon” public disclosure if the action is “supported by”
or is “substantially identical” to the publicly disclosed information.205 However, even if the allegations in the lawsuit are
based upon publicly disclosed information, the relator is not
barred from bringing a qui tam action if he or she is the
“original source” of the information.206 The False Claims Act
defines an “original source” as “an individual who has direct
and independent knowledge of the information on which the
allegations are based and has voluntarily provided the
information to the Government before filing an action under
this section which is based on the information.”207
2. United States ex rel. Franklin v. Parke-Davis
United States ex rel. Franklin v. Parke-Davis serves as
an example of how a case may be brought under the FCA
against a pharmaceutical manufacturer for the promotion of
off-label drug use.208 The case involved two prescription drugs
manufactured by Parke-Davis, Neurontin and Accupril. In
1994, the FDA had approved Neurontin for use as an
adjunctive treatment for epilepsy.209 However, according to the
relator, by 1996, more than half of Neurontin sales had been
for off-label uses such as pain control, mono-therapy for
epilepsy, treatment of bipolar conditions and treatment of
attention deficit disorder.210 Furthermore, half of these off-label
uses had been allegedly reimbursed by the federal government
either indirectly through Medicaid or directly through
purchases by the Veterans Administration (“VA”).211 The relator
also claimed that Parke-Davis had promoted Accupril, an ACE
inhibitor approved for the treatment of hypertension and heart
failure, for off-label uses.212
204
Bucy, supra note 180, at 95.
United States ex rel. Precision Co. v. Koch Indus., Inc., 971 F.2d 548, 55253 (10th Cir. 1992).
206
Bucy, supra note 180, at 88-89.
207
31 U.S.C. § 3730(e)(4)(B).
208
See United States ex rel. Franklin v. Parke-Davis, Div. of Warner-Lambert
Co., 147 F. Supp. 2d 39 (D. Mass. 2001).
209
Id. at 45.
210
Id.
211
Id.
212
Id.
205
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In 1996, a former employee filed a nine-count qui tam
action charging that the defendant had engaged in a fraudulent
scheme to promote the sale of Neurontin and Accupril for offlabel uses and that this illegal marketing campaign had caused
numerous false claims to be submitted to the Veterans
Administration and to the federal government for reimbursement under its Medicaid program.213 The complaint remained
under seal for several years while the Justice Department
decided whether to intervene.214 Finally, in December of 1999,
the complaint was unsealed and the litigation began in
earnest.215 The Justice Department decided to participate only
on an amicus curiae basis, but reserved the right to intervene
as plaintiff at a later date.216
The relator, Dr. David Franklin, had been employed by
the defendant as a “medical liaison” for about five months
during 1996.217 Although medical liaisons ordinarily work in the
research divisions of drug manufacturers, Dr. Franklin claimed
that Parke-Davis’s medical liaisons were employed exclusively
as promotion personnel.218 According to Franklin, the defendant
instructed its medical liaisons “to make exaggerated or false
claims concerning the safety and efficacy of Parke-Davis’s
drugs for off-label uses.”219 Medical liaisons had been
encouraged to inflate their scientific credentials and to pose as
research personnel instead of sales representatives to bolster
their credibility with physicians.220 Furthermore, when physicians had asked about whether patients could be reimbursed
for off-label prescriptions by Medicaid or other insurers,
“medical liaisons were instructed to coach doctors on how to
conceal the off-label nature of the prescription.”221 The relator
also alleged that doctors had received kickbacks for prescribing
large quantities of the defendant’s products, including cash
payments and gifts.222 Finally, he claimed that Parke-Davis
had attempted to conceal its promotion of off-label uses from
the FDA by shredding and falsifying documents and by
213
214
215
216
217
218
219
220
221
222
Id. at 43.
Id. at 46.
Id.
Id. at 46.
Id. at 44.
Id. at 45.
Id.
Id.
Id. at 46.
Id.
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encouraging medical liaisons to conduct their marketing
activities without leaving a “paper trail” that might be
discovered by the FDA.
The first issue the court addressed was the requirement
imposed by Federal Rule of Civil Procedure 9(b) that “the
circumstances constituting fraud . . . shall be stated with
particularity.”223 This particularity requirement should be read
in pari materia with Rule 8(a), which allows a plaintiff to make
“a short and plain statement” for relief.224 The court explained
that these two provisions, taken together, required the relator
to allege the circumstances of the fraud—the “‘who, what,
when, where, and how’ of the alleged fraud”—but did not
require that he plead all of the evidence or facts that supported
his allegation.225
Applying these principles to the relator’s Medicaid fraud
claims, the court concluded that the complaint, standing alone,
lacked the specificity required by Rule 9(b).226 However, the
court allowed the relator to supplement the allegations in his
complaint with the more specific information contained in his
disclosure to the government pursuant to the FCA in 31 U.S.C.
§ 3730(b)(2).227 The disclosure, which had been provided to
both the court and the defendant, described Dr. Franklin’s
experiences as a “medical liaison” for Parke-Davis and was
supported by approximately twenty exhibits.228 Viewed in light
of the relator’s disclosure, the court found that his complaint
contained allegations of fraud with respect to the off-label
promotion of Neurontin sufficient to satisfy the particularity
requirements of Rule 9(b), at least with regard to the Medicaid
sales.229 According to the court, the complaint described a
fraudulent scheme designed to increase the submission of off223
FED. R. CIV. P. 9(b). According to the court, the purpose of Rule 9(b)’s
particularity requirement is to enable defendants to prepare a meaningful defense, to
prevent conclusory allegations of fraud from serving as a basis for “strike suits and
fishing expeditions,” and to protect defendants against groundless charges that may
damage their reputations. Franklin, 147 F. Supp. 2d at 46 (citing New England Data
Servs., Inc. v. Becher, 829 F.2d 286, 292 (1st Cir. 1987)).
224
FED. R. CIV. P. 8(a).
225
Franklin, 147 F. Supp. 2d at 46-47.
226
Id. at 47.
227
Id. The U.S.C. provides that “[a] copy of the complaint and written
disclosure of substantially all material evidence and information the person possesses
shall be served on the Government pursuant to Rule 4(d)(4) of the Federal Rules of
Civil Procedure.” 31 U.S.C. § 3730(b)(2) (2000).
228
Franklin, 147 F. Supp. 2d at 47.
229
Id. at 48.
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label Neurontin prescriptions for payment by Medicaid (but
not the VA) and identified various false statements made to
physicians to induce them to prescribe Neurontin for off-label
uses.230
As far as the “who” requirement was concerned, the
relator’s disclosure identified by name various individuals at
Parke-Davis who allegedly had instructed the medical liaisons
on how to fraudulently promote off-label uses of the drug.231 In
addition, it listed all of the medical liaisons by name, as well as
the physicians who had been contacted and given false
information and kickbacks in order to encourage them to
increase their off-label prescriptions.232 This was sufficient to
satisfy the court. The court determined that the relator also
fulfilled the “what” requirement by alleging that the defendant
had caused numerous Neurontin prescriptions to be submitted
for payment by Medicaid knowing that they were ineligible for
payment because they had been prescribed for an off-label
use.233 The “when” requirement was met as well since the
relator specified the five-month period during which he had
been employed by Parke-Davis.234 Finally, the court found that
the relator fulfilled the “how” requirement by describing in the
complaint and the disclosure the defendant’s fraudulent
marketing campaign involving kickbacks and misleading
statements designed to encourage doctors to prescribe
Neurontin for unapproved uses.235
But the court dismissed the portion of the complaint
alleging that Parke-Davis had promoted off-label uses of
Neurontin in direct sales to the VA.236 The court ruled that the
relator’s allegations were not specific enough because they did
not identify which Parke-Davis employees had engaged in
fraudulent conduct, where the conduct had taken place, or
which VA personnel had been involved.237 In addition, the
complaint failed to identify any specific fraudulent statements
that the defendant’s employees had made to VA personnel.238
230
Id.
Id.
232
Id.
233
Id.
234
Id.
235
Id. The court did not explicitly discuss the “where” requirement, but
presumably felt that it was satisfied as well.
236
Id. at 49-50.
237
Id. at 50.
238
Id.
231
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The court also dismissed a count of the complaint
alleging that the defendant had illegally promoted off-label
uses of Accupril.239 Specifically, the complaint alleged that
Parke-Davis employees had falsely informed physicians that
scientific studies had shown Accupril to be more effective than
other ACE inhibitors.240 However, as the court observed, the
relator’s disclosure did not identify any of the medical liaisons
who had been involved in the fraud, any of the doctors who had
received false information, or any of the false claims that had
been made.241
Having concluded that some of the claims against
Parke-Davis were specific enough to satisfy Rule 9(b)’s
particularity requirement, the court then responded to the
defendant’s argument that its conduct did not constitute a
violation of the False Claims Act.242 First, the defendant
contended that the relator’s lawsuit was an improper attempt
to use the FCA to create a private cause of action for a violation
of the FDCA.243 The court conceded that Congress did not
authorize either the FDA or private individuals to enforce the
agency’s prohibition against the marketing of drugs for off-label
uses through civil actions for damages.244 However, the court
held that the FCA could be invoked to bring a civil action when
the violation of an FDA rule or regulation enabled the
defendant to obtain a government benefit by fraud.245
Therefore, a drug manufacturer who knowingly causes a false
statement to be made in order to have a false claim paid or
approved by the government is subject to liability under the
FCA regardless of whether its conduct also violates an FDA
regulation.246
Parke-Davis also argued that its promotion of off-label
uses had not involved the sort of false statement or fraudulent
conduct necessary to constitute a violation of the FCA since it
had only made truthful statements to physicians who provided
services to patients covered by Medicaid.247 However, the court
did not need to decide this issue since Parke-Davis was also
239
240
241
242
243
244
245
246
247
Franklin, 147 F. Supp. 2d at 50.
Id.
Id.
Id. at 51-53.
Id. at 51.
Id.
Id. at 51-52.
Id. at 52.
Id.
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accused of engaging in a course of fraudulent conduct,
including knowingly making false statements encouraging
doctors to submit claims not eligible for payment under the
Medicaid program.248 The FCA claim arose not from the fact
that the defendant had promoted off-label uses of its products,
but rather from the fact that it had engaged in fraudulent
conduct causing claims to be submitted to Medicaid for
unauthorized uses.249
Furthermore, Parke-Davis maintained that the independent actions of the physicians who wrote the off-label
prescriptions and the pharmacists who filled them had been an
intervening force that broke the chain of legal causation from
the pharmaceutical manufacturer.250 However, the court
pointed out that such an intervening force would break the
causal connection only if it were unforeseeable.251 In this case,
the participation of doctors and pharmacists in the submission
of false claims to Medicaid had not only been foreseeable but
was the intended result of the defendant’s fraudulent scheme.252
Thus, this argument by the defendant was also unavailing.
Finally, Parke-Davis contended that any false statements that it had made to physicians were not material to the
government’s decision to pay claims for off-label prescriptions
of Neurontin.253 The court, however, noted that a defendant
need not make a false claim directly to the government to be
held liable under the FCA; it was sufficient in this case for the
relator to allege that Parke-Davis had knowingly caused the
submission of false claims through a fraudulent course of
conduct.254 The fact that the prescriptions had been for an offlabel use was material because the government would not have
paid for such prescriptions if it had known the use for which
they had been submitted.255 While the court acknowledged that
the relator’s theory of liability was somewhat novel and
expansive, it concluded that the language of the FCA supports
the notion that one who causes a false or fraudulent claim
to be made may be held liable.256 The court supported this
248
249
250
251
252
253
254
255
256
Id.
Id.
Id.
Id.
Id. at 52-53.
Id. at 53.
Id.
Id.
Id.
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interpretation of the Act by noting that “the terms of the FCA
must be read liberally in accordance with their remedial
purpose.”257
Thus, the court dismissed some of the counts in the
relator’s complaint, but allowed the critical claim to go
forward.258 In 2004, the case was settled when WarnerLambert, the parent company of Parke-Davis, pleaded guilty to
two criminal FDCA misbranding violations and settled the civil
cases, ultimately paying $430 million in criminal fines and civil
damages.259 The relator, Dr. Franklin, received $24.6 million
as part of the settlement between the defendant and the
Department of Justice.260
3. United States ex rel. Hess v. Sanofi-Synthelabo, Inc.
The relator in United States ex rel. Hess v. SanofiSynthelabo, Inc. was less successful than Dr. Franklin in
bringing an FCA claim against a pharmaceutical company for
promoting off-label uses. In Hess, the relator brought a qui tam
action against his former employer, Sanofi-Synthelabo, alleging
that it had fraudulently marketed drugs to physicians for offlabel uses.261 For the reasons explained below, a federal district
court dismissed the complaint for failure to state a cause of
action pursuant to Rule 12(b)(6) and Rule 9(b).262
The relator, who had worked for the defendant as a
sales representative from 2001 until 2004, claimed that the
defendant had relied upon incomplete, unreliable, and misleading clinical data to promote off-label uses of its drugs
Eloxatin and Elitek.263 In 2002, Eloxatin had been approved by
the FDA to help treat fourth-stage colorectal cancer.264 That
same year, the FDA had approved Elitek “for the treatment
and prevention of tumor lyses syndrome . . . in pediatric
257
Franklin, 147 F. Supp. 2d at 53.
Id. at 55.
259
Jack Cinquegrana & Diana K. Lloyd, Shifting Perspective on Off-Label
Promotion, PHARM. EXECUTIVE, Jan. 1, 2006, http://www.pharmexec.findpharma.com/
pharmexec/ article/articleDetail.jsp?id=282490.
260
Evelyn Pringle, Off-Label Prescribing of Prescription Drugs: Tactics Pfizer
Used in Promoting Off-Label Use of Neurontin (pt. 2), ONLINE J., May 31, 2006,
http://www.onlinejournal.com/artman/publish/article_855.shtml.
261
United States ex rel. Hess v. Sanofi-Synthelabo, Inc., No. 4;05CV570, 2006
WL 1064127, at *1-2 (E.D. Mo. Apr. 21, 2006).
262
Id. at *12.
263
Id. at *1-2.
264
Id. at *2.
258
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patients,” but declined to approve the drug for treatment of the
disease in adults.265 According to the relator, the defendant had
provided him and other sales representatives with training on
off-label uses of Eloxatin and had instructed them on how
Medicare reimbursement for off-label uses of the drug could be
obtained.266 In addition, the relator alleged that the defendant
had induced Wisconsin Physician Services (“WPS”), the Medicare administrator for Illinois, Wisconsin, Minnesota, and
Michigan, to authorize the use of Eloxatin for the treatment of
colorectal cancer in the first line and adjuvant setting even
though these were off-label uses at the time.267 Finally, the
relator also claimed that the defendant had briefed him and
other sales representatives about off-label uses of Elitek in
adult patients and had encouraged them to promote off-label
uses of the drug.268
In its motion to dismiss, the defendant contended that
the relator failed to allege that it had made any misrepresentations to doctors, the government, or anyone else regarding
Eloxatin. Nor did the relator allege that any doctor had prescribed Eloxatin improperly or that any doctor who had
prescribed Eloxatin had made any misrepresentations to
Medicare in order to obtain reimbursement for off-label uses
of the drug. Furthermore, the relator did not allege that the
information provided by the defendant about off-label uses of
Elitek had been either false or deceitful.269
In the case of Eloxatin, the court acknowledged that
physicians had filed claims for Medicare reimbursement for offlabel uses of the drug.270 The court also agreed that the FCA is
broad enough to impose liability on a drug company who
knowingly assists the government to pay fraudulent claims to a
third person even if the drug company does not have any direct
contractual relations with the government.271 However, the
court cautioned that in order to state a valid claim under the
FCA, the relator must show that the defendant made a
265
Id.
Id.
267
Id.
268
Id. The FDA subsequently approved Eloxatin for treatment of colorectal
cancer in the first line and adjuvant settings after the defendant submitted
supplemental New Drug Applications for these uses. Id.
269
Id. at *4.
270
Id. at *7.
271
Id. (citing United States ex rel. Franklin v. Parke-Davis, 147 F. Supp. 2d
39, 48 (D. Mass. 2001)).
266
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material misrepresentation.272 To satisfy this materiality
requirement, the relator had to allege, with the required
specificity, (1) that the defendant had fraudulently promoted
certain off-label uses of Eloxatin to doctors; (2) that these
doctors had submitted Medicare claims for these off-label uses;
and (3) that these claims had resulted from the defendant’s
promotion of the off-label uses.273 Thus, the relator had to show
that but for the defendant’s fraudulent misrepresentations, the
doctors would not have made claims to Medicare for off-label
uses of Eloxatin and that but for these fraudulent misrepresentations, Medicare would not have reimbursed the doctors.274
The court concluded that the relator failed to establish
this causal connection. The relator alleged that although
Eloxatin had only been approved for second-line treatment of
fourth stage colorectal cancer, the defendant had encouraged
physicians to submit Medicare claims for other stages of
colorectal cancer.275 The court noted that although the Medicare
reimbursement form did have a line for a patient’s diagnosis, it
did not require doctors to indicate the stage of a patient’s
cancer.276 Therefore, the court concluded that the stage of
cancer was not material to either the doctor’s Medicare
reimbursement claim or to the government’s decision to pay the
claim.277 Thus, the defendant’s conduct had not caused false
claims to be made to the government.
The court then considered whether the relator had
pleaded sufficient evidence of intent as required by the FCA.
The FCA requires that there be “actual knowledge that the
information was untrue or deliberate ignorance or reckless
disregard of the truth or falsity of that information” on the part
of the defendant.278 The court determined that the relator did
not allege that the defendant had deliberately lied to either its
sales staff or to the doctors who prescribed Eloxatin. Nor did
the relator claim that the information the defendant had
disseminated about off-label uses was incorrect or false.279
Instead, he merely alleged that the information was
272
273
274
275
276
277
278
Hess, 2006 WL 1064127, at *7.
Id.
Id.
Id. at *2.
Id.
Id.
Id. at *9 (quoting United States v. Taber, 342 F.3d 843, 845 (8th Cir.
2003)).
279
Id.
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“immature, unreliable and misleading.”280 Nor did the relator
allege that the defendant had assisted doctors to make fraudulent claims. As the court already concluded, the Medicare
reimbursement for off-label uses of Eloxatin had not been
fraudulent because the alleged off-label use was for the
treatment of an earlier stage of colorectal cancer and the
Medicare forms in question did not require doctors to identify
the stage of a patient’s cancer.281 Consequently, the court
concluded that the relator’s complaint failed to satisfy the
FCA’s intent requirement.282
With regard to Elitek, the court found that the only
factual allegations the relator made to support his claim were
that the defendant had informed him and other sales representatives about off-label uses of the drug, had encouraged
them to promote these off-label uses, and had pressured them
to derive a substantial amount of Elitek sales from these offlabel uses.283 However, the court also determined that the
relator’s complaint failed to identify the time or place of the
allegedly false representations regarding Elitek, nor did it
describe the nature or content of the claims that it alleged had
been fraudulent.284 Furthermore, the relator failed to allege
that the doctors to whom the defendant’s sales representatives
promoted off-label uses of Elitek actually had submitted false
claims to the government for such uses.285 Instead, the relator’s
allegations were “vague, conclusory, and lack[ed] the requisite
specificity to withstand a motion to dismiss pursuant to either
Rule 12(b)(6) or Rule 9(b).”286 Accordingly, the court granted the
defendant’s motion to dismiss the relator’s claims regarding
Elitek.
Finally, the court rejected the relator’s argument that
the defendant should be found liable under 31 U.S.C.
§ 3729(a)(3) of the FCA, which creates liability for persons who
conspire to defraud the government through fraudulent claims
or payments.287 According to the court, to state a claim for
conspiracy:
280
281
282
283
284
285
286
287
Id.
Id.
Id.
Id. at *6.
Id.
Id.
Id.
Id. at *11.
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[A] plaintiff must allege: “(1) that the defendant conspired with one
or more persons to get a false or fraudulent claim allowed or paid by
the United States, and (2) that one or more conspirators performed
any act to effect the object of the conspiracy, and (3) that the United
States suffered damages as a result of the false or fraudulent
claim.”288
In this case, the relator did not plead facts suggesting that
physicians had provided fraudulent or false information to
the government or that the defendant had provided such information to the physicians.289 Moreover, the court found that the
relator did not allege any facts indicating that the defendant
had acted in concert with physicians to make false or fraudulent claims to the government.290 Finding that the relator’s
allegation of a conspiracy did not meet the particularity
requirements of Rule 9(b), the court ruled that the conspiracy
claim should be dismissed as well.291 Thus, the court dismissed
the relator’s complaint in its entirety.292
Hess illustrates the challenges plaintiffs face when they
bring qui tam actions against drug companies under the FCA.
In particular, both the materiality requirement and the intent
requirement of the Act present significant obstacles to success.
4. United States ex rel. Rost v. Pfizer, Inc.
United States ex rel. Rost v. Pfizer, Inc. provides a third
example of how an FCA claim may be brought against a
pharmaceutical company that has promoted off-label uses. The
relator in this case, Dr. Peter Rost, brought a qui tam action
against Pfizer and Pharmacia Corporation, which had been
acquired by Pfizer in 2003, alleging that they had engaged in
illegal off-label marketing of the drug Genotropin and had
knowingly caused false claims to be submitted to federal and
state health insurance programs.293 The alleged fraudulent
conduct had taken place between 1997 and 2003.294 The
defendants moved to dismiss the complaint, arguing that the
288
Hess, 2006 WL 1064127, at *11 (quoting Corsello v. Lincare, Inc., 428 F.3d
1008, 1014 (11th Cir. 2005)).
289
Id.
290
Id.
291
Id.
292
Id. at *12.
293
United States ex rel. Rost v. Pfizer, Inc. (Rost I), 446 F. Supp. 2d 6, 8-10 (D.
Mass. 2006), vacated and remanded, Rost v. Pfizer, Inc. (Rost II), 507 F.3d 720 (1st Cir.
2007).
294
Id. at 10.
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court lacked subject matter jurisdiction because of the public
disclosure bar and that the claim failed to allege fraud with
sufficient particularity to satisfy Rule 9(b).295 The district court
rejected the claim that the public disclosure bar applied,296 but,
like the Hess court, dismissed the relator’s case because his
allegations were not sufficiently specific to meet the requirements of Rule 9(b)297 On appeal, the First Circuit agreed with
the conclusions of the trial court, but held that the relator
should be given a chance to amend his complaint.298
Genotropin is a recombinant or man-made human
growth hormone that had been approved by the FDA to treat
certain hormonal deficiencies in both adults and children.299
The FDA had not approved the drug as a treatment for short
children without hormonal deficiencies or as an anti-aging
treatment for adults.300 However, the relator alleged that,
beginning in 1997, Pharmacia marketed Genotropin to increase
growth in short children and to delay the aging process in
adults.301 Pharmacia had given bribes, kickbacks, and other
incentives to doctors to prescribe Genotropin and to wholesale
drug distributors to recommend Genotropin for off-label uses.302
The company also had rewarded sales representatives for every
new Genotropin patient, regardless of whether the prescription
was for an approved or an off-label use.303 As a result of these
marketing efforts, approximately sixty percent of adult sales
and twenty-five percent of pediatric sales of Genotropin had
been for off-label uses during this period.304
As manager of Pharmacia’s Endocrine Care Unit, Dr.
Rost had overseen the worldwide marketing of Genotropin, but
had not been involved in the day-to-day marketing or sales of
the drug.305 However, when he learned of Pharmacia’s off-label
marketing of Genotropin, Dr. Rost had unsuccessfully tried to
put a stop to the practices.306 When Pfizer acquired Pharmacia,
295
296
297
298
299
300
301
302
303
304
305
306
Id. at 11, 15, 25.
Id. at 25.
Id. at 28.
Rost II, 507 F.2d 720, 723.
Rost I, 446 F. Supp. 2d. at 10.
Id.
Id.
Id.
Id.
Id.
Id. at 9.
Id. at 10.
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it confirmed the relator’s charges and notified senior officials at
the FDA and the Office of the Inspector General about the
off-label marketing.307 In 2003, while the FDA was still
investigating the Genotropin issue, the relator filed a qui tam
action alleging fraud in the off-label marketing of Genotropin
by Pharmacia.308 In late 2005, the DOJ decided not to intervene
in the case, leaving Dr. Rost to proceed on his own.309
The defendant moved to dismiss the claim for lack
of subject matter jurisdiction based on the FCA’s “public
disclosure bar.”310 In its decision, the trial court declared that it
must determine whether the allegations of fraud in the
complaint were “publicly disclosed” before the relator filed his
lawsuit and whether the allegations were “based upon” that
disclosure.311 The relator argued that the defendants’ voluntary
disclosures had not amounted to a “public disclosure” because
they had not been disclosed in a statutorily required manner.312
The court agreed, finding that the public disclosure bar
prohibited qui tam actions only when the plaintiff’s allegations
were “based upon the public disclosure of allegations or
transactions in a criminal, civil, or administrative hearing, in
a congressional, administrative, or Government Accounting
Office report, hearing, audit, or investigation, or from the news
media . . . .”313
The court observed that Congress intended the public
disclosure bar to prohibit only truly parasitic lawsuits.314
Actions in which the disclosed information lies only in the
hands of the government and the party who disclosed it to the
government are not parasitic.315 In other words, a qui tam
action is not parasitic when a private plaintiff does not, and
cannot, know what information may already be in the
government’s possession.316 Consequently, the court ruled that
the defendants’ voluntary disclosure of information to various
307
Rost I, 446 F. Supp. 2d. at 10.
Id. at 11.
309
Id.
310
31 U.S.C. § 3730(e)(4)(A) (2000). The FCA’s “public disclosure bar” provides
for the dismissal of qui tam actions that are based on information that has already
been disclosed to the public. See supra text accompanying notes 203-207.
311
Rost I, 446 F. Supp. 2d at 15.
312
Id.
313
Id. at 18 (quoting 31 U.S.C. § 3730(e)(4)(A) (1994)).
314
Id.
315
Id.
316
Id.
308
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1291
government officials did not constitute a public disclosure for
purposes of the FCA’s jurisdictional bar.317
On appeal, the First Circuit agreed that disclosures
made by Pfizer to the government would not prevent the
relator from bringing his suit against the pharmaceutical
company under the public disclosure bar of the FCA.318
According to the court:
In our view, a “public disclosure” requires that there be some act of
disclosure to the public outside of the government. The mere fact
that the disclosures are contained in government files someplace, or
even that the government is conducting an investigation behind the
scenes, does not itself constitute public disclosure. Our construction
of the term “public disclosure” does not turn on the fact that Pfizer
requested or assumed that its disclosures to the investigating
agencies would be held confidential.319
The appeals court also declared that Pfizer’s position was
“inconsistent with our understanding of the language,
structure, and history of the [False Claims] Act.”320 According
to the court, the FCA’s public disclosure provision was intended
to prevent relators from bringing qui tam actions “based on
information made available to the public during the course of
a government hearing, investigation, or audit.”321 Elaborating
on the distinction between disclosure to the government and
disclosure to the public, the court observed that § 3730 uses the
term “government” many times but never in a sense synonymous with the public.322 Reviewing the FCA’s legislative
history, the court pointed out that the 1986 amendments
removed a provision that barred private lawsuits whenever the
government was aware of the allegations or transactions set
forth in the relator’s complaint.323 The court reasoned that those
amendments reflected Congress’s determination that the
earlier version of § 3730 unduly restricted private enforcement
of the FCA.324
The court rejected the argument that Pfizer’s proposed
government knowledge bar was nevertheless consistent with
317
Id.
Rost II, 507 F.3d 720, 728 (1st Cir. 2007).
319
Id.
320
Id.
321
Id. at 729 (quoting United States ex rel. LeBlanc v. Raytheon Co., 913 F.2d
17, 20 (1st Cir. 1990)).
322
Id.
323
Id.
324
Id.
318
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congressional intent because it would only apply in limited
circumstances.325 Relying on a Seventh Circuit case, Pfizer
contended that a government knowledge bar based on § 3730
only applies where the government official to whom the
disclosure is made is the appropriate investigatory official.326
However, the court declared that it could “find no support in
either the language or the history of the statute for such a
reading.”327 Furthermore, the court concluded that Pfizer’s
argument was inconsistent with its opinion in United States ex
rel. S. Prawer & Co. v. Fleet Bank of Maine, which held that
“Congress has explicitly deemed a ‘notice’ regime insufficient to
protect the government against false claims (indeed it was
precisely such a regime that Congress sought to abandon in
enacting the 1986 amendments) . . . .”328
Furthermore, the court declared that Pfizer’s proposed
government knowledge bar would conflict with another
objective embodied in the 1986 amendments: “to help keep the
government honest in its investigations and settlements with
industry.”329 According to the court, once a relator’s allegations
are made public, the government can be forced by public
pressure to pursue false claims investigations that it might
otherwise prefer to ignore.330 However, fewer qui tam actions
would be brought, and thus less information would be made
available to the public, if private qui tam actions were barred
by a government knowledge rule such as that proposed by
Pfizer.
In addition, the court suggested that Pfizer’s proposed
government knowledge rule would not be consistent with
Congress’s goal of discouraging “parasitic” qui tam actions.331
By prohibiting qui tam actions based on information that is
kept confidential by government officials, Pfizer’s interpretation would not only fail to discourage parasitic lawsuits, but
would also discourage legitimate suits by relators based on
“direct and independent knowledge” of wrongdoing.332 Finally,
325
Rost II, 507 F.3d at 730.
Id. (citing United States ex rel. Mathews v. Bank of Farmington, 166 F.3d
853, 861 (7th Cir. 1999)).
327
Id.
328
Id. (emphasis in original) (quoting United States ex rel. S. Prawer & Co. v.
Fleet Bank of Me., 24 F.3d 320, 329 (1st Cir. 1994)).
329
Id.
330
Id.
331
Id.
332
Id.
326
2008]
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the court observed that several other circuits had rejected
similar constructions of the government knowledge rule.333
The second issue in Rost was whether the relator had
pleaded his claim of fraud with sufficient particularity to
satisfy the requirements of Rule 9(b)—a familiar issue in FCA
litigations.334 The trial court acknowledged that the relator’s
complaint provided a great amount of detail about the
defendants’ illegal marketing, promotion, and distribution of
Genotropin as well as the bribes, kickbacks, and other financial
incentives that the defendants had provided to distributors and
physicians.335 However, the court also found that the complaint
failed to identify any actual false claims that had been
submitted to the government for reimbursement of off-label
prescriptions of Genotropin.336 Instead, the relator had simply
assumed that the defendants’ illegal marketing efforts must
have caused at least some physicians to prescribe Genotropin
for off-label uses and that at least some of these prescriptions
must have been reimbursed by federal or state health care
programs.337 Because the relator failed to plead the existence
of false claims made to the government with sufficient
particularity, the trial court dismissed the complaint pursuant
to Rule 9(b).338
On appeal, Dr. Rost argued that the trial court had
interpreted Rule 9(b)’s particularity requirements too strictly.339
In response, Pfizer argued that the result below was mandated
by the First Circuit’s decision in United States ex rel. Karvelas
v. Melrose-Wakefield Hospital.340 The Karvelas court had ruled
that “a qui tam relator may not present general allegations in
lieu of the details of actual false claims in the hope that such
333
Id. (citing Kennard v. Comstock Res., Inc., 363 F.3d 1039, 1043 (10th Cir.
2004); United States ex rel. Schumer v. Hughes Aircraft Co., 63 F.3d 1512, 1518 (9th
Cir. 1995), vacated on other grounds, 520 U.S. 939 (1997) (holding that the 1986 FCA
amendment does not apply retrospectively to prior acts); United States ex rel. Williams
v. NEC Corp., 931 F.2d 1493, 1496 n.7 (11th Cir. 1991)). Only the Seventh Circuit, in
United States ex rel. Mathews v. Bank of Farmington, has adopted the government
knowledge approach. Id. at 731 (citing Mathews, 166 F.3d at 861). The Rost II court
declared, “We simply disagree with Mathews for the reasons already stated and as
lucidly set forth in the district court’s opinion.” Id.
334
Id. at 731-34.
335
Rost I, 446 F. Supp. 2d at 27.
336
Id.
337
Id. at 27-28.
338
Id.
339
Rost II, 507 F.3d at 731.
340
Id. (citing United States ex rel. Karvelas v. Melrose-Wakefield Hosp., 360
F.3d 220 (1st Cir. 2004)).
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details will emerge through subsequent discovery.”341 The
relator in that case alleged that his employer, a hospital, had
submitted claims to government health care programs for
services that were “provided improperly or not at all.”342 The
court dismissed the relator’s complaint because it provided no
specifics about particular false claims for payments that may
have been made.343 Nevertheless, the Circuit Court in Rost
found that Karvelas provided that the requirements of Rule
9(b) may be satisfied even though some questions remained if
the complaint as a whole is sufficiently particular to fulfill FCA
pleading requirements.344 However, even giving the relator in
Rost the benefit of this flexibility, the court still concluded that
his claim failed to satisfy the pleading requirements of Rule
9(b).345
The court pointed out that, unlike in Karvelas, any false
claims in Rost would have been submitted to the government
by individual doctors and hospitals, not by the defendant,
Pfizer.346 Thus, it would be difficult, if not impossible, for the
relator, Dr. Rost, to have had personal knowledge that false
claims had been submitted by third parties. Given the fact that
a substantial percentage of Genotropin prescriptions were
written for off-label uses, it was highly probable that at least
some of these prescriptions had been paid for by federal health
care programs.347 However, the court observed that the relator’s
position was somewhat undermined by a statement in the
criminal information against Pfizer to the effect that most
patients who take the drug for off-label purposes “paid out-ofpocket without reimbursement from any public or private
third-party payors.”348 After taking this offsetting evidence into
account, the court concluded that the allegations contained in
the relator’s complaint did not satisfy the particularity
requirements of Rule 9(b):
At most, Rost raises facts that suggest fraud was possible; but the
complaint contained no factual or statistical evidence to strengthen
the inference of fraud beyond possibility. It may well be that doctors
341
342
343
344
345
346
347
348
Karvelas, 360 F.3d at 231.
Id. at 223.
Id. at 233-35.
Rost II, 507 F.3d at 732 (citing Karvelas, 360 F.3d at 233 n.17).
Id.
Id.
Id.
Id.
2008]
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who prescribed Genotropin for off-label uses as a result of
Pharmacia’s illegal marketing of the drug withstood the temptation
and did not seek federal reimbursement, and neither did their
patients. It may be that physicians prescribed Genotropin for offlabel uses only where the patients paid for it themselves or when the
patients’ private insurers paid for it. Rost did not plead enough to
satisfy the concerns behind Rule 9(b).349
Consequently, the First Circuit affirmed the trial court’s Rule
9(b) ruling.350
Finally, the court considered whether Dr. Rost should be
given an opportunity to amend his complaint in order to satisfy
the particularity requirements of Rule 9(b).351 The court
observed that Rule 15(a) provides that leave to amend a
pleading “shall be freely given when justice so requires.”352
Refraining from making an initial determination on the futility
of amendment, the court remanded for further consideration on
this issue.353
The Rost case serves as another illustration that the
FCA can be a source of liability for manufacturers that promote
off-label uses. However, relators that wish to bring such claims
may have a tough time meeting the particularity requirement
of Rule 9(b) for alleging fraud.
5. United States ex rel. Richardson v. Bristol-Meyers
Squibb
One of the most recent False Claims Act cases involved
the Bristol-Myers Squibb Company (“BMS”). In September,
2007, BMS and its wholly-owned subsidiary Apothecon, Inc.,
reached a $515 million dollar settlement with the Department
of Justice.354 The settlement resolved seven qui tam actions
brought against BMS and Apothecon under the FCA.355
According to the government, between the years 2000 and 2003
BMS had paid doctors and other health care providers to
349
Id. at 733.
Id.
351
Id. at 733-34.
352
Id. at 733 (quoting FED. R. CIV. P. 15(a)).
353
Id. at 734.
354
Press Release, U.S. Department of Justice, Bristol-Myers Squibb to Pay
More Than $515 Million to Resolve Allegations of Illegal Drug Marketing and
Pricing 1 (Sept. 28, 2007), available at http://www.usdoj.gov/opa/pr/2007/September/
07_civ_782.html.
355
Id. at 2
350
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purchase BMS pharmaceutical products.356 This illegal remuneration had included payments to physicians and others to
enable them to participate in consulting programs, advisory
boards, and preceptorships, often involving travel to luxury
resorts.357 The government also claimed that BMS had
knowingly promoted Abilify, an anti-psychotic drug, to treat
pediatric patients and to treat dementia-related psychosis in
geriatric patients—both of which were unapproved, off-label
uses.358 The company’s sales representatives had allegedly
urged child psychiatrists and pediatricians to prescribe Abilify
to their patients.359 BMS had also assembled a specialized sales
force that directed its attention almost entirely toward nursing
homes that were likely to have large numbers of patients with
dementia-related psychosis.360
Pursuant to a settlement agreement, the federal government recovered over $320 million, including a $25 million
“disgorgement” of illegal profits arising from BMS’s illegal
promotion of Abilify for off-label uses.361 In addition, BMS was
required to pay $187 million to state Medicaid participants and
$124,000 to certain other public health agencies.362
Although the outcomes of the cases discussed above are
mixed, it is clear that the False Claims Act represents a serious
threat to drug companies that illegally promote off-label uses of
their products. Both relators and the federal government are
aggressively pursuing FCA cases against drug companies, and
some of these companies have been forced to pay hundreds of
millions of dollars in settlements.
356
Id. at 1.
Id.
358
Id. at 2.
359
Id.
360
Id. In addition, the government alleged that BMS and Apothecon had
charged fraudulent and inflated prices for many of its oncology and generic drugs,
knowing that the reimbursement rates provided by federal health care programs would
be based on these higher prices. Id. Finally, the government charged that BMS had
knowingly misreported its best price for the anti-depression drug Serzone by failing to
include in its calculations lower-priced sales of the drug to a large commercial
purchaser. Id. This action caused Medicaid and other public health providers, who
were entitled to purchase drugs at the manufacturer’s “best price,” to pay more for
these products than they would have if BMS’s best price information had been
accurate. Id.
361
Id.
362
Id. Finally, BMS agreed to sign a corporate integrity agreement with the
Department of Health and Human Services that requires it to report accurate average
sales prices and average manufacturer prices for all of its products that are covered by
Medicare or other federal health care programs.
357
2008]
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TORT LIABILITY FOR PROMOTION OF OFF-LABEL USES
Tort liability is the final pitfall for drug and medical
device manufacturers that encourage physicians to make offlabel uses of their products. Of course, drug manufacturers are
subject to liability for product-related injuries when their
products are used for their intended purposes if they are
defectively manufactured or designed or when the warnings
provided are inadequate.363 However, additional theories of tort
liability may be available to plaintiffs when they are injured by
off-label uses of prescription drugs or medical devices. This
portion of the Article examines four tort-based claims:
(1) claims based on violations of the FDCA, including fraud-onthe-FDA and negligence per se claims, (2) claims arising from
fraudulent misrepresentation and improper marketing practices, (3) claims based on failure to warn, and (4) claims based
on failure to test.
A.
Tort Claims Based on Violations of the FDCA
Plaintiffs are increasingly basing their claims against
producers of drugs and medical devices on alleged violations of
the Food, Drug and Cosmetic Act or regulations promulgated
by the FDA pursuant to the Act.364 At first, plaintiffs had often
alleged that the defendants were guilty of “fraud-on-theFDA.” However, more recently, they have tended to argue that
violations of the FDCA constitute “negligence per se.”
1. Fraud on the FDA
There is general agreement that the FDCA does not
authorize lawsuits by private individuals to enforce its provisions.365 Nevertheless, during the 1990s, a number of lawsuits
363
RESTATEMENT (THIRD) OF TORTS: PRODUCTS LIAB. § 6 (1998).
James M. Beck & John A. Valentine, Challenging the Viability of FDCABased Causes of Action in the Tort Context: The Orthopedic Bone Screw Experience, 55
FOOD & DRUG L.J. 389, 389 (2000).
365
See, e.g., In re Orthopedic Bone Screw Prods. Liab. Litig. (Bone Screw I),
159 F.3d 817, 824 (3d Cir. 1998), rev’d, Buckman Co. v. Plaintiff’s Legal Comm., 531
U.S. 341 (2001); PDK Labs., Inc. v. Friedlander, 103 F.3d 1105, 1113 (2d Cir. 1997);
Bailey v. Johnson, 48 F.3d 965, 967-68 (6th Cir. 1995); Mylan Labs., Inc. v. Matkari, 7
F.3d 1130, 1139 (4th Cir. 1993); Pacific Trading Co. v. Wilson & Co., 547 F.2d 367, 37071 (7th Cir. 1976); Griffin v. O’Neal, Jones & Feldman, Inc., 604 F. Supp. 717, 718 (S.D.
Ohio 1985); Nat’l Women’s Health Network, Inc. v. A.H. Robins Co., 545 F. Supp. 1177,
1178 (D. Mass. 1980); Keil v. Eli Lilly & Co., 490 F. Supp. 479, 480 (E.D. Mich. 1980).
364
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were brought against the manufacturers of various spinal
fixation implant devices366 alleging that these manufacturers
had lied to the FDA in order to obtain permission to market
their products.367 Specifically, these plaintiffs contended that
the manufacturers of fixation implant devices had assured the
FDA that their devices would be marketed for bone surgeries
and other approved uses when in fact the manufacturers had
intended to market them for an off-label use as pedicle spinal
implant devices.368 The plaintiffs claimed that by making these
false assurances to the FDA, the manufacturers had been
able to obtain approval for these devices under the premarket
notification process369 instead of the more lengthy and
366
In spinal fusion surgery, bone graft material, usually taken from the
patient’s hipbone, is inserted between two vertebrae to create a single immobile block
to reduce the pain caused when vertebrae move in different directions. Valente v.
Sofamor, S.N.C., 48 F. Supp. 2d 862, 864 (E.D. Wis. 1999). The rods are be attached to
vertebrae by spine-hooks, wires, or metal screws (known as bone screws) that are
inserted into the pedicles of neighboring vertebrae and connected to rods or plates to
reduce movement between these vertebrae. Cali v. Danek Med., Inc., 24 F. Supp. 2d
941, 945 (W.D. Wis. 1998). If the spinal fusion surgery is successful, the bone graft and
the vertebrae fuse together to form a single bony mass. Minisan v. Danek Med., Inc., 79
F. Supp. 2d 970, 972 (N.D. Ind. 1999). Once this occurs, the spinal fixation device can
be removed. Menges v. Depuy Motech, Inc., 61 F. Supp. 2d 817, 822 (N.D. Ind. 1999).
Pedicles are two rearward facing bony arches on either side of the vertebrae that
support the lamina. Minisan, 79 F. Supp. 2d at 972 n.1.
Various types of bone screw fixation devices have been the subject of
litigation. These include AcroMed’s Variable Screw Placement (“VSP”) Device (Bone
Screw I, 159 F.3d at 821; Reeves v. AcroMed Corp., 44 F.3d 300, 303-04 (5th Cir. 1995);
Dutton v. AcroMed Corp., 691 N.E.2d 738, 740 (Ohio Ct. App. 1997)); Artifex’s HBH
Spinal System (Sharp v. Artifex, Ltd., 110 F. Supp. 2d 388, 389 (W.D. Pa. 1999));
Danek’s Texas Scottish Rite Hospital (“TSRH”) Spinal System Device (Minisan, 79 F.
Supp. at 972; Sita v. Danek Med., Inc., 43 F. Supp. 2d 245, 249-50 (E.D.N.Y. 1999);
King v. Danek Med., Inc., 37 S.W.3d 429, 431 (Tenn. Ct. App. 2000)); Danek’s DynaLok Device (Talley v. Danek Med., Inc., 179 F.3d 154, 155-56 (4th Cir. 1999)); Danek’s
Luque System (Cali, 24 F. Supp. 2d at 946); Smith & Nephew Richards’s Rogozinski
System (Blinn v. Smith & Nephew Richards, Inc., 55 F. Supp. 2d 1353, 1356 (M.D. Fla.
1999)); and Sofamor’s Cotrel Dubousset System (Smith v. Sofamor, S.N.C., 21 F. Supp.
2d 918, 919 (W.D. Wis. 1998)).
367
Bone Screw I, 159 F.3d at 820; Reeves, 44 F.3d at 303-04; Dutton, 691
N.E.2d at 740 (Ohio Ct. App. 1997); see also Kemp v. Medtronic, Inc., 231 F.3d 216,
232-33 (6th Cir. 2000) (cardiac pacemaker).
368
Bone Screw I, 159 F.3d at 820; Reeves, 44 F.3d at 306; Dutton, 691 N.E.2d
at 740.
369
The Medical Device Amendments provide that medical devices that are
“substantially equivalent” to an existing approved device can secure marketing
authorization from the FDA through a premarket notification, or § 510(k), process. 21
U.S.C. 360(k)-(o) (2006); U.S. Food and Drug Admin., Premarket Notification 510(K),
http://www.fda.gov/CDRH/DEVADVICE/314.html. For a discussion of the premarket
notification process, see Richard C. Ausness, “After You, My Dear Alphonse!”: Should
the Courts Defer to the FDA’s New Interpretation of § 360k(a) of the Medical Device
Amendments?, 80 TUL. L. REV. 727, 733 (2006); see also Trent Kirk, Comment, Fraudon-the-FDA & Buckman—The Evolving Law of Federal Preemption in Products
Liability Litigation, 53 S.C. L. REV. 673, 681 (2002).
2008]
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expensive premarket approval procedure (“PMA”).370 Under the
fraud-on-the-FDA theory, the devices in question would never
have been marketed in the absence of this fraud and therefore
the manufacturers should be liable for any resulting injuries,
even though the plaintiffs could not prove that the devices were
defective.371
Until 2001, there was a split of authority over whether
fraud-on-the-FDA claims were preempted by the Medical
Device Amendments to the FDCA.372 The U.S. Supreme Court
resolved this conflict in Buckman Co. v. Plaintiffs’ Legal
Committee.373 The plaintiffs in Buckman contended that they
had been injured by surgical bone screws manufactured by
AcroMed Corporation.374 They alleged that the manufacturer
and its consultant, the Buckman Company, had obtained FDA
approval to market the screws as “substantially equivalent”
devices by claiming that they would be used in the long bones
of the arms and legs when the company actually had intended
to market them principally for use in spinal fusion surgery.375
The Buckman Court held that the plaintiffs’ fraud-onthe-agency claims were impliedly preempted by the Medical
Device Amendments.376 According to the Court, a conflict exists
between common-law tort claims like the plaintiffs’ and the
FDA’s need to balance a number of competing regulatory
objectives.377 One such objective is to protect the integrity of the
licensing process. Section 510(k)’s disclosure requirements help
achieve this objective, as do the wide range of enforcement
options available to the FDA to detect and punish fraudulent
370
For a discussion of the PMA procedure, see Sasha B. Rieders, Note, State
Law Tort Claims and the FDA: Proposing a Consumer-Oriented Prescription in Medical
Device Cases, 25 CARDOZO L. REV. 1159, 1167-71 (2004).
371
It is not known whether any of these plaintiffs ultimately prevailed.
However, one court stated, “No federal court has resolved this question in favor of the
plaintiff’s claim.” Bailey v. Johnson, 48 F.3d 965, 967 (6th cir. 1995).
372
Kemp, 231 F.3d 233-36 (holding that fraud-on-the-FDA claims are
expressly preempted by the MDA); Bone Screw I, 159 F.3d at 823-25 (refusing to hold
that such claims were preempted); Reeves, 44 F.3d at 302 (holding that such claims
were preempted). For a discussion the FDA’s marketing approval process under the
MDA, see supra text accompanying notes 33-44.
373
531 U.S. 341 (2001).
374
Id. at 343.
375
Id. at 346.
376
Id. at 348.
377
Id.
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applications.378 However, the FDA also must ensure that its
licensing process does not slow down the introduction of new
medical products into the market or interfere with the
judgment of health care professionals.379 In particular, the
Court observed that allowing fraud-on-the-FDA claims would
discourage off-label uses because drug companies would be
concerned with potential tort liability.380 Finally, the Court
emphasized that the claims involved were not ordinary tort
claims, but instead were based entirely on noncompliance
with FDA disclosure requirements.381 The Buckman decision
effectively shut down fraud-on-the-FDA claims. Enterprising
plaintiffs’ lawyers quickly shifted from this theory to a thinly
disguised substitute known as negligence per se.
2. Violations of the FDCA as Negligence Per Se
Under the principle of negligence per se, a court relies
upon a statute or administrative regulation to define the
standard of care in a negligence action.382 By successfully
invoking negligence per se, the plaintiff establishes as a matter
of law that the defendant’s conduct was negligent so that the
plaintiff need only prove causation and damages in order to
prevail.383 Plaintiffs have argued that manufacturers of pharmaceutical products and medical devices who violate the FDCA
or FDA regulations are negligent and subject to civil liability
under state negligence per se doctrines for any injuries that
are proximately caused by such violations. In general, most
courts have declined to embrace this application of negligence
378
Buckman, 531 U.S. at 348-49. Even the less rigorous premarket notification requirements under § 510(k) require applicants to provide the FDA with
information about the device’s design and function. Id. at 345-46.
379
Id. at 349-50.
380
Id. at 350.
381
Id. at 352-53.
382
Andrew E. Costa, Negligence Per Se Theories in Pharmaceutical & Medical
Device Litigation, 57 ME. L. REV. 51, 54 (2005).
383
In re Orthopedic Bone Screw Prods. Liab. Litig. (Bone Screw II), 193 F.3d
781, 790 (3d Cir. 1999); In re TMI, 67 F.3d 1103, 1118 (3d Cir. 1995).
2008]
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per se.384 Other courts have rejected negligence per se claims
because the plaintiff was unable to prove causation.385
Talley v. Danek Medical, Inc. reflects the reasoning of
those courts that have refused to apply the doctrine of
negligence per se to claims based on alleged violations of the
FDCA.386 In that case, medical device manufacturer Danek had
secured FDA approval for the Dyna-Lok Device, a pedicle screw
fixation device,387 as a Class II device, which would not require
premarket approval from the FDA,388 although at that time
such devices had been classified as Class III devices, which
would require premarket approval through the PMA process
before being marketed for pedicle screw fixation.389 The
plaintiff, Janet Talley, had undergone a number of unsuccessful back surgeries in which the Dyna-Lok Device was
attached to the pedicles of her spine. Danek had not sought
premarket approval for the Dyna-Lok Device at the time of
Talley’s operations.390 After suffering injuries and complications
from the surgeries, Talley sued Danek, maintaining that the
company had deliberately marketed the Dyna-Lok Device for a
use that had not been approved by the FDA in violation of the
FDCA and that the company had therefore been negligent as a
matter of law.391 Unlike the fraud-on-the-FDA cases, in which
the plaintiffs focused their allegations on an unauthorized
presence of off-label uses in the market, Talley argued that it
was the promotion of the Dyna-Lok Device for off-label uses,
rather than its mere presence in the market, that had caused
her injuries.392 The lower court granted the defendant’s motion
384
Bone Screw II, 193 F.3d at 792; Talley v. Danek Med., Inc., 179 F.3d 154,
161 (4th Cir. 1999); Sharp v. Artifex, Ltd., 110 F. Supp. 2d 388, 394-95 (W.D. Pa. 1999);
Baker v. Danek Medical, 35 F. Supp. 2d 875, 878 (N.D. Fla. 1998); King v. Danek Med.,
Inc., 37 S.W.3d 429, 460 (Tenn. Ct. App. 2000); Cali v. Danek Med., Inc., 24 F. Supp. 2d
941, 954 (W.D. Wis. 1998). But see Stanton v. Astra Pharm. Prods., Inc., 718 F.2d 553,
558-59 (3d Cir. 1983).
385
Menges v. Depuy Motech, Inc., 61 F. Supp. 2d 817, 829 (N.D. Ind. 1999);
Minisan v. Danek Med., Inc., 79 F. Supp. 2d 970, 975-77 (N.D. Ind. 1999); Sita v.
Danek Med., Inc., 43 F. Supp. 2d 245, 264-65 (E.D.N.Y. 1999); Valente v. Sofamor,
S.N.C., 48 F. Supp. 2d 862, 876-77 (E.D. Wis. 1999); Baker v. Danek Medical, Inc., 35
F. Supp. 2d 875, 878 (N.D. Fla. 1998); Osburn v. Danek Med., Inc., 520 S.E.2d 88, 94
(N.C. Ct. App. 1999); Harden v. Danek Med., Inc., 985 S.W.2d 449, 453 (Tenn. Ct. App.
1998).
386
Talley, 179 F.3d at 160-61.
387
See supra note 366.
388
Talley, 179 F.3d at 160.
389
Id.
390
Id.
391
Id. at 160.
392
Id.
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for summary judgment, concluding that Talley had failed to
show any evidence of negligence, and the plaintiff appealed.393
On appeal, the plaintiff in Talley renewed her claim
that Danek had violated the FDCA by marketing a surgical
device for a use that had not been approved by the FDA.394 In
particular, the plaintiff argued that “while purportedly selling
the Dyna-Lok Device for its Class II purpose, Danek was in fact
marketing the device for the unapproved Class III purpose of
use in the pedicles of the spine . . . .”395 According to the
plaintiff, this alleged violation of the FDCA supported a claim
based on negligence per se.396 However, the court observed that
the doctrine of negligence per se does not automatically create
a private cause of action for every violation of a statute.397 In
the first place, not all statutory provisions establish a standard
of care, and therefore not all statutory violations provide a
basis for applying the doctrine of negligence per se.398 In
addition, even when a statute does establish a standard of care,
the plaintiff must also prove the additional elements of
negligence, including duty, causation, and injury.399
Addressing the standard of care issue, the court
declared that violation of a statute that does not define a standard of care but merely imposes an administrative requirement
will not support a negligence per se claim.400 According to the
court, licensing and reporting requirements, even when they
are part of a regulatory scheme that is designed to protect
public safety, are statutory requirements that do not establish
a standard of care.401 Applying this principle to the FDA’s
licensing requirements, the court concluded that the general
requirement that drugs and medical devices receive FDA
approval before marketing was “only a tool to facilitate
administration of the underlying regulatory scheme” and did
not embody any substantive standard of care.402 Consequently,
even if Danek had failed to comply with the FDA’s licensing
393
394
395
396
397
398
399
400
401
402
Talley v. Danek Med., Inc., 7 F. Supp. 2d 725 (E.D. Va. 1998).
Talley, 179 F.3d at 160.
Id.
Id.
Id. at 158.
Id. at 159.
Id.
Id.
Id.
Id. at 161.
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requirements, this by itself would not support a negligence per
se claim.403
Moreover, as previously noted, the court held that even
if the doctrine of negligence per se were applicable, the plaintiff
would still be required to prove the other elements of a
negligence claim.404 In this case, the court determined that the
plaintiff failed to present any evidence that Danek’s failure to
obtain proper FDA approval for the Dyna-Lok Device had
caused her injuries.405 Indeed, as the court pointed out, the
FDA’s subsequent approval of pedicle screw fixation devices as
Class II devices suitable for spinal fusion surgery indicated
that the agency thought that bone screw devices such as the
defendant’s product could be safely used for this purpose.406 Nor
was there any evidence that the plaintiff’s doctor would have
chosen some other device if he had known that the FDA had
not approved the Dyna-Lok Device for spinal fusion surgery at
the time of the plaintiff’s operation.407 Consequently, the court
concluded that the plaintiff failed to establish that the
defendant’s alleged violation of the statute had proximately
caused her injuries and therefore upheld the lower court’s
dismissal of her negligence per se claim.408
A Tennessee appeals court in King v. Danek Medical,
Inc. agreed with the Talley court’s reasoning.409 Like Talley,
King involved a negligence per se claim against the manufacturer of the TSRH device, a pedicle screw spinal fixation
mechanism similar to Danek’s Dyna-Lok device.410 Danek had
obtained an Investigational Device Exemption to conduct
clinical trials on its TSRH Device.411 However, according to the
plaintiffs, while these clinical trials were going on, Danek had
promoted the device for use in spinal pedicle surgery “[o]n a
massive and perhaps unprecedented basis,” thereby violating
various provisions of the FDCA.412 On appeal from the trial
court’s dismissal of their claim, the plaintiffs argued that
marketing a surgical device that had not received premarket
403
404
405
406
407
408
409
410
411
412
Id.
Id. at 158.
Id. at 161.
Id.
Id.
Id.
King v. Danek Med., Inc., 37 S.W.3d 429 (Tenn. Ct. App. 2000).
Id. at 430.
Id. at 455. See supra note 39 for an explanation of the IDE process.
Id.
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approval from the FDA violated the FDCA and constituted
negligence per se.413 Quoting Talley, the appellate court
declared that the requirement of FDA approval prior to
marketing is “only a tool to facilitate administration of the
underlying regulatory scheme.”414 Furthermore, because the
approval requirement lacks any “independent substantive
content,” it does not embody a standard of care.415 The court
concluded that breach of this requirement is akin to driving
without a driver’s license and provides no basis for a negligence
per se claim.416 Consequently, the King court affirmed the lower
court’s dismissal of the plaintiffs’ negligence per se claim.417
In re Orthopedic Bone Screw Products Liability Litigation presents an interesting variation on the negligence per
se argument because the case involved conspiracy claims.418
This multidistrict litigation involved more than 2000 lawsuits
and approximately 5000 individual plaintiffs.419 The plaintiffs
alleged that several conspiracies existed on the part of bone
screw manufacturers and others to promote their orthopedic
bone screw products in violation of FDA regulations.420
The plaintiffs first claimed that individual bone screw
manufacturers had agreed to give royalties and stock options to
orthopedic surgeons and other physicians in return for their
participation in seminars that were held apparently to inform
physicians about the medical uses of bone screw devices.421
According to the plaintiffs, the real purpose of these seminars
was to promote the bone screw manufacturer’s products.422 In
addition, the physicians who conducted these seminars had
failed to inform their audiences that the bone screw devices
they were promoting had not received FDA approval for use in
pedicle fixation surgery and that clinical trials had actually
413
King, 37 S.W.3d at 455.
Id. at 457.
415
Id.
416
Id.
417
Id. at 460.
418
Bone Screw II, 193 F.3d 781 (3d Cir. 1999); see also Cali v. Danek Med.,
Inc., 24 F. Supp. 2d 941, 947 (W.D. Wis. 1998) (alleging a conspiracy among bone screw
manufacturers to promote an off-label use of their products). For a discussion of the use
of civil conspiracy theories in products liability litigation, see Richard C. Ausness,
Conspiracy Theories: Is There a Place for Civil Conspiracy in Products Liability
Litigation?, 74 TENN. L. REV. 383 (2007).
419
Bone Screw II, 193 F.3d at 784.
420
Id. at 786-87.
421
Id. at 786.
422
Id.
414
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raised serious concerns about the safety and effectiveness of
bone screw devices when used in this manner.423 Furthermore,
seminar speakers had not disclosed that they had a financial
interest in promoting this form of off-label use.424
The plaintiffs’ second civil conspiracy claim alleged that
bone screw device manufacturers had paid various professional
associations to sponsor and present seminars for orthopedic
surgeons in order to promote the use of bone screws in spinal
fixation surgery.425 As in the previous conspiracy claim, the
plaintiffs declared that the conspirators had concealed that the
FDA had not approved the use of bone screws in pedicle
fixation surgery, that studies had revealed problems with this
procedure, and that the professional associations had been paid
to promote the off-label use of these devices.426 The plaintiffs
also claimed that a trade association established by the
conspirators had conducted a fraudulent study to use in civil
litigation and that certain conspirators, in order to obtain
§ 510(k) clearance for their products as substantially equivalent devices, had falsely told the FDA that one company had
marketed a bone screw device for pedicle fixation surgery prior
to 1976.427
The lower court dismissed these claims, holding that an
independent basis of liability was necessary to bring a civil
conspiracy claim and that violation of the FDCA did not satisfy
this requirement.428 On appeal, the Third Circuit observed that
there is no private right of action for violations of the FDCA.429
The court also agreed with the lower court’s conclusion that one
cannot sue a group of defendants for conspiring to engage in
conduct that would not be actionable against an individual
defendant.430 Because the plaintiffs could not sue individual
defendants for violations of the FDCA, they could not sue them
for conspiring to engage in conduct that violates the FDCA
either.431
The plaintiffs also argued that violations of federal
statutes could be the basis of common law liability under the
423
424
425
426
427
428
429
430
431
Id. at 786-87.
Id. at 787.
Id.
Id.
Id.
Id.
Id. at 789-90.
Id.
Id.
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principle of negligence per se and thereby provide the underlying tort necessary to support a civil conspiracy claim.432 The
appeals court, however, responded that negligence per se did
not create an independent basis of tort liability, but merely
established a standard of care for an underlying tort.433 In the
court’s view, the plaintiffs’ bootstrapping interpretation of
negligence per se “would allow private plaintiffs to recover for
violations of a federal statute that creates no private cause of
action and, in fact, expressly restricts its enforcement to the
federal government.”434 If the plaintiffs were allowed to prevail,
they could sidestep the FDCA’s prohibition against private
enforcement actions merely by bringing a civil conspiracy
action instead of suing defendants for individual actions.435 For
this reason, the court concluded that the plaintiffs’ conspiracy
claims were properly dismissed.436
As mentioned earlier, a number of courts have also
rejected negligence per se claims on causation grounds.437
Menges v. Depuy Motech, Inc. is illustrative of this approach.438
This case also involved the marketing of orthopedic bone screw
devices for use in spinal fusion therapy.439 The plaintiff alleged
that, because the pedicle screw device did not have FDA
approval for implantation into the vertebral pedicle, Depuy
Motech was prohibited from marketing it for use in spinal
fixation surgery and had a duty to regulate the use of its
devices in hospitals.440 According to the plaintiff, the defendant’s violation of FDA regulations constituted negligence per
se.441 In response to a motion for summary judgment by the
defendant, the court acknowledged that Wisconsin law would
permit the plaintiff to base his negligence per se claim on
violation of the FDCA.442 However, the court ultimately granted
the defendant’s summary judgment motion, finding that the
plaintiff had not produced any medical evidence that his
432
433
434
435
436
437
438
439
440
441
442
1999)).
Bone Screw II, 193 F.3d at 790.
Id.
Id. at 791.
Id.
Id. at 792.
See supra note 385 and accompanying text.
Menges v. Depuy Motech, Inc., 61 F. Supp. 2d 817 (N.D. Ind. 1999).
Id. at 820.
Id. at 823.
Id. at 829.
Id. (citing Valente v. Sofamor, S.N.C., 48 F. Supp. 2d 862, 876 (E.D. Wis.
2008]
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doctor’s use of the defendant’s device was a proximate cause of
his injury.443
B.
Fraudulent Misrepresentation
In addition to basing tort claims on violations of the
FDCA, injured consumers have also sued drug and medical
device manufacturers for fraudulent misrepresentation.444 A
fraudulent misrepresentation claim requires proof by clear and
convincing evidence of the following elements:
(1) a representation; (2) which is material to the transaction at hand;
(3) made falsely, with knowledge of its falsity or recklessness as to
whether it is true or false; (4) with the intent of misleading another
into relying on it; (5) justifiable reliance on the misrepresentation;
and (6) the resulting injury was proximately caused by the
reliance.445
Fraudulent misrepresentation claims in this area have often
failed because plaintiffs were unable to establish either
reliance or causation.446
Miller v. Pfizer Inc. (Roerig Division) is illustrative of
the difficulties plaintiffs face when they base their claim on
fraudulent misrepresentation.447 The plaintiffs in Miller sued
Pfizer in federal court after its anti-depression drug, Zoloft,
allegedly caused their thirteen-year-old son, Matthew, to
commit suicide.448 The plaintiffs sought to hold Pfizer strictly
liable for marketing defects and misrepresentations about
Zoloft.449 Pfizer moved for partial summary judgment on the
defective marketing and failure-to-warn claims.450
443
Id.
See, e.g., McCauley v. Purdue Pharma L.P., 331 F. Supp. 2d 449, 461 (W.D.
Va. 2004) (OxyContin); Wethington v. Purdue Pharma L.P., 218 F.R.D. 577, 582 (S.D.
Ohio 2003) (OxyContin); Osburn v. Danek Med., Inc., 520 S.E.2d 88, 95 (N.C. Ct. App.
1999) (spinal fixation device); Harden v. Danek Med., Inc., 985 S.W.2d 449, 453 (Tenn.
Ct. App. 1998) (spinal fixation device).
445
Ausness, supra note 418, at 400 (quoting Goldstein v. Philip Morris, Inc.,
854 A.2d 585, 590-91 (Pa. Super. Ct. 2004)).
446
Talley v. Danek Med., Inc., 179 F.3d 154, 161 (4th Cir. 1999); McCauley,
331 F. Supp. 2d at 462; Sita v. Danek Med., Inc., 43 F. Supp. 2d 245, 260 (E.D.N.Y.
1999); Baker v. Danek Med., 35 F. Supp. 2d 875, 878 (N.D. Fla. 1998); Osburn, 520
S.E.2d at 95; Harden, 985 S.W.2d at 453.
447
Miller v. Pfizer Inc. (Roerig Div.), 196 F. Supp. 2d 1095 (D. Kan. 2002).
448
Id. at 1097.
449
Id. In addition, the complaint set forth a negligence claim based on the
defendant’s failure to test and warn about the risk of drug-induced suicide when Zoloft
was prescribed off-label for children. Id.
450
Id.
444
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With respect to their “defective marketing claim,” the
plaintiffs contended that Pfizer had “gone to great lengths to
reassure doctors that the violence and suicide problems that
they ha[d] heard about, mainly with its chief SSRI competitor
Prozac, would not occur with Zoloft, and to assuage patient’s
[sic] concerns over the initial adverse effects which are
frequently the harbingers of tragedy . . . .”451 As evidence of this
marketing scheme, the plaintiffs relied on statements made
by a Pfizer employee, James Lee Jung.452 Mr. Jung had told
the defendant’s professional medical representatives not to
mention the risk of suicide from Zoloft to physicians unless
they specifically asked about it.453 In addition, Jung had told
the representatives that if they were asked about suicide risk,
they should assure physicians that Zoloft had a low risk of
suicide ideation.454
Since the plaintiffs did not set forth any specific legal
basis for their marketing defect claim, the court chose to
characterize it as a fraud or misrepresentation claim.455 The
court pointed out that to sustain such a claim, plaintiffs must
prove, inter alia, that they “reasonably relied and acted on
the [defendant’s] allegedly false representations to their
detriment.”456 There apparently was no evidence that the
plaintiffs had relied on any representations made by Pfizer;
instead, the court concluded, “In allowing Matthew to use
Zoloft, plaintiffs relied solely on Dr. Geenens’s [Matthew’s
physician] advice.”457
According to Pfizer, even if the plaintiffs could show
reliance on their part, the learned intermediary doctrine
required them to prove that Dr. Geenens had relied on
marketing materials or other information about Zoloft that
Pfizer had provided him.458 Unfortunately for the plaintiffs, Dr.
Geenens steadfastly maintained that his decision to prescribe
Zoloft to treat Matthew’s depression had not been influenced by
451
Id. at 1119 (internal quotation marks and citation omitted).
Id. at 1100 n.7.
453
Id.
454
Id.
455
Id. at 1119.
456
Id.
457
Id. at 1099.
458
Id. at 1120. The learned intermediary doctrine provides that a manufacturer satisfies its duty to warn about a prescription drug’s inherent risks without
warning the patient directly when it adequately warns the prescribing physician. See
infra text accompanying notes 513-517.
452
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Pfizer’s advertising or promotional materials.459 Furthermore,
Dr. Geenens testified that Pfizer’s sales representatives had
never encouraged him to prescribe Zoloft for any off-label
uses.460 In response, the plaintiffs argued that the Kansas
Supreme Court, in Hurlbut v. Conoco, Inc.,461 had eliminated
the reliance requirement in misrepresentation cases involving
products.462 However the court rejected their interpretation
of Hurlbut.463 The plaintiffs also urged the court to adopt
the position stated in Section 9 of the Restatement (Third) of
Torts: Products Liability,464 which would impose liability on
product manufacturers for even innocent misrepresentations
of material facts.465 The court noted that even under Section 9
of the Restatement, proof of causation is required and if the
plaintiffs could not establish reliance, they could not establish
causation either.466 The plaintiffs also asked the court to reject
the learned intermediary doctrine, thereby relieving them of
the burden of proving reliance on Dr. Geenens’s part.467
However, the court concluded that there was no evidence to
show that Kansas courts had rejected the learned intermediary
doctrine or were about to do so.468
The plaintiffs’ final argument was that Pfizer’s marketing campaign for Zoloft relied on subtle and subliminal
techniques to persuade physicians like Dr. Geenens to
prescribe Zoloft. The plaintiffs maintained that Dr. Geenens
could have been influenced by these subliminal messages to
prescribe Zoloft to Matthew.469 According to this argument, the
reliance requirement for misrepresentation would be satisfied
even though Dr. Geenens denied that he had relied on any
representations about the safety of Zoloft provided by Pfizer.
However, the court ultimately concluded that even if Pfizer
had employed subliminal advertising techniques, the plaintiffs
failed to show that they had any effect on Dr. Geenens’s
459
460
461
462
463
464
465
466
467
468
469
Miller, 196 F. Supp. 2d at 1100.
Id.
856 P.2d 1313, 1320 (Kan. 1993).
Miller, 196 F. Supp. 2d at 1120.
Id.
RESTATEMENT (THIRD) OF TORTS: PRODUCTS LIAB. § 9 (1998).
Miller, 196 F. Supp. 2d at 1120.
Id. at 1121.
Id.
Id. at 1122.
Id.
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decision to prescribe Zoloft to their son.470 Consequently, the
court granted the defendant’s request for summary judgment
on the marketing defect and misrepresentation claims.471
Thus, as Miller illustrates, although misrepresentation
claims are available in theory to plaintiffs seeking recovery
from pharmaceutical companies that promote off-label uses, in
reality this cause of action does not pose a serious threat to
drug manufacturers because of the difficulties in making out a
case.
C.
Failure to Warn
Product sellers, including manufacturers of drugs and
medical devices, have a duty to warn about the inherent risks
associated with the use of their products when the risks may
not be obvious to consumers. Some cases are concerned with
whether a manufacturer must warn about risks that are
unique to particular off-label uses of the product. Another
group of cases have considered what role the learned
intermediary rule plays when a product is used for an off-label
purpose.
1. Failure to Warn About Risks Associated with
Particular Off-Label Uses
A manufacturer has a duty to provide an adequate
warning of any danger inherent in the normal use of its
product that is not likely to be within the knowledge of the
ordinary user.472 In some cases, this duty may require a drug
manufacturer to warn physicians about the risks of particular
off-label uses. For example, in Knowlton v. Deseret Medical,
Inc., the manufacturer of a catheter and needle placement unit
known as Intracath was held liable for chemical burns suffered
by the plaintiff during open-heart surgery.473 The plaintiff’s
surgery involved a procedure known as retrograde threading,
in which two small hollow flexible tubes, or catheters, are
inserted into the left and right atria of the heart.474 The
470
Id. at 1122-23.
Id. at 1123.
472
See, e.g., Winterrowd v. Travelers Indem. Co., 462 So. 2d 639, 642 (La.
1985); Hebert v. Brazzel, 403 So. 2d 1242, 1245 (La. 1981).
473
Knowlton v. Deseret Med., Inc., 930 F.2d 116, 117 (1st Cir. 1991).
474
Id. Retrograde threading involves the insertion of one end of a catheter
into the right atrium and the threading of the other end into a hollow needle with
471
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catheter in Knowlton was used to transmit the drug Nitroprusside (Nipride) to the patient’s heart.475 Some of the Nipride
solution leaked from a cut or hole in the catheter into the
plaintiff’s chest and abdominal walls, causing severe chemical
burns.476
At trial, the jury found that the manufacturer had failed
to adequately warn physicians of the danger inherent in the
use of the Intracath device.477 On appeal, the First Circuit
Court of Appeals observed that the Intracath device was
intended for use in venipunctures—the insertion of the needle
and catheter into a vein.478 However, there was testimony that
the manufacturer had been aware that the use of its catheters
and needles as atrial lines during open-heart surgery was a
common off-label procedure.479 Furthermore, company officials
had acknowledged that they knew there was a significant risk
that the catheter tube might be cut or nicked by the needle if
retrograde threading were employed.480 The appeals court also
noted that a cut or nick sufficient to create a hole in the
catheter would be invisible to the naked eye and, thus, unlikely
to be discovered by the operating surgeon.481 Finally, the court
found that a warning was appropriate because a reasonably
prudent heart surgeon would not be aware of the danger
inherent in the retrograde threading procedure.482 Consequently, the court concluded that the jury verdict was correct
and upheld the plaintiff’s failure-to-warn claim against the
defendant.483
An Illinois appellate court reached a similar result in
Proctor v. Davis.484 Proctor concerned the Upjohn Company’s
1959 FDA approval to market the anti-inflammatory drug
Depo-Medrol for intramuscular (in the muscle), intra-articular
(in the joint), and intralesional (in a lesion) injections.485 Deposharp beveled edges that is inserted into the chest wall. Id. at 118. The needle and
catheter are then pulled back through the chest wall and the needle removed so that
the catheter can be used as a drug delivery device. Id.
475
Id.
476
Id.
477
Id. at 118-19.
478
Id. at 119.
479
Id.
480
Id.
481
Id. at 122.
482
Id.
483
Id. at 122-23.
484
682 N.E.2d 1203, 1215 (Ill. Ct. App. 1997).
485
Id. at 1206.
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Medrol was a sterile, aqueous suspension containing methyl
prednisone acetate, a corticosteroid, and was useful in treating
various inflammatory bodily disorders.486 Depo-Medrol was an
insoluble toxic material that was intended to be released in the
patient’s body over a period of six to eight weeks and ultimately
carried away in the bloodstream.487
Shortly after the FDA approved the drug, two ophthalmologists independently contacted Upjohn about using DepoMedrol clinically to treat ophthalmic conditions by means of
periocular (near the eye) injections. Upjohn encouraged the
doctors and provided them with a supply of the drug for
their proposed use, but failed to inform them that no animal
studies had been performed to test the drug’s effect on
periocular tissue.488 Subsequently, in the early 1960s, Upjohn
also provided financial support to doctors who used DepoMedrol for unapproved subconjunctival injections.489 Furthermore, the drug company also distributed an article about
off-label uses of the drug, but failed to provide information
about “unsatisfactory” animal experiments that the author had
conducted.490 As periocular injection of Depo-Medrol became
increasingly popular,491 partly due to Upjohn’s marketing
efforts, the company considered submitting a supplemental
New Drug Application for this use to the FDA, but decided not
to do so.492 In fact, periocular injection of Depo-Medrol was
quite risky because if the physician inadvertently injected the
drug into the patient’s eye, it would remain in the eye for a
long time and cause serious injury because the eye does not
possess a blood supply to enable it to remove the drug.493
Moreover, because Depo-Medrol was insoluble, it increased
pressure within the eye and caused other damage.494
In 1983, the plaintiff’s physician, Dr. Davis, began a
program of periocular injections of Depo-Medrol to treat vision
problems associated with cystoid macular edema.495 During one
of these treatments, Dr. Davis mistakenly injected Depo486
487
488
489
490
491
492
493
494
495
Proctor, 682 N.E.2d at 1206.
Id.
Id.
Id. at 1207.
Id.
Id. at 1212.
Id. at 1209.
Id. at 1206
Id.
Id. at 1210.
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Medrol directly into the plaintiff’s left eye.496 Despite a series of
subsequent operations to remove the drug and repair the
damage to his left eye, the plaintiff eventually lost all vision in
the eye and his physicians were forced to remove it.497 The
plaintiff filed suit in 1984 against Dr. Davis and Upjohn,
alleging malpractice against the doctor and claiming that
Upjohn had failed to warn doctors about the dangers of using
Depo-Medrol for off-label periocular injection.498 The jury found
in favor of Dr. Davis, but subjected Upjohn to liability for
compensatory and punitive damages.499
On appeal, the Illinois appellate court declared that a
drug manufacturer has a continuing duty to warn of productrelated risks that are not generally known to the medical
community.500 According to the court, when the manufacturer of
a potentially harmful product possesses information not
generally known to prescribing physicians, it has a duty to
share this information with them by means of warnings.501 In
this case, the record showed that at the time of the operation
Upjohn was aware of the risks associated with periocular
injection of Depo-Medrol and was also aware that many
ophthalmologists were administering the drug in this fashion
as an off-label use.502 Consequently, Upjohn had a legal
obligation to warn about the risks of periocular injection of
Depo-Medrol, and its failure to do so made the drug defective
and unreasonably dangerous.503
Knowlton and Proctor suggest that most courts will
probably uphold failure-to-warn claims if the risks associated
with a particular off-label use is serious, the use is common or
widespread, and if the manufacturer knows of the off-label use
or has encouraged it.504 On the other hand, drug companies
ordinarily have no duty to warn of off-label uses that are
unforeseeable. In Rhoto v. Ribando, a self-proclaimed weight
reduction specialist prescribed a regime of prescription
medications, along with a conservative diet plan, to help the
496
497
498
499
500
501
502
503
504
Id. at 1210.
Id. at 1211.
Id.
Id.
Id.
Id. at 1213-14.
Id. at 1212.
Id. at 1213.
Noah, supra note 7, at 161-62.
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plaintiff lose weight.505 After following this weight-loss program
for two weeks, the plaintiff suffered a massive stroke.506 In her
suit against the drug manufacturers, the plaintiff argued that
they had failed to warn of the danger of a stroke when various
drugs were used individually or in combination with other
drugs prescribed in connection with her weight reduction
program.507 At the conclusion of the trial, the court directed a
verdict for the defendants on the ground that the plaintiff’s
doctor grossly misused the drugs.508
On appeal, the plaintiff contended that the warnings for
the individual drugs were inadequate because they did not
warn about the dangers associated with using them in weight
control programs, a practice that the manufacturers knew or
should have known was taking place.509 The court, however,
observed that all of the expert witnesses at trial testified that
the prescription of the particular combination of drugs used in
the plaintiff’s diet plan was a gross misuse of the products.510
The court declared that a manufacturer is only required to
warn of dangers associated with the normal use of its product
and concluded that the warnings provided by the drug
manufacturers in this case satisfied this requirement.511
Consequently, it affirmed the lower court’s decision in favor of
the defendants.512
2. The Learned Intermediary Doctrine as a Defense to
Failure-to-Warn Claims
The learned intermediary rule is a substantial barrier to
recovery for plaintiffs who bring failure-to-warn claims. As
noted above, as a general rule, manufacturers have a duty to
warn the ultimate users or consumers of their products about
the inherent risks of those products when the risks may not be
obvious. However, an exception to the general rule, known at
the “learned intermediary doctrine,” applies to prescription
505
506
507
508
509
510
511
512
Rhoto v. Ribando, 504 So. 2d 1119, 1120 (La. Ct. App. 1987).
Id.
Id. at 1121.
Id.
Id. at 1123-24.
Id. at 1124.
Id. at 1124-26.
Id. at 1126.
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drugs and medical devices.513 The learned intermediary rule
provides that the manufacturer of a prescription drug or
medical device is only required to warn a patient’s prescribing
physician and does not have to warn the patient directly.514
This rule gets its name from the fact that the physician is
expected to act as an informed intermediary between the
manufacturer and the patient.515 Thus, the manufacturer may
be held liable for injuries caused by the defective prescription
of a product if the manufacturer fails to provide an effective
warning to the prescribing physician.516 On the other hand, if a
manufacturer provides an adequate warning to the prescribing
physician, the manufacturer is not subject to liability, and the
physician has a duty to pass this information on to the
patient.517 However, a plaintiff cannot prevail on a failure-towarn theory against a manufacturer even when the defendant’s
warning is inadequate if the learned intermediary (the
physician) was already aware of the risk at the time of
prescription. In effect, the defendant’s failure to warn is not
regarded as a cause-in-fact of the plaintiff’s injury. Drug
manufacturers have often successfully invoked this principle in
off-label use cases.
Sita v. Danek Medical, Inc. illustrates this principle. In
that case, a plaintiff who underwent spinal fixation surgery
sustained injuries when the defendant’s bone screw device, the
TSRH System, fractured.518 In a suit against the manufacturer,
the plaintiff alleged, inter alia, that the warnings in the
product’s package insert had not been adequate.519 The plaintiff
contended that although the package insert had warned about
such risks as pseudarthrosis, breakage, neurological impairment, and pain, it should have also disclosed that the TSRH
513
See Yonni D. Fushman, Comment, Perez v. Wyeth Labs., Inc: Toward
Creating a Direct-to-Consumer Advertisement Exception to the Learned Intermediary
Doctrine, 80 B.U. L. REV. 1161, 1162 (2000).
514
Richard C. Ausness, Will More Aggressive Marketing Practices Lead to
Greater Tort Liability for Prescription Drug Manufacturers?, 37 WAKE FOREST L. REV.
97, 106-07 (2002).
515
Reaves v. Ortho Pharm. Corp., 765 F. Supp. 1287, 1289 (E.D. Mich. 1991);
Martin v. Hacker, 628 N.E.2d 1308, 1311 (N.Y. 1993).
516
See Mahr v. G.D. Searle & Co., 390 N.E.2d 1214, 1228 (Ill. Ct. App. 1979).
517
See Brooks v. Medtronic, Inc., 750 F.2d 1227, 1232 (4th Cir. 1984). This is
an aspect of a physician’s obligation to inform patients of the risks associated with a
particular treatment under the doctrine of informed consent. See generally Peter H.
Schuck, Rethinking Informed Consent, 103 YALE L.J. 899 (1994)
518
Sita v. Danek Med., Inc., 43 F. Supp. 2d 245, 250 (E.D.N.Y. 1999).
519
Id. at 259.
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Device had not been approved for pedicle implantation.520
According to the plaintiff,
due to the boiler-plate nature of the language used and the
warning’s failure to state that certain components of the TSRH
System had not been approved for use in pedicle surgery, these
warnings, taken alone, might not fully apprise a doctor of the risks
associated with the use of TSRH components.521
However, the court rejected this argument, pointing out
that the package insert had expressly stated that the TSRH
System’s components were intended for “attachment to the
sacrum or illium only.”522 In the court’s opinion, this language
was sufficient to inform an experienced doctor, such as the
plaintiff’s physician, that the TSRH screws had not been
approved for use in the pedicles.523 Accordingly, the court
granted the defendant’s motion for summary judgment on the
failure-to-warn claim.524
3. Overpromotion as a Defense to Adequate Warnings
An otherwise satisfactory warning may be deemed to be
inadequate in a failure-to-warn case because the manufacturer
diluted the effect of the warning by “overpromotion.”525 For
example, assurances of safety by a drug company’s sales
representatives may negate FDA-approved warnings contained
in product labeling or the Physician’s Desk Reference.526
Courts appear to be split on the question of whether
a plaintiff can maintain an overpromotion claim when the
physician is aware of the risk that has been diluted by the
manufacturer’s overpromotion. Love v. Wolf527 and Formella v.
Ciba-Geigy Corp.528 represent differing views on this issue. Love
involved Cholormycetin, a wide-spectrum antibiotic manufactured by Parke-Davis529 that was widely prescribed for off-label
520
Id.
Id.
522
Id. at 259-60.
523
Id. at 260.
524
Id.
525
David G. Owen et al., in 2 DAVID G. OWEN ET AL., MADDEN & OWEN ON
PRODUCTS LIABILITY § 22:8, at 565-66 (3d ed. 2000).
526
See, e.g., Incollingo v. Ewing, 282 A.2d 206, 284 (Pa. 1971), abrogated on
other grounds by Kaczkowski v. Bolubasz, 421 A.2d 1027 (Pa. Sept. 1980).
527
38 Cal. Rptr. 183 (Ct. App. 1964).
528
300 N.W.2d 356 (Mich. Ct. App. 1980).
529
Love, 38 Cal. Rptr. at 184.
521
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uses during the 1970s.530 The plaintiff suffered severe aplastic
anemia after her doctor prescribed Cholormycetin to treat a
gum infection.531 At the time of the plaintiff’s injury, Cholormycetin’s package labeling warned of the risk of aplastic
anemia and other blood dyscrasias and cautioned that the drug
“should not be used indiscriminately or for minor infections.”532
The labeling also declared that adequate blood studies should
be made when Cholormycetin was prescribed for intermittent
or prolonged use.533
The plaintiff’s physician, Dr. Wolf, prescribed a total of
ninety-six Cholormycetin capsules during a relatively short
time to treat a gum infection and bronchitis, but failed to
perform any blood tests.534 At the trial, Dr. Wolf admitted that
these conditions were not sufficiently dangerous to fall within
the types of infections that Cholormycetin was intended
to treat.535 The jury apparently believed that the plaintiff’s
injuries were caused by Dr. Wolf’s off-label prescription of
the drug and found in favor of the plaintiff.536
On appeal, the court acknowledged that Parke-Davis
had warned about the risk of aplastic anemia and had urged
physicians to perform blood tests when Cholormycetin was
prescribed on a long-term basis.537 The court then turned to the
plaintiff’s argument that “such warnings must be deemed cancelled out if overpromotion through a vigorous sales program
persuaded doctors to disregard the warnings given.”538 The
court described how the Parke-Davis sales representatives
had encouraged off-label use of the drug by downplaying the
risk of aplastic anemia and falsely informing physicians that
the FDA had approved Cholormycetin “with no restrictions
on the number or range of diseases for which Cholormycetin
may be administered.”539 The court also observed that sales of
Cholormycetin were so numerous that it was apparent that
530
Christopher, supra note 13, at 249.
Love, 38 Cal. Rptr. at 184. According to the court, aplastic anemia is a form
of blood dyscrasia, a “condition resulting from the depression or destruction of the
blood-forming elements in the bone marrow.” Id. at 185.
532
Id.
533
Id.
534
Id. at 186.
535
Id. at 196.
536
Id. at 184.
537
Id. at 193.
538
Id.
539
Id. at 195.
531
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the product was being prescribed for non-approved uses.540
Although the court reversed the verdict because of misconduct
on the part of the plaintiff’s lawyer, it refused to dismiss the
case against the drug company and instead ordered a new trial
on the overpromotion issue.541
However, at least one legal commentator has criticized
the court’s reasoning in Love.542 As Jonathan Grant pointed out,
notwithstanding the defendant’s promotional efforts, Dr. Wolf
was fully aware of the risks of long-term use of Cholormycetin,
yet chose to prescribe it anyway.543 In Dr. Wolf’s case, ParkeDavis’s overpromotion did not vitiate the warnings that it
provided on the drug’s labeling and, therefore, did not cause
the plaintiff’s injuries.544 In other words, Dr. Wolf’s negligence—if his prescription of Cholormycetin was negligent—was
the legal cause of the plaintiff’s injury, not overpromotion of
the drug by Parke-Davis.545
A Michigan appellate court reached a different conclusion from that in Love in Formella v. Ciba-Geigy Corp.546 The
plaintiff in that case developed aplastic anemia as a result of
taking Tandearil, a drug manufactured by the defendant.547 The
plaintiff brought suit, claiming that the drug company CibaGeigy overpromoted Tandearil and failed to adequately warn
her doctor about the risk of developing blood dyscrasia.548 At the
end of the trial, the lower court granted the Ciba-Geigy’s
motion for a directed verdict.549 On appeal, the plaintiff contended that the trial court should not have excluded evidence of
Ciba-Geigy’s marketing plans.550 The appeals court observed
that the drug’s package insert had indicated that the drug
was contraindicated for patients, like the plaintiff, who were
allergic to penicillin.551 The package insert also had cautioned
against treating persons over age sixty with Tandearil for more
540
Id.
Id. at 197.
542
Jonathan E. Grant, The “Misuse” Defense in Drug Products Liability Cases,
8 PACE L. REV. 535, 553 (1988).
543
Id.
544
Id.
545
Id.
546
300 N.W.2d 356 (Mich. Ct. App. 1980).
547
Id. at 357.
548
Id.
549
Id.
550
Id.
551
Id. at 359.
541
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1319
than a week.552 In this case, the plaintiff was over sixty and her
doctor had treated her with the drug for lower back pain (an
off-label use) for more than six weeks.553 Finally, the package
insert had also recommended that blood tests be performed
weekly for elderly patients taking Tandearil. The plaintiff’s
doctor had not performed any blood tests until she developed
symptoms of aplastic anemia.554
The court concluded that the plaintiff’s doctor had been
aware that taking Tandearil for any length of time could cause
blood dyscrasia and had ignored this risk.555 According to the
court, even if the drug company was guilty of overpromoting
Tandearil, thereby diluting the effectiveness of the warnings,
overpromotion was not the proximate cause of the plaintiff’s
injury.556 Rather, the decision of the plaintiff’s doctor to adopt a
treatment regime that he knew would greatly increase the risk
of blood dyscrasia had been an independent cause—and the
sole proximate cause—of her injury.557 Accordingly, the court
affirmed the lower court’s judgment in favor of Ciba-Geigy.558
The court’s approach in Formella seems to represent the
prevailing view on the overpromotion issue in failure-to-warn
cases.559
In general, failure to warn is a potential source of
liability for drug manufacturers. In particular, manufacturers
who promote off-label uses may be held liable for failing to
warn doctors about the risks associated with a known off-label
use. Moreover, even when manufacturers do provide warnings,
a court may treat the warnings as inadequate if the manufacturer dilutes their effectiveness by overpromotion.
D.
The Duty to Test for Off-Label Related Risks
Manufacturers are unlikely to test off-label uses of their
products unless the FDA orders them to do so or they intend to
file a supplemental NDA because clinical trials and other forms
of testing can be expensive. Moreover, the failure to test for
risks associated with particular off-label uses ordinarily does
552
553
554
555
556
557
558
559
Id.
Id. at 357.
Id.
Id. at 358.
Id.
Id.
Id. at 359.
Grant, supra note 542, at 554.
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not constitute negligence or make the product defective or
unreasonably dangerous. However, at least one court has
imposed liability for failure to test.560
In that decision—Medics Pharmaceutical Corp. v.
Newman—the plaintiff was stricken with clear cell adenocarcinoma as a result of her mother’s ingestion of DES.561 The
plaintiff’s mother during her pregnancy had taken Diastyl, a
brand of DES marketed, but not manufactured, by the
defendant in order to prevent miscarriage.562 The defendant
claimed that it had not promoted Diastyl for use in preventing
miscarriages and that the drug’s package labeling had not
mentioned this as an indicated use.563 However, physicians had
been commonly prescribing DES for this purpose at the time
the plaintiff’s mother became pregnant.564 The plaintiff brought
suit, alleging that the defendant had failed to make a
reasonable effort to discover whether there were any risks
associated with using its product to prevent miscarriages.565
When the jury found in favor of the plaintiff, the defendant
appealed.566
On appeal, the defendant argued that it could not be
held liable for the plaintiff’s injuries because it had not
recommended or marketed Diastyl for the prevention of
miscarriages.567 In response, however, the court declared that
“[t]he maker of an article for sale or use by others must use
reasonable care and skill in designing it . . . so that it is
reasonably safe for the purposes for which it intended, and for
other uses which are foreseeably probable . . . .”568 The court
distinguished between the duty to warn and the duty to test:
The defendant was not negligent in failing to inform the
560
See Medics Pharm. Corp. v. Newman, 378 S.E.2d 487 (Ga. Ct. App. 1989).
Id. at 488. DES is a synthetic estrogen that was originally developed to
alleviate menstrual symptoms but was later widely marketed for treating women who
were at risk for miscarriage. Centers for Disease Control and Prevention, About DES,
http://www.cdc.gov/des/consumers/about/effects_daughters.html. Unfortunately, many
female children of the women who had taken DES while pregnant developed clear cell
adenocarcinoma, a form of cancer, when they reached puberty. Id.; see also Ausness,
supra note 418, at 386-87.
562
Newman, 378 S.E.2d at 488.
563
Id.
564
Id.
565
Id. at 488-89.
566
Id. at 488.
567
Id.
568
Id. (emphasis in original) (quoting Ford Motor Co. v. Stubblefield, 319
S.E.2d 470 (Ga. Ct. App. 1984)).
561
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medical profession of the risk of cancer associated with Diastyl
because the risk had not been known at the time the plaintiff’s
mother ingested the drug.569 However, drug manufacturers are
required to use “reasonable care to provide a product which is
reasonably safe for those purposes for which it could
foreseeably be used.”570 In this case, the defendant’s duty of
reasonable care required it to try to discover whether there
were any dangers to the unborn fetus in using Diastyl for the
prevention of miscarriages.571
Although the general principle espoused in Newman
may be correct, the court’s application of the principle to the
particular facts of that case is problematic for three reasons.
First, the defendant was a distributor, not a drug manufacturer. Therefore, it would be highly unreasonable to expect the
company to conduct clinical research on a generic drug like
DES. Second, unlike most of the cases discussed in this Article,
the defendant in Newman did not promote off-label uses of
Diastyl. Apparently, the court was willing to impose a duty to
test for risks associated with off-label uses simply because the
defendant profited from the distribution of its product to
physicians who intended to prescribe it for off-label uses.
Finally, even if the defendant had engaged in drug testing, it is
doubtful that it could have discovered a correlation between
ingestion of the drug by pregnant women and subsequent
cancer in their unborn daughters. According to the court, the
plaintiff’s mother took Diastyl in 1963 or 1964, but the cancer
risk was not discovered by researchers until the early 1970s.572
There is no reason to think that the defendant would have
discovered this risk ten years sooner if it had engaged in
testing.
Plaintiffs have developed an impressive array of tort
liability theories in actions against pharmaceutical companies
that encourage off-label uses of their products. Although fraudon-the-FDA, negligence per se and fraudulent misrepresentation theories have not been very successful, some failure-towarn claims have succeeded. In addition, at least one court has
held a drug company liable for failing to test for off-label
related risks.
569
570
571
572
Id. at 489.
Id.
Id.
Id. at 488.
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V.
REGULATING THE PROMOTION OF OFF-LABEL USES
A.
Sources of Danger
Bad things can happen to drug companies that promote
and market their products for off-label uses. There are a
number of sources of danger, as outlined above. The first source
is the FDCA itself. The promotion of off-label uses in violation
of the FDCA can constitute misbranding and lead to civil and
criminal liability.573 As the manufacturer of OxyContin
discovered, the fines and civil penalties can amount to millions
of dollars.574
RICO and FCA violations pose a second potential source
of risk to pharmaceutical companies that promote and market
their products for off-label uses.575 Cases brought under these
statutes usually involve fraudulent schemes to evade restrictions on compensation of off-label uses by Medicaid or other
government-sponsored health care programs. Although the
drug companies managed to avoid liability in Hamm and
Neurontin, the two RICO cases discussed earlier, RICO
remains a potential source of liability.576 For example, a group
of health insurance plans have brought a class action suit
against Pfizer, claiming that it engaged in a fraudulent scheme
to market Lipitor for off-label uses, which caused them to
pay billions of dollars for Lipitor prescriptions that violated
federal guidelines for treating cholesterol.577 In addition to
charging Pfizer with fraud and violation of state consumer
protection laws, the plaintiffs asserted claims under RICO.578
Finally, drug companies have been sued in qui tam actions
brought under the FCA.579 The defendants prevailed in two of
these reported cases—United States ex rel. Hess v. SanofiSynthelabo, Inc.580 and United States ex rel. Rost v. Pfizer
573
Greene, supra note 5, at 46.
See supra Part II.C.
575
See supra Part III.
576
See supra Part III.A (discussing Hamm v. Rhone-Poulenc Rorer Pharm.,
Inc., 187 F.3d 941 (8th Cir. 1999); In re Neurontin Mktg., Sales Practices, and Prods.
Liab. Litig., 433 F. Supp. 2d 172 (D. Mass. 2006)).
577
For a discussion of this case, see On Pharma, Off Label Marketing
for Lipitor’s Now the Focus of a Class-Action Suit (Mar. 30, 3006), http://
pharmamanufacturing.wordpress.com/2006/03/30/off-label-marketing-for-lipitors-nowthe-focus-of-a-class-action-suit/.
578
Id.
579
See supra text accompanying notes 198-362.
580
No. 4:05CV570, 2006 WL 1064127 (E.D. Mo. Apr. 21, 2006).
574
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Inc.581—but the manufacturer of Neurontin paid $430 million to
settle a FCA case,582 and a number of other FCA cases also
resulted in large settlements.583
Tort law is the third source of danger to drug manufacturers.584 Although the Supreme Court concluded that fraudon-the-FDA claims are impliedly preempted by the FDCA,585
numerous plaintiffs have tried to avoid the preemption bar by
invoking the doctrine of negligence per se instead.586 So far,
however, claims based on statutory violations have not been
well received by the courts.587 Fraudulent misrepresentation
claims have not fared well either because plaintiffs have had
difficulty proving reliance and causation.588 Failure-to-warn
claims have met with mixed results.589 Defendants have
prevailed in most of the reported cases,590 but plaintiffs have
won a few.591 Finally, at least one court has imposed liability on
a distributor of a prescription drug for failing to test for
possible side effects from a commonly prescribed off-label use of
the drug.592
581
446 F. Supp. 2d 6 (D. Mass. 2006), vacated and remanded, 507 F.3d 720
(1st Cir. 2007).
582
See United States ex rel. Franklin v. Parke-Davis, Div. of Warner-Lambert
Co., 147 F. Supp. 2d 39 (D. Mass. 2001); Cinquegrana & Lloyd, supra note 259.
583
The website for the organization Taxpayers Against Fraud maintains a list
of recent FCA settlements involving drug companies. Taxpayers Against Fraud, Top 20
False Claims Act Cases, http://www.taf.org/top20.htm (last visited Mar. 11, 2008).
584
See supra Part IV.
585
Buckman Co. v. Plaintiffs’ Legal Comm., 531 U.S. 341 (2001).
586
Talley v. Danek Med., Inc., 179 F.3d 154, 157 (4th Cir. 1999); Menges v.
Depuy Motech, Inc., 61 F. Supp. 2d 817, 829 (N.D. Ind. 1999); King v. Danek Med., Inc.,
37 S.W.3d 429, 430-31 (Tenn. Ct. App. 2000); see supra Part IV.A.2.
587
See Talley, 179 F.3d at 157; Menges, 61 F. Supp. 2d at 829; King, 37 S.W.2d
at 430-31; supra Part IV.A.
588
See Talley, 179 F.3d at 164; McCauley v. Purdue Pharma L.P., 331 F.
Supp. 2d 449, 462 (W.D. Va. 2004); Sita v. Danek Med., Inc., 43 F. Supp. 2d 245, 260
(E.D.N.Y. 1999); Baker v. Danek Med., 35 F. Supp. 2d 875, 878 (N.D. Fla. 1998);
Osburn v. Danek Med., Inc., 520 S.E.2d 88, 95 (N.C. Ct. App. 1999); Harden v. Danek
Med., Inc., 985 S.W.2d 449, 453 (Tenn. Ct. App. 1998); supra Part IV.B.
589
See supra Part IV.C.
590
Sita, 43 F. Supp. 2d at 245, 265; Rhoto v. Ribando, 504 So. 2d 1119, 1120
(La. Ct. App. 1987); Formella v. Ciba-Geigy Corp., 300 N.W.2d 356, 359 (Mich. Ct. App.
1980).
591
See, e.g., Knowlton v. Deseret Med., Inc., 930 F.2d 116, 124 (1st Cir. 1991);
Love v. Wolf, 38 Cal. Rptr. 183, 199 (Ct. App. 1964); Proctor v. Davis, 682 N.E.2d 1203,
1217 (Ill. Ct. App. 1997).
592
Medics Pharm. Corp. v. Newman, 378 S.E.2d 487, 488 (Ga. Ct. App. 1989);
see supra Part IV.D.
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Changing the Current Regulatory Policy
The current regulatory approach to off-label use of
drugs and medical devices is inconsistent and incoherent. On
one hand, the FDA tolerates and even approves of the
widespread prescription of drugs and medical devices for offlabel uses. At the same time, the FDA discourages pharmaceutical companies from disseminating information about offlabel uses to health care professionals.593 In addition, federal
health care programs often do not reimburse health care
providers for off-label therapies. This creates a serious
dilemma for drug companies. They have a strong financial
incentive to encourage off-label uses of their products by
directing promotional efforts at physicians and other health
care professionals. At the same time, drug companies that wish
to promote off-label uses of their products are often forced to
engage in conduct that exposes them to substantial civil and
criminal liability.594
The rationale for discouraging off-label uses is that
some of these uses may be dangerous or ineffective. Fen-phen
is perhaps the most famous example of an off-label prescription
drug use that posed significant safety risks.595 The drug
fenfluramine was originally approved by the FDA for shortterm use by obese patients. However, common off-label uses
included use in connection with another drug, phentermine;
use of the drug beyond the approved period; and use of the drug
by persons who were overweight but not obese.596 Unfortunately, long-term use of the fen-phen combination caused
heart valve damage to many patients.597 Other examples of
drugs that have caused injuries or were determined to be
ineffective after they were prescribed for off-label uses include
Letrozole, approved for the treatment of breast cancer but
prescribed as a fertility drug, and Actimmune, a drug approved
to treat two rare diseases but prescribed to treat idiopathic
pulmonary fibrosis.598 Letrozole caused birth defects, and
593
Greene, supra note 5, at 48.
Id. at 67-68.
595
Fen-phen is a combination of fenfluramine, a serotinergic agent, and
phentermine, an amphetamine-like substance. Wilsker, supra note 25, at 825-26. Both
of these drugs suppress appetite, though in different ways. Id.
596
Salbu, supra note 6, at 203.
597
Greene, supra note 5, at 47.
598
Margaret Z. Johns, Informed Consent: Requiring Doctors to Disclose OffLabel Prescriptions and Conflicts of Interest, 58 HASTINGS L.J. 967, 969 (2007).
594
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Actimmune was eventually found to be ineffective for treating
pulmonary fibrosis.
The FDA’s ambivalent attitude regarding the promotion
of off-label uses by drug companies reflects the fact that the
agency is faced with two competing regulatory goals, and there
is no obvious way to reconcile or balance them. The competing
goals are the speedy introduction of new and innovative
treatments for disease and the need to assure the public that
prescription drugs and medical devices are effective and
reasonably safe. While it is beyond the scope of this Article to
formulate a fully developed regulatory policy regarding offlabel use, it might be useful to examine a few alternatives to
the present policy.
We start with the assumption that a complete ban on
the promotion of off-label uses would have an adverse effect on
public health because it would inhibit the dissemination of
information about innovative medical treatments.599 As long as
the FDA allows physicians to prescribe drugs and medical
devices for unapproved uses, it makes no sense for the agency
to limit access to information about such uses. Therefore, the
FDA should revise its current policy to permit drug companies
to promote off-label uses of their products in the same manner
as they promote approved uses. In order to reduce the risks of
off-label use, the FDA should monitor promotional material for
accuracy and should require researchers who publish their
findings in scientific journals or speak at medical educational
programs to disclose any financial interest they may have in
the product.600 At the same time, the FDA should be able to
require a drug company to warn doctors when it becomes
aware of a risk associated with an off-label use,601 and if the
risk is significant, the agency should have the power to require
the manufacturer to prepare a supplemental NDA if it wishes
to continue promoting a particular off-label use. To be sure, if
drug manufacturers are allowed to freely promote off-label uses
of their products, they will have less incentive to undertake
the time-consuming and expensive process of seeking FDA
approval. However, as we have seen, as long as Medicare and
599
Merrill, supra note 21, at 1855.
Polubinski, supra note 30, at 1033-34.
601
The FDA currently maintains a website called Drug Watch which provides
doctors with information about off-label prescriptions. Johns, supra note 598, at 1006;
see also Stoffelmayr, supra note 31, at 276 (arguing for a tort-based duty on the part of
drug manufacturers to warn of all demonstrated risks of off-label uses of their
products).
600
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Medicaid programs do not reimburse health care providers
for off-label uses, drug manufacturers will still have some
incentive to seek FDA approval for uses that are currently offlabel.
VI.
CONCLUSION
Off-label uses of prescription drugs and medical devices
are common and widely accepted within the medical
profession.602 Unfortunately, the FDA restricts the ability of
drug manufacturers to promote off-label uses of their products.
In addition, government health insurance programs often do
not reimburse health care providers for off-label uses of
pharmaceutical products. Drug companies who act improperly
risk liability for violating the FDCA, RICO, or the FCA. Drug
manufacturers may also be subject to tort liability based on
theories of negligence per se, fraudulent misrepresentation,
failure to warn, and failure to test for risks associated with offlabel uses. All of this not only subjects drug companies to
substantial financial risks, but also discourages them from
providing physicians with useful information about new and
effective treatments.
602
Merrill, supra note 21, at 1854.
Google’s Law
Greg Lastowka†
[We] expect that advertising funded search engines will be inherently biased towards the advertisers and away from the needs of the
consumers . . . .
— Sergey Brin and Larry Page1
The economic success we continue to enjoy is the direct result of our
ability to marry our user experience to the information that
advertisers want to communicate.
— Larry Page2
INTRODUCTION
Google has become, for the majority of Americans, the
index of choice for online information.3 Through dynamically
generated results keyed to a near-infinite variety of search
terms, Google steers our thoughts and our learning online. It
tells us what words mean, what things look like, where to buy
things, and who and what is most important to us. Google’s
control over search results constitutes an awesome ability to
†
Associate Professor of Law, Rutgers School of Law—Camden. Early versions of this research were presented in 2007 at the University of Michigan School of
Law, the annual conference of the National Communication Association, and the
Rutgers Center for Cultural Analysis. I would like to thank James Grimmelmann, Dan
Hunter, Michael Kwun, Jessica Litman, Meredith McGill, Frank Pasquale, and Siva
Vaidhyanathan for helpful conversations about Google and search. Special thanks go to
Eric Goldman for extensive and invaluable feedback. Thanks also go to my research
assistants Candy Dougherty, Gus Sara, and Sidharth Uberoi for their diligent help.
The editors of the Brooklyn Law Review did wonderful work and improved the Article
substantially. Finally, I am grateful to Rutgers School of Law—Camden for providing
generous summer research support for this project.
1
Sergey Brin & Larry Page, The Anatomy of a Large-Scale Hypertextual
Web Search Engine, in PROCEEDINGS OF THE 7TH INTERNATIONAL WORLD WIDE WEB
CONFERENCE ON COMPUTER NETWORKS (1998), available at http://www7.scu.edu.au/
1921/com1921.htm.
2
Google Q3 2006 Earnings Call Transcript (Oct. 19, 2006), http://
seekingalpha.com/article/18858-google-q3-2006-earnings-call-transcript.
3
Who’s Afraid of Google?, THE ECONOMIST, Aug. 30, 2007 (noting that there
are other major search engines, “[b]ut Google, through the sheer speed with which it
accumulates the treasure of information, will be the one to test the limits of what
society can tolerate”).
1327
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set the course of human knowledge.4 It is not surprising that
the commercial exploitation of results is also the primary
source of Google’s wealth.
As this Article will explain, fortunes are won and lost
based on Google’s results pages, including the fortunes of
Google itself.5 Because Google’s results are so significant to
e-commerce activities today, they have already been the subject
of substantial litigation.6 Today’s courtroom disputes over
Google’s results are based primarily, though not exclusively, in
claims about the requirements of trademark law. This Article
will argue that the most powerful trademark doctrines shaping
these cases, “initial interest confusion” and “trademark use,”
are not up to the task they have been given, but that trademark law must continue to stay engaged with Google’s results.
The current application of initial interest confusion to
search results represents a hyper-extension of trademark law
past the point of its traditional basis in preventing consumer
confusion. Courts should reject the initial interest confusion
doctrine due to its tendency to grant trademark owners rights
over search results that could easily operate against the
greater public interest.7
On the other hand, the recent innovation of the trademark use doctrine improperly relieves trademark law of any
role in the supervision of Google’s search results. While the law
should be cautious in how it regulates new technologies such as
4
Lucas D. Introna & Helen Nissenbaum, Shaping the Web: Why the Politics
of Search Engines Matters, 16 INFO SOC’Y 3 (2000), available at http://www.nyu.edu/
projects/nissenbaum/papers/searchengines.pdf; Google Inc., Letter from the Founders:
“An Owner’s Manual” for Google’s Shareholders, in Forms S-1 Registration Statement
Under the Securities Act of 1933, at vi (filed with the SEC on Apr. 29, 2004)
[hereinafter Google Owner’s Manual]), available at http://www.sec.gov/Archives/
edgar/data/1288776/000119312504073639/ds1.htm (“Google users trust our systems to
help them with important decisions: medical, financial and many others.”).
5
Who’s Afraid of Google?, supra note 3 (“Many small firms hate Google
because they relied on exploiting its search formulas to win prime positions in its
rankings, but dropped to the internet’s equivalent of Hades after Google tweaked these
algorithms.”).
6
See, e.g., Rescuecom Corp. v. Google, Inc., 456 F. Supp. 2d 393 (N.D.N.Y.
2006); 800-JR Cigar, Inc. v. GoTo.com, Inc., 437 F. Supp. 2d 273 (D.N.J. 2006); Gov’t
Employees Ins. Co. (“GEICO”) v. Google, Inc., 330 F. Supp. 2d 700 (E.D. Va. 2004). All
three of these suits involved plaintiffs complaining about the appearance of competitor
advertisements in search results.
7
I have argued this point before in F. Gregory Lastowka, Search Engines,
HTML, and Trademarks: What’s the Meta for?, 86 VA. L. REV. 835, 857-58, 877 (2000)
(arguing against the extension of initial interest confusion doctrine to search results).
2008]
GOOGLE’S LAW
1329
Google,8 as Justice Cardozo once noted, major technological
changes often call for the transformation of law.9 Where new
technologies threaten new harms to society, the law must
respond. As will be explained below, trademark law should
retain its ability to confront, with common law flexibility, the
abuse of power in Google’s results.
If, as Lawrence Lessig has argued, computer code has a
regulatory force tantamount to law,10 the absence of any state
involvement in the shape of Google’s results will effectively
cede the structure of our primary online index to “Google’s law.”
Given Google’s meteoric rise to prominence and its current role
as our primary online index, the law should be vigilant. Google
may enjoy substantial public goodwill, but what is best for
Google will not always be what is best for society.11
Part I of this Article describes the history of Google and
its business model. Google is not the only search engine today,
but it is the leading search engine in terms of United States
market share.12 Additionally, Google is playing the most important role today in search engine litigation. It is a unique search
engine in many respects. During its evolution, Google followed
a very different path than many of its competitors. Today its
competitors are largely imitating its model, yet are unable to
dethrone its centrality in search. Understanding how Google
rose to prominence is essential to understanding its motives
and how it might act in the future.
Part II of this Article sets forth the contemporary law
pertaining to search results. It begins with a short discussion of
recent (failed) attempts to regulate Google’s results through
laws other than trademark. It then describes current theories
of trademark law and summarizes how this law has been
applied to search engines. It begins with early “meta tag” cases
8
See Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913,
949-66 (2005) (Breyer, J., concurring) (explaining “the limitations facing judges where
matters of technology are concerned”).
9
BENJAMIN N. CARDOZO, THE NATURE OF THE JUDICIAL PROCESS 62 (1921)
(“[T]he great inventions . . . have built up new customs and new law.”).
10
LAWRENCE LESSIG, CODE AND OTHER LAWS OF CYBERSPACE 3-8 (1999).
11
Who’s Afraid of Google?, supra note 3 (“Pretending that, just because your
founders are nice young men and you give away lots of services, society has no right to
question your motives no longer seems sensible.”).
12
Elise Ackerman, Google Gains Search Market Share, SAN JOSE MERCURY
NEWS, Mar. 20, 2008 (“According to the Chicago-based research firm, [the Google Click
for Enhanced Coverage Linking Searches] share of core searches jumped from 58.5
percent to 59.2 percent . . . .”).
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and concludes with Google’s current attempts to insulate itself
from liability under an expanded doctrine of trademark use.
Part III criticizes the current application of trademark
law to search engines. It argues that the judicial innovations of
both initial interest confusion and trademark use are inconsistent with the traditional purpose of trademark law and the
new realities of the e-commerce marketplace. A simple focus
on the likelihood of confusion standard, which some courts
have already supported, is overdue. The Article concludes by
explaining why, despite the fact that trademark law today will
likely permit Google’s current practices, Google’s bid for the
carte blanche freedom permitted by the trademark use doctrine
should be rejected by courts. In its relatively new role as a
protector of the social value of indices, trademark law must
retain the ability to curb potential abuses of the commercial
power enjoyed by Google.
I.
GOOGLE
I may use [Google] to check the spelling of a foreign name, to acquire
an image of a particular piece of military hardware, to find the exact
quote of a public figure, check a stat, translate a phrase, or research
the background of a particular corporation.
— Garry Trudeau13
For the majority of the United States population, Google
currently functions as the central Web index. The verb “to
Google” is often understood to mean “to search for information
on the Web.”14 Google’s popularity has also made it mindbogglingly wealthy. In the summer of 2007, only three years
after its IPO and nine years after its incorporation, Google was
valued at over $160 billion dollars (greater than the $65 billion
value of Disney and the $71 billion value of Time-Warner
combined).15
Google’s founders, Sergey Brin and Larry Page, were
typical graduate students ten years ago and today are multi-
13
AMY N. LANGVILLE & CARL D. MEYER, GOOGLE’S PAGERANK AND BEYOND:
THE SCIENCE OF SEARCH ENGINE RANKINGS 4 (2006).
14
This makes Google’s trademark lawyers concerned about “genericide.” See
Deven R. Desai & Sandra L. Rierson, Confronting the Genericism Conundrum, 28
CARDOZO L. REV. 1789, 1839-40 n.234 (2007).
15
See Google Finance, Aug. 31, 2007, http://finance.google.com/finance?q=
GOOG+DIS+TWX.
2008]
GOOGLE’S LAW
1331
billionaires.16 At work on Google’s California campus are at
least 700 newly minted multi-millionaires in the company’s
employ.17 Even the name “Google” has become a form of wealth.
According to one study, the Google brand, which has grown
with hardly any traditional media advertising, is worth over
$60 billion and has displaced Coca-Cola to become the most
recognized trademark in the world.18
How did Google become so wealthy? In short, by selling
advertisements. Over ninety-nine percent of the company’s
revenues come from Google’s sale of advertising.19 Considering
the history of Google, this seems like a very strange state of
affairs. As the quote from Google’s founders at the start of this
Article demonstrates, Brin and Page were once convinced that
advertising should play no part in Google’s business model.
They believed that a search engine funded by advertisers
would be “inherently biased towards the advertisers and away
from the needs of the consumers.”20 Google was created to fulfill
a need for a search engine that was “transparent and in the
academic realm.”21
Yet, as will be explained, despite receiving all its revenues from an influence they feared offered only contamination,
Google is still guided (perhaps haunted?) by an anti-advertising
ethos. The company’s informal corporate motto “Don’t Be Evil”22
may be viewed as naïve for a corporation, but Google’s
unconventional public statements suggest that its founders
still believe that part of what makes Google so special is its
refusal to condone “bias.” According to the company’s website:
“Google’s mission is to organize the world’s information and
make it universally accessible and useful.”23 Google’s 2004
SEC filing in advance of its IPO included a “letter from the
founders” to prospective stockholders that began:
16
More specifically, they are billionaires who roam the world in a Boeing 767
with a custom couch. Verne Kopytoff, Luxury Jet Lands in Court; Formica Forbidden
on Googlers’ Plane, Lawsuit Reveals, S.F. CHRON., July 11, 2006, at C1.
17
Quentin Hardy, Close to the Vest, FORBES, July 2, 2007, at 40.
18
Gemma Simpson, Google Beats Microsoft, Coke in Brand Stakes, CNET
NEWS, Apr. 23, 2007, http://news.com.com/2100-1014_3-6178310.html.
19
Google Inc., Annual Report (Form 10K), at 43 (Mar. 1, 2007), available at
http://www.sec.gov/Archives/edgar/data/1288776/000119312507044494/d10k.htm.
20
Brin & Page, supra note 1.
21
Id.
22
Google, Investor Relations: Google Code of Conduct, http://investor.google
.com/conduct.html (last visited Feb. 25, 2008).
23
Google, Corporate Information: Company Overview, http://www.google.com/
intl/en/corporate/index.html (last visited Feb. 25, 2008).
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[Vol. 73:4
Google is not a conventional company. We do not intend to become
one. Throughout Google’s evolution as a privately held company, we
have managed Google differently. We have also emphasized an
atmosphere of creativity and challenge, which has helped us provide
unbiased, accurate and free access to information for those who rely
on us around the world.24
Google thus presents a fascinating contradiction between its
profit model and its self-conception. It claims an unconventional interest in providing the world with “unbiased, accurate
and free” information, yet it also generates billions of dollars a
year in corporate wealth almost exclusively through exposing
the world to paid advertisements. Making this apparent
contradiction more interesting is the fact that Google is the
central player in contemporary litigation over what search
engines may and may not do. In this litigation, Google often
seeks to cast itself as a defender of public values combating the
overreaching claims of intellectual property owners.25
A.
Before Google
Since its earliest inception, the Internet has been a
means of storing and sharing large amounts of data. However,
reams of information devoid of an organizing indexical scheme
can be useless for all practical purposes. The same is true with
the digital files on the Internet, which are made even more
difficult to index by their scattered and anarchic mode of
production and hosting.26 Providing a reliable and useful public
index to the data on the Internet has long been a problem.
Internet search, however, is a relatively new development. For the first 20 years or so of the Internet’s history, there
were no search engines of the sort we know today. ARPANET,
the original network that evolved into the Internet, was
created by the funding of the United States military in the late
1960s.27 During the 1970s and 1980s, ARPANET grew in size
24
Google Owner’s Manual, supra note 4, at i (emphasis added).
For instance, see Google’s response to a lawsuit filed by the Author’s Guild
against its book search service. Susan Wojcicki, Google Print and the Authors Guild,
http://googleblog.blogspot.com/2005/09/google-print-and-authors-guild.html (“We regret
that this group chose to sue us over a program that will make millions of books more
discoverable to the world—especially since any copyright holder can exclude their
books from the program.”).
26
See Dan Hunter & F. Gregory Lastowka, Amateur-to-Amateur, 46 WM. &
MARY L. REV. 951, 1004-06 (2004).
27
See generally KATIE HAFNER & MATTHEW LYON, WHERE WIZARDS STAY UP
LATE (1996) (recounting the history of the Internet).
25
2008]
GOOGLE’S LAW
1333
and merged with similarly structured decentralized computer
networks. The end of all these mergers is the Internet: a great
decentralized, worldwide network of networks organized
around a common communications protocol.28
There were already over 1000 Internet hosts as early as
1984, yet there were no automated search and retrieval
programs that facilitated access to the files on these systems.29
Although e-mail usage and online bulletin boards were popular
in the 1980s, there were no tools that could be used to browse
the totality of the network. The problem was not with
understanding the concept of search. Computer programmers
were well acquainted with retrieving data in response to
queries. The Unix “grep” command, for instance, was (and is) a
common means of finding lines in data files that matched
targeted text strings.30 Other Unix commands, like “finger,”
were (and are) used to query networked systems for information.31 Yet it was not until 1989 that the Internet’s first true
search engine was created, “Archie.”32
Archie was a software tool that stored monthly indices
of the many files that were made available for public access on
the Internet.33 Archie used a Unix-derived interface that was
challenging to non-programmers and required users to run a
separate retrieval program (file-transfer protocol (“FTP”)) to
obtain files.34 Yet Archie was a revolution. For the first time,
the Internet community could see much of its own information.
Soon, multiple hosts were using the Archie software to index
and search for hosted files.35
28
Id. at 246-56 (explaining the origins and growth of the TCP/IP protocol).
J.R. OKIN, THE INTERNET REVOLUTION: THE NOT-FOR-DUMMIES GUIDE TO
THE HISTORY, TECHNOLOGY, AND USE OF THE INTERNET 323 (2005).
30
JERRY PEEK ET AL., LEARNING THE UNIX OPERATING SYSTEM 93 (5th ed.
2002) (describing the “grep” command).
31
ARNOLD ROBBINS, UNIX IN A NUTSHELL 91 (2005) (describing the “finger”
command).
32
Archie was the result of efforts by a group at McGill University in Canada.
NATIONAL RESEARCH COUNCIL, SIGNPOSTS IN CYBERSPACE: THE DOMAIN NAME SYSTEM
AND INTERNET NAVIGATION 296 (2005) (explaining the origins and technology of
Archie); Shea ex rel. American Reporter v. Reno, 930 F. Supp. 916, 928 n.8 (S.D.N.Y.
1996) (“To locate files available for copying, a user can contact an “Archie” server—a
remote computer capable of searching directories for file names containing a particular
string of characters on FTP servers permitting anonymous retrieval.”).
33
REGIS J. (BUD) BATES, BROADBAND TELECOMMUNICATIONS HANDBOOK 651
(2d ed. 2002).
34
Id.
35
NATIONAL RESEARCH COUNCIL, supra note 32, at 296.
29
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Archie was quickly surpassed, however, by the World
Wide Web. There were only 26 Web servers in 1992, but by
1996 the number had grown to over 340,000.36 (Today there
are over 90 million websites.37) By 1995, Web traffic had
surpassed FTP traffic.38 The Web took file sharing a quantum
leap forward by providing authors with a simple scripting
language (HTML) and readers with a universal retrieval application (the browser) that could piece together text, graphics,
and other files, while allowing seamless cross-server navigation
via hyperlinks.
Early Web search engines took almost no time to arise.
Modeled after Archie, they combed all publicly accessible Web
servers, indexed their contents, and allowed users to search for
targeted words and phrases. Companies such as Lycos (1994),
Webcrawler (1994), Yahoo! (1994), Excite (1995), AltaVista
(1995), Infoseek (1995), and Magellan (1995) became the new
hubs of the Internet.39
B.
Google’s Business
In 1997, Google founders Sergey Brin and Larry Page
were graduate computer science students at Stanford. They
wanted to build a search engine. To many observers, the
project must have appeared naïve and quaint. Brin and Page
came at least three years late to the search engine game. They
had no funding to purchase hardware.40 And more importantly,
36
See Mark Ward, Fifteen Years of the Web, BBC NEWS, Aug. 5, 2006,
http://news.bbc.co.uk/2/hi/technology/5243862.stm.
37
Id.
38
Lincoln Millstein, A Star Is Born, BOSTON GLOBE, Apr. 24, 1995, at 18
(“[I]t shouldn’t really surprise us that the World Wide Web now accounts for the
highest amount of traffic on the Net.”).
39
See Danny Sullivan, Where Are They Now? Search Engines We’ve Known &
Loved, SEARCH ENGINE WATCH, Mar. 4, 2003, http://searchenginewatch.com/2175241/
print.
40
One of the more humorous parts of the early Google story is about Page
and Brin begging, borrowing, and appropriating hardware and processing power from
other Stanford departments to build their search engine. See DAVID A. VISE & MARK
MALSEED, THE GOOGLE STORY 2-3, 40 (2005); JOHN BATTELLE, THE SEARCH 77-78
(2005).
More sobering is the fact that Google’s race for ever-larger mountains of
hardware never ended, and today is funding a mammoth and secretive project in the
Oregon wilderness alongside the Columbia River. Google’s investments in physical
infrastructure for search are so huge that they may help it maintain its market
position against new entrants. See Daniel Terdiman, Jostling to get inside Google’s
Oregon Outpost, CNET NEWS, JUNE 29, 2006, http://news.com /Jostling+to+get+inside+
Googles+Oregon+outpost/2100-1030_3-6089518.html.
2008]
GOOGLE’S LAW
1335
Figure 1 The 1999 default homepage of excite.com features polls, directories, weather forecasts, news, offers to buy books, chat rooms, stock quotes,
horoscopes, etc. Excite’s search function is eclipsed by its attempts to become
an all-purpose Web portal.
it was not clear why they thought their project was worth
pursuing. In dot-com business circles, it was believed that
while the technology of Internet search was not ideal, it was
not worth improving.41
But in fact, the search engines of 1997 were far less
useful than Google is today. Generally, they failed to provide
users with relevant results.42 And the companies that held
themselves out as search engines were not that interested in
making their search engines better. The conventional wisdom
of the major search engines was that given their power as
“hubs” of the Internet, they should become information and
entertainment “portals” (see Figure 1). Portals would negotiate
deals with traditional media companies in order to secure the
best content (which they believed would not be free).43 Portals
41
BATTELLE, supra note 40, at 83-84; VISE & MALSEED, supra note 40, at
46-47.
42
VISE & MALSEED, supra note 40, at 55.
BATTELLE, supra note 40, at 83-84; VISE & MALSEED, supra note 40, at 4647. The presumption that the free Web would be useless was probably the biggest
mistake most dot-com investors and businesses made. See generally Hunter &
43
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therefore attempted to make deals with major media companies to get access to “premium” news, services, information,
and entertainment. While they pursued this goal, they sought
revenues from advertising.
Improving search technology was actually inconsistent
with the portal philosophy. The greatest profits, it was thought,
would come from “stickiness,” that is, keeping people on the
portal’s website, showing them ads, and channeling them
toward premium partnered content.44 Providing a better index
of content “outside” the portal would simply be rewarding
competitor portals and sending user eyeballs and advertising
dollars away.45
Perhaps fortunately for Google, graduate students
Brin and Page lacked the finances and commercial instincts
required to play the portal game. Brin and Page, at least
initially, had a strong aversion to advertising, which they
believed detracted from their goal of improving the search
experience.46
Google launched with a near vacant,47 fast-loading48
home page that constituted a complete rejection of the portal
approach (see Figure 2). It was radically centered on the user
experience and expressed the anti-advertising philosophy of its
founders. This focus on the user helped define and popularize
Google’s brand reputation for fast and focused user-centered
searches.49 The austere original design remains today, at a time
when each white pixel on the home page is worth a fortune.
Lastowka, supra note 26 (explaining the social and historical roots of the presumption
and how “amateur” copyright practices defy it by providing much of the social utility of
the Web).
44
See VISE & MALSEED, supra note 40, at 104.
45
Id. at 42 (stating this was why Yahoo! declined to purchase Google); cf.
Jonathan L. Zittrain, The Generative Internet, 119 HARV. L. REV. 1974, 1990-91 (2006)
(describing the “walled garden” approach to content pursued by early Internet service
providers like CompuServe and Prodigy).
46
Brin & Page, supra note 1.
47
VISE & MALSEED, supra note 40, at 78 (explaining how many Google beta
testers confronted with the search engine’s page did not believe it had loaded). The
pure and popular whiteness of Google’s homepage has concerned some. One company
today offers a black Google homepage that utilizes Google’s search function. Blackle
claims that it has conserved over 100,000 Watt hours of energy by turning off the white
pixels. See Blackle—Energy Saving Search, http://www.blackle.com/ (last visited Feb.
25, 2008).
48
As Google’s Marissa Meyer has explained, application speed is essential to
the quality of user experiences. Dan Farber, Google’s Marissa Mayer: Speed Wins,
ZDNET: BETWEEN THE LINES, http://blogs.zdnet.com/BTL/?p=3925 (Nov. 9, 2006).
49
See James Caufield, Where Did Google Get Its Value?, 5 LIBRARIES & THE
ACADEMY 555, 562 (2005) (“[W]hat differentiated [Google] from other search engines
2008]
GOOGLE’S LAW
1337
Figure 2 The 1999 default google.com beta homepage is clearly focused on
user search to the exclusion of all else. Google’s current home page is almost
equally minimalistic.
The key appeal of Google, however, was not a predominantly blank home page, but instead the superior quality of
its results. Google’s technological advance, which Page later
patented, was essentially a way of letting the Web speak for
itself. Rather than relying exclusively on algorithmic science to
parse data and calculate relevance, Page came up with a
simple formula that determined the popularity of Web pages.
PageRank (a play on Page’s last name) took every hyperlink
written on the Web to be a kind of vote for the importance of
the Web page it pointed to. The application of PageRank to
search results allowed the most popular Web pages to float to
the top of Google’s search results. Combined with link analysis
techniques, PageRank made Google’s search results noticeably
better and allowed users to obtain more relevant results in
response to their search terms.50
was its willingness to adopt at least some of the traditional values of libraries and
other information services.”).
50
See Google, Technology Overview, http://www.google.com/corporate/tech.html
(last visited Feb. 25, 2008). The website explains:
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Google’s focus on improving relevance was closely tied to
its anti-advertising stance. In the same 1998 paper in which
they explained how PageRank worked, Brin and Page also
offered a reason why Google was opposed to advertising:
“[A]dvertising income often provides an incentive to provide
poor quality search results.”51 Brin and Page explained that
advertising-funded search engines would be inclined to simply
direct users to their advertising partners. They hoped Google
could avoid this conflict by avoiding advertising altogether:
“[T]he issue of advertising causes enough mixed incentives that
it is crucial to have a competitive search engine that is
transparent and in the academic realm.”52
Yet by 2000, only three years after Google’s launch, Brin
and Page had accepted millions of dollars in venture capital
while having no real business model.53 Beholden to their
investors in a climate where other online ventures were reeling
from the dot-com collapse, Page and Brin reluctantly began
selling advertising under a program called AdWords.54 Their
continued distaste for advertising was evident. There were no
advertisements on the home page, which remained vacant. The
ads, shown on results pages, contained no images, were printed
in a uniform small text font, were shaded blue, and were
segregated to the right side of the results listings under the
words “Sponsored links.”
Google uses numerous factors including its patented PageRank™ algorithm
to examine the entire link structure of the web and determine which pages
are most important. It then conducts hypertext-matching analysis to
determine which pages are relevant to the specific search being conducted.
By combining overall importance and query-specific relevance, Google is able
to put the most relevant and reliable results first.
Id. For a good explanation of how Google currently combines PageRank with the text of
hyperlink pointers and other data to calculate rankings, see Danny Sullivan, What Is
Google PageRank? A Guide for Searchers & Webmasters, http://searchengineland.com/
070426-011828.php (Apr. 26, 2007).
51
Brin & Page, supra note 1.
52
Id.
53
Ben Elgin, How Google Got Its Groove, BUS. WEEK, Sept. 19, 2005, at 144
(“Google Inc.’s breathtaking success makes it difficult to recollect the search startup of
five years ago: a cash-burning outfit with no business model, teetering one misguided
decision away from the dot-com rubble.”).
54
The company recounts these steps more fully in its corporate history. See
Google, Corporate Information: Google Milestones, http://www.google.com/corporate/
history.html (last visited Feb. 25, 2008). Accounts of Google’s advertising developments
can also be found in the two leading popular histories of Google. BATTELLE, supra note
40, at 121-29; VISE & MALSEED, supra note 40, at 93-102, 123-52.
2008]
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Yet when Google adopted advertising, it stole its most
profitable idea from an unusual source: GoTo.com.55 GoTo.com,
like Google, was a search engine launched in 1997.56 The business model of GoTo.com was, from a philosophical standpoint,
diametrically opposed to the academic and anti-advertising
ethos of Google. Rather than resisting advertising, GoTo.com
offered users pure advertising.
GoTo.com sold its search results to advertisers under a
paid placement business model.57 It auctioned placement under
specific search terms.58 The highest bidder would achieve the
highest placement in search results for a given term. For
instance, a user who searched on GoTo.com for “running shoes”
would be shown a page of advertisements ranked according
to the amount of money each purchaser paid GoTo.com.
Additionally, advertisers would pay GoTo.com only when users
clicked on a hyperlink pointing to their page, thus ensuring
that advertising payments were linked directly to the consumer
traffic provided by GoTo.com.
Though the GoTo.com model was profitable for the
company, perhaps for understandable reasons, a search engine
limited to paid advertising did not generate a great deal of
positive word of mouth. Instead, the majority of GoTo.com’s
revenues were derived from licensing its “results” for
“syndication” on other search engines.59 Essentially, GoTo.com
would enter into deals with companies like AOL whereby it
would buy screen space accompanying other search engine
results and return a portion of its revenues to the hosting site.60
With regard to its advertising efforts in its right-hand
column, Google copied the GoTo.com model wholesale, ultimately settling a patent infringement lawsuit based on its
appropriation of the practice.61 Like GoTo.com, Google sold
55
For more information about the history of GoTo.com, see John Battelle’s
colorful rendition of the history of the company and its founder, Bill Gross. BATTELLE,
supra note 40, at 95-121.
56
GoTo.com was renamed Overture in 2001, and was later purchased by
Yahoo!, Inc. It is currently known as Yahoo! Search Marketing. See Danny Sullivan,
Pay Per Click Search Engines (CPC/PPC), SEARCHENGINEWATCH.COM, Aug. 13, 2004,
http://searchenginewatch.com/showPage.html?page=2156291.
57
Saul Hansell, Clicks for Sale; Paid Placement Is Catching On in Web
Searches, N.Y. TIMES, June 4, 2001 at C1.
58
BATTELLE, supra note 40, at 104-08.
59
Id. at 113-16.
60
Id. This model is very similar to what Google has done with AdSense. See
infra Part I.E.
61
See BATTELLE, supra note 40, at 116.
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placement to advertisers only under specific terms. Like
GoTo.com, starting in 2002, advertisers paid Google only if
and when users clicked on their ads.62 And like GoTo.com,
Google’s AdWords terms were subject to an automated auction
mechanism.63
In short order, AdWords became Google’s diamond
mine. In 2001, Google turned a profit of $7 million.64 In 2002,
profits rose to $100 million.65 Four years later, in 2006, Google
posted revenues of $10 billion from AdWords-type advertising
sales, compromising over ninety-nine percent of its total
revenues.66 AdWords revenues are, essentially, the sole source
of Google’s wealth today. While Google may draw considerable
media attention through its other promising assets, such as
Google Earth, Google News, YouTube, etc., these other ventures have all been marginal in terms of their contributions to
the company’s profits.
“Mesothelioma” is a search term commonly used to
demonstrate how AdWords tapped a new form of wealth.67
Those searching for information about mesothelioma are often
suffering, or know someone who is suffering, from asbestosinduced cancer. Class action lawyers want to find these people.
As a result, Google can sell a single click on an advertisement
relating to mesothelioma for $30 to $50.68 The high price is the
result of a fierce bidding war by litigators.
There are millions of similar niche and not-so-niche
“term markets” out there, where advertisers bid against each
62
In 2005, Google also allowed users to purchase CPM (cost per thousand
impression) advertising. However, given that CPM pricing is the traditional model of
Internet “banner” advertising that preceded Google, it has apparently not taken off.
Sajjad Matin, Note, Clicks Ahoy! Navigating Online Advertising in a Sea of Fraudulent
Clicks, 22 BERKELEY TECH. L.J. 533, 536-37 (2007).
63
Google added one wrinkle: when many users clicked on an advertisement,
Google would count this as a “vote” to move that advertisement to the top of the
AdWords pile. As a result, more popular advertisements preceded less popular ones.
VISE & MALSEED, supra note 40, at 89-90. This increased “relevancy” and also ensured
that Google would display the advertisements that were most likely to garner clicks
and increase its own revenues.
64
See VISE & MALSEED, supra note 40, at 305.
65
Id.
66
Google Inc., Annual Report (Form 10K), at 69 (Mar. 1, 2007), available at
http://www.sec.gov/Archives/edgar/data/1288776/000119312507044494/d10k.htm.
67
See, e.g., Eric Goldman, Deregulating Relevancy in Internet Trademark
Law, 54 EMORY L.J. 507, 548 n.150 (2005); BATTELLE, supra note 40, at 110; VISE &
MALSEED, supra note 40, at 117.
68
See Truth in Advertising; Internet Commerce, THE ECONOMIST, Nov. 25,
2006 ($30); Jon Fine, Rise of the Lowly Search Ad, BUS. WEEK, Apr. 24, 2006, at 24
($50).
2008]
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other for the right to connect with individuals searching for
“school loans,” “oversize shoes,” “beanie babies,” and everything
else under the sun. For many advertisers, AdWords purchases
produce a greater return on investment than traditional media
channels. A newspaper advertisement about mesothelioma will
force the advertiser to subsidize a broadcast to many people
who have no interest. With AdWords, the searcher comes to the
advertiser, perhaps primed for a commercial transaction and
just a mouse-click away from completing it.
C.
Two Sample Results Pages
In order to ground further discussion of AdWords and
its relation to Google’s primary results with specific examples,
this section briefly discusses the results Google displayed in the
summer of 2007 in response to queries for two terms: “cars”
and “nike.”69 The two terms are selected with a discussion of
trademark law in mind. The term “cars” might be understood
by laypersons as a generic term for a class of heavily advertised
goods (automobiles). The term “nike” probably calls to mind,
for many readers, the trademark of a particular sneaker
company.70
69
It should be noted that Google’s results for any term are inherently
unstable. Because Google regularly refreshes its Web index and modifies its relevancy
algorithm, its organic results may change from day to day.
70
In fact, as I will explain below, this is a false dichotomy. Both terms have
established trademark and non-trademark meanings.
“Nike” is also part of a proud tradition of law review commentary on search
engines and trademarks. See, e.g., Graeme B. Dinwoodie & Mark D. Janis, Confusion
Over Use: Contextualism in Trademark Law, 92 IOWA L. REV. 1597-632 (2007)
[hereinafter Dinwoodie & Janis, Contextualism] (“To ensure that potential NIKE
consumers are not bamboozled in their efforts to reach the NIKE site, Nike, Inc. has
purchased a sponsored link on Google that appears in response to a query for NIKE.”);
Goldman, supra note 67, at 509 (“She enters the word ‘Nike’ into the Google search
engine in an attempt to find source material for her report . . . .”); Kurt M. Saunders,
Confusion Is the Key: A Trademark Law Analysis of Keyword Banner Advertising, 71
FORDHAM L. REV. 543, 565 (2002) (“[I[f a consumer in search of NIKE athletic shoes
types in ‘Nike’ . . . .”); Jason Allen Cody, Note, Initial Interest Confusion: What Ever
Happened to Traditional Likelihood of Confusion Analysis?, 12 FED. CIR. B.J. 643, 643
n.2 (2003) (“On February 14, 2002, the author typed ‘nike’ into a comprehensive search
engine, Google.”); Jennifer D. Johnson, Comment, Potential Liability Arising Out of the
Use of Trademarks in Web Site Meta Tags and Ensuring Coverage of Meta Tag
Trademark Infringement Claims under Commercial Insurance Policies, 50 CATH. U. L.
REV. 1009, 1019 (2001) (“For example, if a Web user wants to search for Web pages
containing information on Nike shoes, the user places ‘Nike’ as a search term in a
search engine.”). “Nike” has even been used as an example search term by Google to
illustrate its technology. See Google, Our AdWords Trademark Complaint Procedure,
http://www.google.com/tm_complaint_adwords.html (last visited Feb. 25, 2008) (stating
that a purchaser of the keyword “shoes” may have advertising displayed in response to
queries for “Nike shoes”).
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Figure 3 A 2007 search results page for “cars” shows the user-entered
keyword at the top of the page, the organic (unpaid) results on the left side of
the page, and the paid “sponsored links” results on the right side of the page.
Note that the keyed term “cars” is highlighted with bold type in both the
organic and paid results.
The screenshot in Figure 3 shows a partial page of
Google results for “cars” in North America during the summer
of 2007. In the shaded bar at the top of the page, Google claims
to have indexed over 300 million websites related to “cars.”
However, only ten of these 300 million “organic” results—those
ten that Google’s ranking algorithm deemed most relevant—
have been displayed on the first page of results. The average
user will only rarely travel beyond this first page of results.71
The left column lists Google’s organic results, starting
with multiple sub-domains of the website “cars.com.” The right
column is filled with AdWords advertisements, displayed under
the words “Sponsored Links.” About half of the left-column
organic results for “cars” relate to a Disney movie of that name.
The other half are links to websites selling and providing
information about automobiles, like a Washington Post website
that offers information about cars.
71
See, e.g., Goldman, supra note 67, at 535, 535 n.85 (citing studies).
2008]
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Figure 4 A 2007 search for “nike” produces two sponsored links that
appear above the organic listings (these are lightly shaded in a highlight
color) and three sponsored links on the right side of the page. The organic
results are dominated by the websites of the Nike™ athletic wear company.
Figure 4 shows Google’s results page for “nike.” “Nike”
is apparently understood by both Google’s algorithm and its
AdWords advertisers as the proper name of a sneaker company. All the top-page results and AdWords advertisements
reflect this meaning of the word. The left column here is
somewhat different than the last example because Google has
“awarded” two advertisers (Nike and Finish Line72) with top
left-column placements for their advertisement, which appear
above the left-column results.73 The standard left-hand column
72
Finish Line has some significant advertising partnerships with Nike,
which may be relevant to the placement. See Reuters, Finish Line and Nike Team Up,
Aug. 3, 2007, http://www.topix.net/content/reuters/2007/08/finish-line-and-nike-teamup (reporting on a joint campaign to promote a new line of Nike™ sneakers).
73
Ads that appear above the organic listings cannot be purchased from
Google (at least not currently), but are Google’s way of “rewarding” AdWords purchasers who make their advertisements highly relevant to users (in other words, ads
that produce a very high click-through rate are put in this position). This is explained
by a Google employee blogger. See Posting of Blake to Inside AdWords, http://
adwords.blogspot.com/2005/12/into-blue.html (Dec. 2, 2005, 15:31 EST) (“At the bottom
line, highly relevant keywords and ad text, a high CPC, and a strong CTR will result in
a higher position for your ad and help you rise ‘into the blue.’”).
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follows these two advertisements and includes several links to
the Nike company’s websites. In the right column, various
AdWords advertisements for the search term “Nike” are listed.
These include advertisers that sell Nike footwear as well as
other brands of sneakers.
D.
The Left and Right Columns
During its short history, Google has repeatedly proclaimed that its business model bears no resemblance to the
model of GoTo.com, in which advertisers paid for prominent
placement in results.74 Google draws a bright line between leftcolumn “results” and right-column “advertisements.”75 The
Google home page states, “[W]e always distinguish ads from
the search results or other content on a page. We don’t sell
placement in the search results themselves, or allow people to
pay for a higher ranking there.”76
In a 2004 statement to prospective shareholders, under
the heading “DON’T BE EVIL,” Google stated:
Our search results are the best we know how to produce. They are
unbiased and objective, and we do not accept payment for them or
for inclusion or more frequent updating. We also display advertising,
which we work hard to make relevant, and we label it clearly. This is
similar to a newspaper, where the advertisements are clear and the
articles are not influenced by the advertisers’ payments.77
So according to Google’s public relations, one way it avoids
“being evil” is by refusing to allow its left-hand column to be
purchased, while making its right-hand column its profit
center. There are clearly echoes here of the Google founders’
former aversion to advertising. On the other hand, placement
in the right-hand column must be purchased. And in the right
column, a lack of relevance is no bar to placement if an
advertiser is willing to pay.78
74
See BATTELLE, supra note 40, at 115-16.
See James Caufield, supra note 49, at 564 (explaining Google’s historical
anti-advertising ethos and stating “Google has erected a barrier between advertising
and search”).
76
Google, Inc., Company Information: Corporate Overview, http://www.google
.com/intl/en/corporate/index.html (last visited Feb. 25, 2008).
77
Google Owner’s Manual, supra note 4, at vi.
78
However, advertisements producing fewer clicks (and fewer revenues for
Google) are threatened with removal unless payments per click are increased. For
example, in the summer of 2007, I bought an AdWords placement for the keyword
“nike” that pointed to an unrelated weblog. After about 400 impressions that
(unsurprisingly) led to no click-throughs, Google informed me that I might remain
75
2008]
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The left/right distinction is very important to Google,
but studies have shown it is not important to the average
user.79 In fact, the average Google user does not distinguish
between the two types of links. According to one recent study,
five out of six search engine users cannot tell the difference
between sponsored links and organic results, and roughly half
are unaware that a difference between the two exists.80
To the extent users are uncertain about the nature of
right column advertisements and left column “organic results”
on Google, Google’s design choices may not help the situation.
As the screenshots show, AdWords advertisements appear in
generally the same format as organic results and this may lead
users to equate them. The small words “Sponsored Links” and
the pastel shading of the AdWords could be ambiguous. To
someone unfamiliar with the details of Google’s advertising
practices, it might seem as if Google is suggesting that the
advertisements are more relevant (that is, Google “sponsors”
the results). In 2002, the Federal Trade Commission warned
search engines that they were obliged to clearly differentiate
paid results from non-paid results.81 However, the FTC has yet
to take any action.82
There is another good reason that users may not spot
the difference between Google’s right and left columns. Google’s
left-hand column is, in fact, subject to market forces in ways
that can make it similar to the right-hand column. Businesses
seeking consumer traffic realize that both columns are simply
listed by increasing my bid from $1 per click to $5 per click. (I declined.) (Printouts on
file with author.)
79
See Goldman, supra note 67, at 518 (discussing “artificial divisions”
between ads and content).
80
See Deborah Fallows, Search Engine Users, PEW INTERNET & AM. LIFE
PROJECT, Jan. 23, 2005, at 17-18, available at http://www.pewinternet.org/PPF/r/
146/report_display.asp (“Among the 38% of internet users who are aware of the
practice [of two different types of search results], some 47% of searchers say they can
always tell which results are paid or sponsored and which are not. This represents
about one in six of all internet searchers.”). It should be noted that this study
apparently included other search engines—studies conducted specifically with regard
to Google’s practices would be more ideal. Id.
81
Letter from Heather Hippsley, Acting Associate Dir., F.T.C. Division of
Advertising Practices, to Gary Ruskin, Executive Director, Commercial Alert (June 27,
2002), available at http://www.commercialalert.org/PDFs/ftcresponse.pdf (“[T]he staff
recommends that if your search engine uses paid placement, you make any changes to
the presentation of your paid-ranking search results that would be necessary to clearly
delineate them as such, whether they are segregated from, or inserted into, non-paid
listings.”).
82
See generally Andrew Sinclair, Note, Regulation of Paid Listings in
Internet Search Engines: A Proposal for FTC Action, 10 B.U. J. SCI. & TECH. L. 353
(2004) (arguing that the FTC should take action with respect to paid placement).
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lists of links. Being first in the left-hand column may provide
more traffic to a site than paying for an AdWords advertisement.83 Many small e-commerce fortunes have been found
(or lost) by inadvertently pleasing (or displeasing) the organic
Google algorithms that structure the left-hand column.84 As a
result, a profitable business has grown up around the science of
reverse engineering Google’s algorithm and adapting business
websites to please it. This practice is known as “search engine
optimization,” or “SEO” for short.
Google has little to gain from helping the SEO business
flourish.85 As Brin and Page realized in 1998, completely
following the GoTo.com model would likely produce search
results that are not ideal for users. Displeased users might look
for a better search engine. If Google cannot capture profits
from the left-hand column for fear of displeasing users, then its
optimal strategy should be combating SEO that undermines
the indexical utility that column provides to users. In addition,
by combating SEO, Google can drive advertisers to its righthand column and can gain greater profits.
Yet the SEO economy is here to stay and is currently
valued at $4.1 billion.86 This makes questionable Google’s claim
that the left-hand column is not commercially influenced. Many
SEO techniques are not “evil,” but rather common sense (albeit
technically obscure) methods designed to maximize search
engine ranking. Yet these benefits are reaped only by those
who are able to pay for them.
83
Studies indicate that the first link in search results draws much more
traffic than the second link—regardless of the text of the link. See Jakob Nielsen,
The Power of Defaults, ALERTBOX, Sept. 26, 2005, http://www.useit.com/alertbox/
defaults.html; Bing Pan et al., In Google We Trust: Users’ Decisions on Rank, Position,
and Relevance, J. COMPUTER-MEDIATED COMM. 12(3) (2007), available at http://
jcmc.indiana.edu/vol12/issue3/pan.html (“In summary, the findings here show that
college student subjects are heavily influenced by the order in which the results are
presented and, to a lesser extent, the actual relevance of the abstracts.”).
84
See, e.g., Paul Sloan, How to Scale Mt. Google: Getting Your Site on the
First Page Can Turn a Hobby into a Thriving Business, CNNMONEY, May 14, 2007,
http://money.cnn.com/magazines/business2/business2_archive/2007/05/01/8405661/index
.htm (explaining how a small business selling kitchen cabinets used search engine
optimization techniques to go from negligible profits to “revenue of $10,000 a month
and more inquiries than her one-woman business can handle”); Who’s Afraid of
Google?, supra note 3 (“Many small firms hate Google because they relied on exploiting
its search formulas to win prime positions in its rankings, but dropped to the internet’s
equivalent of Hades after Google tweaked these algorithms.”).
85
See generally James Grimmelmann, The Structure of Search Engine Law,
94 IOWA L. REV. (forthcoming 2008), draft available at http://papers.ssrn.com/sol3/
papers.cfm?abstract_id=979568 (explaining the various techniques of SEO and stating
that “[s]trong market incentives compel search engines to combat SEO”).
86
Sloan, supra note 84.
2008]
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Google’s algorithm can also be gamed by more devious
SEO practices that can sometimes lead to retaliatory actions by
Google. While Google condones “honest” SEO, it cautions
against hiring “aggressive” SEO companies that “unfairly
manipulate search engine results” in ways that are “beyond the
pale.”87 This is obviously a fuzzy line and Google’s conduct has
not done much to clarify the distinction it draws between fair
and unfair SEO. This might be best exemplified by Google’s
responses to the practice of “Google-bombing.” Google-bombing
is based on a well-known feature of Google’s link analysis
algorithm. As Steve Johnson has explained, part of Google’s
ranking algorithm has included the analysis of a hyperlink’s
textual content.88 So, for example, if the majority of hyperlinks
with the text “Nike” point to the website of Nike, Inc., Google
might be more likely to list that website as an early result.
Google-bombers exploit this fact by repeatedly linking a
particular target phrase to a particular target website.89
In 2005, Google vice-president Marissa Meyer acknowledged Google-bombers had managed to link Google’s top result
for “failure” and “miserable failure” to the website of the White
House, but explained that Google was reluctant to intervene
with this outcome: “We don’t condone the practice of googlebombing, or any other action that seeks to affect the integrity
of our search results, but we’re also reluctant to alter our
results by hand in order to prevent such items from showing
up.”90
SEO tactics, both “fair” and “unfair” (and those in
between), produce higher left column rankings. Therefore,
economically rational businesses should weigh dollars spent on
87
See Google, What’s an SEO? Does Google recommend working with
companies that offer to make my site Google-friendly?, http://www.google.com/support/
webmasters/bin/answer.py?hl=en&answer=35291 (last visited Feb. 25, 2008) (“[A] few
unethical SEOs have given the industry a black eye through their overly aggressive
marketing efforts and their attempts to unfairly manipulate search engine results . . . .
While Google doesn’t comment on specific companies, we’ve encountered firms calling
themselves SEOs who follow practices that are clearly beyond the pale of accepted
business behavior. Be careful.”); Frank A. Pasquale, Rankings, Reductionism, and
Responsibility, 54 CLEV. ST. L. REV. 115, 124 n.41 (2006).
88
Steven Johnson, The Art of Googlebombing: How the Mighty Internet
Search Engine’s Rankings of Results Can Be Manipulated, DISCOVER, July 1, 2004,
at 22.
89
Pasquale, supra note 87, at 121.
90
Posting of Marissa Mayer to Official Google Blog, http://googleblog.blogspot
.com/2005/09/googlebombing-failure.html (Sept. 16, 2005, 12:54 EST) (“Pranks like this
may be distracting to some, but they don’t affect the overall quality of our search
service, whose objectivity, as always, remains the core of our mission.”).
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AdWords against dollars spent on SEO.91 The New York Times
recently admitted that it has been using SEO “to make money
by driving traffic to its Web site.”92 An editor for the Times
declared that its SEO tactics push “Times content to or near
the top of search results, regardless of its importance or
accuracy.”93 Given the importance of SEO, it can be hard to see
the much-vaunted distinction between the left-hand and righthand columns on Google. Both are commercially influenced.
Google’s interest in the distinction between advertising
results and organic results should be understood as an interest
not so much based on avoiding “evil,” but primarily on securing
profit. Clicks on “nike” AdWords advertisements produce
revenues for Google. Clicks on left-column “nike” results may
take the user to the same business, but produce no revenues for
Google. Google’s bottom line depends on the difference between
its left and right columns. However, users searching for “nike”
on Google are likely to be sent to a sneaker company in either
case.94
E.
A Note on AdSense
In 2003, Google added further complexity to its advertising model by introducing AdSense.95 According to recent
financial statements from Google, a majority of Google’s
current revenues are generated by AdWords, while AdSense
accounts for a significant minority percentage.96 Though an
in-depth analysis of the structure of AdSense is beyond the
91
See Pasquale, supra note 87, at 129 (explaining how “the first unpaid
result is likely to get ten times the traffic of the tenth”). Pasquale views the practice of
SEO as an “arms race” generating negative economic externalities, drawing an
interesting comparison to U.S. News Rankings. Id. at 130-34.
92
Clark Hoyt, When Bad News Follows You, N.Y. TIMES, Aug. 26, 2007, at
WK10.
93
Id.
94
Cf. Goldman, supra note 67, at 509 (hypothesizing a situation where, due
to the influence of trademark law on search results, a future student might search for
“nike” on Google and be unable to find information on the mythological figure). It may
well be that with or without trademark law influencing search results, the
mythological Nike will be comparatively obscure in the world of search engines.
95
See Google, Corporate Information: Google Milestones, http://www.google
.com/corporate/history.html (last visited Feb. 25, 2008).
96
In the first quarter of 2007, Google generated approximately $2.3 billion
(62% of revenues) from AdWords and approximately $1.3 billion (37% of revenues) from
AdSense. See Google Investor Relations, Google Announces First Quarter 2007 Results,
http://investor.google.com/releases/2007Q1.html (last visited Apr. 20, 2008).
2008]
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scope of this Article, it is worth briefly describing how the
AdSense model differs from the AdWords model.97
AdSense is a program whereby website owners are paid
by Google to provide advertising space on their websites where
AdWords advertisements are displayed. The precise advertisements displayed are determined by a process similar to the
process that determines AdWords placements in search results.
However, given that the AdSense ads are incorporated in
websites and are not triggered by searches, Google’s algorithm
matches advertisements to the text of the website rather
than search term. Hence, a website describing the Greek
goddess Nike might display AdSense advertisements for Nike
sneakers.98 According to Google, “AdSense technology analyzes
the text on any given page and delivers ads that are appropriate and relevant, increasing the usefulness of the page and
the likelihood that those viewing it will actually click on the
advertising presented there.”99
The AdSense program draws hosting sites into a closer
relationship with Google. Because Google operates as an index,
almost all small websites are partially dependent on Google for
the traffic they receive.100 AdSense allows small and large
websites that seek profits to partner with Google and share in
revenues. When website viewers click on AdSense advertisements, the advertisers pay Google for the traffic generated, and
Google forwards a percentage of the proceeds to the website
that hosts the AdSense advertisement.101
One major criticism of the AdSense model is its
relationship to a “clickfraud” industry built around “false click97
For more information about clickfraud and legal claims against it, see
generally Matin, supra note 62.
98
Though Google’s current algorithm is smart enough to promote travel to
Greece most of the time, the occasional sneaker ad actually does appear. (Printout on
file with author.)
99
Google, Corporate Information: Google Milestones, http://www.google.com/
corporate/history.html (last visited Feb. 25, 2008).
100
To take a random example, the law blog Concurring Opinions receives the
majority of its traffic from search engines, with Google accounting for the substantial
majority of search engine traffic. See eXTReMe Tracking, http://extremetracking.com/
open;ref2?login=solo1111 (last visited Feb. 25, 2008).
101
BATTELLE, supra note 40, at 151-52. AdSense has even crept into the
“market” (such as it is) for law review articles: the academic paper-hosting website
Social Science Research Network (“SSRN”) generates revenues by displaying AdSense
advertisements. For instance, at present a draft of Professor Mark A. Lemley’s
Property, Intellectual Property, and Free Riding, 83 TEX. L. REV. 1031 (2005), is
associated by Google with ads for the law firms of Myers, Boebel & MacLeod and Buus
Kim Kuo & Tran LLP. Another popular paper by Professor Orin Kerr features
advertisements for Harry Potter ring tones. (Web page printouts on file with author.)
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throughs.”102 Advertisers generally and reasonably trust that
traffic flowing from Google’s results pages is genuine. However,
AdSense is prone to a systemic failure. AdSense hosts have an
incentive to maximize their income by maximizing the number
of times users click through on hosted advertisements. While
most AdSense hosts generate their viewer traffic and AdSense
profits in “fair” ways (for example, making their websites more
likely to attract attention), there are more direct ways to
generate clicks on advertisements.
If a click is worth a dollar to an AdSense host, it is
hardly surprising that some hosts will pay individuals something less than a dollar to click on their advertisements. Many
unscrupulous websites have been willing to split their AdSense
profits with paid teams of so-called click-farmers who generate
fake AdWord clicks (that is, clicks that are not based on any
actual interest in the advertising). Analysts estimate that
around five to twenty percent of AdSense clicks are generated
by such clickfraud.103 This makes clickfraud a multi-billion
dollar business.
While Google has recognized that clickfraud is a
problem, it is also true that Google must profit from undetected
clickfraud practices in the short term.104 While Google does
not charge for “invalid clicks” that it detects and has a division
that works to combat clickfraud,105 it is not clear that Google
has any strong incentive to address the problem. Google’s CEO,
Eric Schmidt, has even stated that the clickfraud situation is
“self-correcting” and that the market can provide a perfect
“economic solution” to the problem.106 This has not deterred
class action suits against Google based on the practice, one of
which was recently settled for ninety million dollars.107 As a
102
VISE & MALSEED, supra note 40, at 240-49.
Matin, supra note 62, at 540-41.
104
VISE & MALSEED, supra note 40, at 248 (“Google has the data, but not the
incentive, to put sufficient resources into fighting clickfraud . . . .”).
105
See Google, Google Ad Traffic Quality Resource Center: Overview,
http://www.google.com/adwords/adtrafficquality/overview.html (last visited Feb. 25,
2008) (“[W]e protect advertisers against click fraud by not charging for suspicious
clicks. The intent of a click is difficult to determine with a high degree of scientific
accuracy. We therefore create a high false positive rate by marking a much larger
number of clicks as invalid compared to the number of clicks we believe to be generated
with bad intent.”).
106
Posting of Donna Bogatin to ZDNET (July 9, 2006, 4:51 EST), http://blogs
.zdnet.com/micro-markets/index.php?p=219 (“According to Schmidt, Google’s auctionbased pay-per-click advertising model is inherently self-correcting.”).
107
Matin, supra note 62, at 546; Final Order and Judgment Approving
Settlement, Lane’s Gifts and Collectibles LLC v. Yahoo! Inc., No. CV-2005-52-1 (Ark.
103
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recent student note points out, the legal obligations of Google
to police against clickfraud have not been conclusively settled
by courts.108
II.
THE CURRENT LEGAL STATUS OF SEARCH RESULTS
A.
Non-Trademark Search Regulation
This second Part considers attempts to use law to
regulate the structure of Google’s results. As an initial matter,
it is worth observing how the law clearly does regulate Google’s
results in many ways. In its right-hand column, Google, by its
own policies, prohibits twenty-eight types of AdWords advertising.109 Among the prohibited advertisements are those for
prostitution, child pornography, computer hacking tools, weapons, and counterfeit goods.110 These bans are clearly motivated
by Google’s concerns over legal liability. In its left column,
Google has a policy of removing certain search results from its
indices when copyright holders notify Google that the linked
resources contain infringing material.111 The procedure that
Google follows affords it a “safe harbor” from infringement
liability under the Digital Millennium Copyright Act.112
The key question about Google, therefore, is not whether
its results pages should be regulated per se, but whether
search results require a more specific form of regulation.
Google’s business model is different from that found in other
media. One does not consult a daily newspaper to rapidly
discover useful information about mesothelioma lawyers, Phil
Rizzuto, or “phrogging.”113
Cir. Ct. complaint filed Feb. 17, 2005). Given that Google generated roughly $4 billion
in 2006 from AdSense, this actually is a very favorable settlement from Google’s
standpoint. Much of the settlement consists of “credits” to advertisers.
108
Matin, supra note 62, at 540 (noting that there is no industry-accepted
definition for an “invalid click”).
109
See Google, Google AdWords: Content Policy, https://adwords.google.com/
select/contentpolicy.html (last visited Feb. 25, 2008).
110
Id.
111
See Google, Digital Millennium Copyright Act, http://www.google.com/
dmca.html (last visited Feb. 25, 2008).
112
Id.
113
This term “phrogging” apparently means living in someone else’s home
without their knowledge or permission. It can be found in Google’s “Hot Trends,” a list
of search queries that became rapidly popular on given dates. For instance, on August
14, 2007, the Google top ten Hot Trends were as follows: “1. phil rizzuto, 2. phrogging,
3. sentinel management group, 4. sue scheff, 5. vomit island, 6. paycheck showdown, 7.
sentinel funds, 8. craig carton, 9. albert insinnia, 10. tiger woods design.” For more
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If our concerns are about the general nature of Google’s
results pages, we might start by taking the earlier examples
(“cars” and “nike”) and looking for flaws. It is not hard to find
some basis for criticism.114
Traditional mass media has been criticized for many
reasons, but legal commentary has often emphasized the way
in which it tends to privilege majority preferences over more
diverse viewpoints, and the way that it favors information that
is commercially effective over information that is less integral
to facilitating commercial transactions.115 Both of these
criticisms apply fully to the “cars” and “nike” results provided
by Google.
Google clearly demonstrates a commercial bias in the
searches for both “cars” and “nike.” Though most dictionaries
suggest that “cars” is the plural of a term for automobiles,
Google’s results correlate the term, in significant part, with a
recent Disney movie. And whereas most all dictionaries define
the word “nike” as the name of the Greek goddess of victory,
Google’s right and left columns privilege information about
(and largely created by) a sneaker company.116
There is also a significant and systemic bias in favor of
majority preferences. Google’s PageRank formula is designed to
privilege websites that win the most “votes” in the form of
hyperlinks. The commercial bias and the popular bias of Google
are difficult to disaggregate. Commercial influence drives
offline and online advertising and social prominence. So it may
be that “cars” is highly correlated with a Disney movie because
many Web authors exposed to Disney’s advertising and
entertainment have now associated the term with the movie
in hyperlinks. The same may be true of the shape of “nike”
results. Google may simply be a mirror held up to a consumer
culture. Of course, there might be other explanations: if Disney
and Nike are engaging in sophisticated SEO, their investments
query demographics, see Google, Hot Trends, http://www.google.com/trends/hottrends
(last visited Feb. 25, 2008).
114
For an early critique of search engines, see generally Introna &
Nissenbaum, supra note 4 (criticizing the manner in which search engines display
results).
115
See Frank A. Pasquale & Oren Bracha, Federal Search Commission?
Access, Fairness and Accountability in the Law of Search (Univ. of Texas Law, Pub.
Law Research Paper No. 123, July 23, 2007), at 7, draft available at http://ssrn.com/
abstract=1002453.
116
Google does eventually provide results that reflect the mythological
meaning, just not on its first page.
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may also be responsible for the prominence of “cars” and “nike”
in the organic results.
If we look for commercial influence in the right column,
it is nearly total. The AdWords in the right-hand column are
ranked according to the highest bidder, conditioned only by
the popularity of the advertisements with users. This should
naturally result in a bias toward both commercial influence
and majority preferences. In short, Google’s results pages are
prone to exactly the same types of bias found in traditional
mass media.117
This may be disappointing to those hoping that Google
might be able to remedy the biases of traditional media. We
might ask if Google could be required to provide results that
are more diverse or less responsive to commercial influence.
However, even if there were political will sufficient to enact
broad legislation, it is not clear that it would withstand a legal
challenge. In litigation, Google has argued that its results
pages simply represent Google’s opinion (or the opinion
produced by its algorithm) about sites relevant to the search
terms.118 As such, even if Google were to follow the model of
GoTo.com and only direct users to sites according to
advertising payments, it might claim protection under the First
Amendment (unless its results were somehow deceptive).
A line of cases is beginning to reflect this view,
according Google the freedom to provide results in any way it
deems fit, including through the hand-editing of its indices.
The two most prominent cases have been Search King, Inc. v.
Google Technology, Inc.,119 brought in the Western District of
Oklahoma, and KinderStart.com, LLC v. Google, Inc.,120 brought
in the Northern District of California.
117
For a thorough discussion of the potential biases inherent in Google’s
results, see Alejandro M. Diaz, Through the Google Goggles: Sociopolitical Bias in
Search Engine Design (2005) (unpublished master’s thesis), available at http://
www.stanford.edu/~amd/download/thesis_final.pdf.
118
See Langdon v. Google, 474 F. Supp. 2d 622 (D. Del. 2007). In this case, a
pro se plaintiff argued that Google failed to “honestly” rank his website in its search
results. Id. at 629. Google defended its practice on the basis that the First Amendment
precluded relief requiring it to change its rankings. Id. at 629-30. The plaintiff did not
challenge this argument and the court found in Google’s favor. Id.
119
No. CIV-02-1457-M, 2003 U.S. Dist. LEXIS 27193 (W.D. Okla. May 27,
2003). For additional discussion of the Search King case, see Pasquale, supra note 87,
at 124-25.
120
No. C 06-2057, 2006 U.S. Dist. LEXIS 45700 (N.D. Cal. June 26, 2006);
2006 U.S. Dist. LEXIS 82481 (N.D. Cal. July 13, 2006); 2007 U.S. Dist. LEXIS 22648
(N.D. Cal. Mar. 16, 2007); 2007 U.S. Dist. LEXIS 22637 (N.D. Cal. Mar. 16, 2007).
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In Search King, the plaintiff was a company based in
Oklahoma that engaged in a form of SEO.121 Google believed
Search King’s practices abused and manipulated its algorithm.122 Search King’s business model was oriented around
locating Web pages that had a high Google PageRank and then
acting as a middleman, paying those sites to link to its
clients.123 Essentially, Search King was monetizing the value of
PageRank by paying those sites with high PageRank to extend
their good PageRank to others via outbound links.
But Search King’s efforts to build a free market for
PageRank in the left-hand column were not in keeping with
Google’s desire to avoid “evil” in that space. When Google
learned of Search King’s practices, it reduced Search King’s
PageRank, as well as the PageRank ratings of associated
websites.124 Google never explicitly admitted that Search King
had been targeted for “hand-editing,”125 but employees at
Google have confirmed that certain other websites have been
penalized in this way and specifically removed from Google’s
index in response to certain SEO techniques.126
121
See Search King, 2003 U.S. Dist. LEXIS 27193, at *4; Search King,
http://www.searchking.com/ (last visited Feb. 25, 2008).
122
On its web page, Search King disagrees and vigorously defends its SEO
practices. See Search King, The Fallacy of SEO, http://www.searchking.com/seofallacy.html (last visited Feb. 25, 2008) (“Search Engine Optimization (SEO) has been
defined as the art of manipulating the search engines. That is false. SEO does not
manipulate search engines.”).
123
Search King, 2003 U.S. Dist. LEXIS 27193, at *3 (“[The advertising
network’s] fee is based, in part, on the PageRank assigned to the web site on which its
client’s advertisement and/or link is placed.”).
124
Id. (“In August or September of 2002, Search King’s PageRank dropped
[from 8] to 4; [PR Ad Network’s] PageRank was eliminated completely, resulting in ‘no
rank’.”).
125
Bob Massa, the proprietor of Search King, claimed he was targeted as a
“spammer.” See Stefanie Olsen, Google Counters Search-Fix Lawsuit, CNET NEWS,
Jan. 10, 2003, http://www.news.com/2100-1023-980215.html (“They arbitrarily singled
us out. They make up rules, and they decide you’re a spammer, and boom! you’re gone.
There’s no recourse. Search engines have to be held accountable.”).
126
The head of Google’s Webspam team, Matt Cutts, has confirmed that
Google penalizes sites in its “official capacity.” See Posting of Matt Cutts to Matt Cutts:
Gadgets, Google, and SEO, http://www.mattcutts.com/blog/confirming-a-penalty/ (Feb.
11, 2006, 11:42 EST).
I can confirm that Google has removed traffic-power.com and domains
promoted by Traffic Power from our index because of search engine
optimization techniques that violated our webmaster guidelines at
http://www.google.com/webmasters/guidelines.html. If you are a client or
former client of Traffic Power and your site is not in Google, please see my
previous advice on requesting reinclusion into Google’s index to learn what
steps to take if you would like to be reincluded in Google’s index.
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Search King brought suit, alleging that Google’s PageRank rating penalties constituted tortious interference with
contractual relations.127 Essentially it claimed that Google had
destroyed its advertising business by removing its site from
search listings. Search King’s request for a preliminary
injunction was denied and Google brought a motion to
dismiss.128 The key question was whether, under applicable
Oklahoma law, Google’s actions were “malicious and wrongful”
and “not justified, privileged, or excusable.”129 Google argued
that reductions in PageRank were opinions protected by the
First Amendment.130 Search King responded by pointing out
how PageRank was a patented formula that Google claimed to
be “objectively verifiable.”131 The court sided with Google:
[T]he Court finds that PageRanks do not contain provably false
connotations. PageRanks are opinions—opinions of the significance
of particular web sites as they correspond to a search query. Other
search engines express different opinions, as each search engine’s
method of determining relative significance is unique. The Court
simply finds there is no conceivable way to prove that the relative
significance assigned to a given web site is false.132
The court held that Search King had failed to state a claim and
dismissed the suit.133
The KinderStart case involved somewhat similar facts.
KinderStart.com is a website that provides a directory with
information and resources related to young children.134 In 2003,
KinderStart.com became a Google AdSense affiliate,135 and two
years later KinderStart.com claimed monthly traffic amounting
Id. During the same week, Google confirmed that it had “blacklisted” the German
website of auto manufacturer BMW for using improper SEO tactics. Tom Espiner,
Google Blacklists BMW.de, CNET NEWS, Feb. 6, 2006, http://news.com.com/Google+
blacklists+BMW.de/2100-1024_3-6035412.html (stating that the website had used
“doorway pages” or false websites that enticed Google’s algorithm but redirected
visitors to other pages).
127
Search King, 2003 U.S. Dist. LEXIS 27193, at *4 (stating that Google had
“adversely impacted the business opportunities available to Search King . . . to an
indeterminate degree by limiting their exposure on Google’s search engine”).
128
Id.
129
Id. at *6.
130
Id.
131
Id. at *8.
132
Id. at *11-12.
133
Id. at *13.
134
See KinderStart, http://www.kinderstart.com (last visited Feb. 25, 2008).
135
Complaint for Injunctive and Declaratory Relief and Damages at ¶ 18,
KinderStart.com, LLC v. Google, Inc. (N.D. Cal. 2006) (No. C06-2057), 2006 WL 777064
[hereinafter KinderStart Initial Complaint].
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to over ten million page views.136 With this amount of traffic,
KinderStart.com was surely profiting substantially from
AdSense. In March 2005, however, Google de-listed KinderStart from its index and dropped KinderStart’s PageRank to
zero.137 While KinderStart remained an AdSense partner, once
Google stopped sending new traffic to the site, this reduced
KinderStart’s AdSense revenues by eighty percent and its
overall website traffic by seventy percent.138 These figures
demonstrate the power that Google wields in the e-commerce
marketplace.
Google has never publicly explained why it reduced
KinderStart’s PageRank. KinderStart claimed that it had
never violated Google’s policies.139 However, it seems clear that
the KinderStart de-listing and PageRank reduction were, like
the actions taken against Search King, instances of targeted
hand editing by Google employees based on some concern
Google had about the company.
KinderStart filed suit on March 17, 2006, with a class
action complaint bringing claims on behalf of itself and
similarly situated online businesses.140 It alleged seven counts
of violations of common and statutory law, claiming, inter alia,
that Google had abridged its rights to free speech, that Google
had monopolized the online advertising market, that Google
was guilty of unfair business practices, and that its “zero”
PageRank constituted common law defamation and libel.141
After an initial unfavorable ruling dismissing the complaint
with leave to amend, KinderStart filed an amended complaint,
adding a false advertising claim.142
All KinderStart’s claims were ultimately dismissed.143
Though the various claims failed for reasons grounded in the
appropriate legal doctrines (for example, KinderStart’s federal
136
See id. at ¶ 17.
Id. at ¶ 50.
138
Id. at ¶¶ 26, 27.
139
Id. at ¶¶ 46-48.
140
Id. at 14-24.
141
Id. at 17-24.
142
First Amended Complaint for Injunctive and Declaratory Relief and
Damages at ¶¶ 28-29, KinderStart.com, LLC v. Google, Inc. (N.D. Cal. 2006) (No. C062057), 2006 WL 1435539.
143
KinderStart.com, LLC v. Google, Inc., 2006 U.S. Dist. LEXIS 82481, at *1
(N.D. Cal. July 16, 2006).
137
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and state free speech claims failed for a lack of state action144),
the defamation and libel claim was resolved by court findings
highly similar to those in the Search King litigation. The court
stated that Google’s PageRanks were protected statements of
opinion:
PageRank is a creature of Google’s invention and does not constitute
an independently-discoverable value. In fact, Google might choose to
assign PageRanks randomly, whether as whole numbers or with
many decimal places, but this would not create “incorrect” PageRanks.145
Though there will undoubtedly be future cases in the
same vein as Search King and KinderStart, it seems that
general challenges to the nature of Google’s results pages have
little chance of succeeding under current law. If Google’s
results are simply subjective opinions, then Google apparently
has the right to structure its left-hand column in whatever way
it pleases.146 With regard to the right-hand column, Google has
stipulated in one lawsuit that it possesses the right to refuse to
sell AdWords to anyone for any reason.147
Many commentators, most notably Professor Eric Goldman, have argued that, from a policy perspective, this is the
correct result. Goldman states that there is no compelling
reason for the law to dictate how Google or other search
engines structure their results pages.148 Though Goldman
provides several justifications for the status quo, his primary
argument is that market discipline will produce results that
are superior to those produced by regulatory intervention.149 To
the extent that Google’s results fail to serve the interests of the
public, another search engine company will arise to entice
144
Id. at *1, 11-21 (dismissing claims in the First Amended Complaint);
KinderStart.com, LLC v. Google, Inc., 2007 U.S. Dist. LEXIS 22637, at *39-52 (N.D.
Cal. Mar. 16, 2007) (dismissing claims in the Second Amended Complaint).
145
KinderStart.com, 2007 U.S. Dist. LEXIS 22637, at *61.
146
See Pasquale, supra note 87, at 116 (noting the largely unrestrained power
of Google and expressing concern over the dangers of First Amendment “absolutism”).
147
Uline, Inc. v. JIT Packaging, Inc., 437 F. Supp. 2d. 793, 799 (N.D. Ill.
2006). In Langdon v. Google (discussed supra note 118), the court agreed with this
argument. 474 F. Supp. 2d 622, 630 (D. Del. 2007); see also Frank Pasquale, Asterisk
Revisited: Debating a Right of Reply on Search Results, 3 J. BUS. & TECH. L. 61, 71-72
(2008) (discussing Langdon).
148
Goldman, supra note 67, at 588-89, 591-96; Eric Goldman, Search Engine
Bias and the Demise of Search Engine Utopianism, 9 YALE J.L. & TECH. 188, 189
(2006), available at http://www.yjolt.org/files/goldman-8-YJOLT-188.pdf (arguing that
search engine bias “is both necessary and desirable.”).
149
See, e.g., Goldman, supra note 67, at 595-96.
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users, thus allowing the market to fix the problem.150 Goldman
fears that efforts to regulate search engines will lead to
“regulatory distortion” that will undercut the efforts of search
engines to improve relevancy.151
Professors Oren Bracha and Frank Pasquale disagree
with Goldman about the superior utility of market discipline.152
In a forthcoming article, Bracha and Pasquale argue that
search engine results are prone to various types of market
failure that should be remedied through federal regulation.153
One of their primary concerns, borne out by the cases above, is
that Google’s rankings lack meaningful transparency and
might be subject to abuse. In a weblog posting, Bracha
compared the ranking power of search engines to “concentrated
power that operates in the dark.”154 Bracha and Pasquale argue
that the state should act to cure the failures of search engine
results by requiring search engines to reveal their algorithms.155 They further argue that the First Amendment,
properly understood, should not serve as a shield protecting
Google from relevancy regulation.156
However, Bracha and Pasquale are (understandably)
vague about exactly how they would like results to be
regulated.157 They simply state that any solution will require
“institutional arrangements” that “will have to be nuanced
and somewhat complex.”158 One wonders how government
regulators might be inclined to oversee the structure of search
150
Goldman, supra note 148, at 197 (“[S]earchers will shop around if they do
not get the results they want, and this competitive pressure constrains search engine
bias.”).
151
Id. at 199-200.
152
See Pasquale, supra note 87, at 117 (calling for increased legal regulation
of search results); Pasquale & Bracha, supra note 115, at 4; see also Introna &
Nissenbaum, supra note 4, at 19 (“Web search mechanisms are too important to be
shaped by the marketplace alone.”).
153
Pasquale & Bracha, supra note 115.
154
Posting of Oren Bracha to Eric Goldman’s Technology & Marketing Law
Blog, http://blog.ericgoldman.org/archives/2007/08/bracha_responds.htm (Aug. 11, 2007).
155
Pasquale & Bracha, supra note 115, at 54-55.
156
Id. at 49-52.
157
In a prior article, Professor Pasquale limited his regulatory proposal to
results for trademarked goods and personal names. Pasquale, supra note 87, at 117
n.7. The remainder of this Article discusses the trademark proposal. I discuss the
relation of trademarks to personal names and digital information in Greg Lastowka,
Digital Attribution: Copyright and the Right to Credit, 87 B.U. L. REV. 41 (2007).
158
Pasquale & Bracha, supra note 115, at 60.
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engine results pages for “cars,” “nike,” “mesothelioma lawyers,”
“violent crime,” “map of Philadelphia,” or “phrogging.”159
Whatever one thinks of the merits of calls for greater
state involvement with search results, the notion of an FCCequivalent organization that oversees results generally seems
like a distant prospect. At this point there seems little legal
footing or focused political will that might support regulating
Google’s results generally. I emphasize “generally” because
within one particular category of search terms, search engine
results have been and continue to be regulated. When users
search for terms that correspond with recognizable trademarks, some courts have found that trademark law places
limits on the shape of the results that search engines return.160
Limiting the discussion of the legal regulation of search
results to trademark law constitutes a concession to the power
of “Google’s Law” in e-commerce today. While one might hope
for a law that acts as a more general regulator of information
practices like search results, trademark law is really not up to
that task. The best that trademark law can offer is one means,
within a very limited context, of curbing potential market
abuses and unfair competition.
B.
Trademark Laws Old and New
Google currently lists left-column results and sells rightcolumn advertisements for terms such as “nike,” “jr cigars,”
“playboy,” “american airlines,” and “rescuecom.com.” All of
these terms have trademark meanings. Users search for these
terms in left-column results and Google profits from the sale of
AdWords advertisements relating to these terms in its right
column. Searchers go to Google looking for “nike” and Google
sometimes directs (and is sometimes paid to direct) those
searchers to parties other than Nike, Inc. Is this fair to the
Nike company? That is the fundamental question raised by the
current litigation against Google. As a legal matter, the answer
to the question is currently not clear.
Google’s policy concerning the right-column exploitation
of trademark-significant terms like “nike” has changed over
159
Cf. Goldman, supra note 148, at 197 (“[R]egulatory solutions become a
vehicle for normative views about what searchers should see—–or should want to see.
How should we select among these normative views? What makes one bias better than
the other?”).
160
Pasquale, supra note 87, at 119.
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time. Prior to 2004, Google had honored requests it received
from certain trademark owners to prohibit competitors from
bidding on advertising keyed to terms corresponding to trademarks. For instance, Google reportedly once refused to sell
advertisements to eBay’s competitors on results pages for the
term “eBay.”161 Advertisements for such terms were sold only to
the companies that held the corresponding trademarks.162
However, in 2004, shortly before making its initial
public offering, Google decided to change its internal policy in
the United States and Canada. It decided to allow bids for
terms that corresponded with the names of brands. News
reports at the time described this new policy as a legal
“gambit.”163 Currently, Google informs trademark owners who
complain about the practice that it will “not disable keywords
in response to a trademark complaint.”164 It did not take long
after this change in policy for trademark holders to bring suit.
Within a few weeks, the insurance company GEICO sued
Google for selling “geico” as a keyword.165 Since that time, there
has been a steady stream of new litigation brought by trademark holders against Google as well as against competitors
who have bought AdWords placements from Google related to
trademarked terms.166
It is not at all clear how courts will ultimately decide
these suits as a matter of trademark law. In order to understand why the issue is complicated, it is necessary to lay out
the history of trademark law, its limits and recent expansions,
and its application to search engines over the last ten years or
so.
1. Traditional Trademark Law
Though trademarks have existed since ancient times,
modern trademark law has its roots in the protection of the
161
Stefanie Olsen, Google Plans Trademark Gambit, CNET NEWS, Apr. 13,
2004, http://news.com.com/2100-1038_3-5190324.html.
162
Id.
163
Id.
164
Google, Inc. v. American Blind & Wallpaper Factory Inc., No. C 03-5340,
2007 U.S. Dist. LEXIS 32450 at *5 (N.D. Cal. April 18, 2007).
165
Gov’t Employees Ins. Co. v. Google, Inc., 330 F. Supp. 2d 700, 701 (E.D. Va.
2004). Overture, the successor of GoTo.com, was sued by GEICO as well. Id.
166
See infra Part II.C.
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marks of English and European guilds.167 Trade guilds stamped
their marks of origin on goods and containers. The counterfeiting of these marks was prohibited by common law courts
pursuant to the law of deceit.168 False designations of origin
deceived consumers about the quality of the products they
purchased. This deception also harmed business reputations.
As commercial trade expanded and the social distance
between consumers and producers of goods increased, designations of source and origin became even more important.
Consumers could not rely on personal relationships in the
marketplace and increasingly needed to rely on trusted source
identifications. Accordingly, trademark law grew increasingly
detailed.169
Today, in the United States, the federal Lanham Act is
the primary source of trademark protection, though state
common law and statutory protections are also available.170
Most (if not all) commentators today consider United States
trademark law as justified under an economic theory.171 The
economic theory of trademark protection is largely a paraphrase of historic statements from common law courts about
the purposes served by trademarks.172 Historically, trademark
law has two goals: the protection of business goodwill against
167
ARTHUR R. MILLER & MICHAEL H. DAVIS, INTELLECTUAL PROPERTY:
PATENTS, TRADEMARKS, AND COPYRIGHTS IN A NUTSHELL 154-55 (3d ed. 2000); Edward
S. Rogers, Some Historical Matter Concerning Trademarks, 9 MICH. L. REV. 29, 32-33
(1911).
168
1 J. THOMAS MCCARTHY, MCCARTHY ON TRADEMARKS AND UNFAIR
COMPETITION § 5:2, at 5-3. (4th ed. 2008).
169
Mark A. Lemley, The Modern Lanham Act and the Death of Common
Sense, 108 YALE L.J. 1687, 1690 (1999) (“[E]conomists have pointed to the role of
trademarks in allowing the growth of complex, long-term organizations spread over a
wide geographic area.”).
170
See 15 U.S.C. §§ 1051-1127 (2000).
171
See William M. Landes & Richard A. Posner, Trademark Law: An
Economic Perspective, 30 J.L. & ECON. 265, 268-73 (1987); see also Barton Beebe, The
Semiotic Analysis of Trademark Law, 51 UCLA L. REV. 621, 623-24 (2004).
172
While the bulk of the historic rationale of trademark protection is retained
in the translation to economic jargon, the match is not perfect. Something valuable is
surely lost when the lens of economics is used exclusively as a means of understanding
the social role of trademark law. Cf. Dinwoodie & Janis, Contextualism, supra note 70,
at 1607 (noting how a focus on economics can obscure “humanist concerns about a
materialist, consumptive society.”); Mayer v. Chicago, 404 U.S. 189, 201 (1971)
(Burger, C.J., concurring) (“An affluent society ought not be miserly in support of
justice, for economy is not an objective of the system.”).
I should note that not everyone agrees with the conventional wisdom that
trademark law has historically pursued consumer protection goals. For an argument
that contemporary theories are inconsistent with historical understandings, see Mark
P. McKenna, The Normative Foundations of Trademark Law, 82 NOTRE DAME L. REV.
1839 (2007).
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unfair misappropriation by competitors and the protection of
consumers against marketplace deception.173
Translated to popular law-and-economics terms, trademark law remedies a potential market failure by generating
limited property-like incentives for investments in the
production of higher quality products. For example, protecting
the Coca-Cola Company’s exclusive right to produce beverages
bearing the Coca-Cola mark encourages the company that
“owns” that mark to invest in ensuring that its products have a
uniform high quality. If purchasers are pleased with the
quality of Coca-Cola branded products, the company can raise
prices for products bearing the mark and reap the benefits of
investments in superior quality. This is understood to be
preferable to a system where businesses lack such incentives
and companies can copy each other’s designations of origin at
will.
Congruently, trademarks protect consumers. The economic translation of this is that consumers benefit from both
reliance on indicators of quality (as described above) and a
reduction in “search costs” enabled by the legally-insured
stability of trademark indicators. With regard to search costs,
the general idea is that once a consumer finds a preferred
brand (such as Coca-Cola) with qualities that the consumer
finds acceptable, the consumer can rely on the source indicator
in future purchases. The consumer need not fear that other
products marked with that label are produced by a different
company and need not spend additional time investigating that
possibility. Because trademark law grants the trademark
owner exclusive rights to the signifier, consumers can be
confident it is the source of the product. This results in
consumer savings of time expended in the marketplace.
The traditional and economic theories of trademark are
limited by these animating justifications. There is no reason
the Coca-Cola Company should own any interest in the word
“Coca-Cola” in the abstract. The social objectives of trademark
law can be accomplished by allowing Coca-Cola to do no more
173
S. REP. NO. 1333, at 3 (1946) (“The purpose underlying any trade-mark
statute is twofold. One is to protect the public so it may be confident that, in
purchasing a product bearing a particular trade-mark which it favorably knows, it will
get the product which it asks for and wants to get. Secondly, where the owner of a
trade-mark has spent energy, time, and money in presenting to the public the product,
he is protected in his investment from its misappropriation by pirates and cheats.”);
Qualitex Co. v. Jacobson Products Co., 514 U.S. 159, 163-64 (1995) (recognizing the
same).
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than prevent competitors from using the mark in a particular
market. Although trademarks are often described as intellectual property interests, they do not grant broad exclusionary
rights, such as are enjoyed by owners of land or bank accounts.
As the Senate report accompanying the passage of the Lanham
Act put it, “Trade-marks are not monopolistic grants like
patents and copyrights.”174
Before a trademark owner can enjoin a given use, the
owner has traditionally been required to demonstrate that the
competitor’s use created a “likelihood of confusion” among
consumers about the source or sponsorship of the defendant’s
goods and services.175 Trademark infringement is established
only if the defendant’s goods and services “would reasonably be
thought by the buying public to come from the same source, or
thought to be affiliated with, connected with, or sponsored by,
the trademark owner.”176 Thus, each trademark infringement
suit entails an inquiry into what is occurring in the minds of
consumers with regard to a particular usage of a trademark
signifier in a particular market.177
The protection of trademarks is therefore strongly
wedded to marketplace context. Indeed, in order for a trademark to be protected at all, it must operate within a particular
market.178 “Distinctiveness” means that the word or symbol
claimed to be a trademark serves a trademark function. Only
words and symbols that identify a specific commercial source
are protected as trademarks. For instance, “Nike” would not be
protectible as a trademark if used in relation to the sale of
statues of a Greek goddess. The word would be understood to
identify the product, not its source.
Many well-known trademarks are only meaningful (in
their trademarked sense) in particular marketplace settings.
174
S. REP. NO. 1333, at 3 (1946).
See Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 780 (1992).
176
4 MCCARTHY, supra note 168, § 24:6, at 24-16.
177
Courts use different multiple factor tests to determine whether confusion is
likely, but most include factors such as the distinctiveness of the mark (how strongly it
indicates a particular source), the similarity of the plaintiff’s mark and the allegedly
infringing mark, the proximity of the markets in which the marks operate, the
defendant’s intent in selecting the mark, and the evidence of actual confusion among
consumers. See generally Barton Beebe, An Empirical Study of the Multifactor Tests for
Trademark Infringement, 95 CAL. L. REV. 1581 (2006) (explaining the way courts apply
the factors).
178
15 U.S.C. § 1052 (2000) (“No trademark by which the goods of the
applicant may be distinguished from the goods of others shall be refused registration . . . .”).
175
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The words “apple,” “caterpillar,” and “aspen” have natural
meanings that predominate in conversation. Yet in some
commercial contexts, consumers might associate those terms
with brands of computers, construction equipment, and legal
casebooks. However, the fact that trademarks protect those
terms does not prohibit their use in the sale and marketing of
apples, larval Lepidoptera, and certain trees of the willow
family. In those marketplaces, the terms have no trademark
significance or protection.
Consider how this multiplicity of meaning plays out in
the search engine context. The term “cars” has a significant
non-trademark meaning. Yet in the example above, half of
Google’s left column results related to a recent movie by
Disney. This is not simply a trademark meaning of a term
taking precedence over a standard meaning. In fact, it is one
trademark meaning taking precedence over a standard
meaning and multiple other trademark meanings as well.
It is true that Disney has registered “Cars” as a
trademark in a variety of markets.179 However, various other
companies are also using “cars” as a trademark denoting the
sources of, among other things, investment securities (Reg. No.
2970658), database management services (Reg. No. 2802335),
coupon distributions (Reg. No. 2462471), automobile restorations (Reg. No. 3065082), and instructional reading evaluation
materials (Reg. No. 2320672).180 And many other companies
may also be using “cars” as an unregistered trademark in
various other markets. These companies may also be able to
obtain trademark protection under the Lanham Act.181
The centrality of spatial and marketplace context to
trademark law permits one term to be owned by multiple
entities operating within separate markets.182 In addition to
being used in multiple markets, trademarks may be used by
multiple parties who operate independent businesses within
non-overlapping geographic areas. Under common law rules, a
179
See U.S. Trademark Reg. No. 78978328 (for school supplies, clothing, and
furniture). Technically, this Disney registration is limited to the movie logo, not the
word “cars.” Id.
180
Though it is not certain that all these registrations would be upheld if they
were asserted in litigation, courts would award them a presumption of validity due to
their federal registration. See 15 U.S.C. § 1115 (2006).
181
See id. § 1125(a).
182
Dinwoodie & Janis, Contextualism, supra note 70, at 1658-59 (explaining
the importance of context to trademark law); Goldman, supra note 67, at 592 (“[M]any
trademarked words can have multiple trademark owners . . . .”).
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junior (latter in time) user of a trademark may still claim
exclusive rights to use a mark within the geographical area
where the prior senior user of the mark did not expand.183 So an
identical mark might be used in an identical market, for
example, by two different companies operating in Maine and
California. Where the markets are geographically separate,
these concurrent uses may be permitted because it cannot be
demonstrated that consumers in either market will be confused
about the origins of goods or services.
Offline, given the abundant contextual clues that
consumers are able to access, there are relatively few difficulties encountered in reconciling legitimate infringement
claims, common non-trademark usages, separate geographic
uses, and usages by multiple trademark owners in various
markets. “Playboy” yams and sweet potatoes are unlikely to
confuse consumers into believing that the yam farmers have a
side business in adult entertainment.184 And even in instances
where consumers may be confused, traditional trademark
doctrine allows defendants to make fair use of trademarks
where, for instance, business competitors use a trademark for
comparative purposes.185
Search terms are obviously different. While the term
“coke” means one thing in a supermarket, another in a steel
manufacturing plant, another for a student of the history of
common law,186 and still another thing in the drug trade, it is a
single search term. Google’s current technology lacks significant contextual cues and therefore it struggles to make a single
page of results respond to the needs of users searching for
divergent meanings of a term.187 Of course, in attempting to do
183
United Drug Co. v. Theodore Rectanus Co., 248 U.S. 90 (1918); Grupo
Gigante SA De CV v. Dallo & Co., 391 F.3d 1088, 1097 (9th Cir. 2004).
184
U.S. Trademark Reg. No. 73799881 (for fresh yams and fresh sweet
potatoes). According to the company’s website, the brand name was chosen back when
“a playboy was a classy, outgoing kind of guy, not what you think of today.” History of
the Wayne E. Bailey Produce Company, http://www.sweetpotatoes.com/Default.aspx?
tabid=65 (last visited Sept. 1, 2007).
185
KP Permanent Make-Up, Inc. v. Lasting Impression I, Inc., 543 U.S. 111,
122 (2004).
186
See EDWARD COKE, THE SELECTED WRITINGS AND SPEECHES OF SIR
EDWARD COKE (Steve Sheppard ed., 2003).
187
See Goldman, supra note 67, at 521-24 (discussing the “objective
opaqueness” of search engine queries). There is some context in a Google search. With
regard to AdWords, Google does offer “localized” AdWords targeting that offers results
in particular geographic locations. Additionally, a user can create needed context by
lengthening a query string, e.g., entering “nike mythology” or “aspen trees.” However,
as Professor Goldman notes, “most searchers use no more than two keywords.” Id. at
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this, it cannot make everyone happy—some users are bound to
be disappointed that Google has not given priority to their
intended meaning of a term.
Individuals who may be searching for “playboy” yams or
“cars” investment securities will likely be disappointed by what
they find in Google’s search results. Without context, popularity and commercial sway tend to prevail. Traditional trademark law by no means would dictate that a single trademark
meaning should precede other trademark and non-trademark
meanings in a situation devoid of any particular marketplace
context.188
Indeed, under a traditional trademark analysis, it
should be hard to see exactly how or why trademark owners
should have an ability to influence Google’s search results.
Given the lack of context accompanying a search term, it is not
clear what any given user is seeking when making a search for
“nike” or “cars.” While the results of a search inquiry may be
frustrating when they fail to produce the desired results,
Google’s users would not be confused as to the origin of goods if,
when reviewing search listings for “coke” and “apple,” they
found information about carbon residue and fruit rather than
makers of cola and computers.189
However, the traditional theories described so far do not
tell the whole story of trademark law today. Trademark law
has expanded in the past half-century in terms of the scope of
rights granted to trademark holders. It has also responded
quite dramatically in response to online technologies.
2. Recent Doctrinal Expansions in Trademark Rights
Traditional theories of trademark law have been partly
usurped today by recent judicial and legislative expansions of
trademark rights.190 While the doctrinal expansion of trademark protection has manifested itself in a variety of ways, this
section will briefly introduce two of the most significant
expansions: trademark dilution and the doctrine of initial
interest confusion.
516. It is also possible that “personalized search” will eventually increase the
contextual cues Google can bring to search queries. See Goldman, supra note 148, at
198-99 (discussing personalized search).
188
See Goldman, supra note 67, at 509 (“[T]rademark law could jeopardize the
Internet’s potential as an information resource . . . .”).
189
Id. at 592.
190
Lemley, supra note 169, at 1687-88.
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a. Dilution
The idea of dilution protection originated in a 1927 law
review article written by Frank I. Schechter.191 Dilution’s
controversial innovation is that it protects marks without
the need for plaintiffs to demonstrate consumer confusion.
Dilution, according to Schechter, should protect against the
weakening of a trademark’s power to identify a source.192
Schechter warned against a “gradual whittling away or dispersion of the identity and hold upon the public mind of the
mark or name by its use upon non-competing goods.”193 He
argued that certain famous trademarks had inherent value
that required protection without regard to consumer confusion.194 Though Schechter’s article was certainly the origin of
the trademark dilution concept, it wasn’t until 1947 (the year
the Lanham Act went into effect) that the first state
legislatively adopted Schechter’s dilution theory.195 It was not
until 1996 that a federal dilution bill was passed.196
Historically, state and federal courts have struggled to
grasp the concept of dilution.197 Some courts have explicitly
criticized dilution as potentially extending unjustifiable “rights
in gross” to trademark holders.198 When the United States
Supreme Court took its first decision addressing the dilution
statute, Moseley v. Victoria’s Secret, it effectively eviscerated
the federal dilution law by imposing an almost impossible
evidentiary burden on plaintiffs.199 However, in 2006, Congress
191
Frank I. Schechter, The Rational Basis of Trademark Protection, 40 HARV.
L. REV. 813 (1927), reprinted in 60 TRADEMARK REP. 334 (1970).
192
See generally Ringling Bros.-Barnum & Bailey Combined Shows, Inc. v.
Utah Div. of Travel Dev., 170 F.3d 449 (4th Cir. 1999) (explaining the history of the
dilution statute).
193
Schechter, supra note 191, at 342.
194
Id.
195
Arguably, the dilution statutes adopted were not very faithful to
Schechter’s original concept, but an explanation of that point is beyond the scope of this
Article.
196
Federal Trademark Dilution Act of 1995, Pub. L. No. 104-98, § 3(a), 109
Stat. 985, 985-96 (codified at 15 U.S.C. § 1125(c) (2000)).
197
Sally Gee, Inc. v. Myra Hogan, Inc., 699 F.2d 621, 625 (2d Cir. 1983)
(applying state dilution law and noting that “dilution . . . remains a somewhat
nebulous concept”); Clarisa Long, Dilution, 106 COLUM. L. REV. 1029, 1062 (2005)
(“Courts have struggled, and continue to struggle, to identify the harm dilution law is
trying to prevent.”).
198
Ringling Bros.,170 F.3d at 458.
199
Moseley v. V Secret Catalogue, Inc., 537 U.S. 418, 433 (2003) (“[A]ctual
dilution must be established.”). The impossibility of establishing “actual dilution” was
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legislatively reversed the Moseley decision and reanimated the
near-dead doctrine.200 It did so with the Trademark Dilution
Revision Act (“TDRA”), amending the statutory weakness the
Supreme Court had seized upon in Moseley.201 Yet the revision
has essentially just forced dilution back onto the plate of the
courts, doing little to clarify its nature or the basis for its
inclusion in trademark law.
Under the TDRA, there are now two federal types of
dilution harms. Both of these formulations are based on prior
state doctrines of dilution. “Dilution by blurring” is established
where the plaintiff can demonstrate an “association arising
from the similarity between a mark or trade name and a
famous mark that impairs the distinctiveness of the famous
mark.”202 An example of blurring would be a “Rolls Royce”
toothbrush. Even if consumers are unlikely to believe that the
owner of the Rolls Royce trademark for autos actually
manufactures or sponsors a line of toothbrushes, dilution law
allows the trademark owner to enjoin the toothbrush maker
from using the mark. The Schechterian justification is that
associating toothbrushes with “Rolls Royce” leads to the
“whittling away” of the distinctive Rolls Royce signifier. Yet
courts have also seemed to see dilution’s goal as prohibiting
commercial actors from “free riding” on the value created by
trademarks.203
“Dilution by tarnishment,” the other TDRA form of
dilution, takes place where there is an “association arising from
the similarity between a mark or trade name and a famous
mark that harms the reputation of the famous mark.”204
Perhaps the classic textbook example of tarnishment is the
(pre-Federal Trademark Dilution Act (“FTDA”)) case of CocaCola Co. v. Gemini Rising, Inc., where a court enjoined the sale
largely due to the fact that nobody knows exactly what dilution is or how it might
create a quantifiable economic harm.
200
See Long, supra note 197, at 1075 (explaining how the Moseley limitation
on dilution was the culmination of a “bottom-up phenomenon”).
201
Starbucks Corp. v. Wolfe’s Borough Coffee. Inc., 477 F.3d 765, 766 (2d Cir.
2007) (stating that the Moseley standard no longer applies); Eldorado Stone, LLC v.
Renaissance Stone, Inc., No. 04-2562, 2007 WL 2403572 at *5 (S.D. Cal 2007) (applying
the post-Moseley relaxed standard and finding plaintiff’s famous “CLIFFSTONE” and
“RUSTIC LEDGE” marks were diluted by defendant’s actions).
202
15 U.S.C. § 1125(c)(2)(B) (2000).
203
Long, supra note 197, at 1059 (2005) (identifying “free riding” as a harm
independent of blurring).
204
15 U.S.C. § 1125(c)(2)(C) (2000).
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of posters in the style of the Coca-Cola trademark bearing the
words “Enjoy Cocaine.”205
Though the district court in Gemini Rising nodded to
traditional trademark theories by asserting that consumers
could be confused about the sponsorship of the posters, the
opinion seemed to hinge on the sense that the Coca-Cola mark
itself was being harmed by the poster. (Interestingly, however,
Justice Holmes once opined for the Supreme Court that CocaCola’s “goodwill” had been helped by the inclusion of cocaine in
its formula.206) The Gemini Rising case also highlights common
concerns that, by extending trademark protections beyond the
need to prevent consumers from commercial deception, dilution
law may improperly impinge upon free expression.
Dilution law, currently re-invigorated by the TDRA’s
blurring and tarnishment provisions, makes it hard to say that
trademarks are limited rights used exclusively to prevent
consumer confusion. By removing the solicitude for consumer
interests from trademark law, dilution unhinges traditional
theories and threatens to transform trademark law into a
regime of word ownership. If dilution law becomes more
powerful under the TDRA, a regime of search term ownership
may not be inconceivable.207
b. Initial Interest Confusion
With respect to search engines, however, a more significant recent expansion of trademark law is the doctrine of
initial interest confusion.208 Traditionally, and not surprisingly,
most courts have focused analysis of consumer confusion on the
time period proximate to consumer purchases.209 The doctrine of
initial interest confusion shifts the focus of confusion analysis
205
346 F. Supp. 1183, 1188 (E.D.N.Y. 1972).
Coca-Cola Co. v. Koke Co. of America, 254 U.S. 143, 145-46 (1920)
(Holmes, J.) (“Before 1900 the beginning of [Coca-Cola’s] good will was more or less
helped by the presence of cocaine . . . . The amount seems to have been very small, but
it may have been enough to begin a bad habit . . . .”).
207
In 2007, Utah actually enacted its own version of this regime, though the
future of the legislation is dubious. 2007 Utah Laws 365 (codified in various sections of
title 70-3a); see Ameet Sachdev, Trademark Battlefield, CHI. TRIB., May 2, 2007, at C1.
208
See generally Jennifer Rothman, Initial Interest Confusion: Standing at the
Crossroads of Trademark Law, 27 CARDOZO L. REV. 105 (2005) (explaining the
historical roots and contemporary expansion of the doctrine).
209
See Marshall Leaffer, Sixty Years of the Lanham Act: The Decline and
Demise of Monopoly Phobia, in U.S. INTELLECTUAL PROPERTY LAW AND POLICY 85, 12730 (Hugh C. Hansen ed., 2006).
206
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to at a time prior to the time of purchase. Initial interest confusion can be found to exist even if confusion was not present
at the time of purchase.
Dr. Seuss Enterprises v. Penguin Books210 is a wellknown Ninth Circuit case applying the doctrine. The plaintiff
in the case owned the copyright and trademark rights in the
well-known children’s book, The Cat in the Hat. The defendant,
Penguin Books, had published The Cat NOT in the Hat! A
Parody by Dr. Juice, a book that consisted of a “rhyming
summary of highlights from the O.J. Simpson double murder
trial.”211 From a distance, the plaintiff claimed, consumers
might become initially interested in the parody book due to the
cover’s resemblance to the other books bearing the trademarks
of the plaintiff.
Affirming the preliminary injunction entered against
the defendant, the Ninth Circuit stated that “the use of the
Cat’s stove-pipe hat or the confusingly similar title to capture
initial consumer attention, even though no actual sale is finally
completed as a result of the confusion, may be still an
infringement.”212 The court also seemed censorious of what it
saw as a opportunistic use of the plaintiff’s trademarks to
generate consumer interest, stating that the defendants’ “likely
intent in selecting the Seuss marks was to draw consumer
attention to what would otherwise be just one more book on the
O.J. Simpson murder trial.”213 Like the Gemini Rising case, the
Dr. Seuss case highlights the way that expansions beyond
traditional trademark protections threaten limitations on the
permissible scope of public speech.
Though not all federal circuits have endorsed the
doctrine of initial interest confusion, and the Supreme Court
has yet to consider a case applying it, many courts have
accepted and applied the doctrine.214 As Professor Jennifer
Rothman has noted in a recent article, there is only a tenuous
210
Dr. Seuss Enters. v. Penguin Books USA, Inc., 109 F.3d 1394 (9th Cir.
1997).
211
Id. at 1396.
Id. at 1405.
213
Id.
214
See, e.g., Promatek Indus., Ltd. v. Equitrac Corp., 300 F.3d 808, 812-13
(7th Cir. 2002); Checkpoint Sys. v. Check Point Software Tech., Inc., 269 F.3d 270, 293
(3d Cir. 2001); Bihari v. Gross, 119 F. Supp. 2d 309, 319 (S.D.N.Y. 2000). Cf.
Lamparello v. Falwell, 420 F.3d 309, 316 (4th Cir. 2005) (“[W]e have never adopted the
initial interest confusion theory.”). According to Professor Rothman, as of 2005, only
the Second, Third, Fifth, Sixth, Seventh, and Ninth Circuits had endorsed the doctrine.
See Rothman, supra note 208, at 108 n.8.
212
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connection between initial interest confusion and the traditional rationale of trademark law.215 Indeed, there are potential
anti-competitive and anti-consumer effects that flow from
rights to police confusion outside the context of an actual
sale.216
In summary, the rights of trademark owners have
expanded considerably in recent decades to extend to situations
where consumers are not confused and/or where confusion
exists outside the context of a sale. These expansions have
allowed trademark law’s scope of protection to drift far afield.217
It is in this unstable legal context that Google’s AdWords sales
practices are being challenged.
C.
Trademarks and Search Results
As explained, there are significant mismatches between
traditional trademarks and search terms. However, given
dilution’s under-theorized solicitude for trademark owners and
initial interest confusion’s expanded scope of relevant consumer confusion, Google’s practice of profiting from the sale of
trademark-significant terms might conceivably be found to be
an infringing act. Ironically, the decisions that now may
provide a basis for policing Google’s commercial conduct in its
right-hand column were issued in instances where courts were
attempting, in part, to protect the integrity of the left-hand
column against what might be described as abusive SEO.218
1. Meta Tags
The earliest case law on search engines involved
litigation over HTML “meta tags.”219 Though more sophisticated
methods of Web design are commonly used today, Web pages
were originally created in a computer language called HTML
215
Rothman, supra note 208, at 190 (“Initial interest confusion is . . . an
excess, and one which, despite violating the express terms of the Lanham Act, thus far
has been extremely successful.”).
216
Id.
217
Lemley, supra note 169, at 1688 (“[Contemporary] changes have loosed
trademark law from its traditional economic moorings and have offered little of
substance to replace them.”).
218
See Grimmelmann, supra note 85, at 31 (describing meta tags as an early
form of SEO).
219
See Lastowka, supra note 7, at 836 n.6 (collecting decisions from 1997 to
1999).
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(an acronym for “hyper-text markup language”).220 The meta
tag is a feature of HTML that originated around 1995 as way to
provide information about pages that would not be presented in
the page as displayed.221 Though meta tags come in a variety of
flavors, it was the “keyword” tag that prompted litigation. The
keyword meta tag communicates with search engines. It is
used by Web page authors to identify terms they believe are
relevant to their Web pages.222
Many Web pages still feature keyword meta tags today.
The website of the New York Times, for instance, declares that
it is properly associated with roughly a hundred search terms,
including “daily newspaper,” “national,” “politics,” “Mets,” “NY
Yankees,” and “obituaries.”223 YouTube, on the other hand,
claims in its meta tags that it is relevant to just four keyword
terms: “video,” “sharing,” “camera phone,” and “video phone.”224
At one point, search engines paid attention to keyword
meta tags. Pages that claimed to be about “nike,” for instance,
would be ranked higher in searches for that term. But today,
the majority of search engines ignore meta tags.225 This is
undoubtedly because meta tags permitted Web designers to
engage in a simple form of abusive SEO. For instance, unscrupulous website owners noticing the high traffic for certain
search terms such as “mp3” or “Princess Diana” could once
benefit from placing those terms in their keyword tags, despite
the fact that their sites contained no information relevant to
either term. This tactic, known as “spamdexing,” could drive
traffic to the meta tag manipulator, but confounded search
engine users looking for information about Princess Diana.226
220
HTML is not a programming language, but a “markup language” that
instructs Web browsers on how to display Web pages. As an example, a “<p>” tag
instructs a browser to start a new paragraph and an “<a href>” tag indicates that the
Web browser should generate a hyperlink.
221
E-mail from Dave Ragget, World Wide Web Consortium Fellow, to Greg
Lastowka (Sept. 6, 1999) (on file with author). Dave Ragget was one of the original
drafters of HTML. Dave Ragget’s home page can be found at http://www.w3.org/People/
Raggett/.
222
See generally Lastowka, supra note 7 (describing meta tags more fully).
223
New York Times, http://www.nytimes.com/ (last visited Sept. 1, 2007). (In
order to see the meta tags, select “view source” from your Web browser and look for
“meta name = ‘keywords’”).
224
YouTube, http://www.youtube.com/ (last visited Feb. 25, 2007).
225
Though the vast majority of web crawlers grant keyword meta tags no
special relevance, they may continue to influence search engine relevance ranking
simply due to the fact that they appear near the top of the HTML text of a page.
226
Lastowka, supra note 7, at 865-68 (discussing spamdexing).
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Even though search engine companies were victims of
meta tag abuse, they did not participate in meta tag litigation.
Spamdexing was understood by them as a systemic and
technological problem to be addressed by technological fixes,
like PageRank, rather than by myriad lawsuits against Web
authors. Meta tag litigation was a path instead pursued by
trademark owners who brought complaints against their rival
competitors.227
For example, in the 1998 case of Playboy Enterprises v.
AsiaFocus International, Playboy sued a competitor in the
“adult entertainment” market that had used “playboy” and
“playmate” as keyword meta tags.228 Though there were various
other bases for trademark claims, the court highlighted the use
of keyword meta tags as a “deceptive tactic.”229 Other cases
decided in the late 1990s shared this view, finding that
defendants who used the trademarks of their competitors in
keyword meta tags were competing unfairly.230 In many of these
early cases, it seemed that both lawyers and judges were
struggling with the basic technology of Web search.
In 1999, the Ninth Circuit made a substantial innovation in the first meta tag case to be decided by a circuit court of
appeals, Brookfield Communications v. West Coast Entertainment Corp.231 Brookfield and West Coast Video were competing
claimants to the trademark “moviebuff.”232 Both intended to
use the mark in marketing and sales efforts on the Web.233
After first finding that Brookfield was the rightful owner of
“moviebuff” in this market, the court considered whether West
227
Id. at 874-77 (discussing competitor lawsuits).
Playboy Enters. v. AsiaFocus Int’l, Inc., No. 97-734-A, 1998 U.S. Dist.
LEXIS 10359, at *7-8 (E.D. Va. Feb. 2, 1998).
229
Id. at *8 (“The defendants have purposefully employed deceptive tactics to
attract consumers to their Web site under the guise that their sites are sponsored by or
somehow affiliated with PEI . . . . [A] consumer conducting a search for PEI’s Web site
by typing in the trademark ‘Playboy’ or ‘Playmate’ would receive a search enginegenerated list which included the asian-playmates Web site.” (citations omitted)).
230
See N.Y. State Soc’y of Certified Pub. Accountants v. Eric Louis Assocs., 79
F. Supp. 2d 331 (S.D.N.Y. 1999) (ruling in favor of plaintiff); SNA, Inc. v. Array, 51 F.
Supp. 2d 554 (E.D. Pa. 1999) (ruling in favor of plaintiff); Playboy Enters. v. Calvin
Designer Label, 985 F. Supp. 1220 (N.D. Cal. 1997) (ruling in favor of plaintiff). But see
Patmont Motor Werks v. Gateway Marine, 1997 WL 811770 (N.D. Cal. Dec. 18, 1997)
(ruling for defendant because plaintiff had failed to explain how keyword meta tags
work).
231
174 F.3d 1036 (9th Cir. 1999).
232
Id. at 1041-42.
233
Id. at 1042.
228
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Coast’s use of “moviebuff” in its keyword meta tags amounted
to trademark infringement.234
Under a traditional trademark infringement analysis,
this seemed unlikely. Though some courts prior to 1999 had
found that meta tags contributed to a likelihood of confusion,
often other factual circumstances supported liability.235 The
Ninth Circuit, by comparison, considered the meta tag question
exclusive of other issues. Applying the traditional analysis,
the Brookfield court found that confusion was unlikely. It
would not be reasonable for a search engine user to believe that
West Coast’s website was sponsored by Brookfield simply
because it appeared in the results listing for “moviebuff.”236
Yet by applying the doctrine of initial interest confusion,
the Ninth Circuit found that West Coast’s use of the meta tag
unfairly diverted consumers searching for Brookfield’s products
toward West Coast’s products.237 The court famously analogized
West Coast’s use of the “moviebuff” keyword meta tag to a
deceptive billboard directing travelers to exit a highway at the
wrong place.238 This billboard analogy has been extensively
criticized and for good reason.239
234
Id. at 1053, 1061-66.
For instance, in some cases a plaintiff’s trademark would appear not just
in meta tags but in the text of websites or advertisements, making the use of meta tags
simply a factor in finding that the defendant had created a likelihood of consumer
confusion. See, e.g., Playboy Enters., Inc. v. AsiaFocus Int’l, Inc., No. Civ.A. 97-734-A,
1998 WL 724000, at *3 (E.D. Va. Apr. 10, 1998).
236
Brookfield, 174 F.3d at 1062.
237
Id.
238
Id. at 1064. The court stated:
235
Using another’s trademark in one’s metatags is much like posting a sign with
another’s trademark in front of one’s store. Suppose West Coast’s competitor
(let’s call it “Blockbuster”) puts up a billboard on a highway reading “West
Coast Video: 2 miles ahead at Exit 7” where West Coast is really located at
Exit 8 but Blockbuster is located at Exit 7. Customers looking for West
Coast’s store will pull off at Exit 7 and drive around looking for it. Unable to
locate West Coast, but seeing the Blockbuster store right by the highway
entrance, they may simply rent there. Even consumers who prefer West
Coast may find it not worth the trouble to continue searching for West Coast
since there is a Blockbuster right there. Customers are not confused in the
narrow sense: they are fully aware that they are purchasing from
Blockbuster and they have no reason to believe that Blockbuster is related to,
or in any way sponsored by, West Coast. Nevertheless, the fact that there is
only initial consumer confusion does not alter the fact that Blockbuster would
be misappropriating West Coast’s acquired goodwill.
Id.
239
See, e.g., Goldman, supra note 67, at 565, 570-73 (“[T]he Brookfield case
took an already unclear IIC doctrine and threw it into chaos.”).
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Search engine users were not, in fact, being misdirected
into traveling to West Coast Video’s website. There was
nothing in the facts that suggested West Coast’s listings in the
search results were not truthfully labeled. Hence, the deceptive
billboard that the court envisioned was more properly understood as an accurate billboard. Second, even if some confusion
existed, users diverted to West Coast Video’s site when
searching for Brookfield might easily click back to the original
results listing in a second. Comparing that type of diversion to
exiting a highway and searching in vain for the wrong business
was overstating the severity of the problem.240 Yet, despite the
weakness of the analogy, Brookfield was perceived as a sound
rule with regard to meta tags by many courts.241
Defendants in meta tag cases have prevailed at times,
however. While no Ninth Circuit case has overruled Brookfield,
prior and subsequent decisions allowed some defendants to
make fair use of meta tags corresponding to the trademarks
owned by plaintiffs. For instance, the district court case Bally
Total Fitness Holding Corp. v. Faber, decided a year before the
Ninth Circuit’s Brookfield decision, upheld a defendant’s use of
the plaintiff’s trademark in keyword meta tags.242 Faber had
created a website featuring his many complaints about the
plaintiff’s health club and used the word “Bally” in his meta
tags.243
The court rejected Bally’s attempt to enjoin Faber’s use
of the term in his meta tags, explaining that Faber had a
protected interest in reaching the public:
[T]he average Internet user may want to receive all the information
available on Bally . . . . This individual will be unable to locate sites
containing outside commentary unless those sites include Bally’s
marks in the machine readable code upon which search engines
rely.244
240
Bihari v. Gross, 119 F. Supp. 2d 309, 320 n.15 (S.D.N.Y. 2000) (“The harm
caused by a misleading billboard on the highway is difficult to correct. In contrast, on
the information superhighway, resuming one’s search for the correct website is
relatively simple. With one click of the mouse and a few seconds delay, a viewer can
return to the search engine’s results and resume searching for the original website.”).
241
See, e.g., Promatek Indus., Ltd. v. Equitrac Corp., 300 F.3d 808, 813 (7th
Cir. 2002); Checkpoint Sys. Inc. v. Check Point Software Techs., Inc., 269 F.3d 270, 293
(3d Cir. 2001); Bihari, 119 F. Supp. 2d at 319-20.
242
Bally Total Fitness Holding Corp. v. Faber, 29 F. Supp. 2d 1161, 1167-68
(C.D. Cal. 1998).
243
Id. at 1162.
244
Id. at 1165 (footnote omitted).
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Bally had also claimed trademark dilution under the
FTDA (the predecessor of the current TDRA). However, these
claims were dismissed on the premise that “courts have held
that trademark owners may not quash unauthorized use of the
mark by a person expressing a point of view.”245 The Bally court
cited a pre-FTDA decision from the First Circuit stating, “The
Constitution does not . . . permit the range of the anti-dilution
statute to encompass the unauthorized use of a trademark in a
non-commercial setting such as an editorial or artistic
context.”246
The reasoning of the Bally decision was echoed in a
post-Brookfield case decided by the Ninth Circuit, Playboy
Enterprises v. Welles.247 The defendant was a former Playboy
model who had used the word “playboy” in her meta tags.
Though the Welles court did not reference the Bally case, it
found that the defendant had used her meta tag keywords to
accurately describe the contents of her website.248 The Ninth
Circuit reasoned that forcing Welles to avoid the term
“playboy” “would be particularly damaging in the Internet
search context.”249 Again, the logic seemed to be that Welles had
a right to have her website appear under the term “playboy”
because her site was relevant to users searching for that term.
Doctrinally, Welles avoided the Brookfield outcome by relying
on Ninth Circuit doctrines of trademark fair use to bar
Playboy’s claims of trademark infringement.250
Keyword meta tag litigation continues to this day.251
However, with the arrival of the Google AdWords business
model at the turn of the century, competitors no longer needed
to exclusively employ SEO tactics to appear high in the left
column. They could buy their way into the right column
instead. Rather than using meta tags, competitors began to pay
245
246
Id. at 1167.
Id. (quoting L.L. Bean, Inc. v. Drake Publishers, 811 F.2d 26, 33 (1st Cir.
1987)).
247
279 F.3d 796 (9th Cir. 2002).
Id. at 803-04.
249
Id. at 804.
250
Id. at 804-05.
251
See, e.g., FragranceNet.com, Inc. v. FragranceX.com, Inc., 493 F. Supp. 2d
545 (E.D.N.Y. 2007); Pop Warner Little Scholars v. N.H. Youth Football & Spirit
Conference, No. 06-cv-98-SM, 2006 U.S. Dist. LEXIS 64762 (D.N.H. Sept 11, 2006).
Given the technological status quo, it is something of a puzzle why meta tag litigation
is still ongoing. See Posting of Eric Goldman to Technology & Marketing Law Blog,
http://blog.ericgoldman.org/archives/2006/09/outdated_metata.htm (Sept. 25, 2006) (last
visited Sept. 1, 2007) (expressing befuddlement over continuing meta tag litigation).
248
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Google and other search companies to appear in advertisements keyed to results. So if trademark infringement liability
attached to West Coast Video for using a “moviebuff” meta tag
to divert search engine users toward its website, could West
Coast Video avoid liability if it obtained the same results by
purchasing “moviebuff” AdWords advertisements?
2. Playboy v. Netscape
The most significant early case against search engines
for search term sales was Playboy Enterprises v. Netscape
Communications Corp., which ultimately led to a decision by
the Federal Court of Appeals for the Ninth Circuit.252 The
defendant in the case, Netscape, had sold space for banner
advertisements that were categorically “keyed” to certain
groups of search terms.253 This was slightly different than
Google’s current AdWords model, in that Netscape’s search
engine required advertisers to purchase placement in large
pools of search terms rather than allowing the purchase of
specific terms.
A familiar plaintiff in search engine cases, Playboy,
objected to Netscape’s sale of banner advertisement placements
in the category of adult entertainment. There were over 400
sex-related terms in the category, but included among them
were “playboy” and “playmate.”254 When “playboy” or “playmate” was entered into the search engine, an adult entertainment category banner was displayed above the search results.
Playboy brought suit against Netscape, alleging trademark
252
Playboy Enters. v. Netscape Commc’ns Corp. (Netscape II), 354 F.3d 1020
(9th Cir. 2004). There was actually one earlier decision to consider the issue: Nissan
Motor Co. v. Nissan Computer Corp. 204 F.R.D. 460 (C.D. Cal. 2001). The case is a
well-known domain name dispute; Nissan Motor Company sought to recover the
“nissan.com” domain name from the Nissan Computer Corporation. However, the claim
was ultimately unsuccessful. The defendant’s given name was Uzi Nissan and he has
been using his surname in relation to his businesses since 1980. Id. at 461.
During the course of the litigation, the defendant sought to amend its
counterclaims to allege trademark infringement on the basis that Nissan Motor
Company had purchased placement under the terms “Nissan” and “Nissan.com” from
certain search engines. The district court saw no reason why existing meta tag cases
should not be extended to situations where companies purchased search engine
placement. However, the court found that the claims were unsupportable in the case:
Nissan Motor Company could purchase keywords congruent with trademark law
because it owned trademark rights in the “Nissan” mark. Id. at 465-66. Mr. Nissan’s
side of the story is recounted on his website. Nissan Computer Corp., http://www
.nissan.com/Digest/The_Story.php (last visited Sept. 1, 2007).
253
Netscape II, 354 F.3d at 1022-23.
254
Id. at 1023.
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infringement and dilution.255 Netscape prevailed at the district
court level, but that decision was reversed by the Ninth Circuit
Court of Appeals.256 Both opinions are helpful in seeing the key
arguments that continue to characterize the current litigation
over search engine results.
In two opinions, the district court first denied Playboy’s
request for a preliminary injunction257 and then later granted
summary judgment to the defendants.258 Its analysis began
with the conclusion that the defendants had not used the
“playboy” trademark in commerce. The court stated:
[I]t is undisputed that an Internet user cannot conduct a search
using the trademark form of the words, i.e., Playboy ® and
Playmate ®. Rather, the user enters the generic word “playboy” or
“playmate.” It is also undisputed that the words “playboy” and
“playmate” are English words in their own right, and that there exist
other trademarks on the words wholly unrelated to PEI. Thus,
whether the user is looking for goods and services covered by PEI’s
trademarks or something altogether unrelated to PEI is anybody’s
guess.259
The court distinguished the situation in Brookfield on
the basis that “moviebuff,” unlike “playboy,” was not “an
English word in its own right,” and therefore had no significant
non-trademark meaning.260 The court feared that if it equated
the “playboy” search term with the plaintiff’s trademark rights,
this would be tantamount to granting the plaintiff the ability to
“remove a word from the English language.”261 Because it
believed that “playboy” as a search term could not be equated
with “playboy” as a trademark, the district court found that
Playboy had not “shown that defendants use the terms in their
trademark form” and therefore there was no commercial use of
255
Id. at 1022.
Id.
257
Playboy Enters. v. Netscape Commc’ns Corp. (Netscape I), 55 F. Supp. 2d
1070 (C.D. Cal.), aff’d, 202 F.3d 278 (9th Cir. 1999).
258
Playboy Enters. v. Netscape Commc’ns Corp., No. SA CV 99-320, 2000 U.S.
Dist. LEXIS 13418 (C.D. Cal. Sept. 12, 2000), rev’d, Netscape II, 354 F.3d 1020 (9th Cir.
2004).
259
Netscape I, 55 F. Supp. 2d at 1073.
260
Id. at 1074.
261
Id. Tackling the Brookfield billboard metaphor, the district court made a
further distinction. It suggested that the Netscape analysis was somewhat different
than the Brookfield analysis because a single entity (Netscape) controlled the “land” on
which both the trademark holder and the competitor had placed their businesses and
advertisements, respectively. Id. at 1075.
256
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the Playboy trademarks.262 It dismissed the claims for both
infringement and dilution.263
In its numbered findings of fact, the district court went
further in defense of Netscape’s practices. It explained that
multiple trademark owners claim rights to the “playboy” and
“playmate” marks, including a producer of yams and sweet
potatoes.264 Citing to Bally and Welles, it noted that numerous
cases had allowed trademarks to be “used” without the consent
of trademark holders.265 Citing Faber, the court found that
permitting Playboy to “monopolize” the use of the terms
“playboy” and “playmate” would violate the First Amendment
rights of (1) the defendants, (2) the other holders of “playboy”
and “playmate” trademarks, and (3) “members of the public
who conduct internet searches.”266
The district court opinion in Netscape, had it been
upheld on appeal and followed by other circuits, would have
likely resolved the intersection of trademark law and search
engines once and for all—in favor of search engines. However,
four years later, the district court decision was reversed by the
Ninth Circuit.267
The Ninth Circuit considered itself bound by the logic of
the Brookfield case.268 Applying the theory of initial interest
confusion from Brookfield, the court found that search engine
users were being diverted toward the websites of advertisers
through the use of the term “playboy” in its trademark sense:
“In this case, PEI claims that defendants, in conjunction with
advertisers, have misappropriated the goodwill of [Playboy’s]
marks by leading Internet users to competitors’ websites just
as West Coast video misappropriated the goodwill of Brookfield’s mark.”269
The Ninth Circuit also rejected the reliance of the
district court on the various meanings, multiple trademark
ownerships, and potential fair uses of the term “playboy.” The
Ninth Circuit found that “to argue that they use the marks for
262
Id. at 1073.
Id. at 1089.
264
Id. at 1079.
265
Id. at 1081.
266
Id. at 1085.
267
Netscape II, 354 F.3d 1020, 1034 (9th Cir. 2004) (finding that genuine
issues of material fact precluded summary judgment for the defendants). The case was
settled in 2004 and did not proceed to trial.
268
Id. at 1025.
269
Id.
263
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their primary meaning, as defendants did below, is absurd.”270
Apparently due to the concession of the defendants that “they
use the marks for their secondary [trademark] meanings,”271
there was “no dispute” that the defendants had “used the
marks in commerce.”272 The court found “farfetched” the notion
that the defendant’s use of the term “playboy” was not a
trademark use.273
Applying Brookfield and the dilution analysis under the
federal statute, the court found that Playboy had introduced
enough evidence to raise substantial issues of fact as to
whether the defendants’ use of the “playboy” and “playmate”
search terms had created a likelihood of initial interest
confusion and dilution.274 One potentially important fact was
that some banners displayed contained no text. The court
determined that “[s]ome consumers, initially seeking PEI’s
sites, may initially believe that unlabeled banner advertisements are links to PEI’s sites or to sites affiliated with PEI.”275
Playboy had introduced evidence that consumers were more
likely to believe that “relevant” banner advertisements (that is,
unlabeled sexual images) were sponsored by Playboy than they
were to believe that “random, un-targeted” advertisements (for
example, car insurance advertisements) were affiliated with
Playboy.276 Applying the reasoning of Brookfield, the Ninth
Circuit in Netscape determined that Netscape’s diversion of
internet traffic could be actionable as trademark infringement.
The Ninth Circuit then considered the defendants’ fair
use arguments. Unlike the district court, the Ninth Circuit did
not seem concerned about a risk that Playboy would
monopolize search terms or impinge on the First Amendment
rights of search engine companies or users. The Ninth Circuit
270
Id. at 1027 n.32.
Id. at 1027.
272
Id. at 1024.
273
Id. at 1028.
274
The court also concluded there was a likelihood of trademark dilution
under the FTDA. Id. at 1031-34. The law regarding the dilution claim was somewhat
confusing due to the instability of dilution law at that time. The Ninth Circuit found
that the district court had “erred under the traditional theories of dilution,” but also
vacated the district court’s opinion in light of the new standard set forth by the
Supreme Court in Moseley v. V Secret Catalogue, Inc., 537 U.S. 418, 433 (2003), and reopened discovery under the new standard. Id. at 1033-34. As explained above, the
TDRA has now reversed Moseley to set forth a more lenient standard. See supra Part
II.B.2.a.
275
Moseley, 537 U.S. at 1025.
276
Id. at 1026.
271
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explained that the case was not analogous to Welles because
the defendant had reasonable alternatives to using the
trademark term—the defendants was already using over 400
other terms to advertise adult-oriented businesses.277
The stability of the Ninth Circuit’s Netscape opinion,
however, was undermined by a skeptical concurrence. Judge
Berzon supported the court’s opinion as “fully consistent with
the applicable precedents” and was also struck by the
analytical similarity of Netscape and Brookfield.278 However,
Judge Berzon warned that the Brookfield holding reached to
“situations in which a party is never confused.”279 Judge Berzon
saw a “big difference between hijacking a customer to another
website by making the customer think he or she is visiting the
trademark holder’s website (even if only briefly) . . . and just
distracting a potential customer with another choice . . . .”280
Judge Berzon analogized the search engine’s results
listings to market shelves.281 A customer coming to a market
searching for one trademark owner’s product (for example,
Calvin Klein) might be distracted en route to that purchase by
another product (for example, Charter Club).282 Judge Berzon
noted, however, that this was essentially analogous to the
Brookfield case, given that those searching for “moviebuff”
would not have been confused about the sponsorship of the
West Coast Video website.283 While Judge Berzon was
comfortable applying the Brookfield rule to unlabeled (and
therefore potentially confusing) advertisements, she believed
that the general rule of Brookfield was “insupportable.”284
3. Pop-Ups and Trademark Use
The Ninth Circuit opinion in Playboy v. Netscape thus
left the law of search engine results in substantial flux.
Brookfield and initial interest confusion remained the leading
precedent on meta tags and SEO practices. Google’s advertising practices in the right column and similar models employed
277
Id. at 1030 (“There is nothing indispensable, in this context, about [the
plaintiff’s] marks.”).
278
Netscape II, 354 F.3d at 1034 (Berzon, J., concurring).
279
Id.
280
Id. at 1035 (emphasis in original).
281
Id.
282
Id. (using these two product lines as an example).
283
Id.
284
Id. at 1036.
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by others were arguably governed by the ruling in Netscape,
but Judge Berzon had also stated that Brookfield was
“insupportable.”285 Since Netscape, there has been much
litigation and little progress in the law. The most important
legal development has been the adoption, prefigured by the
Netscape district court decision, of claims that the commercial
sale of search terms does not amount to trademark use. That
view proceeds largely from a Second Circuit ruling concerning
pop-up advertisements.286
The most important pop-up cases have concerned a
single company, WhenU, the creator and distributor of a
program called “SaveNow.”287 The SaveNow software comes
bundled with certain programs made available for free
download. In the process of installing the free software, users
may install SaveNow, either intentionally or inadvertently.
Because those installing free software often do not scroll
through their installation agreements, they are often unaware
that they have agreed to install such programs.288
When installed, SaveNow displays advertisements that
appear over top of normal browser windows. To maximize
the relevancy of the advertisements (and thereby its own
revenues), the SaveNow advertisements, like the banner
advertisements in Playboy v. Netscape, are keyed to specific
terms.289 Unlike the Netscape banner ads, however, and more
like Google’s AdSense, SaveNow’s advertisements are triggered
when the terms are presented in other places, such as the
domain name of a website or the text of website contents.290
SaveNow’s pop-up advertisements also appear in new browser
285
Since the ruling, district courts in the Ninth Circuit have generally
understood themselves to be bound by Brookfield. See, e.g., Storus v. Aroa Marketing,
No. C-06-2454 MMC, 2008 U.S. Dist. LEXIS 11698, at *13-16 (N.D. Cal. Feb 15, 2008).
286
1-800 Contacts, Inc. v. WhenU.com, Inc., 414 F.3d 400, 409-12 (2d Cir.
2005).
287
WhenU describes how SaveNow works on its website. See WhenU/
SaveNow Help, http://www.whenu.com/faq_savenow.html (last visited Sept. 1, 2007).
288
Wells Fargo & Co. v. WhenU.com, Inc., 293 F. Supp. 2d 734, 739 (E.D.
Mich. 2003) (“Although many users claim not to be aware that SaveNow has been
loaded on to their computer, the Court finds that some user assent is required before
SaveNow is downloaded. The fact that assent may be in the form of a reflexive
agreement required for some other bundled program does not negate the fact that the
computer user must affirmatively ask for or agree to the download.”).
289
See WhenU, Advertisers, http://app.whenu.com/AdReports (last visited
Feb. 29, 2008) (“[R]elevance works: Our consumers respond to our advertisements 10 to
20 times more often than typical graphical advertisements.”).
290
See id. (“Our precision targeting technology examines keywords, URLs,
HTML code, and search terms currently in use on the consumer’s browser to select
relevant advertisements.”).
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windows, arguably reducing the likelihood that users may
believe them to be sponsored by or affiliated with content
presented in the main window.
In 2003, SaveNow became a magnet for trademark
litigation. Three federal district court opinions were issued
concerning the company’s practices. U-Haul International v.
WhenU.com, from a Virginia district court, concerned
SaveNow’s use of the key term “u-haul.”291 The Virginia district
court found in favor of the defendant.292 It stated that
SaveNow’s pop-up windows did not display the plaintiff’s
“U-Haul” trademark and that the SaveNow program itself did
not otherwise make the trademark visible to users.293 According
to the court, “U-Haul fails to adduce any evidence that WhenU
uses U-Haul’s trademarks to identify the source of its goods or
services.”294 Given the absence of trademark use, the court
concluded that WhenU was not liable.295
In a similar case in Michigan, the Wells Fargo Company
sued over SaveNow’s use of the terms “wells fargo” and
“quicken loans” to trigger advertisements.296 The district court,
citing approvingly to the district court decision in Playboy v.
Netscape, found that the plaintiff had not demonstrated a
trademark use of the plaintiff’s trademarks.297 Additionally,
and also echoing the district court in Playboy v. Netscape, the
court explained that as a matter of trademark policy, it was
important to understand that “trademark laws are concerned
with source identification” and do not extend to rights beyond
that purpose.298 According to the Michigan district court,
SaveNow’s pop-up advertisements were not a use of the marks
and instead constituted a legitimate form of “comparative
advertising.”299
However, a federal district court in New York reached
the opposite conclusion in a case brought by the 1-800 Contacts
291
U-Haul Int’l, Inc. v. WhenU.com, Inc., 279 F. Supp. 2d 723, 727 (E.D. Va.
2003).
292
Id. at 731.
Id. at 730.
294
Id. at 728.
295
Id. at 731.
296
Wells Fargo & Co. v. WhenU.com, Inc., 293 F. Supp. 2d 734, 737 (E.D.
Mich. 2003).
297
Id. at 763-64.
298
Id. at 761.
299
Id. at 761-62.
293
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company.300 The plaintiff sued over SaveNow’s use of the term
and the court, essentially applying the Brookfield initial
interest confusion doctrine, found that SaveNow had used and
infringed upon the plaintiff’s trademark.301 The Second Circuit
reversed, however, and brought the outcome of the 1-800 case
into line with Wells Fargo and U-Haul.302 The Second Circuit
found that SaveNow had not made trademark use of the
plaintiff’s 1-800 Contacts marks on goods or services.303 The use
of “1-800 Contacts” was only in the non-visible software code,
and the Second Circuit stated that “internal utilization of a
trademark in a way that does not communicate it to the public
is analogous to a[n] individual’s private thoughts about a
trademark. Such conduct simply does not violate the Lanham
Act.”304
4. Applying Use to Search Engines
The law of search engine results today is often pulled by
the gravitation of two very powerful doctrines: the Scylla of
initial interest confusion and the Charybdis of trademark use.
The district courts of the Second Circuit, following the
reasoning of the 1-800 Contacts opinion and the district court
in Netscape, have found that search term sales are not
infringing because they are not a trademark use. Outside the
Second Circuit, many courts seem inclined toward the
reasoning of Brookfield and the Ninth Circuit’s opinion in
Netscape.
Part III, infra, will explain why neither approach is
desirable. However, in order to describe the current landscape, it is useful to first set forth a representative (nonexhaustive) list of district court opinions that consider the issue
of trademark use. These are broken down into two categories:
(1) opinions from the district courts of the Second Circuit
applying the trademark use doctrine and (2) opinions from
outside the Second Circuit that have rejected the doctrine.305
300
1-800 Contacts, Inc. v. WhenU.com, 309 F. Supp. 2d 467, 488-505 (S.D.N.Y.
2003), rev’d, 414 F.3d 400 (2d Cir. 2005).
301
Id. at 489-92, 504-05.
302
1-800 Contacts, 414 F.3d at 413.
303
Id. at 409.
304
Id.
305
For a summary of recent use cases, see Vulcan Golf L.L.C. v. Google, Inc.,
No. 07-C-3371, 2008 U.S. Dist. LEXIS 22155, at *29-32 (N.D. Ill. Mar. 20, 2008)
(addressing claims about domain names).
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a. Opinions Applying Trademark Use
1. In the Southern District of New York case of Merck &
Co. v. MediPlan Health Consulting, the plaintiff sued the
defendant for purchasing search engine placement under the
term “zocor,” which corresponded with a registered trademark
for a pharmaceutical.306 The court granted the defendants’
motion to dismiss these claims, finding that purchasing
advertising placement under keywords did not amount to “use
in commerce,” and that the Second Circuit’s decision in 1-800
Contacts controlled.307 It stated that keyword purchases, like
the terms used by SaveNow, are “internal utilization of a
trademark in a way that does not communicate it to the
public.”308 The same court later denied a motion for reconsideration in light of developments in the case law from other
circuits.309
2. Google’s greatest district court victory to date under a
use theory was the Northern District of New York case of
Rescuecom Corp. v. Google.310 In that case, the computer repair
company Rescuecom sued Google for allowing its competitors to
purchase AdWords placement under the “rescuecom” search
term. Relying on 1-800 Contacts, Google filed a motion to
dismiss the case. The New York district court granted the
motion, finding that Google’s sale of the term “rescuecom” was
not visible to the public. Applying 1-800 Contacts, the court
concluded there was no trademark use and therefore no
liability for trademark infringement or dilution.311 The plaintiff
appealed and the Rescuecom case is currently before the
Second Circuit.312 Google is clearly hoping to secure a postNetscape circuit court opinion that will validate its AdWords
business model.
306
Merck & Co. v. MediPlan Health Consulting Inc., 425 F. Supp. 2d 402, 406
(S.D.N.Y. 2006); see also 431 F. Supp. 2d 425 (S.D.N.Y. 2006). The plaintiff also
objected to the defendant’s use of the term “generic zocor” in the text of its own website.
These claims were not dismissed by the district court. Merck & Co., 425 F. Supp. 2d at
413.
307
Merck & Co., 425 F. Supp. 2d at 415.
308
Id.
309
431 F. Supp. 2d 425, 428 (S.D.N.Y. 2006).
310
See Rescuecom Corp. v. Google, Inc., 456 F. Supp. 2d 393, 397-404
(N.D.N.Y. 2006).
311
Rescuecom, 456 F. Supp. 2d at 403-04 (citing 1-800 Contacts, Inc. v.
WhenU.com, 414 F.3d 400, 406-07 (2d Cir. 2005).
312
Rescuecom Corp. v. Google, Inc., No. 06-4881-CV (2d Cir. filed Nov. 7,
2006).
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3. In FragranceNet.com v. FragranceX.com, a case
decided recently in the Eastern District of New York, the
plaintiff sought leave to amend its complaint to allege that the
defendant had infringed its trademarks via AdWords purchases.313 The defendant argued that the keywords were not a
trademark use.314 The district court agreed with the defendant
and denied the motion for leave to amend.315 The opinion was
also notable in that it denied the application of use to a meta
tag claim as well, finding the Second Circuit’s 1-800 Contacts
opinion in “stark contrast” to the Ninth Circuit decisions in
Brookfield and Netscape.316
4. In S&L Vitamins v. Australian Gold, the plaintiff
brought a declaratory judgment action seeking a ruling that its
use of terms corresponding to the defendant’s trademarks in
meta tags and purchased search engine keywords did not
constitute infringement.317 The court, citing prior Second
Circuit decisions, determined that the plaintiff had not used
the defendant’s marks “by purchasing keywords and sponsored
links.”318
b. Opinions Rejecting Trademark Use
1. The first major trademark case against Google was
brought in the Eastern District of Virginia by the insurance
company GEICO and entailed the rejection of a trademark use
argument by Google.319 GEICO alleged Google infringed its
trademarks by selling advertising linked to the “geico” term
(and other terms).320 GEICO relied heavily on the (subsequently
reversed) district court decision in 1-800 Contacts as well as on
meta tag case law, and Google relied on a trademark use
defense.321 In its 2004 opinion, the district court denied the
motion to dismiss, finding the sale of keywords was sufficient
313
FragranceNet.com, Inc. v. FragranceX.com, Inc., 493 F. Supp. 2d 545, 546
(E.D.N.Y. 2007).
314
Id. at 547.
315
Id. at 555.
316
Id. at 554-55.
317
S&L Vitamins v. Australian Gold, 521 F. Supp. 2d 188, 201-02 (E.D.N.Y.
2007).
318
Id. at 202.
319
See Gov’t Employees Ins. Co. v. Google, Inc., 330 F. Supp. 2d 700, 704 (E.D.
Va. 2004).
320
Id. at 702.
321
Id. at 703.
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trademark use to state a claim for infringement.322 The court
found Google’s sales of specific terms to be distinguishable from
WhenU’s sales of “broad categories” of terms in its SaveNow
program.323 The defendants had “marketed the protected marks
themselves as keywords to which advertisers could directly
purchase rights.”324 However, after a bench trial, the court
granted judgment to the defendants on the issue of infringement, finding that GEICO failed to demonstrate a likelihood of
consumer confusion.325
2. In the 2006 Georgia district court case of Rescuecom
Corp. v. Computer Troubleshooters, the defendant, Computer
Troubleshooters, had purchased a Google AdWords placement
under the term “rescuecom.”326 Computer Troubleshooters
claimed that purchasing a Google AdWord did not amount to
infringing trademark use under the Lanham Act.327 Following
the reasoning of GEICO, the court denied defendant’s motion
to dismiss, finding that the issues of trademark use and confusion were factual questions that could not be resolved on a
preliminary motion.328
3. In the 2006 New Jersey district court case of 800-JR
Cigar v. GoTo.com, the plaintiff sold cigars through its website
and owned federal trademark rights in the term “JR Cigar”
(and other terms).329 It brought suit against GoTo.com for the
sale of advertisements keyed to terms such as “jr cigar.”330
GoTo.com, like Google, defended on the basis that selling
placement for search terms was not trademark use. Following
the reasoning of GEICO, the court found that there was
sufficient trademark use. Applying theories of initial interest
confusion pursuant to Brookfield and trademark dilution, the
court denied summary judgment.331
322
Id. at 704-05.
Id. at 704.
324
Id.
325
Gov’t Employees Ins. Co. v. Google, Inc., No. 1:04cv507, 2005 U.S. Dist.
LEXIS 18642, at *25-26, 77 U.S.P.Q.2d (BNA) 1841 (E.D. Va. Aug. 8, 2005).
326
Rescuecom Corp. v. Computer Troubleshooters USA, Inc., 464 F. Supp. 2d
1263, 1264 (N.D. Ga. 2005). In this case, Rescuecom did not sue Google, but only
brought suit against the company that had purchased the AdWords placement. Id.
327
Id.
328
Id. at 1266-67.
329
800-JR Cigar, Inc. v. GoTo.com, Inc., 437 F. Supp. 2d 273 (D.N.J. 2006).
330
Id. at 278-79.
331
Id. at 290-96.
323
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4. Buying for the Home v. Humble Abode332 was decided
by another New Jersey district court in 2006. The plaintiff and
defendant were competitors in the online sale of furniture. The
defendant had purchased Google AdWords for the term “total
bedroom,” which corresponded with the plaintiff’s trademark.333
The defendant moved for summary judgment based on an
absence of trademark use.334 Surveying the varied case law on
the issue, the New Jersey district court found the allegations
“clearly satisf[ied] the Lanham Act’s ‘use’ requirement.”335 The
court noted that the keyword purchases were “a commercial
transaction . . . trading on the value of Plaintiff’s mark.”336 The
court stated that “the mark was used to provide a computer
user with direct access (that is, a link) to Defendants’ website
through which the user could make furniture purchases.”337
5. In the 2006 District of Minnesota case of Edina
Realty v. TheMLSOnline,338 the plaintiff, a realtor, alleged that
the defendant had infringed on it trademarks by purchasing
them as advertising keywords from Google and Yahoo.339 The
defendant moved for summary judgment, arguing that the
keyword purchases did not amount to trademark use. Citing
Brookfield, the court stated, “Based on the plain meaning of the
Lanham Act, the purchase of search terms is a use in commerce.”340 The court allowed the plaintiff’s infringement claims
to proceed to trial.341
6. In the 2007 Pennsylvania district court case of J.G.
Wentworth v. Settlement Funding,342 the plaintiff claimed that
the defendant had infringed on its trademarks by purchasing
corresponding terms in Google’s AdWords program. In response
332
Buying for the Home, LLC v. Humble Abode, LLC, 459 F. Supp. 2d 310
(D.N.J. 2006).
333
Id. at 315-17.
334
Id. at 318-20; see 800-JR Cigar, Inc. 437 F. Supp. 2d at 277.
335
Humble Abode, 459 F. Supp. 2d at 322-23.
336
Id. at 323.
337
Id.
338
Edina Realty, Inc. v. TheMLSOnline.com, No. 04-4371, 2006 U.S. Dist.
LEXIS 13775 (D. Minn. Mar. 20, 2006).
339
See id. at *3 (“Over the past four years, defendant has purchased the
following search terms from Google: Edina Realty, Edina Reality, EdinaReality.com,
EdinaRealty, EdinaRealty.com, www.EdinaReality.com and www.EdinaRealty.com.”).
340
Id. at *10.
341
Id. at *21. The plaintiff’s trademark dilution claims were dismissed due to
a failure to meet the Supreme Court’s stringent “actual dilution” standard announced
in Moseley. Id. at *22-23.
342
J.G. Wentworth, S.S.C. v. Settlement Funding LLC, No. 06-0597, 2007
U.S. Dist. LEXIS 288 (E.D. Pa. Jan. 4, 2007).
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to the trademark use defense, the court rejected the 1-800
Contacts position, stating that the use was “not analogous to
‘an individual’s private thoughts’ as defendant suggests. By
establishing an opportunity to reach consumers via alleged
purchase and/or use of a protected trademark, defendant has
crossed the line from internal use to use in commerce under the
Lanham Act.”343 At the same time, however, the court granted
the defendant’s motion to dismiss, also rejecting the reasoning
of Brookfield and finding that the plaintiff had not introduced
evidence that could support a finding of a likelihood of
confusion.344
7. Just recently, Google settled its claims in Google v.
American Blind & Wallpaper Factory,345 a long-running case
brought by Google in the Ninth Circuit.346 Google had brought
suit seeking a declaratory judgment that it did not infringe the
defendant’s marks through the sale of AdWords advertisements for terms corresponding with the plaintiff’s trademarks
(for example, “american blinds”). In a 2007 ruling, the California district court found that Playboy v. Netscape made “an
implicit finding of trademark use in commerce” that would
apply to the Google AdWords program.347 The district court also
stated that “Brookfield, like Playboy, suggests that the Ninth
Circuit would assume use in commerce here.”348 The court was
therefore prepared to allow the case to proceed to trial.349
The above cases highlight the struggle to reconcile
jurisprudence over initial interest confusion, originating in
Brookfield, with contemporary litigation over search engine
343
Id. at *17.
Id. at *23-24 (“Due to the separate and distinct nature of the links created
on any of the search results pages in question, potential consumers have no
opportunity to confuse defendant’s services, goods, advertisements, links or websites
for those of plaintiff.”).
345
The extensive motion practice can be found at Google, Inc. v. Am. Blind &
Wallpaper Factory, Inc., No. C 03-5340, 2007 U.S. Dist. LEXIS 32450 (N.D. Cal. Feb. 8,
2008); 2007 U.S. Dist. LEXIS 32450 (N.D. Cal. Apr. 18, 2007); 2006 U.S. Dist LEXIS
67284 (N.D. Cal. Sept. 6, 2006); 2006 U.S. Dist. LEXIS 58970 (N.D. Cal. Aug. 10, 2006);
74 U.S.P.Q.2d (BNA) 1385, 2005 US Dist. LEXIS 6228 (N.D. Cal. Mar. 30, 2005); 2004
U.S. Dist. LEXIS 27601 (N.D. Cal. Apr. 8, 2004).
346
Google Settles Trademark Suit, N.Y. TIMES, Sept. 1, 2007, at C4.
347
Am. Blind & Wallpaper, 2007 U.S. Dist. LEXIS 32450, at *18.
348
Id. at *20-21.
349
Id. at *21. The ruling was not an unqualified win for the defendant,
however. The court dismissed its dilution claims and granted summary judgment to
Google on claims based on the “American Blind” or “American Blinds,” which the court
found could not be protected as trademarks. Id. at *26, 26 n.16, 39-40. However, the
defendant had also alleged infringement of three other marks: “American Blind
Factory,” “Decoratetoday,” and “American Blind & Wallpaper Factory.” Id. at *26 n.16.
344
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results. While the doctrine of trademark use has been utilized
in the district courts of the Second Circuit to keep trademark
law out of search results, the majority of district courts outside
the Second Circuit have been unwilling to adopt such a
bright-line test. Caught between initial interest confusion and
trademark use, the doctrine pertaining to search engine results
is in flux and will likely continue to be unstable in the near
future.
This brings us to the question of how courts should
approach the intersection of trademark law and Google’s search
results.
III.
THE PUBLIC INDEXICAL INTEREST
In Part II, the legal precedents regarding the regulation
of search results were described. As was explained, there seems
little possibility that the law will soon be capable of supervising
generally the unique manner in which Google acts as an index
and advertiser. However, within the limited confines of trademark law, some courts have seemed willing to curtail abusive
SEO practices that influence Google’s left column (under the
rubric of competitor meta tag suits) and some have been willing
to consider supervising Google’s practices in its right-hand
column.
This Part will argue that trademark law should stay
engaged with the commercialization of search engine results in
both columns. However, both initial interest confusion and
trademark use are flawed theories that promise little progress
for the public interest in search results. Trademark law should
ideally pursue the goal of protecting the value of search engines
as useful indices. However, protecting search engines as indices
is a complex goal. The social value of online indices can be
threatened by SEO practices, by the commercial practices of
search engines, and by trademark law itself. What is needed in
this arena is a doctrine that keeps the role of trademark law in
search results very limited, but does not abdicate the state’s
role entirely.
A.
Avoiding the Scylla and Charybdis
District courts confronting claims of keyword purchases
today must navigate a dangerous path between two powerful
doctrines, initial interest confusion and trademark use. Neither
of these recent doctrines is consistent with trademark law’s
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historic logic. Nor is either very helpful in ensuring the public
utility of online indices.
1. Initial Interest Confusion
The problems with the doctrine of initial interest
confusion as applied to the Internet have been explored
extensively by both courts and commentators.350 The principal
concern among courts and commentators is that that the
application of the doctrine to search results offers no clear
consumer benefits and risks substantial consumer harms.351 As
the district court in Netscape noted, it is not clear that a user
searching for a given word on a search engine is actually
searching for the trademark meaning of that word.352 Thus,
initial interest confusion may make search engines less useful
by increasing consumer search costs.353 Initial interest
confusion threatens to allow trademark owners to monopolize
language, as the Netscape district court put it.354 Search engine
users searching for non-trademark usages of words like “cars”
or “nike” may have their interest in finding information on
generic terms eclipsed by a proliferation of trademark-related
results.355
Even in cases where a search engine user is searching
for a trademark holder’s product by using the search term as a
proxy, as the Netscape district court also noted, it may not be
clear which market context corresponds with the user’s
intent.356 And even if the user is searching for the exact good or
service provided by a single trademark holder, as Judge
Berzon’s concurrence in the Ninth Circuit opinion points out,
this consumer might be pleased to be presented with additional
choices.357
350
My earlier arguments against the application of the doctrine to search
engines can be found in Lastowka, supra note 7, at 854-58, 877. The writing in this
area is quite prolific. A recent article by Professor Jennifer Rothman offers a
comprehensive general attack on the doctrine. Rothman, supra note 208.
351
Rothman, supra note 208, at 121-22.
352
Netscape I, 55 F. Supp. 2d 1070, 1073 (C.D. Cal. 1999).
353
See Stacey L. Dogan & Mark A. Lemley, Trademarks and Consumer
Search Costs on the Internet, 41 HOUS. L. REV. 777, 810 (2004).
354
Netscape I, 55 F. Supp. 2d at 1083.
355
Of course, as shown in Part I. C, supra, even in the absence of trademark
law’s influence, this result may obtain.
356
Netscape I, 55 F. Supp. 2d at 1083.
357
Netscape II, 354 F.3d 1020, 1035 (9th Cir. 2004).
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There may be some arguable consumer-protection logic
behind initial interest confusion. Ideally, in offline contexts, the
initial interest confusion doctrine might be defended on the
basis that business competitors should not be able to use
trademarks in a way that amounts to a bait-and-switch
tactic.358 For instance, a store should not be able to advertise
that it offers Brand A, generating initial interest by consumers
and resultant traffic to its store, and then offer those who
arrive to the store only Brand B. This is essentially the story of
the billboard in Brookfield. If an actual billboard were to divert
consumers in this way by using the drawing power of a
trademark, there would be good reason for trademark law to
prevent that type of conduct. The plaintiff’s trademark would
be used as a false lure to bring consumers into unfruitful
expenditures of time and energy.359
But while consumers may see some benefits from
limited applications of the bait-and-switch theory of initial
interest confusion, as the Dr. Seuss case demonstrates, there
are reasons to be concerned that this expansion of trademark
law may have the negative consequence of restricting the
permissible scope of free expression.360 Any broadening of
trademark law rights past traditional boundaries should be
scrutinized carefully for a potential impact on free speech
rights and other public interests.361
The more important point with regard to bait-andswitch theory, however, is that it has not been guiding the
application of initial interest confusion to search results. At
present, initial interest confusion as applied to search results is
much closer to a dilution-type right of word ownership. As
Judge Berzon noted in Netscape, despite the fact that
Brookfield was premised on initial interest confusion, there
was no evidence that consumers were ever confused in that
case.362 Applied to search results, it seems initial interest
358
See Hannibal Travis, The Battle for Mindshare: The Emerging Consensus
That the First Amendment Protects Corporate Criticism and Parody on the Internet, 10
VA. J.L. & TECH. 3 at 85 (2005); Dorr-Oliver, Inc. v. Fluid-Quip, Inc., 94 F.3d 376, 382
(7th Cir. 1996).
359
See Rothman, supra note 208, at 161, 161 n.241 (providing citations to
initial interest confusion cases depending on the logic of “luring”).
360
See supra notes 210-213 and accompanying text. See generally Graeme W.
Austin, Trademarks and the Burdened Imagination, 69 BROOK. L. REV. 827, 884 (2004)
(explaining how initial interest confusion doctrine, by broadening trademark rights,
increases the level of conflict between trademark and the First Amendment).
361
Austin, supra note 360, at 883-84; Lemley, supra note 169, at 1710.
362
Netscape II, 354 F.3d at 1035.
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confusion serves the ends that the district court in Netscape
feared: the ability to control the general use of words, regardless of the public interest.
In the abstract, it may seem that when a trademark
owner’s business efforts makes a novel term, such as “ipod” or
“häagen-dazs,” popular with consumers, the trademark owner
should possess a legal right to receive the profit (and Web
traffic) associated with the popularity of that term. Why should
competitors or Google have the power to profit from the value
associated with these terms, given that neither competitors nor
Google generated the consumer interest in the term? This
sentiment certainly plays a powerful role in rhetorical justifications of dilution law, which argue against any free riding.
But as Mark Lemley has recently explained, there is no general
anti-free-riding principle in intellectual property law.363 To the
contrary, intellectual property often creates spillovers where
the benefits of investments are not internalized by those
granted ownership of the associated rights.364 Intellectual
property owners have not captured, and should not capture, all
economic value attributable to their activities. Requiring that
would lead to significant social harms.
This is nowhere clearer than in the case of initial
interest confusion as applied to search results listing. An overly
expansive reading of trademark rights, such as the rule in
Brookfield, would allow trademark holders to monopolize all
traffic related to terms associated with their trademarks. Given
that almost any word can be a trademark, a law to this effect
would substantially destroy the benefits provided by search
engines. The popular wealth generated by useful online indices
would be transformed into the poverty of a pedestrian
trademark directory.365
Is this possible with respect to Google’s results? While
we might imagine courts would find a way to avoid impeding
search, there is cause for concern. In some jurisdictions, initial
interest confusion is becoming a controlling doctrine in search
engine jurisprudence. For instance, in the recent case of Storus
363
Lemley, supra note 101, at 1032 (“[T]he rhetoric of free riding in
intellectual property . . . [is] fundamentally misguided.”).
364
Brett M. Frischmann & Mark A. Lemley, Spillovers, 107 COLUM. L. REV.
257, 258-61 (2007).
365
Dogan & Lemley, supra note 353, at 816 (“Brookfield takes the initial
interest confusion rationale in a novel and dangerous direction that disregards its
confusion-based origins, defies core trademark doctrine, and thwarts the normative
goals of trademark law.”).
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v. Aroa Marketing, a district court in the Ninth Circuit
awarded summary judgment to a plaintiff complaining of a
competitor’s purchase of a Google AdWords advertisement.366
Applying the Brookfield doctrine and distinguishing Netscape’s
application of that doctrine to search engines, the court found
that the mere diversion of traffic to the defendant’s website
was sufficient to establish infringement in the search context.367
2. Trademark Use
Given the potential dangers to the public interest posed
by an unchecked initial interest confusion doctrine, it may
seem prudent to keep trademark law entirely out of the process
of regulating search engines. The thought might be that unless
some categorical immunity is provided for search engines,
trademark law—and the initial interest confusion doctrine
in particular—will ruin the shape of search engine results.
Professor Eric Goldman is a leading advocate of this view. He
has claimed that “trademark law must step aside” from the
regulation of search results.368 He explains that “the solution is
simple: Deregulate the keyword in Internet searching.”369
Unsurprisingly, Professor Goldman has also favored the
trademark use doctrine as a means of achieving this objective.
The goal would be to deregulate relevancy entirely. Decisions
such as Rescuecom and FragranceNet essentially achieve this
result by finding that the sale of term-keyed AdWords
advertisement does not amount to trademark use.370 Several
scholarly commentators agree that the doctrine of trademark
use is essential to limiting the expansion of errant doctrines.371
366
Storus Corp. v. Aroa Mktg., No. C-06-2454 MMC, 2008 U.S. Dist. LEXIS
11698, at *11-16 (N.D. Cal. Feb. 15, 2008).
367
Id. at *10-15, *13 n.6. It is important to note that the plaintiff’s (weak)
trademark was present in the text of the defendant’s AdWords. Id. at *11-15.
368
Goldman, supra note 67, at 510.
369
Id. at 596.
370
FragranceNet.com, Inc. v. FragranceX.com, Inc., 493 F. Supp. 2d 545, 550
(E.D.N.Y. 2007); Rescuecom Corp. v. Google, Inc., 456 F. Supp. 2d 393, 401-02
(N.D.N.Y. 2006).
371
See, e.g., Margreth Barrett, Internet Trademark Suits and the Demise of
“Trademark Use,” 39 U.C. DAVIS L. REV. 371, 450-57 (2005); Stacey L. Dogan & Mark
A. Lemley, Grounding Trademark Law Through Trademark Use, 92 IOWA L. REV.
1669, 1675-82 (2007) [hereinafter Dogan & Lemley, Grounding]; Dogan & Lemley,
supra note 353, at 805-11; Uli Widmaier, Use, Liability and the Structure of Trademark
Law, 33 HOFSTRA L. REV. 603, 708 (2004).
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Professor Margreth Barrett, for instance, has lamented
the demise of trademark use.372 She views the public interest
as threatened by a “remarkable expansion of the control
trademark owners are able to extend . . . over unauthorized
references to their marks on the Internet.”373 Uli Widmaier
argues that “[t]rademark use must become once again a
mandatory element of all trademark claims. The courts must
stop disregarding this foundational premise of trademark
law.”374
Professors Stacey Dogan and Mark Lemley are the
leading advocates of use as a limitation on trademark law, and
particularly on internet trademark law.375 According to Dogan
and Lemley, “The trademark use requirement serves a gatekeeper function, limiting the reach of trademark law without
regard to a factual inquiry into consumer confusion.”376 They
state, “Selling advertising space based on an Internet keyword
that is also a trademark does not use that trademark as a
brand. The Internet intermediary is not selling any product or
service using those terms as an identifier.”377
Yet this is exactly the argument that many district
courts outside the Second Circuit have found unpersuasive,
and that the Ninth Circuit in the Netscape decision decried as
“absurd.”378 If Google knowingly sells advertising placement
under the term “nike” to Adidas in order to direct consumer
traffic to the website of Adidas, it is hard to understand why
Google “does not use that trademark as a brand.” Indeed, many
district courts, and the Ninth Circuit in Netscape, have found
that such use is clearly within the reach of the Lanham Act.379
372
Barrett, supra note 371, at 373-75.
Id. at 375.
374
Widmaier, supra note 371, at 708.
375
See generally Dogan & Lemley, supra note 353; Dogan & Lemley,
Grounding, supra note 371. Professor Lemley is involved in courtroom advocacy as
well. As he acknowledges in his scholarly writing, he has represented Google and
several other companies in major lawsuits that have expanded the defensive scope of
trademark use doctrine.
376
Dogan & Lemley, supra note 353, at 805.
377
Id. at 807.
378
354 F.3d 1020, 1027 n.32; see also Misha Gregory Macaw, Google, Inc. v.
American Blind & Wallpaper Factory, Inc.: A Justification for the Use of Trademarks
as Keywords to Trigger Paid Advertising Placements in Internet Search Engine Results,
32 RUTGERS COMPUTER & TECH. L.J. 1, 48 (2005) (concluding that Google’s AdWords is
a “use in commerce” and that this “is entirely consistent with the policy underpinnings”
of trademark law).
379
See supra Part II.C.
373
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By contrast, the line of reasoning being followed by
district courts in the Second Circuit, that this type of use is
“not visible to the public” and that it consists only of the
“private thought” of Google,380 seems like a concerted effort to
ignore the reality of the situation. The search term is clearly
communicated to the user who is, after all, querying Google
with regard to that term. It is the value of the term “nike” as a
brand name that makes it valuable to the majority of AdWords
advertisers.
It seems quite obvious that the sale of advertising keyed
to terms that are valuable primarily (or only) due to their
correspondence with well-known trademarks is a use of those
trademarks in commerce. Yet it must be emphasized that
trademark infringement does not occur simply because a party
uses another party’s trademark. It is only by virtue of the
doctrine of initial interest confusion that some courts have
decided this should be the case. But prior to that development,
it was a foundational concept in trademark law that uses of a
trademark that created no likelihood of consumer confusion
were not uses that made a party liable for trademark
infringement.
The middle ground between trademark use and initial
interest confusion doctrine seems like the right place for
Google’s results to fall, and some courts have started to see
this. Two of the courts rejecting trademark use have also
rejected plaintiffs’ claims that search engine results have
created actionable consumer confusion. The court in GEICO v.
Google, Inc. reached this result after a bench trial.381 The court
in J.G. Wentworth v. Settlement Funding reached this result on
a motion to dismiss, while at the same time managing to
explicitly reject the doctrine of initial interest confusion.382 This
is the correct analysis.
Rejecting all claims based on a search engine’s sale of
placement under terms would certainly keep claims out of
court. But it might also encourage Google to adopt sharper
practices. The public interest would not be served if trademark
owners could dictate the shape of Google’s results. But if
380
See supra Part II.C.
Gov’t Employees Ins. Co. v. Google, Inc., 330 F. Supp. 2d 700 (E.D. Va.
2004); Gov’t Employees. Ins. Co. v. Google, Inc., No. 1:04cv507, 2005 U.S. Dist. LEXIS
18642, at *1-7, 77 U.S.P.Q.2d (BNA) 1841 (E.D. Va. Aug. 8, 2005).
382
J.G. Wentworth, S.S.C. v. Settlement Funding LLC, No. 06-0597, 2007
U.S. Dist. LEXIS 288, at *1, *19-24, 85 U.S.P.Q. 2d (BNA) 1780 (E.D. Pa. Jan. 4, 2007).
381
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Google were accorded absolutely free reign to index the results
it offers in response to user queries, it is not hard to imagine
ways that it could abuse its power to the detriment of both
trademark owners and the public.
The leading critics of the expanding trademark use
doctrine are Professors Graeme Dinwoodie and Mark Janis,
who have co-authored two articles criticizing arguments by
Dogan and Lemley.383 Dinwoodie and Janis find little basis in
the statutory text for the doctrine.384 Dogan and Lemley have
responded by advocating for a common-law evolution.385
If trademark use represents a doctrinal evolution, it
should be defended on policy grounds. Dinwoodie and Janis
argue, persuasively, that categorically removing the influence
of trademark law from certain commercial activities is unwise,
especially if these activities might be found to create consumer
confusion. Trademark use abdicates the power of trademark
law to police actions that could be potentially harmful to
consumers.386 Dinwoodie and Janis explain, “Experience militates against the pure laissez-faire approach . . . . Were it
otherwise, of course, one might question whether there was any
need for trademark and unfair competition law.”387
This seems quite right. Courts that have carefully
considered contemporary search results without being caught
in the Brookfield doctrine have found no likelihood of consumer
confusion generated. If initial interest confusion can be
jettisoned, there seems to be little pressing need to confront a
threat that may never materialize.388 Trademark law is
currently one of the only means by which law polices Google’s
383
Graeme B. Dinwoodie & Mark D. Janis, Lessons from the Trademark Use
Debate, 92 IOWA L. REV. 1703 (2007) [hereinafter Dinwoodie & Janis, Lessons];
Dinwoodie & Janis, Contextualism, supra note 70, at 1597.
384
Dinwoodie & Janis, Contextualism, supra note 70, at 1608-15; Dinwoodie &
Janis, Lessons, supra note 383, at 1706-08; see also Sarah J. Givan, Using Trademarks
as Location Tools on the Internet: Use in Commerce?, 2005 UCLA J.L. & TECH. 4 ¶ 47
(2005) (concluding keyword uses are a “use in commerce” under the Lanham Act).
385
Dogan & Lemley, Grounding, supra note 371, at 1686 (“Contrary to
Dinwoodie and Janis’s charge, this form of common-law evolution of trademark
doctrine is neither revolutionary nor unique. Indeed, common law development has
been at the heart of a wide variety of IP doctrines . . . .”).
386
See Dinwoodie & Janis, Lessons, supra note 383, at 1719.
387
Id.; see also Pasquale & Bracha, supra note 115, at 4, 32 (critiquing
arguments that market discipline will correct problems with search results).
388
Cf. Grimmelmann, supra note 85, at 62 (“The search engine’s proper
defense is that it is not misleading users, not that it is not using the trademark. It is
easy to imagine search engines that deliberately cause serious confusion.”).
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search results. This makes the trademark use doctrine essentially a bid for Google’s Law.
If the Scylla of initial interest confusion and the
Charybdis of trademark use can be avoided, how might we
reconcile trademark law with search engine results? This is
considered in the next two sections.
B.
Space Versus Index: Supermarkets and Libraries
In setting trademark policy for search engines, it is
important to see how Google is like and unlike past spaces.389
Courts and commentators discussing search engines often use
spatial analogies in justifying decisions and policies, be they
the highways and signposts of Brookfield or the store shelves
that Judge Berzon referenced in Netscape.390 But Google is not
simply an online version of a store shelf.391
Judge Berzon’s concurrence in Netscape suggests that
consumers desire a broad range of choices and it is good to have
multiple purchasing options present on stores shelves. Yet
store owners do not stock both Coke and Pepsi in order to
further the public interest in choice.392
Supermarkets, like all other businesses, seek to make a
profit. If a supermarket shopper were to request Coke
specifically, the store owner will offer Pepsi as an alternative
only if this might lead to increased revenues. Generally, if the
389
Givan, supra note 384, at 4 ¶ 5 (“Consumers navigate the internet through
the use of words. . . . In effect, words are location in the online domain.”).
390
I have used spatial analogies this way myself, explaining that search
engines might be used to “recreate some of the spatial realities of the marketplace” by
placing “goods in spatial proximity” and “providing consumers with more choices.”
Lastowka, supra note 7, at 877.
391
As Dinwoodie and Janis explain:
[T]he all-too-ready resort to offline analogies to justify outcomes in Internet
trademark cases gives us pause. Courts should not automatically assume
that proximity in the online environment and proximity in the offline
environment have the same effects. The context is different, and there are
great risks in taking analogies too seriously.
Dinwoodie & Janis, Lessons, supra note 383, at 1721; see also Givan, supra note 384,
¶ 5 (“In this physical world, Safeway does not use Kellogg’s trademarks to sell Safeway
products.”).
392
Many venues today have exclusive arrangements that lead them to stock
only Coke or Pepsi. See, e.g., Michele Simon, Can Food Companies Be Trusted to SelfRegulate? An Analysis of Corporate Lobbying and Deception to Undermine Children’s
Health, 39 LOY. L.A. L. REV. 169, 173 (2006) (“With public schools so desperate for
funding, over the past two decades many districts have opened their doors to major
beverage companies such as Coca-Cola and Pepsi-Cola, often forming exclusive
contracts also known as ‘pouring rights.’”).
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profit margins are equal for both beverages and both are on
hand, a request for Coke will not be met with the counteroffer
of Pepsi.393 Stores may offer their customers a choice by
stocking multiple brands clustered by product type, but they
may not. The choices available in any marketplace are a
byproduct of economic incentives, social customs, and the
logistics of spatial coordination.
In theory, Google can offer better choices to consumers
since it faces no spatial limit on the number of products it
offers (which, in fact, are free hyperlinks). Yet Google is still
constrained by the size of a monitor display and the patience of
users. Most importantly, Google profits not by selling products
to consumers, but by delivering consumer attention to advertisers.
Google operates in an indexical environment that is
importantly different from the spatial context of trademarks.
Trademarks within real space are often situated in contexts
that lend meaning to terms.394 Real spaces are fluid and
smooth, whereas the spaces of Google’s index are rigid and
striated. In real space, a supermarket aisle smoothly blends to
a checkout counter to a parking lot to a city street. On Google,
information does not spill across digital boundaries unless it is
programmed to do so. Consumers in Google’s “space” of search
results are largely blind, not just to adjacent products, but to
many other important contextual clues. They cannot see, for
instance, the traffic patterns of other consumers, the appearance of a shopkeeper, or the need for a cleanup on aisle five.
Allowing Google to sell search terms that correspond to
trademarks will certainly affect the user experience, but it will
not magically transform Google into a corner drug store.
There is no way to turn back the clock and restore the
marketplace to the “natural” pre-Internet order that is thought
to exist on supermarket shelves. Instead, trademark law in the
twenty-first century must take into account the rise of
indexical spaces.395 So far, that transformation has been
characterized by significant missteps, among them cases like
Brookfield and 1-800 Contacts. However, it would be premature
393
Dinwoodie & Janis, Contextualism, supra note 70, at 1630-32 (explaining
how offering more choices does not necessarily decrease consumer search costs).
394
See supra Part II.B.
395
As one example of this type of re-imagining law, James Grimmelmann has
recently published a very thoughtful essay on how information superabundance relates
to ideal search engine policy approaches. James Grimmelmann, Information Policy for
the Library of Babel, 3 J. BUS. & TECH. L. 29 (2008).
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to claim that trademark law has no ability to transform in
ways that facilitate the public interest in the organization of
indexical space.
At its heart, Google is not a space, but a massive index
of the World Wide Web.396 Some courts have compared meta
tags to card catalogs.397 This library-based analogy might work
for Google as well.398 (Indeed, Google currently indexes and
retrieves the information in books.399) Physical books in almost
all public libraries today are spatially organized in accordance
with the Dewey Decimal System, the hierarchical system
created by Melvil Dewey in 1876.400 Physical tomes are spatially
ordered in accordance with ten broad categories, and further
grouped spatially by ten subcategories.401
By contrast, Google’s index is dynamically created by its
algorithms in response to user queries. Its content is much
greater than that of a typical library, but it is also limited to
certain Web sites. The Google index actually excludes a vast
amount of data.402 And this has implications in itself—different
parties have different interests with regard to how thoroughly
Google performs its indexical inclusion and exclusion.403
396
The term “index,” like many terms, has a variety of meanings in different
contexts. I am using it here to refer to “[s]omething that serves to guide, point out, or
otherwise facilitate reference.” THE AMERICAN HERITAGE DICTIONARY OF THE ENGLISH
LANGUAGE 891 (4th ed. 2000).
397
Paccar Inc. v. Telescan Techs., 319 F.3d 243, 248 n.2 (6th Cir. 2003)
(“Metatags have been ‘analogized to the subject index of a card catalog indicating the
general subject of a book.’”) (quoting MCCARTHY, supra note 168, § 25:69 (4th ed.));
Playboy Enters. v. Welles, 7 F. Supp. 2d 1098, 1104 (S.D. Cal. 1998) (“Much like the
subject index of a card catalog, the meta tags give the websurfer using a search engine
a clearer indication of the content of the website.”). Cf. Shea ex rel. Am. Reporter v.
Reno, 930 F. Supp. 916, 922 (S.D.N.Y. 1996) (“With access to the web of computer
networks known as the Internet . . . a researcher can peruse the card catalogs of
libraries across the globe . . . .”).
398
See generally Grimmelmann, supra note 395 (analogizing search engines to
a story by Jorge Luis Borges about an infinite library).
399
Jeffrey Toobin, Google’s Moon Shot: The Quest for the Universal Library,
NEW YORKER, Feb. 5, 2007, at 30 (describing the Google Book Search project).
400
Sarah N. Lynch & Eugene Mulero, Dewey? At This Library with a Very
Different Outlook, They Don’t, N.Y. TIMES, July 14, 2007, at A7 (describing how a
library in Arizona “is one of the first in the nation to have abandoned the Dewey
Decimal System of classifying books”).
401
See generally Wikipedia, Dewey Decimal Classification, http://en.wikipedia
.org/wiki/Dewey_Decimal_Classification (last visited Apr. 18, 2008) (explaining the
basics of the system).
402
See generally Wikipedia, Deep Web, http://en.wikipedia.org/wiki/Deep_Web
(last visited Feb. 28, 2008) (summarizing and collecting current information about
information not “visible” to search engines).
403
See generally Grimmelmann, supra note 85 (mapping out the competing
interests). Professor Grimmelmann’s article provides a helpful model of the general
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Insofar as Google’s index involves a process of judgment,
it is not remarkably different than prior indices. A good index,
online or offline, will reflect some judgment about the relative
importance of the information it references. For this reason,
indices are generally subject to copyright protection.404 Google
expresses judgments by virtue of its algorithm and its handalteration of some results, such as the results at issue in
KinderStart. This led the courts in KinderStart and Search
King to conclude that Google’s relevancy algorithms constituted
an opinion.405
Yet the opinion of Google is tied up with its interest
in making a profit. The Dewey Decimal System was not
structured as a means of obtaining advertising dollars.
Originally, the Google founders envisioned an index that would
be similarly “transparent and in the academic realm.”406 Today,
however, the structure of Google’s index is secret and the
company is fully in the commercial realm.
But this is also not entirely new. Advertising-funded
offline indices have existed before and continue to exist today.
Analogies might be drawn to buying guides for cars or
apartments, which are often made available for free and are
subsidized by advertising payments for inclusion. GoTo.com
was originally described, by its founder, as an online version of
the Yellow Pages.407 Google has since defended AdWords in
litigation before the Second Circuit using exactly the same
analogy.408
process of search engine technology keyed to the various legal issues search engines
raise.
404
The author of a good index must understand the nature of the text,
anticipate what subjects the reader may need to locate, and present an index that is
useful and concise. Hand-created indices are therefore creative works subject to
copyright protection. See Laura Gasaway, Do Indexes Qualify for Copyright Protection?,
8:12 INFO. OUTLOOK 40-41 (2004).
405
See supra Part II.A.
406
See supra note 1 and accompanying text.
407
BATTELLE, supra note 40, at 112.
408
Google’s brief in a recent case states:
There is a directory service that does something far closer to what Google
does—provides a list of results for a particular area of interest (say, taxicabs),
and sells advertising space to one company directly across from the listing for
a competing company. That directory service is the Yellow Pages, and no one
(except perhaps Rescuecom) would claim that companies advertising in the
Yellow Pages, much less the Yellow Pages itself, are engaged in unlawful
trademark use.
Brief of Defendant-Appellee at 16 n.5, Rescuecom Corp. v. Google, No. 06-4881-cv (2d
Cir., filed Feb. 12, 2007).
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The rhetorical appeal for Google is probably that offline,
if a given business fails to pay the Yellow Pages in order to
appear within a commercial category where it “belongs,” trademark law does not give that business cause of action.409 In the
offline context, it seems that faulty indices have not raised
issues of trademark law.
Yet the Yellow Pages generally lists its customers under
generic headings rather than by competitor trademarks. There
are many other ways one might distinguish between what
Google does with AdWords and what offline advertising
companies do with their publications. Perhaps most importantly, it is a fact that in the online context faulty indices have
been made a matter of trademark law.
C.
Trademark Law and the Internet Index
Though trademark law has never been particularly
relevant to offline indices, in the last ten years, courts have
been utilizing trademark law aggressively in attempts to
improve the quality of online indices.410 Ironically, this common
law evolution has been rooted in trademark law and has been
directed largely at obtaining the same goals that Professors
Dogan and Lemley seek to achieve by promoting trademark
use: a reduction in the search costs of consumers looking for
information on the internet.
These attempts by courts can be justly criticized in
many ways. It cannot be debated, however, that courts have
been attempting to police the shape of online indices by way of
trademark law. The use of trademark law to supervise
indexical integrity is truly a common-law evolution. It is a
common-law evolution that subsequently found support and
endorsement in a major legislative enactment amending
trademark law.
The interaction between trademarks and online indices
began with domain names.411 Domain names were originally
409
For an interesting examination of the strategies that attorneys use in
advertising in the Yellow Pages, see Daniel M. Filler, Lawyers in the Yellow Pages, 14
CARDOZO STUD. L. & LIT. 169 (2002).
410
This attempt is understandable since, as Professor Pasquale has explained
in two recent articles, the information wealth of the Web creates a new demand for
authoritative and responsible metadata. Pasquale, supra note 87, at 125-28, 158-59,
178-82.
411
Goldman, supra note 67, at 543 (“Although the DNS has a different
technical architecture and origin than search engines, the DNS has always functioned
as a search tool.”).
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awarded to registrants on a first-come, first-serve basis.412 In
1994, individuals could register whatever domain names they
wanted: a Wired journalist registered “mcdonalds.com” and
wrote about the strangeness of the experience.413 Early
speculators, sniffing out how these new index values were up
for grabs, were soon busy grabbing up popular domain
names.414 Perhaps the most well-known domain name dispute
was over the ownership of “sex.com.” The domain name was
originally acquired for free, yet it generated millions of dollars
of income for the thief who stole it from the original
registrant.415
Though domain names were never intended to serve as
a Web index, in the late 1990s, many courts believed (perhaps
correctly) that many people treated them as such, attempting
to find information on the Web by guessing at domain names.416
Where domain names corresponded with trademarks, trademark owners were understandably upset that “their” names
were being freely appropriated by others. In a 1996 address,
Judge Frank Easterbrook complained about the proliferation of
practices with respect to domain names that he considered an
“[a]ppropriation of names and trademarks.”417 Clearly, Judge
Easterbrook had no misgivings about who the proper owners of
domain names were.
One early domain name case was Planned Parenthood
v. Bucci, in which the defendant had registered the website
“plannedparenthood.com” and used it to promote an antiabortion message.418 Planned Parenthood sued to prevent Bucci
412
Frank H. Easterbrook, Cyberspace and the Law of the Horse, 1996 U. CHI.
LEGAL F. 207, 212; Margaret Jane Radin & R. Polk Wagner, The Myth of Private
Ordering: Rediscovering Legal Realism In Cyberspace, 73 CHI.-KENT L. REV. 1295,
1298-306 (1998); Anupam Chander, The New, New Property, 81 TEX. L. REV. 715, 72334 (2003).
413
Joshua Quittner, Billions Registered: Right Now There Are No Rules to
Keep You from Owning a Bitchin’ Corporate Name as Your Own Internet Address,
WIRED, Oct. 1994, at 50-51.
414
Margaret Jane Radin, A Comment on Information Propertization and Its
Legal Milieu, 54 CLEV. ST. L. REV. 23, 31 (2006).
415
See Kremen v. Cohen, 337 F.3d 1024, 1026, 1030 (9th Cir. 2003).
416
See Sporty’s Farm v. Sportsman’s Mkt., 202 F.3d 489, 493 (2d Cir. 2000)
(“The most common method of locating an unknown domain is simply to type in the
company name or logo with the suffix .com.”); Brookfield Commc’ns v. West Coast
Entm’t Corp., 174 F.3d 1036, 1045 (9th Cir. 1999); Planned Parenthood Fed’n of Am. v.
Bucci, No. 97 Civ. 0629, 1997 U.S. Dist. LEXIS 3338, 42 U.S.P.Q.2d (BNA) 1430
(S.D.N.Y. Mar. 19, 1997); Cardservice Int’l, Inc. v. McGee, 950 F. Supp. 737, 741 (E.D.
Va. 1997).
417
Easterbrook, supra note 412 at 212.
418
Bucci, 1997 U.S. Dist. LEXIS 3338, at *2-5.
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from using the domain name, alleging trademark infringement
and dilution. It prevailed on both theories. From the standpoint
of traditional trademark law principles, the Bucci opinion was
innovative.419 Setting aside the question of how the site could
have created confusion among consumers, it is not clear how
Bucci had used the Planned Parenthood mark in commerce,
given that he was not selling anything.420 Those who advocate
for an expansion of trademark use often criticize Bucci for this
reason.421
The Bucci court found the defendant had used the plaintiff’s trademark in commerce, in part, because the registration
of the domain name was designed to capture the social value of
the domain’s indexical function:
[D]efendant’s use of plaintiff’s mark is “in connection with the
distribution of services” because it is likely to prevent some Internet
users from reaching plaintiff’s own Internet web site. Prospective
users of plaintiff’s services who mistakenly access defendant’s web
site may fail to continue to search for plaintiff’s own home page, due
to anger, frustration, or the belief that plaintiff’s home page does not
exist.422
Though the court spoke in the language of trademark
law, the subtext of the opinion seemed to indicate that Bucci
should be liable for trademark infringement largely because to
hold otherwise would be to allow public anger and frustration
with the indexical function of domain names to continue. Bucci
was liable because his actions had caused the public to struggle
with a faulty index.
Later district and circuit courts developed this idea,
regularly citing the “anger” and “frustration” language from
Bucci in order to establish that the registration of domain
419
Or awful, or both, depending on your point of view. See Eric Goldman,
Online Word of Mouth and Its Implications for Trademark Law (Santa Clara Univ.
School of Law, Working Paper No. 07-46,. 2007), available at http://ssrn.com/abstract=
1020695 (stating that Bucci represented “the zenith (nadir?) of use in commerce
overreaching”).
420
The use of a trademark, while it need not be a “profit-seeking activity,”
must be a commercial activity. See United We Stand Am., Inc. v. United We Stand,
Am. N.Y., Inc., 128 F.3d 86, 92-93 (2d Cir. 1997).
421
Barrett, supra note 371, at 405 (“To elevate an individual’s statement of
his personal religious opinion to the level of a Lanham Act service goes well beyond any
established precedent and threatens to bring a wide array of fully protected First
Amendment speech under the control of trademark owners.”); Margreth Barrett,
Domain Names, Trademarks and the First Amendment: Searching for Meaningful
Boundaries, 39 CONN. L. REV. 973, 1024 (2007) (criticizing the decision); Widmaier,
supra note 371, at 657-59 (criticizing the court’s reasoning).
422
Bucci, 1997 U.S. Dist. LEXIS 3338, at *15.
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names by those other than trademark holders amounted to a
“use in commerce.”423 In one opinion citing Bucci, the Ninth
Circuit took the concept even further. Rather than simply
using the Bucci language to support a finding of “use in
commerce,” the court provided a general statement about
trademark dilution by registering a domain name: “[d]ilution
occurs because prospective users of plaintiff’s services may fail
to continue to search for plaintiff’s own home page, due to
anger, frustration or the belief that plaintiff’s home page does
not exist.”424 Trademark dilution was used as a kludge to
improve the index.
Another well-known corruptor of indexical value was
Dennis Toeppen, who lost two of the earliest domain name
cases in 1996 pursuant to trademark dilution theories.425 In one
case, Toeppen registered the domain name “panavision.com”
and used it to host views of Pana, Illinois.426 There was no
evidence that any consumers had been confused about source
or sponsorship as a result of Toeppen’s registration of the
“panavision” domain, and, as in Bucci, it seemed a quite a
stretch to say that Toeppen was using the Panavision
trademark in commerce. Yet the California district court found
Toeppen’s conduct was a commercial use (because he sought to
sell the domain to Panavision) and constituted trademark
dilution. The Ninth Circuit affirmed.
In its opinion, the Ninth Circuit referenced the “anger”
and “frustration” language from Bucci.427 Other parts of its
opinion offered additional examples of how the harm was not
seen merely as “theft” of the trademark owner’s value, but as a
corruption of the value of the domain name system as an index:
A domain name is the simplest way of locating a web site. If a
computer user does not know a domain name, she can use an
Internet “search engine.” To do this, the user types in a key word
search, and the search will locate all of the web sites containing the
key word. Such key word searches can yield hundreds of web sites.
423
See, e.g., E. & J. Gallo Winery v. Spider Webs, Ltd., 286 F.3d 270, 275 (5th
Cir. 2002); People for the Ethical Treatment of Animals, Inc. v. Doughney, 113 F. Supp.
2d 915, 919 (E.D. Va. 2000).
424
Avery Dennison Corp. v. Sumpton, 189 F.3d 868, 880 (9th Cir. 1999)
(emphasis added) (internal quotation marks omitted).
425
See Panavision Int’l., L.P. v. Toeppen, 938 F. Supp. 616 (C.D. Cal. 1996)
(denying Toeppen’s motion to dismiss for lack of personal jurisdiction); Intermatic Inc.
v. Toeppen, 947 F. Supp. 1227 (N.D. Ill. 1996).
426
Toeppen, 938 F. Supp. at 619.
427
Panavision Int’l. L.P. v. Toeppen, 141 F.3d 1316, 1327 (9th Cir. 1998)
(quoting Jews for Jesus v. Brodsky, 993 F. Supp. 282, 306-07 (D. N.J. 1998)).
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To make it easier to find their web sites, individuals and companies
prefer to have a recognizable domain name.
....
Using a company’s name or trademark as a domain name is also the
easiest way to locate that company’s web site. Use of a “search
engine” can turn up hundreds of web sites, and there is nothing
equivalent to a phone book or directory assistance for the Internet.428
That the Ninth Circuit thought Toeppen interfered with this
process was clear. It stated that Toeppen’s “‘business’ is to
register trademarks as domain names and then sell them to
the rightful trademark owners.”429 Implicit here is the notion
that it would be “rightful” for Panavision to own the domain
name. This would be congruent with the belief that the domain
name system should operate as a socially useful index of
information. When people go to Panavision.com, in other
words, they should be able to find the company they were
seeking—not a picture of Pana, Illinois.
Trademark infringement and dilution were used by
courts to remedy what they perceived as social harms to the
value of indices created by abuses of the laissez faire system of
domain name distribution. Findings of trademark dilution and
infringement were premised on the belief that cybersquatting
had little social utility. Courts found the speculative purchasing and reselling of domain names for indexical value
created significant harms to trademark owners and to Internet
users, while creating no cognizable benefits to society. And this
idea was not entirely inconsistent with trademark law. Policing
domain name registration under the rubric of trademark law
prohibited what was seen as unfair competition and reduced
search costs incurred by consumers using domain names as
information indices.
Early judicial innovations in this area were later legislatively endorsed and superseded by specific amendments to
the federal trademark law. The Anti-Cybersquatting Consumer
Protection Act (“ACPA”), passed in 1999, codified decisions like
Bucci and Panavision in a new section of the Lanham Act.430
The ACPA prohibits registration of domain names in “bad
428
Toeppen, 141 F.3d at 1319, 1327.
Id. at 1325.
430
Consolidated Appropriations Act of 2000, Pub. L. No. 106-113, § 3002(a),
113 Stat. 1501A-28, 1501A-545 to -548 (codified at 15 U.S.C. § 1125(d) (2000))
(effectively providing a new cause of action for cybersquatting claims, generally
sounding in trademark and placed within the trademark statutes).
429
2008]
GOOGLE’S LAW
1407
faith;” for example, an intention to merely resell them to
trademark owners for a profit.431 Some commentators have
characterized the ACPA as an ill-considered grant of property
rights to trademark holders.432 While the current law is hardly
perfect, it might be defended as an attempt by Congress to
improve the social utility of the domain name system as a Web
index.
Today we live in a time when domain names have
diminishing public utility as an Internet index. The new index
is Google. In the ten years since Bucci and Panavision were
decided, and the eight years since the passage of the ACPA,
search engines have improved to the point where the factual
characterizations of them in earlier opinions is wholly inaccurate.433 Rather than being inferior to domain names as an
index, search engines have effectively replaced the domain
name system. Domain name guessing is not the norm and
makes little sense.434 Google did not exist when Bucci and
Panavision were being litigated, but today most people turn to
Google rather than guessing randomly at possible domain
names. This is eminently rational, as Google is much more
likely than the domain name system to provide the desired
result.435
431
See Virtual Works, Inc. v. Volkswagen of Am., Inc., 238 F.3d 264, 270 (4th
Cir. 2001) (applying the ACPA and finding bad faith on the part of the domain name
registrants).
432
See, e.g., Radin, supra note 414, at 32.
If courts had explicitly referred to competition policy and free speech policy in
these cases, we might have gotten better reasoned decisions, with more
explicit consideration of competing free speech policies in the case of parody
and protest sites, more explicit consideration of the needs of competitors of
the plaintiff, and some exploration of the baseline question of who initially
owns this new asset . . . . [I]t would have been better for the issue to have
gotten the thorough analysis it deserved.
Id.
433
See Goldman, supra note 67, at 548 (noting how some of the most popular
search engine queries are for terms where the searcher is obviously aware of the
domain names, e.g., “www.yahoo.com” and “www.hotmail.com”).
434
See Ned Snow, The Constitutional Failing of the Anticybersquatting Act, 41
WILLAMETTE L. REV. 1, 76 (2005) (“[R]ather than guessing the trademark holder’s
domain name, consumers identify the mark holder’s website through a search engine.
Therefore, the alleged problem giving rise to the first governmental interest appears
nonextant.”); Ben Edelman, DNS as a Search Engine: A Quantitative Evaluation
(2002), http://cyber.law.harvard.edu/people/edelman/DNS-as-search/ (last visited Sept.
1, 2007) (concluding that in 2002, Google provided a much more effective directory to
brand names than the DNS).
435
Edelman, supra note 434.
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With the movement from domain names to search
engines, courts lost none of their solicitude for protecting the
social value of useful Web indices. This concern continues to be
expressed under the rubric of trademark law. The meta tag
cases discussed above demonstrate how courts continued to
incorporate concerns about the social utility of online indices in
their efforts to apply trademark law to search engines.
Though competitor meta tag cases like Brookfield
strained the limits of trademark law’s internal coherence, they
were motivated by a noble, if misapplied, sentiment. Meta tag
“abusers” were understood by courts as the new incarnation of
domain name cybersquatters. The use of competitor trademarks in meta tags, pursuant to the Brookfield signpost
analogy, was not really about wasting the time of the search
engine user. Indeed, the only way Brookfield makes sense
under a bait-and-switch theory is when it is the search engine’s
index that is being deceived. The index, as a proxy for the
consumer’s interests, was being protected. Meta tags, being
“invisible,” could not deceive users, but they could deceive
search engines into awarding websites an undeserved high
ranking. Rulings preventing meta tag abuses were therefore
seen (generally incorrectly) as vindicating the interests of
search engine users.
This principle can be seen best when courts refused to
find infringement liability. The defendants in Faber and Welles
prevailed only because courts found they did not corrupt the
value of the search engine’s index.436 Users seeking information
about “bally” might benefit from finding the type of criticism
Faber offered. Those seeking “playboy” might be interested
in finding the website of Welles, a former Playboy model. In
the Netscape district court opinion, the court seemed primarily
concerned that Playboy’s assertion of trademark rights
threatened the utility of search engines as indices.437
In Welles, one cautionary note by the Ninth Circuit is
also important to observe: “our decision might differ if . . .
Welles’ site would regularly appear above PEI’s in searches for
one of the trademarked terms.”438 Here the Ninth Circuit
seemed to be suggesting trademark could provide an index
policy attuned to relevance-ranked listings. Welles was granted
436
437
438
Playboy Enters. v. Welles, 279 F.3d 796, 804 (9th Cir. 2002).
Netscape I, 55 F. Supp. 2d 1070, 1083 (C.D. Cal. 1999).
Welles, 279 F.3d at 804.
2008]
GOOGLE’S LAW
1409
the right to be included in search results, but it was a different
question whether she could appear more prominently than the
Playboy site.
There are dangers in granting trademark this much
power. Trademark law cannot describe an optimal index to the
Internet, given the fact that much of the information users
seek and the problems they encounter are not matters where
trademark law has much application. As explained above with
regard to initial interest confusion, allowing trademark law to
dominate the indexical value of search results poses serious
risks: trademark meanings might usurp other understandings
of terms.439
Yet, by the same token, the precedent of the anticybersquatting cases and the ACPA must have some relevance
to the intersection of trademark law and search engine results.
Allowing Google to completely control the indexical function of
its search results might lead to public harms. I believe Google’s
practices are defensible today. Google does not provide an ideal
index of the Web, but it does not currently seem to be acting in
ways that generally frustrate the public’s interest in finding
useful information or are intended to do that. Indeed, for most
users, Google remains an incredible and essential tool. It is
true that Google seems somewhat biased toward commercial
and popular results (and that the mythological figure Nike has
seemingly lost her symbolic capital in the online environment).
Yet trademark law is ill adapted to fix this problem.
The reason trademark law must stay engaged with
Google is quite simple. No matter how we feel about the
company today, it is possible, perhaps even likely, that some
day Google (or another major search engine) will pursue profits
in such a way that threatens the interests of trademark owners
and threatens the public indexical interest. Market discipline
may prevent this result, but it might not. It is hard to predict
what shape future abuses might take, but this is why judicial
intervention in advance of a legislative solution might be
justified, as it was in the Panavision case. Indeed, the mere
knowledge that trademark law stands ready to curb abusive
index practices may have an ameliorative effect on the commercial conduct of Google and other search engines.
439
Cf. Dinwoodie & Janis, Contextualism, supra note 70, at 1639 (explaining
trademark may need to adapt if it is used as a “principle tool of information policy”).
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CONCLUSION
Google currently occupies a central role in online
commerce and information retrieval. It operates as an online
index, connecting the public to information about where to find
people, places, products, and knowledge. Google was right
when it once claimed that advertising-funded search engines
are “inherently biased towards the advertisers and away from
the needs of the consumers.”440 Today it seeks to “marry user
experience to the information that advertisers want to
communicate.”441
Google’s power over search results has vast commercial
significance that is in many ways unprecedented in society.
Google also generates substantial wealth as a result of this
power. One of the few areas of law that seems to retain some
supervisory control over Google’s conduct is trademark law.
It is important that courts retain the power of trademark law to police Google, but it is equally important that they
understand the limitations of trademark law in policing search
results. Trademark law has so far failed in many ways to
appropriately police search results by failing to hew to its
historical purposes, failing to recognize the difference between
indexical and spatial orderings, and failing to recognize its own
inherent limitations as a tool for improving indices.
Yet the law in this area is still young. Courts have only
had ten years to consider these issues. As their experience
grows and the online marketplace continues to develop, the
judiciary may eventually find better ways to protect the public
interest in search engine results. Courts of the future may
play a much more important and constructive role in shaping
Google’s Law.
440
441
Brin & Page, supra note 1.
Google Q3 2006 Earnings Call Transcript, supra note 2.
NOTES
The Rule 2019 Battle
WHEN HEDGE FUNDS COLLIDE
WITH THE BANKRUPTCY CODE
INTRODUCTION
Federal Rule of Bankruptcy Procedure 2019 imposes
certain disclosure requirements on committees representing
more than one creditor or equity security holder in Chapter 9
and Chapter 11 bankruptcy cases.1 It is “part of the disclosure
scheme of the Bankruptcy Code and is designed to foster the
goal of reorganization plans which deal fairly with creditors
and which are arrived at openly.”2 The Rule seeks to provide
complete disclosure to all parties involved in bankruptcy cases,
prevent conflicts of interest, and promote overall fairness in the
reorganization process.3 Although the disclosure requirements
of Rule 2019 have existed in bankruptcy reorganization
proceedings for nearly seventy years, they had been virtually
ignored until hedge funds began to actively participate in
bankruptcy cases.4
Hedge funds have become major participants in
bankruptcy proceedings, in which they often form unofficial
1
FED. R. BANKR. P. 2019.
9 COLLIER ON BANKRUPTCY § 2019.01 (Alan N. Resnick & Henry J. Sommer
eds., 15th ed. 2007).
3
Id.
4
Menachem O. Zelmanovitz & Matthew W. Olsen, Rule 2019: A Long
Neglected Rule of Disclosure Gains Increasing Prominence in Bankruptcy, http://
www.morganlewis.com/pubs/Restructuring_Newsletter_Summer20071.pdf (last visited
Mar. 23, 2008) (“Recent divergent decisions of two bankruptcy courts have catapulted a
largely ignored rule of procedure into the forefront of issues concerning hedge fund
participation in bankruptcy cases.”).
2
1411
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or ad hoc committees.5 These ad hoc committees share the
expenses of participating in bankruptcy cases by hiring legal
counsel and other professionals to represent them throughout
the process.6 By acting as a group, they are also able to exert
greater influence and increase their leverage, since together
they control a greater percentage of the company’s claims.7
While this arrangement is especially beneficial to hedge funds,
it raises unique disclosure issues.8 These disclosure issues have
been the subject of two recent bankruptcy court decisions
involving ad hoc committees and the application of Rule 2019.9
In February 2007, in In re Northwest Airlines Corp.,
the United States Bankruptcy Court for the Southern District
of New York held that an ad hoc committee failed to fulfill
the disclosure requirements of Rule 2019 and ordered the
committee to file a modified 2019 statement.10 Pursuant to
the Rule’s requirements, the court required each member of the
committee to disclose the amounts of claims and interests
owned, when the claims and interests were acquired, the
amounts paid for the claims and interests, and any sales of the
claims and interests.11 The committee then filed a motion
requesting the court to permit the additional Rule 2019
statement to be filed under seal. The court denied the motion.12
Conversely, in April 2007, in In re Scotia Development LLC
(“Scopac”), the United States Bankruptcy Court for the
Southern District of Texas denied a similar motion to compel
an ad hoc committee to comply with the disclosure requirements of Rule 2019.13 The judge in that case decided that the
5
Eric B. Fisher, Hedge Funds and the Changing Face of Corporate
Bankruptcy Practice, 25 AM. BANKR. INST. J. 24, 24 (2007).
6
Id. at 87.
7
Id. (“[S]uch committees offer similarly-situated creditors an avenue to
increase their leverage within the bankruptcy case and to share legal and other
expenses. Ad hoc committees are particularly effective when their members hold a
blocking position with respect to a class of claims.”).
8
Id. at 88.
9
See generally In re Northwest Airlines Corp. (Northwest I), 363 B.R. 701
(Bankr. S.D.N.Y. 2007); In re Northwest Airlines Corp. (Northwest II), 363 B.R. 704
(Bankr. S.D.N.Y. 2007); In re Scotia Development LLC, No. 07-20027-C-11, 2007 WL
2726902 (Bankr. S.D. Tex. Apr. 18, 2007).
10
Northwest I, 363 B.R. at 704.
11
Id. at 702 (“The Rule requires disclosure of ‘the amounts of claims or
interests owned by the members of the committee, the times when acquired, the
amounts paid therefor, and any sales or other disposition thereof.’ The [committee’s]
statement . . . fails to disclose this information and is insufficient on its face.”).
12
Northwest II, 363 B.R. at 705.
13
In re Scotia Development, 2007 WL 2726902, at *1.
2008]
THE RULE 2019 BATTLE
1413
ad hoc committee was not a committee for the purposes of
Rule 2019.14
This Note focuses on whether ad hoc committees
comprised of hedge funds or private equity firms should be
required to comply with the disclosure requirements of Rule
2019. It argues that Rule 2019 in its current form was enacted
to address abuses by protective committees in the 1930s, and
does not contemplate the types of investors or committees that
exist today. Further, if required to comply with the current
Rule 2019, investors like hedge funds and private equity firms
will likely stop trading in distressed claims, which would be
inefficient for the market for distressed securities. However,
while efficiency is important to the financial markets,
transparency is important to bankruptcy cases, and a proper
balance must be struck to address these competing interests.
Therefore, Rule 2019 should be amended to facilitate market
efficiency while still allowing for disclosure of the information
that is necessary to administer a bankruptcy case.
Part I of this Note explores the background of hedge
funds and their role in bankruptcy proceedings, as well as the
history, requirements, and purpose of Rule 2019. Part II
evaluates the recent bankruptcy decisions of Northwest and
Scopac. Part III discusses the importance of disclosure and
transparency to bankruptcy proceedings, as well as the
implications of disclosure on the liquidity in the distressed
securities market. Finally, Part IV proposes an amendment to
Rule 2019 that will strike a balance between the competing
interests discussed in Part III. The solution will only require
disclosure of the information necessary for successful reorganizations, without having the effect of shutting down claims
trading and decreasing the liquidity of the distressed claims
market.
I.
BACKGROUND
A.
Hedge Funds: Friend or Foe?
A hedge fund is “an investment vehicle that pools
capital from a number of investors and invests in securities and
other instruments.”15 They are customarily private investment
14
Id. at 2.
THOMAS P. LEMKE ET AL., HEDGE FUNDS AND OTHER PRIVATE FUNDS:
REGULATION AND COMPLIANCE § 1:1 (2007).
15
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[Vol. 73:4
funds, open to only a limited number of investors.16 This selfimposed restriction is extremely beneficial because it allows
hedge funds to be lightly regulated by the Securities and
Exchange Commission (“SEC”) and other regulatory agencies.17
Unlike heavily regulated mutual funds, which are subject to
numerous disclosure requirements, hedge funds typically do
not have to disclose their investment activities to third
parties.18 They have become notorious for their secrecy and do
not want the public knowing “who their investors are, what
they invest in, what they pay for their investments, or, more
importantly, what their return is on their investments.”19 This
secrecy is particularly important to hedge funds because it
allows them to protect their investment strategies and prevent
others from duplicating their trading models.20 While hedge
funds were originally designed to use their leverage and short
selling strategies to hedge their position in equity trading
markets, many funds today have a wide variety of investment
strategies and techniques.21 Of particular significance to this
Note is that in recent years many hedge funds have in fact
become very active in the market for distressed securities.22
Distressed securities are the securities of companies
that are in “severe economic distress, possibly facing bankruptcy, reorganization, or otherwise involved in restructurings
16
Id.
See id. Hedge funds are only available to accredited investors, and are not
sold to the general public. As a result, hedge funds are exempt from certain
registration requirements under the Investment Company Act of 1940. Id.; see also
Paul F. Roye, Remarks at the Global Challenge in Investment Management Regulatory
and Legal Issues, Apr. 19, 2002, http://www.sec.gov/news/speech/spch552.htm (last
visited Mar. 23, 2008) (noting two major exemptions under the Investment Company
Act of 1940 for funds with less than 100 investors and funds where the investors are
“qualified purchasers”).
18
U.S. Sec. & Exch. Comm’n, Hedging Your Bets: A Heads Up on Hedge
Funds and Funds of Hedge Funds, http://sec.gov/answers/hedge.htm (last visited Apr.
10, 2008).
19
Seymour Roberts, Jr. & Joe Wielebinski, When Worlds Collide: The Clash
Between Hedge Funds and the Bankruptcy Code, May 21, 2007, at 1,
http://www.munsch.com/publication.cfm?publication_id=178 (follow “View Document”
hyperlink) (last visited Mar. 23, 2008).
20
Hedge funds “use a combination of market philosophies and analytical
techniques to develop financial models that identify and evaluate market opportunities. Very often, the financial models are very sophisticated, highly quantitative
and proprietary to the fund.” Thomas G. Evans et al., Hedge Fund Investing, J.
ACCOUNTANCY ONLINE, http://www.aicpa.org/pubs/jofa/feb2005/evans.htm (last visited
Mar. 23, 2008).
21
Mark Berman & Jo Ann J. Brighton, Hedge Funds: Lessons Learned from
the Radnor Decision, 26 AM. BANKR. INST. J. 30, 30 (2007).
22
Id.
17
2008]
THE RULE 2019 BATTLE
1415
or recapitalizations.”23 Many hedge funds buy bonds, loans, or
equity of these companies at deep discounts hoping to profit
from the market’s lack of understanding of the value of these
investments.24 They are able to purchase these securities at a
discount due to the companies’ financial trouble.25 In addition,
many banks and institutional investors are forced to sell such
risky securities that tend to decrease the value of their
investment portfolios.26 Hedge funds pursue these investments
hoping to earn above-market returns, and, as a result, have
become increasingly active in corporate bankruptcy proceedings.27 More and more, hedge funds are purchasing distressed
securities in companies only if they think they can influence
the bankruptcy proceedings, and if they think they can gain
high returns on their investment.28
Some believe that hedge funds’ involvement in bankruptcy proceedings is extremely beneficial to the reorganization
process because it leads to “more competitive financing terms
and increased liquidity in the debt markets.”29 They are also
particularly useful in the restructuring process because they
can make different types of investments (debt and equity) in a
single company.30 Additionally, their exemption from traditional regulation allows them to quickly adapt their investment
strategies to the situation at hand.31
While some investors, commentators, and companies
value their participation in corporate bankruptcy, hedge funds
also have their critics. As owners of debt in a company, they
can influence the restructuring process and have a significant
say in that company’s future.32 They are able to influence the
23
LEMKE ET AL., supra note 15, § 1:2.
Id.
25
Id.
26
Id.
27
Fisher, supra note 5, at 24.
28
Id.
29
See id.; see also Timothy F. Geithner, Hedge Funds and Derivatives and
Their Implications for the Financial System, Remarks at the Distinguished Lecture
2006, sponsored by the Hong Kong Monetary Authority and Hong Kong Association of
Banks, Hong Kong (Sept. 15, 2006), transcript available at www.newyorkfed.org/
newsevents/speeches/2006/gei060914.html) (last visited Mar. 23, 2008) (“In most
circumstances, increased trading and participation contributes to market liquidity and
makes markets less volatile. The ultimate benefit should be lower risks for all market
participants.”).
30
Berman, supra note 21, at 30.
31
Id.
32
Jenny Anderson, As Lenders, Hedge Funds Draw Insider Scrutiny, N.Y.
TIMES, Oct. 16, 2006, at A1 (“[H]edge funds have also grown prominent in corporate
24
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BROOKLYN LAW REVIEW
[Vol. 73:4
bankruptcy case and protect their interests because as a
committee, they have standing to be heard on any issue
involved in the proceedings.33 This is troubling to some because
hedge funds tend to have short-term investment objectives and
may own both debt and equity in the same company, leaving
them with seemingly conflicting priorities.34 The lack of any
strict regulatory oversight over their activities also contributes
to the general negative perception of hedge funds in the
industry.35
B.
The Bankruptcy Code and Rule 2019
It has been said that the “three most important words in
the bankruptcy system are: disclose, disclose, disclose.”36 In
fact, transparency is “one of the hallmarks of the bankruptcy
process,” which is illustrated by a number of provisions of the
Bankruptcy Code including Rule 2019 disclosures.37 Disclosure
by the debtor allows creditors to assess the financial affairs of
the company and decide whether a proposed plan of
reorganization is feasible and in their best interests.38 On the
other hand, disclosure by creditor committees, like those
required by Rule 2019, allows the debtor and other parties
involved in the case to understand with whom they are
negotiating and who will be voting on the reorganization plan.39
Historically, bankruptcy was generally meant to be an open
bankruptcies, where they can make a cheap bet on a company’s recovery by buying its
debt. By owning the debt, they can become powerful creditors and serve on committees
that have a large say in the future of a company.”).
33
John D. Ayer et al., What Every Unsecured Creditor Should Know About
Chapter 11, 23 AM. BANKR. INST. J. 16, 40 (2004).
34
Anderson, supra note 32, at A1.
35
Id.
36
In re Sanchez, 372 B.R. 289, 305 (Bankr. S.D. Tex. 2007).
37
Michael P. Richman & Jill L. Murch, The Importance of Full Disclosure in
Seeking Success Fees Under §328(a), 26 AM. BANKR. INST. J. 36, 87 (2007). (Other
examples of transparency are the debtor’s schedules and the 341 meeting.)
38
Richard E. Mendales, We Can Work It Out: The Interaction of Bankruptcy
and Securities Regulation in the Workout Context, 46 RUTGERS L. REV. 1213, 1248
(1994); see also Harvey L. Tepner, Common Sense, Nonsense and Higher Authorities:
The Need for Improved Chapter 11 Financial Disclosures, 22 AM. BANKR. INST. J. 36, 37
(2003) (“Proper financial disclosure by debtors enables creditors and other parties to
make decisions based on information rather than rumor, speculation or supposition.”).
39
Mark Berman, Will the Sunlight of Disclosure Chill Hedge Funds, 26 AM.
BANKR. INST. J. 24, 64 (May 2007) (“[I]f committee members want the benefit of
collective participation [in bankruptcy cases], they must accept a fiduciary obligation to
the class and disclosure rules must be complied with.”).
2008]
THE RULE 2019 BATTLE
1417
arena where all parties could work together and come to a
mutually beneficial decision.40
Compliance with Rule 2019 requires the filing of a
verified statement containing the following information: (1) the
name and address of each creditor or equity security holder; (2)
the nature and amount of the claim or interest and the time of
acquisition if it was acquired within a year of the filing of
the petition; (3) the facts and circumstances in connection with
the employment of the representative filing the statement,
and, for committees, the names of the entities who employed or
organized the committees; and (4) the amounts of claims or
interests owned by the representatives or committee members,
the times they were acquired, the prices paid, and any
subsequent sales of the claims or interests.41 Additionally, if
there are material changes to the information presented in the
original disclosure statement, the Rule requires that a supplemental statement be filed to update the information.42 If an
entity or committee fails to comply with these requirements,
the Rule sets out sanctions that may be imposed.43 Among
other forms of relief, a court may prohibit those entities or
committees that fail to comply from further participation in the
bankruptcy proceedings.44
Rule 2019 covers entities and committees that act in a
fiduciary capacity but are not otherwise controlled by the
court.45 This specifically excludes official committees that are
required to be organized under other provisions of the
Bankruptcy Code.46 Official committees are exempt from the
disclosure requirements of Rule 2019 because they are
otherwise “subject to direct court oversight in a variety of
ways.”47
40
Adam H. Kurland, Debtors’ Prism: Immunity for Bankrupts Under the
Bankruptcy Reform Act of 1978 (Part I), 55 AM. BANKR. L.J. 177, 179 (1981) (“Full
disclosure of all relevant information has always been an important policy of the
bankruptcy laws . . . .”).
41
FED. R. BANKR. P. 2019.
42
Id.
43
Id.
44
Id.
45
COLLIER ON BANKRUPTCY, supra note 2, § 2019.02.
46
Id.
47
Zelmanovitz & Olsen, supra note 4. “Among other things, official
committees are appointed by the United States Trustee and must seek bankruptcy
court authorization to retain professionals and court approval of their professional fees
and expenses. 11 U.S.C. §§ 1102, 327, 328, 330.” Id. at note 9.
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The original purpose of Rule 2019 can be traced back
almost seventy years to an influential study conducted by
William O. Douglas48 for the SEC in the 1930s.49 Douglas held
public hearings for fifteen months, calling hundreds of witnesses who testified about inside groups working with
bankrupt companies to take advantage of creditors. The investigation uncovered “[i]nside arrangements, unfair committee
representation, lack of oversight, and outright fraud [that]
often cheated investors in financially troubled or bankrupt
companies out of their investments.”50 The final report, entitled
Report on the Study and Investigation of the Work, Activities,
Personnel and Functions of Protective and Reorganization
Committees (“Douglas Report”), “centered on abuses by
unofficial committees in corporate reorganizations and equity
receiverships.”51 The unofficial committees addressed in the
report, unlike the committees that exist today, were referred
to as protective committees. These committees were often
sponsored by the debtor and solicited deposit agreements from
individual creditors that granted control over the claims to the
committees.52 Douglas viewed the members of these protective
committees as fiduciaries that owed “exclusive loyalty to the
class of investors they represent[ed]” because the deposit
agreements were irrevocable and transferred all powers from
the owner of the claim to the committee.53 Based on his
investigation, Douglas explained that many of these
committees frequently violated that fiduciary duty to the
depositor in two ways: (1) conflict of interests and (2) the
exercise of excessive powers by committee members.54 As will
48
William O. Douglas later served as a Supreme Court Justice from April 17,
1939 to November 12, 1975. With a term lasting thirty-six years and seven months, he
is the longest-serving justice in the history of the Court.
49
Northwest I, 363 B.R. 701, 704 (Bankr. S.D.N.Y. 2007).
50
Douglas and the Protective Committee Investigation: Implementing the
Power of the SEC through Investigative Hearings and Legislative Recommendations,
http://www.sechistorical.org/museum/galleries/douglas/protectiveCommittee.php (last
visited Mar. 23, 2008).
51
Northwest I, 363 B.R. at 704.
52
William O. Douglas, Statement before Interstate and Foreign Commerce
Committee of the U.S. House of Representatives, http://www.sechistorical.org/collection/
papers/1930/1937_0608_Douglas_ProtCom.pdf (last visited Mar. 3, 2008).
53
Id.
54
With respect to conflicts of interests, Douglas pointed to several examples,
including committees dominated by management and investment bankers, bondholders
serving on stockholders’ committees and vice versa, and committee members serving
their own individual interests. He pointed to a hypothetical case where some
committee members may have acquired their securities at very low prices, and others
2008]
THE RULE 2019 BATTLE
1419
be discussed in this Note, while the protective committees that
Douglas investigated are unlike the committees that exist
today, some of these examples of abuses are still relevant
today.55
Douglas concluded that existing laws were not sufficient
and that “public investors needed protection from insiders in
reorganization cases.”56 Douglas made several recommendations to Congress based on the evidence he presented. One of
the recommendations was that any person who represents
more than twelve creditors or stockholders (including committees) appearing in the bankruptcy cases be required to file a
sworn statement that included the following: the amount of
securities or claims owned by the investor being represented,
the dates of acquisition, the amount paid for the securities
or claims, and any subsequent sale or transfer.57 This
recommendation led to the adoption of Chapter X of the former
Bankruptcy Act,58 which became Rule 10-211 under the 1978
Bankruptcy Code and later Rule 2019.59 Though many changes
were made to the provisions affecting reorganizations, the
drafters of the 1978 Bankruptcy Code retained the substance of
the original Rule in the current Rule 2019.60 In fact, in the
legislative history of the Bankruptcy Reform Act of 1978, it was
stated that “[t]he Commission on the Bankruptcy Laws is of
may have acquired their securities at or near to par value. These instances would
create an automatic conflict of interest since the committee members who purchased at
low prices may want to agree to a settlement that would be of economic harm to those
who purchased at or near to par. He said that “[o]ut of such circumstances are serious
conflicts of interest born.” Id.
With respect to the exercise of excessive powers by committee members,
Douglas pointed to numerous examples, including committee members trading the
securities of a corporation undergoing reorganization based on inside information,
committees fixing their own fees without supervision, committees paying solicitors to
use “high pressure” tactics to get investors to deposit their securities, and one-sided
deposit agreements giving control of the investors’ securities to the committee and
immunizing the committee from responsibility. Id.
55
See infra Part IV.
56
Charles Jordan Tabb, The History of the Bankruptcy Laws in the United
States, 3 AM. BANKR. INST. L. REV. 5, 30 (1995).
57
William O. Douglas, Report on the Study and Investigation of the Work,
Activities, Personnel and Functions of Protective and Reorganization Committees
(1937), available at http://www.sechistorical.org/collection/papers/1930/1937_0510_
SEC_003.pdf.
58
The Bankruptcy Act of 1898 was significantly amended by the 1938
Chandler Act, which added, among other things, the predecessor to the current
Chapter 11 provisions that govern corporate reorganization. This was replaced by the
Bankruptcy Reform Act of 1978, also known as the Bankruptcy Code.
59
Northwest I, 363 B.R. 701, 704 (Bankr. S.D.N.Y. 2007).
60
Id.
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the opinion that the conclusions and recommendations of the
protective committee study and the Congressional policy
embodied in the Chandler Act61 are still valid.”62 While some of
the conclusions of the study are certainly relevant today, it is
clear that this Rule was enacted to specifically address abuses
by protective committees in the 1930s that solicited deposit
agreements from investors. This Note argues that over the
years, the nature of unofficial committees changed significantly
and Rule 2019 was never amended to meet the needs of the
changing marketplace.
Though some claim that there is relatively little case
law applying Rule 2019, there have been many cases where the
Rule has been applied.63 However, there are very few cases
applying the Rule to unofficial or ad hoc committees.64 The
existing case law provides some evidence that when courts
have applied the Rule, it was to ensure the overall fairness and
integrity of the bankruptcy process.65 However, prior to the
Northwest decision, no unofficial or ad hoc committees had
been required to file disclosure statements in accordance with
Rule 2019.66 Typically, the legal counsel or law firms hired by
committee members got away with filing a verified statement
that disclosed the names of the committee members and the
aggregate equity or debt holdings that the committee represented.67
Until Northwest, hedge funds in particular had participated in bankruptcy proceedings for many years without being
subject to the disclosure requirements of Rule 2019. They have
61
See supra note 58 (describing the Chandler Act).
Report of the Commission on Bankruptcy Laws of the United States, H.R.
Doc. No. 93-137, at 247 (1973).
63
Northwest I, 363 B.R. at 704 (“Although the Committee argues that the
Rule has been frequently ignored or watered down, there is no shortage of cases
applying it.”).
64
Zelmanovitz & Olsen, supra note 4 (noting that the majority of cases
applying Rule 2019 have involved law firms representing class action plaintiffs against
the debtor’s estate). The court’s main concern was whether the lawyer had the
authority to represent the class. Id.
65
See In re Congoleum Corp, 321 B.R. 147, 167 (Bankr. D.N.J. 2005)
(ordering disclosure under Rule 2019 “to prevent conflicts of interest among Creditors’
counsel from undermining the fairness of the Plan, bringing to bear the values of good
faith and fairness in the reorganization process that pervade the bankruptcy code”); In
re Oklahoma P.A.C. First Limited Partnership, 122 B.R. 387 (Bankr. D. Ariz. 1990)
(ordering compliance with Rule 2019 because the attorney represented conflicting
interests in the case where the debtor filed for bankruptcy and the same law firm
represented all creditors).
66
Zelmanovitz & Olsen, supra note 4.
67
Id.
62
2008]
THE RULE 2019 BATTLE
1421
often done so as members of ad hoc committees, since they are
especially resistant to disclosing internal financial and trading
information to debtors or the general public.68
II.
NORTHWEST AND SCOPAC: RULE 2019 EMERGES
The court in Northwest received the attention of everyone in the bankruptcy industry when it applied Rule 2019
on its face to require ad hoc committees to disclose their
trading information. It sent a strong message to industry
experts, distressed companies, investors, creditors, and—most
importantly—hedge funds. Scopac came on the heels of the
Northwest decision, and once again drew the attention of
everyone in the industry, when that court appeared to ignore
the plain meaning of the Rule and refused to require disclosure
because of the effects it would have on the claims-trading
market. Clearly, the Scopac decision is at odds with Northwest
and has added another piece to the already complicated Rule
2019 puzzle. Hedge funds celebrated a small victory, but the
decision left everyone wondering how future cases would be
decided. This Part explores the courts’ decisions and reasoning
in both cases. It argues that the Northwest court properly
interpreted the Rule, as Rule 2019 on its face clearly applies
to ad hoc committees. However, the Scopac court correctly
recognized the tension that is created when Rule 2019 is
applied on its face, which forced the court to ignore the plain
meaning of the Rule. This Part therefore concludes that while
Rule 2019 in its current form does apply to ad hoc committees,
it is unequipped to address the needs of the financial marketplace and serve the changing dynamics of bankruptcy cases
today.
A.
In Re Northwest Airlines: Debtors Win Round I
Northwest Airlines filed a voluntary Chapter 11 bankruptcy petition in September 2005, and the trustee appointed a
statutory committee of unsecured creditors.69 In November
68
See supra Part I.A.
Debtors’ Objection to Motion of the Ad Hoc Equity Committee for an Order
(A) Pursuant to Sections 105(a) and 107(b) of the Bankruptcy Code and Rule 9018 of
the Federal Rules of Bankruptcy Procedure Granting Leave to File Its Bankruptcy
Rule 2019(a) Statement Under Seal, (B) Limiting the Disclosure Required in Their
Rule 2019 Statement and (C) Granting a Temporary Stay Pending Determination of
69
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2006, news broke that U.S. Airways had made a bid to acquire
Delta Air Lines out of its bankruptcy proceedings.70 This caused
speculation about consolidation in the airline industry, and
within a week, Northwest’s stock rose nearly 300%.71 This
prompted a group of investors who regularly invest in
distressed companies to purchase some of Northwest’s common
stock.72 Over the next couple of months, these investors sought
the appointment of an official committee based on the
contention that the increased share price was evidence of
Northwest’s solvency.73 In response, the U.S. Trustee declined
to appoint an official committee.74 These investors then formed
an ad hoc committee, and in January 2007, they filed a notice
of appearance in the case.75 The law firm representing the
committee filed a verified statement pursuant to Rule 2019,
which included the names of the eleven committee members,
the aggregate amount of common stock and claims owned by
the committee members, and a statement that some of the
claims were acquired after the commencement of the bankruptcy case.76
In February 2007, Northwest filed a motion seeking,
among other things, an order compelling the ad hoc committee
to file an amended 2019 statement disclosing more detailed
information on the amounts of claims owned by each committee
member, when these claims were acquired, the amount paid for
these claims, and any subsequent sale of these claims.77 The ad
This Motion at 4, Northwest I., 363 B.R. 701 (Bankr. S.D.N.Y. 2007) (No. 05-17930)
[hereinafter Northwest Debtors Objection].
70
Id.
71
Id.
72
Id. at 4-5.
73
Id. at 5. The investors argued that the increase in Northwest’s stock price
as well as general speculation about industry consolidation were evidence that
Northwest was solvent and there was value for the equity holders. Id. The debtors
opposed the motion, arguing that an increase in the trading price of their securities
was not indicative of reorganization value. Id.
74
Id. at 6. The U.S. Trustee declined the motion because the ad hoc
committee “failed to demonstrate both the likelihood of a meaningful recovery for
equity holders in these cases, and that a separate committee was necessary for their
adequate representation.” Id.
75
Northwest I, 363 B.R. at 701.
76
Id. at 701-02.
77
Northwest Debtors Objection, supra note 69, at 7. Northwest argued that
the ad hoc committee sought to make an impact at a late stage in the reorganization,
yet the committee’s true purpose remained a mystery because it did not disclose its
individual holdings. Therefore, Northwest asked the court to prohibit the committee
from further participating in the case unless it made proper disclosure. Posting of Bob
2008]
THE RULE 2019 BATTLE
1423
hoc committee opposed the motion, arguing that its 2019
statement was sufficient.78
1. The Court’s Decision
On February 26, 2007, Judge Allan Gropper of the
United States Bankruptcy Court for the Southern District
of New York decided in favor of Northwest that the ad hoc
committee had failed to fulfill the disclosure requirements of
Rule 2019.79 He ordered the committee to file a modified 2019
statement within three business days, concluding that “the
Rule is long-standing, and there is no basis for failure to apply
it as written.”80 The court’s reasoning was twofold. It first
addressed the committee’s substantive argument against
disclosure and then looked to the history and purpose of Rule
2019.
The ad hoc committee argued that the Rule on its face
applied only to “every entity or committee representing more
than one creditor or equity security holder” and that since no
committee member represented any party other than itself,
Rule 2019 did not apply.81 In addition, only the law firm
represented more than one creditor, but since the firm did not
have any claims in Northwest, it had nothing to disclose.82 The
court held that this interpretation of Rule 2019 by the ad hoc
committee was flawed, stating succinctly that “the Rule cannot
be so blithely avoided.”83 It pointed out that the law firm’s
clients appeared as a committee, filed a notice of appearance in
the case as a committee, moved for the appointment of an
official committee, and had been litigating discovery issues
collectively.84 Additionally, the court noted that the committee
retained a firm to represent it, that it compensated the firm for
the work done on its behalf, and that the firm represented the
Eisenbach, In the (Red): The Business Bankruptcy Blog, http://bankruptcy.cooley.com/
2007/03/ (Mar. 4, 2007).
78
Eisenbach, supra note 77 (noting that the committee stated that the
purpose of the Rule was only to ensure that reorganization plans were negotiated and
voted on by those authorized to act for the real parties in interest, and that purpose
was satisfied by its statement).
79
Northwest I, 363 B.R. at 704.
80
Id. at 704.
81
Id. at 703.
82
Id.
83
Id.
84
Id.
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interests of the committee collectively, not the interests of
individual committee members.85
After responding to the committee’s substantive argument, Judge Gropper then looked to the history and purpose of
Rule 2019 with regards to the role of ad hoc committees.86 He
pointed out that by appearing as a committee, the members
speak as a group and “implicitly ask the court and other parties
to give their positions a degree of credibility.”87 The court also
cited the Douglas Report, which focused on abuses by unofficial
committees, and accordingly led to the adoption of disclosure
requirements under the current Rule 2019.88
The court therefore ordered the ad hoc committee to
comply with the disclosure requirements of Rule 2019 and file
an amended statement within three business days.89 Specifically, the court required each member of the committee to
provide the amounts of claims and interests owned, when the
claims and interests were acquired, the amounts paid for the
claims and interests, and any sales of the claims and interests.
2. A Frenzy of Filings: The Committee Seeks Privacy,
Northwest Seeks Disclosure
Following Judge Gropper’s ruling, both the ad hoc committee and Northwest made a series of motions and filings.90
85
Id. Judge Gropper also distinguished this case from others where a law
firm might represent individual clients, and as such the firm would be the only party
required to file a disclosure statement under Rule 2019. He pointed out that this was
not the case with the ad hoc committee who, based on the facts, clearly formed a group
and retained counsel to represent the collective interests of that group. Consequently,
the committee fell under the plain meaning of Rule 2019, and was required to provide
the information required for each of the individual committee members. Id.
86
Id.
87
Id. The court also noted that because the Bankruptcy Code provides the
possibility of giving compensation to unofficial committees, disclosure is important. Id.
88
Id. at 704.
89
Id.
90
This case drew the attention of many in the industry, and there were also
motions from the Official Committee of Unsecured Creditors, the U.S. Trustee, and
Bloomberg News, who wanted to weigh in on the court’s decision. See generally
Objection of the Official Committee of Unsecured Creditors to Ad Hoc Equity Committee’s Motion for an Order Granting Leave to File Its Rule 2019(a) Statement Under
Seal, Northwest I, 363 B.R. 701 [hereinafter Northwest Official Committee Objection];
Response of the United States Trustee to Motion of Ad Hoc Equity Committee for an
Order Pursuant to 11 U.S.C. §§ 105(a) and 107(b) and Rule 9018 of the Federal Rules
of Bankruptcy Procedure Granting Leave to File Its Bankruptcy Rule 2019(a)
Statement Under Seal, Northwest I, 363 B.R. 701 [hereinafter U.S. Trustee Motion];
Memorandum of Law by Bloomberg News in Support of Intervention and in Opposition
2008]
THE RULE 2019 BATTLE
1425
Essentially, the committee sought to retain the private
investment information of its members, and Northwest sought
disclosure of the information that had been ordered by the
court under Rule 2019.
The ad hoc committee first filed a motion for an order
allowing the additional Rule 2019 statement to be filed under
seal because it constituted confidential commercial information
and trade secrets as contemplated by Section 107(b) of the
Bankruptcy Code.91 The committee argued that hedge funds
trade using complex and proprietary strategies and maintain
strict confidentiality over their trading practices.92 Thus, the
information required under Rule 2019 would prejudice the
committee members if not filed with the court under seal.93 The
ad hoc committee also argued that requiring public disclosure
of confidential information would have a “chilling effect” on
future creditor participation in bankruptcy proceedings94 and
discourage investors such as themselves from trading in
distressed securities on the secondary market.95
to the Ad Hoc Committee’s Request for an Order Sealing Its Rule 2019(a) Disclosures,
Northwest I, 363 B.R. 701 [hereinafter Bloomberg Motion to Intervene].
91
Section 107(b) provides in pertinent part that “[o]n request of a party in
interest, the bankruptcy court shall, and on the bankruptcy court’s own motion, the
bankruptcy court may—protect an entity with respect to a trade secret or confidential
research, development, or commercial information . . . .” 11 U.S.C. § 107 (2000).
92
Motion of the Ad Hoc Equity Committee for an Order (A) Pursuant to
Sections 105(a) and 107(b) of the Bankruptcy Code and Rule 9018 of the Federal Rules
of Bankruptcy Procedure Granting Leave to File Its Bankruptcy Rule 2019(a)
Statement Under Seal, and (B) Granting a Temporary Stay Pending Determination of
This Motion at 6, Northwest I, 363 B.R. 701 [hereinafter Northwest Ad Hoc Committee
Motion].
93
Id. at 6-7. In support of this proposition, the committee relied on prior
cases that held that information relating to the trading of securities was confidential,
proprietary and did not have to be disclosed. See, e.g., Fed. Open Market Comm. of Fed.
Reserve Sys. v. Merrill, 443 U.S. 340, 363 (1978) (holding that the committee did not
have to disclose commercial information including the buying and selling of securities
on the open market), cited in Northwest Ad Hoc Committee Motion, supra note 92, at
6-7. The committee also argued that such relief was not discretionary, but required by
the Code if the court determined that the information fell under Section 107(b). See,
e.g., In re Orion Pictures Corp., 21 F.3d 24, 28 (2d Cir. 1994); In re Phar-Mor, Inc., 191
B.R. 675, 679 (Bankr. N.D. Ohio 1995); In re Handy Andy Home Improvement Centers,
Inc., 199 B.R. 376, 381 (Bankr. N.D. Ill. 1996).
94
Northwest Ad Hoc Committee Motion, supra note 92, at 10-11. They noted
that the information required is highly confidential and the committee members do not
even share it among themselves. Only counsel has access to the information. Id.
95
Id. at 11-12. The committee also attempted to convince the court that it
should not compel the individual committee members to submit the information
required by Rule 2019, but rather that the committee should be allowed to submit
aggregate information. In support of this alternative, the committee pointed to the time
and expense that would be incurred to gather this type of detailed information for a
significant number of trades. The committee argued that the level of detail ordered by
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Northwest quickly objected to the ad hoc committee’s
motion to file the information under seal. It refuted the
committee’s assertion that the information ordered by the court
was a trade secret or proprietary information under Section
107(b).96 Northwest maintained that the information was
merely historical, factual information, not trading models or
strategies.97 In support of its argument, Northwest pointed out
that current SEC regulations require disclosure of this information “as part of the fundamental premise that transparency
promotes fair and efficient markets and market practices.”98 It
equated this regulation to Rule 2019’s purpose in a bankruptcy
setting.99 Additionally, Northwest noted that Owl Creek Asset
Management, one of the leading members of the ad hoc
committee, had voluntarily disclosed the information required
by Rule 2019, yet there had been no contention that it had
suffered any harm or prejudice as a result of its public
disclosures.100
The Official Committee of Unsecured Creditors also
objected to the ad hoc committee’s motion. It argued that
allowing the information to be filed under seal would defeat the
underlying purpose of Rule 2019.101 It claimed that the fact that
the Code’s drafters required the information to be disclosed
under the Rule is evidence that the information is not a
confidential trade secret that should be protected.102 The official
committee also pointed out that Section 107(b) has never been
the court would not add anything substantive to the proceedings, and noted that the
price paid for the shares had no effect on the committee members’ rights. Id. at 14-16.
96
Northwest Debtors Objection, supra note 69, at 14.
97
Id.
98
For example, Section 13(d) of the Securities and Exchange Act of 1934
requires investors who acquire five percent or more of a class of registered equity
securities to file a statement. Northwest Debtors Objection, supra note 69, at 15.
99
Id. Northwest further contended that the cases cited by the ad hoc
committee all involved confidential agreements, not historical trading information like
the case at hand. Id. at 16.
100
Id. at 18-19. Northwest also objected to the aggregate information solution
proposed by the ad hoc committee. It argued that this was insufficient under Rule
2019, and the complete, individualized information previously ordered was essential for
the reorganization proceedings to continue. Id. at 11. Northwest also stressed the
importance of public disclosure of the information and asked the court to deny the
motion to file under seal. It argued that allowing the ad hoc committee to circumvent
detailed disclosure to all parties would defeat the essential purpose behind Rule 2019
of complete disclosure during the reorganization process. Id.
101
Northwest Official Committee Objection, supra note 90, at 1-2. The
committee argued that “disclosure is not complete if the “disclosed” information
remains under seal.” Id. at 4.
102
Id. at 5.
2008]
THE RULE 2019 BATTLE
1427
used to allow Rule 2019 disclosures to be filed under seal.103
Furthermore, it argued that the ad hoc committee had not
proven the existence of “an extraordinary circumstance or
compelling need” that is required for a seal request to be
granted.104
Bloomberg News105 also moved to intervene so that it
could ensure that the public had access to all the information
regarding the bankruptcy proceedings.106 It also opposed the ad
hoc committee’s motion to seal, pointing to the importance of
transparency in bankruptcy proceedings, the presumption of
public access mandated by Section 107 of the Bankruptcy Code,
and the constitutional right of access to judicial proceedings
and court documents.107
The U.S. Trustee108 also weighed in prior to the court’s
decision, filing a response to the ad hoc committee’s motion. It
argued that the committee’s aggregate claims solution was
insufficient to satisfy Rule 2019.109 It also noted that public
access to court documents is favored in bankruptcy cases and
that the denial of public access was only appropriate in very
limited circumstances, which were not met in this case.110
103
Id.
See In re Orion Pictures Corp., 21 F.3d 24, 26 (2d Cir. 1994) (noting that “a
judge must carefully and skeptically review sealing requests to insure that there really
is an extraordinary circumstance of compelling need.”). Like Northwest, the official
committee also pointed out that Owl Creek had already publicly disclosed the same
information even though it was not required to do so under any SEC regulation.
Northwest Official Committee Objection, supra note 90, at 6-7.
105
Bloomberg is currently the largest leading financial news and data
company in the world. It reports on political, legal, financial and business events
worldwide.
106
Bloomberg Motion to Intervene, supra note 90, at 1. The motion was “an
effort to ensure that the public has a full and accurate understanding of the events
occurring in this Chapter 11 proceeding, including the motivations and interests of the
players who seek to control an important public company.” Id.
107
Bloomberg argued that there was a strong public interest in the role that
hedge funds play in the financing of distressed companies, which could not be ignored.
Bloomberg also noted that while hedge funds have become an important part of the
U.S. economy, they have also been largely unregulated, and the public (including
current and former employees of Northwest) had a critical interest in learning about
the role that these funds would play in the reorganization of Northwest. Bloomberg
ultimately stressed the importance of the disclosure, and the public harm that would
result if the Rule 2019 statement were filed under seal. Id. at 2-3.
108
The U.S. trustee is responsible for overseeing the administration of
bankruptcy cases and private trustees. 28 U.S.C. § 586 (2000).
109
U.S. Trustee Motion, supra note 90, at 6.
110
Id. at 6-9. The Trustee also concluded that before the court could order a
seal, the ad hoc committee had to prove that the trading information constituted
strategies that were confidential information or trade secrets, and that the public
104
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3. The Court Decides Again: Disclosure Trumps Privacy
After consideration of the parties’ motions and a hearing
on the issue, Judge Gropper issued his ruling denying the ad
hoc committee’s motion to file the disclosure statement under
seal.111 The court rejected the argument that the committee
members’ trading practices constituted commercial information
under Section 107(b).112 It concluded that the committee’s
contention that the information would allow its competitors to
determine its trading strategies was unfounded.113 Additionally,
the court pointed out that the Douglas Report considered the
importance of public disclosure in drafting Rule 2019, which is
inconsistent with filing the information under seal.114
The court was especially critical of the fact that the
committee members chose to act as a group to gain leverage in
the reorganization proceedings, while simultaneously pointing
to the possibility of individual financial losses that they may
incur by revealing the information.115 Nevertheless, it concluded
that even if the committee members had valid individual
interests in keeping the information private, Congress had
subordinated those interests to those advanced by Rule 2019.116
For example, Rule 2019 is designed to protect equity holders
who are not members of any committee and who rely on the
disclosures to understand the motivations of the committee
members.117 The court concluded that even if the ad hoc
committee did not accept a fiduciary responsibility to the other
shareholders, the purpose of Rule 2019 was to provide those
shareholders with sufficient information so that they could
decipher whether that committee would advance their
interests, or whether they should form their own committee.118
disclosure already made by Owl Creek did not remove them from the protection of
Section 107(b). Id.
111
Northwest II, 363 B.R. 704, 709 (Bankr. S.D.N.Y. 2007).
112
Id. at 706-07.
113
Id. at 707. In fact, the court noted that at oral argument counsel agreed
that the “trading strategies” of his clients were not at issue. Id.
114
Id. at 708. The Douglas Report stated that the information required by the
rule would “provide a routine method of advising the court and all parties of interest of
the actual economic interest of all persons participating in the proceedings.” Id.
115
Id. The court pointed out that by acting as a group, the committee
members “subordinated to the requirements of Rule 2019 their interest in keeping
private the prices at which they individually purchased or sold the Debtor’s securities.”
Id.
116
Id. at 709.
117
Id.
118
Id.
2008]
THE RULE 2019 BATTLE
1429
Overall, the disclosures also would allow all parties involved in
the reorganization to assess the credibility of a group that
would ultimately play an important role in the case.119
The court pointed to two facts in the current case that
emphasized the importance of Rule 2019 disclosures to the
other shareholders.120 First, the ad hoc committee had already
“disclosed that committee members own[ed] a very significant
amount of [Northwest’s] debt, as well as stock.”121 The court
concluded that shareholders had a right to know whether the
debt and stock were purchased concurrently, which would raise
issues about conflicts of interest.122 Second, three committee
members had already admitted that they might sell their stock
at any time, which would potentially leave other similarly
situated shareholders without representation.123 The court
noted that one function of Rule 2019 is to provide other
members in a class “the right to know where their champions
are coming from.”124
After the court’s ruling denying the seal, three hedge
funds that were members of the ad hoc committee filed a
motion for reconsideration of the court’s initial decision.125 The
Loan Syndications and Trading Association (“LSTA”), and the
Securities Industry and Financial Markets Association
(“SIFMA”) filed a brief in support of the motion arguing that
the court’s decision would discourage many sophisticated
stakeholders from participating in future bankruptcy cases.126
The court denied this motion. Nine of the thirteen members of
the ad hoc committee later complied with the court’s order and
119
Id.
Id.
121
Id.
122
Id.
123
Id.
124
Id. Based on these facts, the court concluded that “[g]ranting the motion to
seal would scuttle the Rule.” Id.
125
Motion of Certain Equity Holders, Pursuant to 11 U.S.C. § 105(a), FED. R.
CIV. P. 59(e) and 60(b), and L.R. Bankr. P. 9023-1(a) for Reconsideration of
Memorandum of Opinion and Order Granting Debtors’ Motion for an Order Compelling
Ad Hoc Committee to File a Verified Statement Pursuant to Bankruptcy Rule 2019(a),
at 1, Northwest I, 363 B.R. 701 (Bankr. S.D.N.Y. 2007) (No. 05-17930).
126
Joinder of Loan Syndications and Trading Association and Securities
Industry and Financial Markets Association As Amici Curiae to Motion of Certain
Equity Holders, Pursuant to 11 U.S.C. § 105(a), FED. R. CIV. P. 59(e) and 60bB), and
L.R. Bankr. P. 9023-1(a) for Reconsideration of Memorandum of Opinion and Order
Granting Debtors’ Motion for an Order Compelling Ad Hoc Committee to File a
Verified Statement Pursuant to Bankruptcy Rule 2019(a), at 3, Northwest I, 363 B.R.
701.
120
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filed an amended statement providing the amount of stock they
held, when the stock was purchased, and the amounts paid.127
The remaining four members presumably dropped out of the
case.
B.
In Re Scotia Development LLC: Hedge Funds Win
Round II
In January 2007, Scotia Pacific filed a voluntary
petition for relief under Chapter 11 of the Bankruptcy Code.128
The ad hoc committee in Scopac (referred to as the “Noteholder
Group”) was present from the beginning of the bankruptcy
proceedings, and in February 2007, it filed a statement
pursuant to Rule 2019.129 The equity held by the committee
consisted of “timber notes,” which were traded publicly, but
were secured obligations of Scopac.130 The statement filed by
the committee included the names of the committee members
and their aggregate note holdings, which totaled 90%.131 Like
the original Rule 2019 statement in Northwest, it did not
include detailed information about each committee member’s
holdings, when they were acquired, or the price paid for the
holdings.
1. Scopac and the Noteholder Group Disagree
In March 2007, not long after the final ruling in
Northwest, Scopac filed a motion for an order compelling the ad
hoc committee to disclose all the information required under
Rule 2019(a).132 Scopac argued that Rule 2019 applied to the
127
Verified Amended Statement of the Ad Hoc Committee of Equity Security
Holders Pursuant to Bankruptcy Rule 2019(a), at 2, Exhibit A, Northwest I, 363 B.R.
701.
128
Scotia Pacific Company LLC’s Motion for an Order Compelling the Ad Hoc
Committee to Fully Comply with Bankruptcy Rule 2019(a) by Filing a Complete and
Proper Verified Statement Disclosing Its Membership and Their Interests at 3, In re
Scotia Dev. LLC, No. 07-20027-C-11, 2007 WL 2726902 (Bankr. S.D. Tex. Apr. 18,
2007) [hereinafter Scopac Debtor’s Motion].
129
Id. at 3, 7.
130
Id. at 4.
131
Verified Statement of Bingham McCutchen LLP and Gardere Wynne
Sewell LLP Pursuant to Bankruptcy Rule 2019 at 1-2, In re Scotia Development, 2007
WL 2726902.
132
Scopac Debtor’s Motion, supra note 128, at 1. Scopac noted in its motion
that while the committee claimed to currently represent 90% of the outstanding timber
notes in its initial statement, at various times it also stated that it represented 97%
and 99% of the notes, but no revised statement was ever received. Id.
2008]
THE RULE 2019 BATTLE
1431
committee since it admittedly represented the majority of note
holders.133 It relied heavily on the recent Northwest decision,
including the court’s conclusion about the history and purpose
of Rule 2019.134 In addition, Scopac argued that unless the
committee fully complied with the requirements of Rule
2019(a), the court should prohibit it from further participation
in the proceedings.135
The Noteholder Group objected to Scopac’s motion,
arguing that Rule 2019 did not apply to it for four reasons:
(1) it was not a committee; (2) it did not represent any creditors
or equity security holders; (3) it did not have any instrument;
and (4) it was not empowered to act on behalf of creditors.136
The Noteholder Group then addressed the purpose of Rule
2019. It pointed to the Douglas Report137 and argued that it was
meant to apply to protective committees that were organized
and controlled by the debtor and other inside groups.138 It
concluded that the term “committee” in Rule 2019 applied only
to committees that were fiduciaries, and had the authority to
bind the creditors they represented.139 Furthermore, it pointed
out that nothing suggested that the Rule should apply to
informal groups like theirs, which sought merely to share
expenses, speak collectively and only represent the interests
133
Id. at 8-9.
See supra Part II.A.
135
Scopac Debtor’s Motion, supra note 128, at 11.
136
First, the Noteholder Group examined the legal definition of a “committee”
and argued that it was merely a group, not a committee, since it was self-elected and
did not speak for anyone other than itself. As a group, it argued that it was not a
committee within the meaning of Rule 2019. Second, the Noteholder Group argued that
it did not represent more than one creditor or equity security holder as required by
Rule 2019. Again it looked to the legal definition of representative, which means
someone who represents or has the authority to act for someone else. It pointed out
that the members of the group did not represent anyone other than themselves. Third,
the Noteholder Group argued that there was no instrument or agreement that specified
the group’s authority to act on behalf of the note holders. Noteholder Group’s Objection
to Scotia Pacific Company LLC’s Motion for an Order Compelling the ad Hoc
Committee to Fully Comply with Bankruptcy Rule 2019(a) by Filing a Complete and
Proper Verified Statement Disclosing Its Membership and Their Interests at 1-13, In re
Scotia Development LLC, No. 07-20027-C-11, 2007 WL 2726902 (Bankr. S.D. Tex. Apr.
18, 2007) [hereinafter Noteholder Group Objection].
137
See supra notes 48-57 and accompanying text (discussing the Douglas
Report).
138
The Noteholder Group noted that in the post-Depression era, these
protective committees often solicited deposit agreements from small investors, who as a
result gave up control in the proceedings. Thus, Congress adopted the Rule because it
wanted to control abusive behavior by protective committees, who were fiduciaries to
the investors they represented. Noteholder Group Objection, supra note 136, at 13-14.
139
Id. at 16.
134
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of the members in the group.140 The Noteholder Group also
criticized Northwest, arguing that the court incorrectly interpreted the meaning of Rule 2019.141
Scopac filed a response to the Noteholder Group’s objection, arguing that the plain language of the Rule applied.142 It
pointed out that the group was in fact very similar to the
ad hoc committee in Northwest because it filed a notice of
appearance as a committee, retained counsel as a committee,
compensated counsel as a committee, litigated issues in the
bankruptcy proceedings as a committee, and gave instructions
to counsel as a committee.143 Thus, Scopac concluded that the
Noteholder Group could not argue that it was not a committee
under the meaning of Rule 2019 solely to avoid disclosure.144
Scopac also responded to the Noteholder Group’s
arguments that it was not a fiduciary and no instrument
existed that governed the group. It relied on Northwest for the
proposition that a committee need not be a fiduciary to be
required to comply with Rule 2019.145 Perhaps Scopac’s
140
Id.
Id. at 17. The Noteholder Group also argued that the Northwest decision
was distinguishable in the following ways: (1) the ad hoc committee in Northwest,
unlike the Noteholder Group, initially tried to be appointed as an official committee; (2)
the Northwest committee held only 27% of the securities, but the Noteholder Group
held 95% of the timber notes; (3) some of the members of the Northwest committee
owned both stock and debt, but the members of the Noteholder Group owned nothing
but timber notes; (4) the Northwest committee sought to negotiate for the entire class of
shareholders whereas the Noteholder Group only represented themselves; (5)
Northwest was insolvent and the shareholders were fighting for recovery, but Scopac
was solvent and the note holders were entitled to full recovery; and (6) the court in
Northwest concluded that public disclosure would provide information to the other
shareholders, but the members of the Noteholder Group were the substantial majority
of the note holders. Id. at 18-20.
142
Scotia Pacific Company LLC’s Response to the Noteholder Group’s
Objection to the Motion for an Order Compelling the Ad Hoc Committee to Fully
Comply with Bankruptcy Rule 2019(a) by Filing a Complete and Proper Verified
Statement Disclosing Its Membership and Their Interests at 1-5, In re Scotia
Development LLC, No. 07-20027-C-11, 2007 WL 2726902 (Bankr. S.D. Tex. Apr. 18,
2007). Scopac pointed out that although the group had called itself a “committee” since
March 2005, it changed its title to a “group” soon after the motion seeking disclosure
under Rule 2019. Scopac argued that this naming convention was irrelevant since the
Noteholder Group never changed anything other than its name, and continued to
operate in the same way that it did since its formation. Id.
143
Id. at 1-2.
144
Id. at 2.
145
Scopac’s brief quoted the Northwest II court:
141
I’m not saying that these individual funds can’t take action in their own
interests; I’m just saying that Rule 2019 says that, if they’re a group that
wants to affect this case—and they certainly do—that they’ve got to file
certain basic information that I didn’t make up. I didn’t create the
requirement. It’s on the books, it should be filed.
2008]
THE RULE 2019 BATTLE
1433
strongest argument for disclosure was that the timber notes
held by the Noteholder Group were still publicly traded.146 As a
result, if any member of the group sought to trade the timber
notes, potential purchasers should have access to the information required under Rule 2019 so that they could make
relevant decisions about the group.147
2. Friends of the Court Point Out the Implications of
Disclosure
Just as they had done in the Northwest case, the LSTA
and the SIFMA filed an amicus curiae brief opposing Scopac’s
motion. They argued that Rule 2019 disclosure would have
“detrimental impacts” on the trading markets for distressed
companies, as well as the willingness of sophisticated stakeholders to participate in corporate bankruptcy proceedings.148
They pointed out that the practical effect of compelling
disclosure is that creditors would choose to act on their own
instead of engaging in collective action, the former of which is
more efficient and cost-effective for all parties involved in the
reorganization proceedings.149
3. The Court’s Decision: This Time Privacy Trumps
Disclosure
On April 18, 2007, Judge Richard Schmidt of the United
States Bankruptcy Court for the Southern District of Texas
issued an order denying Scopac’s motion to compel disclosure of
the trading information that it alleged was required under
Rule 2019.150 The order was two pages long and simply stated
Id. at 6 (quoting Transcript of Motions on March 15, 2007 at 45, Northwest II, 363 B.R.
704 (Bankr. S.D.N.Y. 2007) (No. 05-17930)). Scopac also argued that the absence of an
instrument did not mean that the group did not fall under the Rule, which requires
that “a verified [Rule 2019] statement include a copy of the [authorizing] instrument, if
any . . . .” Id. at 8 (quoting FED. R. BANKR. P. 2019).
146
Id. at 12.
147
Id.
148
Motion of Securities Industry and Financial Markets Association and Loan
Syndications and Trading Association for Leave of Court Pursuant to 11 U.S.C. §
1109(b) or, Alternatively, Fed. R. Bankr. P. 2018(a) and 11 U.S.C. § 105(a), to Appear
as Amici Curiae, File Brief and Make Oral Argument in Support of Noteholder Group’s
Objection to Scotia Pacific Company LLC’s Motion for Order Compelling Ad Hoc
Committee to Fully Comply with Bankruptcy Rule 2019(a) by Filing Complete and
Proper Verified Statement Disclosing Its Membership and Their Interests at 2, In re
Scotia Dev. LLC, Case No. 07-20027-C-11 (Bankr. S.D. Tex. Apr. 18, 2007).
149
Id. at 12-14.
150
In re Scotia Development, 2007 WL 2726902, at *1-2.
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that the Noteholder Group was not a committee within the
meaning of Rule 2019 and therefore the disclosure requirements of the Rule did not apply.151
During the hearing on the Rule 2019 motion, Judge
Schmidt elaborated a little more on his rationale. He reasoned
that the Noteholder Group was not a committee but was
merely a group of creditors represented by a single law firm.152
He did point out, however, that there was an opportunity for
conflicts of interest to arise among the group. As such, he noted
that counsel for the Noteholder Group should ensure that
everyone understood the potential conflicts and waived them
accordingly.153
Scopac filed a motion for reconsideration shortly after
the initial denial; however, the court also denied this motion.
During the hearings held on the reconsideration motion, Judge
Schmidt noted that he made a “practical” decision: while the
information that Scopac requested was important, it was far
more important that such disclosure might negatively affect
the trading market for distressed securities.154 He also
concluded that the Northwest court’s interpretation of Rule
151
Id.
Transcript of Hearing on April 17, 2007 at 4-5, In re Scotia Dev. LLC, No.
07-20027-C-11, 2007 WL 2726902 (Bankr. S.D. Tex. Apr. 18, 2007). Judge Schmidt
stated, “I’m going to take an approach, a practical approach, and find that is not a
committee, that this is—at this point that this is just one law firm representing a
bunch of creditors.”
153
Judge Schmidt stated:
152
I think that he [counsel] needs to be also careful that his, and this is just, this
is not a ruling, but I suspect that there could well be situations where his
representation of this group of people could have some conflicts of interest.
And thereby, it would be important that all of the parties that he represents
understands those conflicts in order to waive them . . . . I’m not suggesting
there are any at the present time. I’m just saying, obviously, if one of the
claimants happen to have a large unsecured claim as well as a secured claim,
there could be a conflict in the position taken with respect to—to all of his
representation.
Id. at 5.
154
Judge Schmidt stated:
I suspect technically you should file the specific amounts of the claims of each
of the—of your people you represent . . . . I know that this is one of those
things that everybody finds important. I think it’s far more important in the
sense of the impact it might have on the trading of claims and the distressed
claims market. And that’s the reason I—I made sort of a practical decision
when I made the decision.
Transcript of Hearing on May 22, 2007 at 19, In re Scotia Development, 2007 WL
2726902.
2008]
THE RULE 2019 BATTLE
1435
2019 was not what the drafters intended.155 In support of this
conclusion, he noted that the Rule was enacted as a result of
the Douglas Report, and the committees that existed then were
not the same as the committees that exist today.156
This decision appears to be inconsistent with Rule 2019.
However, Judge Schmidt chose to ignore the plain meaning of
the Rule in favor of a results-oriented decision that emphasized
the effects on disclosure. Specifically, Judge Schmidt seemed
especially concerned about the implications of disclosure on
future claims trading. The next Part explores this tension
between the transparency required under the Bankruptcy Code
and the secrecy that is purportedly necessary for a functioning
marketplace.
III.
THE RULE 2019 TENSION: TRANSPARENCY V. LIQUIDITY
As the Northwest court held, Rule 2019 on its face
applies to ad hoc committees. In addition, certain disclosures
are necessary to achieve successful results in bankruptcy cases.
However, applying the Rule in its current form to require
disclosure of the complete trading history of committee
members has implications on claims trading of distressed
securities. This Part discusses the implications of the Northwest and Scopac decisions and concludes that they create a
tension between transparency and liquidity. Additionally, it
discusses and analyzes two Delaware cases that present a
“middle ground” to help resolve this tension. This discussion
will help to develop a framework for a proposed amendment to
Rule 2019 in Part IV of this Note.157
A.
The Northwest Approach: The Implications of Disclosure
The Northwest decision requires that each member of an
ad hoc committee disclose the information specified in Rule
2019. While disclosure is one of the hallmarks of the
Bankruptcy Code, and is important to successful corporate
155
Id. at 19 (“In any event, I also understand that—that this is one of those
things that—that, I mean, you can’t fault the reasoning of the New York Court. I just
don’t think that was what was intended by the statute originally.”).
156
Id. (“I think the statute went back to the old Douglass group and whatever
that—those—that group, the study of—of committees as they existed bank then, and
not committee in the sense that we talk about them now. And so what’s [sic] why I sort
of drew that line.”).
157
See infra Part IV.
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reorganization,158 there are two other major implications to be
considered. One is the effect that disclosure will have on
liquidity in the trading markets for distressed claims and
securities. The second is the effect that disclosure will have on
the participation of experienced stakeholders, like hedge funds,
in future bankruptcy litigation. These two implications were
discussed in amici curiae briefs filed by the LSTA and the
SIFMA in the Northwest and Scopac cases.159 Additionally, in
Scopac, Judge Schmidt noted that while the committee was
technically required to file individual disclosures, he made his
decision because of the potential impact that disclosure would
have on claims trading in the market for distressed
securities.160
1. Liquidity
One of the major arguments against requiring disclosure is that it will decrease the liquidity of the trading
markets for distressed claims. Liquidity refers to the ability to
convert claims and securities by buying and selling.161 The
trading of distressed claims is often beneficial to both the buyer
and the seller.
Buyers of distressed claims and equity seek to acquire
securities in reorganizing debtors for various reasons. Unlike
sellers, buyers view these claims as being undervalued and
seek to gain by taking a risk on the investment.162 They are
willing to purchase these claims and accept the risk because
they feel that they understand the true value and can gain
above-average returns. Many distressed investors sometimes
hold debt in the company and seek to bundle these claims with
the debt that they hold.163 Specifically, in our marketplace
today, many hedge funds have begun making direct “secondlien” loans to struggling companies and want to hedge their
investment by acquiring equity in the company.164 They may
158
See supra Part I.B.
See supra note 126 and accompanying text; supra Part II.B.2.
160
See supra note 154.
161
Forbes Media, Investopedia, http://www.investopedia.com/terms/l/liquidity
.asp (last visited Mar. 23, 2008).
162
Presentation by the Loan Syndications and Trading Association Continuing Legal Education Seminar, Legal Issues and Trends Related to Claims Trading, at
6, June 14, 2007 [hereinafter LSTA Presentation] (on file with author).
163
Id.
164
LEMKE ET AL., supra note 15, § 1:2.
159
2008]
THE RULE 2019 BATTLE
1437
want to influence the reorganization process by taking an
active role in the repayment plan or even by taking over the
company.165 Since sellers are eager to get rid of their claims in
light of the financial performance of the company, buyers can
often obtain the debtor’s securities at significantly discounted
prices.166 Despite the discounted prices at which they acquire
distressed claims, investors like hedge funds can offer sellers
much needed liquidity.
On the other hand, sellers of distressed claims usually
need cash immediately and cannot wait for the company to
reorganize before receiving some kind of payment.167 The
reorganization process is typically long, and it may take
holders of claims some time before they receive consideration
for their equity holdings. In fact, equity holders are unlikely to
receive anything because they are the residual claimants.
Additionally, sellers may not want to participate in the
restructuring proceedings themselves, which are expensive and
timely.168 Specifically, active participation in restructuring
cases sometimes requires significant expenses such as counsel
and litigation fees. Sellers may value liquidity when they need
money to meet their own debt obligations or to pay current
creditors or employees. The financial affairs of the company
may also lead sellers to believe that the claims they hold are
overvalued, and thus they may want to “cash out” before the
value of their investment decreases even more.169
In particular, many institutional investors like insurance companies and pension plans are forced to quickly dispose
of distressed securities because their portfolio holdings are
often subject to credit quality and rating limitations.170
Alternatively, the seller may also be a customer or supplier
who has a valuable relationship with the debtor and does not
want to jeopardize that long-term relationship by participating
in what might turn out to be an antagonistic bankruptcy
case.171 Overall, for a variety of reasons, sellers of distressed
claims want out, and they want out relatively quickly. Though
165
LSTA Presentation, supra note 162, at 6.
LEMKE ET AL., supra note 15, § 1:2.
167
LSTA Presentation, supra note 162, at 6.
168
Id.
169
Id.
170
LEMKE ET AL., supra note 15, § 1:2.
171
Paul M. Goldschmid, More Phoenix Than Vulture: The Case for Distressed
Investor Presence in the Bankruptcy Reorganization Process, 2005 COLUM. BUS. L. REV.
191, 207 (2005).
166
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this generally leads to a discounted selling price, sellers are
willing to accept this in light of their motivations. They value
the liquidity that distressed investors provide to the market
because it allows them to accomplish their goals.
Disclosure under the Northwest approach threatens this
liquidity because the majority of distressed investors are hedge
funds that rely on secrecy for their success.172 Hedge funds are
specifically formed in such a way as to avoid regulations that
require them to disclose how they conduct their business.173
More than anything, they seek to keep their trading information private. If forced to disclose this information, including
the price and date that they acquired their claims, it is highly
possible that hedge funds will no longer invest in distressed
claims and securities. This decrease in the trading markets will
in turn prevent holders of distressed claims from liquidating
their claims prior to the conclusion of the bankruptcy case.
2. Participation in Bankruptcy Proceedings
The second implication of disclosure is that it will
provide a disincentive for hedge funds to actively participate in
bankruptcy cases. It is important to note that hedge funds may
continue to participate but simply choose not to join ad hoc
committees. However, this may very well mean that small
hedge funds will refrain from participating altogether for fear
that they would not be able to afford the litigation costs. The
implication of disclosure on participation is therefore twofold.
First, disclosure under Rule 2019 discourages hedge
funds from forming ad hoc committees and participating
collectively in bankruptcy cases since individual creditors are
not required to comply with the Rule.174 This will lead to
inefficiencies and cause delays in the resolution of cases since
debtors will be forced to negotiate with individual creditors,
rather than with all of them as a group.175 It may seem that
individual creditors are the only ones who benefit from the
172
See supra Part I.A.
See supra Part I.A.
174
See FED. R. BANKR. P. 2019 (specifying that only “committees” or “entities”
are required to comply with the rule).
175
Evan D. Flaschen & Kurt A. Mayr, Ad Hoc Committees and the Misuse of
Rule 2019, 16 J. BANKR. L. & PRAC. 6 (2007). (“[T]he quickest and most effective
reorganizations are typically accomplished on a consensual basis, and debtors should
welcome the participation of a sophisticated group of creditors that collectively has
substantial voting power rather than seeking to fight those creditors at every turn.”).
173
2008]
THE RULE 2019 BATTLE
1439
formation of ad hoc committees because they can share litigation costs and exert greater influence on the case. However,
collective participation benefits both creditors and debtors
because it prevents delays and duplication of efforts.176 In
addition, because ad hoc committees can pool their resources
to cover litigation expenses, they can retain experienced,
sophisticated professionals to negotiate with debtors. If certain
creditors are discouraged from participating in ad hoc committees and forced to act individually, they may no longer have the
financial resources to retain these professionals, who arguably
bring more expertise to the cases and help negotiate more
effective reorganization plans for both parties.
Second, disclosure discourages participation by smaller
hedge funds because of the time and expense required. One of
the reasons that creditors form ad hoc committees is in an
effort to share the litigation expenses.177 Some small investors
may not have the resources to retain counsel and incur the
litigation expenses, whereas others may simply choose not to
do so because the expense outweighs the benefit based on their
stake in the company. As a result, these creditors will
essentially have their interests restructured by larger creditors
who can afford to participate in the case. The LSTA and
SIFMA argue that this result is contrary to the broader intent
of enacting Rule 2019, which was to prevent the investors from
having their claims restructured on terms that were negotiated
by larger stakeholders, who did not adequately represent their
interests.178
B.
The Scopac Approach: The Implications of
Non-Disclosure
The Scopac decision does not require that each member
of an ad hoc committee disclose the information required by
176
Whereas debtors only had to negotiate with representatives acting on
behalf of a group of creditors, if hedge funds choose not to form ad hoc committees to
avoid disclosure, debtors will be forced to negotiate with counsel for each individual
creditor. Coordination is extremely beneficial in reorganization cases. As the Seventh
Circuit stated in another context, “coordination is especially common in bankruptcy,
which often is described as a collective proceeding among lenders.” United Airlines v.
U.S. Bank, 406 F.3d 918 (7th Cir. 2005).
177
Eisenbach, supra note 77.
178
Brief of Amici Curiae of Securities Industry and Financial Markets
Association and Loan Syndications and Trading Association at 8, In re Scotia Dev.
LLC, No. 07-20027-C-11, 2007 WL 2726902 (Bankr. S.D. Tex. Apr. 18, 2007).
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Rule 2019.179 Instead, it allows ad hoc committees to simply
file a statement identifying the members of the committee
and stating the aggregate claims held by its members.180 Prior
to the recent Rule 2019 litigation, ad hoc committees usually
provided this information on a voluntary basis.181 As discussed
in Part II.B.3, supra, the Scopac court’s decision was motivated
by the potential impact that disclosure would have on claims
trading. The LSTA and SIFMA also filed amici curiae briefs in
that case and testified during the hearings that the two main
implications of disclosure are the effects on liquidity in the
distressed securities market and participation in bankruptcy
cases. However, while these implications are important, the
Scopac decision has implications of its own. Specifically, while
liquidity is important, transparency is equally important in
bankruptcy cases in order to ensure an effective reorganization.
This Part argues that the Scopac decision does not adequately
consider the importance of transparency in bankruptcy cases.
There are two main implications of not requiring disclosure
from individual committee members. First, non-disclosure has
the potential to result in an uneven playing field for the parties
of interest in a bankruptcy case. Second, it prevents the debtor,
and other parties involved in the case, from understanding the
motivations of the ad hoc committee, exposing the debtor and
others to potential harms.
1. An Even Playing Field
An “even playing field” is where all parties involved in
bankruptcy litigation are held to the same standards. The first
potential consequence of non-disclosure is that it can create an
uneven playing field because it allows members of the ad hoc
committee to participate without meeting disclosure requirements. Transparency is the very essence of bankruptcy
proceedings, and by not holding hedge funds to this standard,
the scales are tipped in their favor. Regular participants in
bankruptcy cases have borne this burden of full disclosure in
order to reap the benefits of participation. For example, if
debtors want to reap the benefits of the automatic stay as well
as the ability to discharge their debts, they must disclose all
179
See supra Part II.B.
See supra Part II.B.
181
See supra Part I.B for discussion of Rule 2019 litigation prior to the
Northwest and Scopac cases.
180
2008]
THE RULE 2019 BATTLE
1441
pertinent information, including assets, liabilities, and business affairs.182 Their management is also subject to scrutiny so
that creditors can make an informed decision about their plan
of reorganization.183 If secured lenders want to reap the benefits
of debtor-in-possession lending or exit financing, court approval
is required and other creditors have an opportunity to object.184
Similarly, ad hoc committees who want to reap the benefits of
collective participation should bear the burden of complying
with the disclosure rules and accepting a fiduciary obligation to
the class that they represent.185 Under the Scopac approach, ad
hoc committees are allowed to ignore their burden of disclosure
under Rule 2019, while still reaping the benefits of participation.
2. Potential Harms to Other Parties
One party that may be harmed by non-disclosure is the
group of other creditors or equity holders in the class. For
example, in Northwest, the ad hoc committee only held about
27% of the shares in the company. The other outstanding
shareholders represented other equity holders in the class. As
discussed in Part II.A, supra, the court in Northwest was
concerned about harm to these shareholders if the ad hoc
committee was not forced to comply with Rule 2019.
Non-disclosure can harm the other shareholders in a
number of ways. First, it prevents them from being able to
assess the motivations of the committee. The dates that the
committee members purchased their claims and the price at
which they acquired them will allow the other creditors to
understand their goals in the bankruptcy case. For example,
in Northwest, it was disclosed that some of the committee
members held both debt and equity in the company.186 Rule
2019 disclosure allows shareholders to determine whether such
debt and equity claims are purchased at around the same time,
which may be evidence of a conflict of interest.187
Second, non-disclosure prevents other creditors from
making informed decisions as to whether an ad hoc committee
182
183
184
185
186
187
11 U.S.C. § 541 (2000); see also Berman, supra note 39, at 64.
Berman, supra note 39, at 64.
Id.
Id.
Northwest II, 363 B.R. 704, 709 (Bankr. S.D.N.Y. 2007).
See supra text accompanying notes 121-122.
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will adequately represent their interests or if they should form
a committee of their own. For example, if the Northwest shareholders were not aware that some of the committee members
owned both debt and equity, they may have mistakenly
believed that the ad hoc committee represented their interests
since they were in the same class.
Third, non-disclosure of subsequent sales of claims
prevents the other creditors from knowing when a committee
member is no longer involved in the case. If the committee
members are allowed to sell their claims without disclosure,
this may leave other creditors who thought that the committee
was representing their interests without representation. For
example, in Northwest it was disclosed that several members of
the committee intended to sell their claims.188 Rule 2019 would
force the committee members to disclose subsequent sales of
the claims and keep everyone informed. Non-disclosure of this
information would have allowed committee members to sell
their claims and leave the bankruptcy negotiations, which
could leave other shareholders without representation.
Another party that may be harmed by non-disclosure is
the debtor. The debtor, like other parties in a bankruptcy case,
needs to know with whom they are negotiating. The debtor
cannot effectively negotiate with the committee unless it
understands its individual members and their holdings in the
company. For example, in the Northwest case, the ad hoc
committee filed a notice of appearance and immediately began
serving document subpoenas and notices of depositions to
parties involved in the case.189 The ad hoc committee sought
specific information regarding the debtor, including valuations,
potential mergers, consolidations, and other sales involving the
debtor.190 The debtor, however, had no information about the
committee members or their holdings, which led the debtor to
file the motion requesting disclosure under Rule 2019.191
C.
The Owens Corning Approach: A Middle Ground
While the option of allowing creditors to file their Rule
2019 disclosures under seal was rejected by the Northwest
court, the United States Bankruptcy Court for the District of
188
189
190
191
Northwest II, 363 B.R. 704, 708 (Bankr. S.D.N.Y. 2007).
Northwest Debtors Objection, supra note 69, at 7.
Id.
Id.
2008]
THE RULE 2019 BATTLE
1443
Delaware was more receptive to this approach. In In re Owens
Corning, Judge Judith K. Fitzgerald was the first to institute a
procedure designed to require disclosure while still protecting
creditors’ privacy rights.192 She allowed parties to file their Rule
2019 disclosure statements privately. Information submitted to
the court was unavailable on the public docket, and a party
seeking to obtain the information had to receive the court’s permission.193 Several parties challenged the order, arguing that
they were entitled to the information under Rule 2019, that it
should have been made public, and that it was inappropriate to
require court permission for access to Rule 2019 statements.194
Judge Fitzgerald defended her order on the ground that it
adequately balanced the privacy rights of creditors with the
public’s competing interest in full disclosure.195
This identical approach was followed by the bankruptcy
court in In re Kaiser Aluminum Corp. and later upheld by the
Delaware district court.196 The parties challenging the bankruptcy court’s decision argued that the procedure unfairly
restricted their rights to access the information.197 They also
argued that it required them to incur additional expenses to
access the information disclosed under Rule 2019 since they
had to file a motion before the bankruptcy court.198 The district
court disagreed stating that the purpose of Rule 2019 was “to
ensure that plans of reorganization are negotiated and voted
upon by people who are authorized to act on behalf of the real
parties in interest.”199 Therefore, it concluded that the bankruptcy court had struck an appropriate balance between
complying with the requirements of the Rule and considering
the complexities of the case.200
These Delaware court decisions present another alternative for the current Rule 2019 conflict: filing the Rule 2019
192
Heightened Rule 2019 Disclosure Obligations for Committee Members after
Decisions in Northwest Airlines and Owens Corning, ABI COMMITTEE NEWS, Apr. 2007
(citing In re Owens Corning, No. 00-3837 (Bankr. D. Del.)).
193
Id.
194
Id.
195
Id. Judge Fitzgerald explained her ruling as follows: “This order, in my
view, does everything and probably more than it needs to do. It provides for protection
of the parties’ rights to ask us [for] this information by simply filing a motion with this
Court telling me why you want it . . . .” Id. (emphasis added).
196
See In re Kaiser Aluminum Corp., 327 B.R. 554 (D. Del. 2005).
197
Id. at 557.
198
Id.
199
Id. at 559.
200
Id.
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disclosures with the court under seal. It is noteworthy that
these cases did not specifically allow filing under seal. The
information was removed from the electronic docket, but
parties could still obtain access by filing a motion with the
court and obtaining an order.201 However, the reasoning
employed by the court in devising this procedure is similar to
the arguments that were presented by the ad hoc committee in
the Northwest case when it sought to make its Rule 2019
disclosures under seal.202
At first glance, the approach seems to be a compromise
or a “middle ground”—the committee would be required to
comply with the disclosure requirements of Rule 2019, but it
could avoid having its confidential trading information made
public. However, allowing hedge funds to file their trading
information with courts under seal is an ineffective approach
for the following three reasons. First, as discussed above, one of
the aims of the disclosure Rule is to ensure that everyone
involved in the case has access to the information. Second, the
argument that trading information constitutes “confidential
trade secrets” is unconvincing. As the debtor in Northwest
pointed out, the information required under the Rule is
historical information that is currently required under existing
SEC regulations.203 Finally, there is a valid concern that this
information should be available not only to the parties involved
in the case, but also to the public.
1. Access to the Information
The seal would allow the committee members to submit
the information required under Rule 2019 to the court, but
keep it from other parties involved in the litigation. In
Northwest, the ad hoc committee sought to make its trading
information available only to the court and the U.S. Trustee.204
The committee members wanted to keep the information from
the public, from the debtor, and from all other creditors and
equity holders.205 This simply overlooks the fact that Rule 2019
is an integral part of the disclosure scheme of the Bankruptcy
201
202
203
204
205
Id. at 560.
See supra notes 91-95 and accompanying text.
See supra notes 96-100 and accompanying text.
Northwest Ad Hoc Committee Motion, supra note 92, at 14.
Id.
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Code.206 One of the purposes of the Rule is to ensure that
reorganization plans are negotiated both openly and fairly
among all creditors.207 By not allowing all parties that are
participating in the case to have access to the information,
filing under seal seems to run contrary to this purpose of the
Rule. Disclosure is important to both the debtors so that they
can effectively negotiate with the committee, and to the other
creditors to prevent them from being harmed by conflicts of
interest. While Rule 2019(b) provides courts with discretion as
to what sanctions they can impose for noncompliance, the
requirements with respect to the information to be provided
and filing procedures under Rule 2019(a) do not allow for
discretion.208 There are no exceptions that would allow a
committee to file its information with the court under seal.
2. Trade Secrets
The ad hoc committee in Northwest argued that a sealed
2019 statement was justified because the trading information
required under Rule 2019 constituted trade secrets protected
by Section 107(b) of the Code.209 It argued that its members
trade their securities using complex strategies that comprise
proprietary, confidential, and commercial information.210 This
Note argues that the court made the correct decision in
rejecting this argument. The information to be reported under
Rule 2019 is far from complex trading strategies. It is factual,
historical trading data, including the prices and dates on which
claims were purchased and subsequently traded by the hedge
funds.211 The Rule does not seek disclosure of any hedge fund
policies, models, investment strategies, or practices. In fact,
the information required is usually available publicly for
companies that are subject to SEC regulations.212 While hedge
206
See supra Part I.B for background information about Rule 2019 and its
purpose in the Bankruptcy Code.
207
COLLIER ON BANKRUPTCY, supra note 2, at §2019.01.
208
See FED. R. BANKR. P. 2019.
209
Northwest Ad Hoc Committee Motion, supra note 92, at 5-6.
210
Id.
211
Northwest Debtors Objection, supra note 69, at 14.
212
For example, Section 13(d) of the Securities and Exchange Act of 1934
requires certain disclosure for investors who obtain more than 5% of a class of publicly
traded securities. 15 U.S.C. § 78m (2006). This and other federal securities rules and
regulations require full disclosure based on the premise that “transparency promotes
fair and efficient markets and market practices.” Northwest Debtors Objection, supra
note 69, at 15.
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funds seek to maintain their privacy and ensure they do not
fall under these regulations, these efforts do not turn this
routine trading information into proprietary trade secrets.
Additionally, bankruptcy rules, if they plainly apply, should
not be ignored to cater to a hedge fund’s preferred business
practices.
3. Public Access
Allowing an ad hoc committee to file its disclosure
statement under seal would prevent public access to the
information. When a public company files for Chapter 11
bankruptcy, other parties are affected, including employees
and pensioners. For example, in the Northwest case, the
bankruptcy proceeding affected 30,000 employees, as well as
potentially tens of thousands of other pensioners.213 Allowing
disclosure under seal would prevent these stakeholders from
understanding the motivations of a committee that could play
an important role in the restructuring of the company. In
addition, Northwest was a large, well-known airline serving
nearly 250 cities and 50 million passengers annually, and thus
what happened to the company was a matter of general public
interest.214
IV.
THE SOLUTION: A PROPOSED AMENDMENT TO RULE 2019
This Part proposes that Congress should amend Rule
2019 to strike a better balance between requiring adequate
disclosures in bankruptcy proceedings and maintaining hedge
fund investment in distressed claims. First, this Part argues
that while there is a need for greater consistency in Rule 2019
litigation, judges should also have some discretion to evaluate
committees based on the circumstances presented in a given
case. This can be accomplished through a combination of
outcome-determinative rules and standards.215 This Part will
use the “rules versus standards” approach in constructing a
change to Rule 2019, which will be presented in three parts:
the factors that should be considered when determining
213
Bloomberg Motion to Intervene, supra note 90, at 1-2.
Id.
215
See Jack F. Williams, Distrust: The Rhetoric and Reality of Means-Testing,
7 AM. BANKR. INST. L. REV. 105, 119 (1999) (discussing the “rules” versus “standards”
approaches as limits on judicial discretion).
214
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whether or not the Rule applies, the information that must be
disclosed under the Rule, and the sanctions that should be
imposed for noncompliance.
A.
A Delicate Balance: The Need for Consistency and the
Need for Discretion
There is a general need for “consistency and certainty”
in bankruptcy litigation.216 The Northwest and Scopac decisions
were clearly divergent and thus created uncertainty about the
future of Rule 2019 litigation. Both courts had to decide
whether or not the Rule should apply to the respective ad hoc
committees based on factors that they considered important.
This divergence is partly attributable to the fact that the
current Rule does not contemplate the nature of committees
today and partly because it does not adequately address the
various factors that should be considered in determining who
should disclose. In crafting a rule that achieves consistency, it
is necessary to allow judges some discretion. Bankruptcy
reorganization practices are constantly evolving; the recent
emergence of hedge funds as active participants in these
proceedings is an example of this. As new controversial issues
emerge, Rule 2019 must allow bankruptcy judges to exercise
discretion to give them the flexibility necessary to effectively
adapt to new circumstances.
This Note advocates an approach that both promotes
consistency and allows judges to react to developments in the
financial markets through a careful application of the “rules
versus standards approach.” Rules and standards are two
techniques that are often used to channel judicial discretion.217
The proposed solution to the Rule 2019 conflict employs a
combination of rules and standards for judges to follow when
deciding cases.
A rule mandates or guides conduct or action in a given
type of situation.218 Rules are outcome determinative and
require the decision-maker to categorize or classify issues.219
216
John W. Myers II, Bankruptcy—Associates Commercial Corp. v. Rash: The
Valuation Controversy Is Over—Almost, 28 U. MEM. L. REV. 1025, 1039 (1998) (stating
that the Supreme Court accepted a case “because of the need for consistency and
certainty in the bankruptcy process”).
217
Williams, supra note 215, at 119 (“Rules and standards are tools for
channeling the discretion of a decision-maker.”).
218
BLACK’S LAW DICTIONARY 1331 (6th ed. 1990).
219
Williams, supra note 215, at 119.
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They “promote consistency, predictability, and judicial
restraint in decision making.”220 They effectively provide future
litigants with notice of how an issue is to be decided.221
However, rules do not allow the decision-maker to adapt the
law to special circumstances that may arise.222 They simply
require application of the law to a set of facts to produce a
result.
On the other hand, standards are indeterminate and
require the decision-maker to weigh competing interests.223
They are more flexible than rules and allow a judge more
discretion in deciding an issue.224 Allowing more discretion,
though, increases the risk of error due to bias or incompetence.225 While rules and standards each have advantages and
limitations, one or the other may be preferable in setting up a
statutory scheme, depending on the purpose of the legislative
action and the degree of decision-maker discretion that is
desirable.
In the context of Rule 2019 litigation, the best approach
would use a combination of rules and standards to promote
consistency but still allow judges to weigh different factors on a
case-by-case basis. With respect to disclosure, the current Rule
2019 takes a purely rule-based approach without the use of any
standards. The single question is whether or not Rule 2019
applies, but there are no guidelines to help a court answer this
question. This is likely because when the Rule was enacted, it
applied to protective committees, which were the only type of
committee that existed at the time.226 Currently, there are so
many participants in bankruptcy cases that committees come
in many shapes and sizes. In response, judges who believe that
a committee should not have to disclose all the information
required under the Rule simply conclude that the committee is
not covered under Rule 2019.227 How they arrive at this
220
Id. at 120.
Id.
222
Id. at 121 (“A rule is perceived as the death of thought.”).
223
Id. at 119.
224
Id. at 121.
225
Id.
226
See supra Part I.B (discussing the Douglas Report). Protective committees
solicited deposit agreements from individual creditors and controlled their claims
during a reorganization. Id. Because of the nature of these committees and because
they were the only unofficial committees that existed at the time, there was no need for
judges to decide whether or not the Rule applied.
227
For example, in Scopac, Judge Schmidt was concerned about the impact of
disclosure on the trading markets. See supra note 154. He therefore concluded that the
221
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decision, however, is left to their discretion. While the nature of
bankruptcy cases requires judges to have some discretion to
decide the Rule 2019 issue, there is also a need to have clear
rules for certain aspects of the decision to promote fairness and
prevent uncertainty. As such, the solution presented is a
combination of rules and standards.
B.
The Structure of the Rule
There are essentially three questions to be answered in
applying the proposed rule. First, is the particular committee
in question required to disclose under the rule? If the answer is
no, then the inquiry ends. If the answer is yes, then the second
question is: what information is that committee required to
disclose? And finally, what are the consequences or sanctions
for failure to disclose the required information?
Under this framework, the first question suggests a
“standards” approach. Since the participants and stakeholders
in bankruptcy proceedings can change at any time, the nature
of committees can also change. As such, a pure rule-based
approach would not be able to adapt to new scenarios or
complications that may arise. However, the standard will not
give judges complete discretion. Rather, it will provide several
factors that the court should consider and weigh in deciding
whether or not the committee is required to disclose.
The second and third questions are rule-based
approaches. Once the court has decided that the committee
falls under the rule and must disclose, the question of what
should be disclosed is not open for interpretation or discretion
by the court. The rule will provide for specific disclosures that
must be made. Similarly, the sanctions that should be imposed
for noncompliance are clearly stated to prevent courts from
using it as an “out.” As long as a committee is required to
disclose, and chooses not to, the court cannot excuse it from
sanctions for any reason. This is to ensure consistency and
fairness in the application of the rule, and to preserve its
integrity.
Noteholder Group was not a “committee” within the meaning of the Rule. In re Scotia
Dev. LLC, No. 07-20027-C-11, 2007 WL 2726902, at *1-2 (Bankr. S.D. Tex. Apr. 18,
2007).
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Question 1: Is Disclosure Necessary?
The first—and arguably most important—question is
whether or not disclosure is required by a particular committee. This decision should not be left to the complete
discretion of the judge. Instead, certain factors relating to the
circumstances of the case and the members of the committee
should be considered. The following three factors are perhaps
the most important: the aggregate holdings of the committee
members, whether the committee members hold both debt and
equity in the debtor company, and whether the claims were
acquired pre-bankruptcy or post-bankruptcy. These factors
provide judges with a roadmap to guide their inquiry into
whether the committee should be required to disclose.
Though the factors are independent of each other, they
do not all have to line up for a court to decide a certain way.
The court can use its discretion to weigh each factor depending
on the circumstances of the case.228 For example, a court can
find that a committee holds 100% of a company’s stock and
acquired all of its claims pre-bankruptcy but still require
disclosure because the committee holds significant debt in the
company in addition to the stock. Similarly, a committee does
not have to meet all three factors to escape disclosure under
the rule. These factors merely guide the court through issues
that should be considered, but allows them to weigh one or two
factors more strongly when making their decision.229 While this
may lead to some inconsistency, the nature of bankruptcy
litigation calls for some flexibility in the rules.230 Without
228
This discretionary weighing can be analogized to the “Delaware Block
Approach” that is used in the corporate context to value businesses. Under this
method, the court uses three different values: values for net assets, earnings, and
market price. It gives a weight to each, and then adds them together. The weight given
to each element varies from case to case and is discretionary depending on the business
being valued. This weighing process may be outcome determinative. See Piemonte v.
New Boston Garden Corp., 387 N.E.2d 1145, 1148 (Mass. 1979).
229
This weighing technique is currently used in the “Delaware Block
Approach” where the court assigns a weight to each of the valuation techniques based
on the case before them. Id. In the Rule 2019 context, the courts would decide which
factors should be weighed more prominently based on the committee before them. For
example, if a committee held a majority of the class of claims, this would favor nondisclosure. However, this factor may be weighed less than the other two factors if the
committee purchased all their claims post-bankruptcy and owned both debt and equity
in the company.
230
The recent emergence of hedge funds as active participants in bankruptcy
litigation is an example of why flexibility is required. Rule 2019 was drafted to apply
primarily to protective committees, which are now a thing of the past. See supra Part
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allowing this discretion, the rule may end up being overinclusive or under-inclusive, and thus ineffective.231 At the very
least, this approach provides a framework for judges so that
they are all considering the same types of factors in making
their decisions. It also provides notice to investors, including
hedge funds, of what types of inquiries will be made by the
court when a Rule 2019 motion is being decided.
1. Aggregate Holdings
One of the factors that should be considered is the
aggregate holdings of the committee.232 This information would
allow the court to figure out what percentage of the total
holdings is held by the committee. If a committee holds a vast
majority of a particular class of securities, the potential for
harm to other similarly situated creditors is minimal. For
example, the ad hoc committee in Northwest held only 27% of
the outstanding stock in the debtor company, whereas in
Scopac the ad hoc committee held 95% of the timber notes.233
Comparing these two particular cases tends to oversimplify the
inquiry because 27% versus 95% is a big difference. However, if
a court had a committee that represented 60%, for example, the
inquiry is not as easy.
To provide a structure for evaluating committees based
on their investment in the debtor, this Note suggests the
following categorization. First, if a committee represents less
than 50% of the total outstanding claims or securities, the
I.B. As such, bankruptcy rules should be drafted with an appropriate balance of
achieving consistency and allowing for flexibility.
231
Without allowing judges some discretion and a clear framework for
deciding whether a particular committee should be subject to the rule, judges will
either require disclosure or ignore the rule altogether, depending on what they think
the outcome of the case should be. Judges would be in the best position to apply the
rule effectively if there were specific factors to consider and they had the discretion to
weigh each factor depending on the facts of a case.
232
This was one of the factors discussed by the Northwest court in Part II.A,
supra. This Part argues that the court was correct in considering this factor when
deciding whether or not disclosure was required.
233
See Northwest II, 363 B.R. 704, 708 (Bankr. S.D.N.Y. 2007); Noteholder
Group Objection, supra note 136, at 1. This difference in holdings is significant for the
following reason. In Northwest, 73% of the stockholders were potentially unrepresented
in the bankruptcy case. Northwest II, 363 B.R. at 708. Allowing the ad hoc committee
to proceed without disclosure could therefore harm an extremely large percentage of
stockholders. However, in Scopac, only five percent of the note holders were not
represented by the committee. Noteholder Group Objection, supra note 136, at 1. In
that case, allowing the committee to proceed without disclosure could only potentially
harm a small percentage of the note holders.
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assumption is that they should be required to disclose. Such
a committee’s overall holdings are not a majority, and the
interests of other creditors, which represent a substantial
percentage of the outstanding claims, should be protected.
Second, if a committee represents more than 90% of the total
outstanding claims or securities, the assumption is that they
are not required to disclose. Such a committee represents an
overwhelming majority of that class of investments, and there
is a very small percentage of other creditors who may be
harmed by the committee’s actions. Finally, if a committee
represents between 50% and 90% of the outstanding claims or
securities, the court may not make any assumptions about
disclosure using this factor alone. The court should consider
the aggregate holdings in light of the other factors under this
part of the rule in making its decision. Aggregate holdings
alone will not be sufficient to either require disclosure or avoid
disclosure.
2. Debt and Equity Investments
Another factor that should be considered by the court is
whether the committee members participate in more than one
level of the debtor’s capital structure. When committee
members own both debt and equity in a company, serious
conflicts of interest issues are implicated.234 For example, if the
debt and equity were purchased around the same time, this
raises an issue about the motivations of the committee member
and warns other stakeholders accordingly. Purchasing debt
and equity concurrently suggests that the investor is solely
interested in maximizing profits. The committee may make
decisions that minimize or reduce its recovery for one type of
investment while balancing this loss by maximizing its
recovery on the other investment. This strategy will allow it to
gain overall, but will potentially harm other creditors whose
sole recovery depends on the first investment.235 The general
234
See supra Part II.A where the Northwest court also considered this factor
when making its decision. Several of the committee members admitted to owning a
significant amount of debt in the company in addition to the shares. The court
concluded that this created a conflict of interest, and the Rule 2019 disclosures were
necessary for the other creditors in the class to make decisions.
235
The Douglas Report discussed in Part I.B, supra, identified this problem,
which already existed in the 1930s. Although contemporary committees are unlike
protective committees of that era, Douglas identified problems that have implications
today. Parties that hold both debt and equity in the same company have inherent
2008]
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idea is that inherent conflicts exist when committee members
have alternate interests or motivations that can affect the
other members of the class.
Unlike the aggregate holdings factor, this factor is a
bright-line issue and does not require a judge’s discretion. The
inquiry is a simple one: committee members either own both
debt and equity or they do not. If they own both debt and
equity, the court should favor disclosure, but if they do not own
both debt and equity, the court should favor non-disclosure. As
discussed previously, this factor is only one in a series that will
be considered collectively. It does not operate independently in
the overall question of whether disclosure is required. For
instance, a committee may own both debt and equity, but own
95% of either the debt or the equity. Though the debt and
equity factor on its own favors disclosure, the court should
balance all the factors in making its decision.236
3. Pre-Bankruptcy or Post-Bankruptcy
The final factor to be considered is whether the claims
were acquired pre-bankruptcy or post-bankruptcy. The goal of
this factor is to uncover the motivations and intentions of the
committee in the bankruptcy proceedings. For example, claims
that are acquired while a company is in bankruptcy will likely
be acquired at a discounted price, whereas claims that have
been previously acquired may have been purchased at or
around face value. A committee member who has purchased a
claim for less than face value may be motivated to accept
recovery that will not fully compensate someone who has
purchased at face value.237 Understanding the timeline would
conflicts of interest, just like the bondholders who served on stockholder committees in
the 1930s.
236
For example, consider a committee that owns 95% of the outstanding stock
in a debtor company and the committee members own both debt and equity. Under the
first factor, the potential for harm to other similarly situated creditors is small. This
factor favors non-disclosure since only 5% of the class of creditors is unrepresented. On
the other hand, the second factor would favor disclosure because of the potential for
conflicts of interest among the committee members. The court would weigh these two
factors (along with the third factor discussed in the next part) to decide whether or not
disclosure is warranted. In a case like this, the court may decide that disclosure is not
warranted because although the committee members own both debt and equity, they
own 95% of the outstanding stock and there is little potential for harm to other parties.
237
See supra Part I.B. This factor was also derived from the results of the
Douglas Report. As discussed in Part I.B, Douglas was concerned about the
hypothetical case where some committee members had acquired their interests at low
prices, and others had acquired it at par value. The pre-versus-post bankruptcy
purchase will identify whether this conflict may exist and factor it into the decision.
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expose the motivations of committee members and allow other
creditors who may be harmed to protect themselves. This is
another bright-line factor. If the claims were acquired before
the case was filed, it would favor non-disclosure. However, if
the claims were acquired during the bankruptcy case, it would
favor disclosure.
4. Summary of Factors
These three factors all seek to divulge different
categories of information that will play a role in the court’s
ultimate decision: position, conflicts, and motivations. The
aggregate holdings of the committee indicate the overall
percentage of the class that it represents, and therefore its
position among the other creditors. The debt and equity
investments implicate potential conflicts of interest based on
investments in more than one tier of the debtor’s capital
structure. Finally, the pre-bankruptcy versus post-bankruptcy
issue exposes the motivations of the committee or committee
members. If taken together, these three factors should provide
the court with sufficient information to help it decide whether
disclosure is warranted.238 As stated previously, the court
should exercise its discretion in weighing these factors to reach
its decision. If the court decides that a committee should not be
subject to the disclosure rules, the inquiry ends. If the court
decides that disclosure is warranted, it moves to the second
part of the analysis.
D.
Question 2: What Information Is Required?
The second part of the analysis is a rule-based
approach. If the court decides that disclosure is warranted for a
particular committee, this section applies and the committee
members must disclose all the information required under the
rule. The court does not have the discretion to tailor the
requirements on a case-by-case basis. Thus, if a court decides
Though the dynamics of bankruptcy cases are different today, the main concern that
Douglas had was that ulterior motives, conflicts of interest and self-serving actions
would cause committees to take advantage of others. This concern is still valid today
and should be considered by the court.
238
Under the appropriate circumstances, the court may consider other factors,
not mentioned here, that are unique to a particular case. If this occurs, the court
should try to classify the additional factors into one of the three categories: position,
conflicts, or motivations.
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that disclosure is required, its discretion ends, and the Rule
controls. A committee that is required to disclose should not be
excused from disclosure regardless of any special circumstances. This is necessary for several reasons. First, Rule 2019
is the only provision in the Bankruptcy Code that courts can
use to regulate ad hoc committees.239 It is important that the
Rule be followed in its entirety to promote fairness, equality,
and integrity. Second, it will provide adequate notice to
committees that all information listed under this part of the
Rule is required, and they should be prepared to provide it if
necessary.
In presenting the information that should be required
under the proposed rule, this Part evaluates the information
that is currently required under Rule 2019 and concludes
whether or not it should remain in the rule. The first three
requirements listed below have been generally undisputed by
parties involved in bankruptcy litigation. The last four
requirements, however, have been the subject of much
controversy and debate. As will be explained in greater detail
below, this Note advocates that all information currently
required under the Rule should remain the same, except for the
price at which the claim was acquired. Under the proposed
approach, the price acquired would be removed from the
current Rule 2019 disclosure requirements.
1. Names and Addresses of Creditors
The names and addresses of the creditor or equity
security holder should continue to be required under the rule.
This information informs everyone who the parties of interest
are and their contact information. In the past, this information
has been voluntarily provided by committees participating in
bankruptcy cases and thus should not be an issue in future
litigation.
2. Nature and Amount of Each Claim
Under the current Rule, the nature and amount of the
claim must be disclosed, as well as the time of acquisition,
unless the claim was acquired more than one year prior to the
filing of the bankruptcy petition. Again, this part of the Rule
239
See supra Part I.B (discussing how Rule 2019 fits into the Bankruptcy
Code’s overall disclosure scheme).
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has not been controversial or challenged by committees
involved in bankruptcy cases. Thus, it should remain in the
rule since it serves a valid purpose of informing the debtor and
other parties about the nature of the claims that are
represented in the case.
3. Information About the Committee
The third requirement involves disclosure of the facts
and circumstances related to the formation of the committee,
including the names of all parties that arranged formation.
This requirement has also been generally complied with in
bankruptcy cases. It should remain a part of the Rule since it
has been uncontested by committees in the past and provides
all interested parties with the important basic information of
who organized the committee and whom the committee
represents.
4. Amount of Claims Owned by Committee Members
Disclosure of the amount of claims owned by committee
members has been met with resistance from ad hoc
committees. The current Rule requires each individual
committee member to disclose the amount of claims they own.
Members of ad hoc committees prefer to, and often voluntarily,
disclose the aggregate amount of claims owned by the
committee. However, despite the opposition, this requirement
should remain a part of the Rule. While disclosure of the
aggregate amount is helpful, disclosure on an individual basis
is essential so that everyone knows who is involved and what
his stake is in the bankruptcy case.
5. The Dates Claims Were Acquired by Committee
Members
The date that the claims were acquired by the
individual committee members is the second most contested
piece of information that is currently required under the Rule.
Hedge funds in particular have argued that this information is
confidential and proprietary. They are very reluctant to make
this information public because of a fear that it will result in
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loss of leverage and that it will reveal their trading models or
strategies.240
This information should remain a part of the disclosure
requirements for the following reasons. First, the dates that
claims were acquired are not trade secrets or proprietary
information that exposes business strategies or policies.
Although hedge funds are secretive and seek to keep their
trading information private, this information is not of such a
nature that it will impact their business going forward. Hedge
funds are primarily concerned about others being able to
replicate their trading strategies.241 However, the dates on
which they acquire their claims will not likely shed any light to
outsiders about their strategy for investing. Second, this
information is helpful in bankruptcy cases so that other parties
can determine the motivations of the committee members and
identify any potential conflicts of interest. Particularly when a
committee member owns both debt and equity, the dates that
these purchases were made could expose potential conflicts.242
When the committee member’s interest in keeping the
information private is balanced against the importance of the
information in bankruptcy, the disclosure interest trumps the
privacy interest. Therefore, the dates that the claims were
acquired should remain a part of the Rule.
6. The Price Paid for the Claims by Committee
Members
The price paid by committee members for the claims
and interests they hold is undoubtedly the most controversial
disclosure requirement under Rule 2019. Hedge funds have
repeatedly objected to this requirement for the same reasons
they do not want to disclose the dates they acquired the claims.
In fact, the price and date combined is what they refer to as
confidential trading information. For example, in Northwest,
the committee specifically requested that this information be
240
See supra Part II.A.2. The ad hoc committee in Northwest argued that even
if they were required to disclose this information, they should be allowed to file it
under seal because it constituted trade secrets under § 107(b).
241
See supra Part I.A.
242
As noted in Part IV.C.2, supra, if debt and equity were purchased around
the same dates, there may be an inherent conflict of interest that other stakeholders
should be aware of.
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filed under seal because they claimed it constituted trade
secrets.243
Though this Note rejects that argument, it advocates
that the price paid should not be a disclosure requirement
under a revised Rule 2019. This is the only piece of required
information that should be removed from the current Rule. In
arriving at this conclusion, this Note balances the hedge fund’s
interest in keeping the information private against the need for
disclosure in bankruptcy. Presumably, the main reason that
hedge funds do not want to disclose the price paid for their
holdings is a loss of leverage in future trades. Since the original
purchase price would be public knowledge under the current
Rule, any potential purchasers would recognize the profit that
hedge funds stand to gain as a result of the transaction. Hedge
funds are most secretive when it comes to this pricing information, and requiring them to disclose it publicly in order to
participate in bankruptcy proceedings will have a detrimental
effect on liquidity in the distressed claims market.
On the other hand, this Note also considers the
importance of the purchase price in bankruptcy cases. The one
benefit of disclosure is that the price may reveal ulterior
motivations of hedge funds. For example, if they acquired their
claims at a very low purchase price, they may be content with a
lower recovery than others who purchased at face value.
However, this information can also be easily discerned based
on the purchase date. If the claim was acquired just before or
during bankruptcy, it was likely purchased at a discount.
More importantly, the purchase price of a claim is
not relevant in determining recovery or participation in
bankruptcy cases. Courts have consistently held that the price
paid for a claim does not have any bearing on recovery.244 A
243
244
See supra Part II.A.
The Seventh Circuit has held:
The debtor’s obligation is to pay his debts . . . . In the absence of some
equitable reason, taking the case out of the ordinary rule, the prices which
security holders pay for their securities in no wise affects the measure of
their participation in reorganization or their voting power . . . . To reduce the
participation to the amount paid for securities, in the absence of exceptional
circumstances which are not present here, would reduce the value of such
bonds to those who have them and want to sell them. This would result in
unearned, undeserved profit for the debtor, destroy or impair the sales value of
securities by abolishing the profit motive, which inspires purchasers.
In re Lorraine Castle Apartments Bldg. Corp., 149 F.2d 55, 57-58 (7th Cir. 1945)
(emphasis added). The Ninth Circuit has also held:
2008]
THE RULE 2019 BATTLE
1459
successful reorganization is not contingent on this information,
and thus the market need to keep this information private
outweighs the bankruptcy need to disclose it.
This Note aims to strike a balance in revising the
current Rule 2019. The goal is to ensure that the information
required in bankruptcy proceedings is disclosed without
discouraging future hedge fund investment in distressed
securities. The purchase price of the claim presents a critical
opportunity to apply this idea. The purchase price is not
something that is absolutely necessary in bankruptcy. On the
other hand, it is probably a “deal-breaker” when it comes to
hedge fund participation, since hedge funds guard this
information more closely than anything else. If forced to
disclose the purchase price, it is highly probable that they will
no longer invest in distressed claims, and the liquidity in the
market would decrease significantly.245 Therefore, this Note
proposes that the purchase price no longer be required under
the Rule. Moreover, the purchase price is likely to be used
aggressively by the debtor to discourage hedge fund participation in bankruptcy proceedings. Since it is well known by all
parties that hedge funds are extremely reluctant to provide the
purchase price, debtors may bring Rule 2019 motions requiring
disclosure as a weapon to force hedge funds out of the bankruptcy case altogether.
7. Any Subsequent Sales of Claims
Under the current Rule, any subsequent sale of claims
by individual committee members must also be disclosed. This
information is essential to bankruptcy cases and should remain
in the Rule. One of the concerns in bankruptcy is whether other
creditors may be harmed by actions of the committee. If
Analysis shows the application of such a principle would be grossly
inequitable to the holder of the secured debt. It would destroy or impair its
sales value. Buyers purchase bonds or other secured indebtedness primarily
from the profit motive . . . .He expects to realize out of the purchase more than
the purchase price, at the same time running the risk of recovering less.
Under the proposed equity, buyer, confined to the maximum of his purchase
price, buys nothing but the chance to “break even” or make a loss.
Security-First Nat’l Bank of L.A. v. Rindge Land & Navigation Co., 85 F.2d 557, 563
(9th Cir. 1936) (emphasis added).
245
For a discussion of the arguments made by the LSTA and SIFMA that
disclosure will negatively affect the claims trading markets, see supra note 126 and
Part II.B.2, supra.
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committee members were allowed to sell their claims without
disclosing the sale, creditors depending on that committee to
represent their interests would potentially be harmed. Because
there is no countervailing reason to keep this information
private, it should remain a part of the Rule.
E.
Questions 3: What Are the Sanctions for Noncompliance?
The sanctions under this section should follow a strict
rule-based approach as well. The sanctions are a key part of
Rule 2019 because they serve as a deterrent to parties who are
considering withholding information that they have been
ordered to disclose. The Rule should be clear—if a party
deliberately ignores a court’s order to disclose, it will not be
permitted to participate in the bankruptcy proceedings. The
judge must impose this sanction unless noncompliance was in
error or accidental. While this may seem harsh, it puts all
parties on notice of the consequences. If judges had more
discretion, parties may opt not to disclose and then hope to
convince the judge to impose a lesser sanction. However, this
would defeat the Rule’s purpose and defeat the purpose of
having sanctions that seek to deter noncompliance.
CONCLUSION
Rule 2019 is an important disclosure rule that had
essentially been overlooked until the Northwest and Scopac
decisions in 2007. The divergence between those decisions
raised the question of whether Rule 2019 should be applied to
ad hoc committees comprised primarily of hedge funds and
other private equity firms.
Although Rule 2019 on its face applies to ad hoc
committees, the legislative history indicates that its primary
purpose was to address abuses by protective committees in
1930s.246 Protective committees, however, are now a thing of the
past. The committees that exist today, like ad hoc committees,
are organized by creditors who seek to collectively participate
in bankruptcy cases to share costs and increase their
leverage.247 The Rule has not been changed in seventy years
and does not contemplate the types of committees or investors
that exist today. Furthermore, if required to comply with the
246
247
See supra Part I.B.
See supra Part I.A.
2008]
THE RULE 2019 BATTLE
1461
Rule, hedge funds and similar investors will likely stop trading
in distressed claims and securities, which could decrease the
liquidity in the market.
While liquidity is an important consideration, this Note
also recognizes the importance of transparency to bankruptcy
proceedings, which the Rule seeks to preserve through its
disclosure requirements.248 This creates a tension between
liquidity and transparency—while disclosure implicates a
liquidity problem, non-disclosure implicates a transparency
problem.249 Therefore, this Note concludes that Rule 2019
should be amended to address the current dynamics of Chapter
11 bankruptcy proceedings.250
Finally, this Note presents a revised Rule 2019, which
attempts to balance these competing interests.251 The goal in
crafting this revision is twofold. First, it provides a framework
for courts to use in determining whether or not a particular
committee was required to disclose. Second, it changes the
disclosure requirements to only require information that is
essential to bankruptcy and removes unnecessary disclosures
that discourage hedge fund investment in distressed securities.
Although this Note mainly addressed the issue of
whether Rule 2019 should apply to ad hoc committees
comprised of hedge funds, the proposed rule can be applied to
any ad hoc committee, regardless of whether it is made up of
hedge funds. This Note thus exposes a larger problem with
Rule 2019 and its inadequacy given the nature of bankruptcy
cases today. This may be a lesson that other bankruptcy rules
and procedures also need to be evaluated given the changing
dynamics of Chapter 11 cases.
Sparkle L. Alexander†
248
See supra Part III.
See supra Part III.
250
See supra Part IV.
251
See supra Part IV.
†
J.D. Candidate, Brooklyn Law School, 2010; M.B.A., Hofstra University,
2003; B.S., Saint Francis College, 2002. First and foremost, I give thanks to my Lord
and Savior Jesus Christ, who makes all things in my life possible. I would especially
like to thank my husband, Andres Alexander, and my parents, Deo and Shafina
Sooknanan, for their unwavering love and support. I would also like to thank Michael
and Geeta Edwards, June Hutchinson, and all my family and friends for their prayers,
support, and encouragement throughout law school. Last but certainly not least, I
would like to thank Shannon M. Sneed for introducing me to this topic, Professor
Edward Janger for his advice and guidance, and the editors and staff at the Brooklyn
Law Review for their assistance with this Note.
249
The Underground Railroad
to Reproductive Freedom
RESTRICTIVE ABORTION LAWS AND
THE RESULTING BACKLASH
We are women whose ultimate goal is the liberation of women in
society. One important way we are working toward that goal is by
helping any woman who wants an abortion to get one as safely and
cheaply as possible under existing conditions.1
I.
INTRODUCTION
Since almost immediately after the United States
Supreme Court’s landmark 1973 decision in Roe v. Wade,2 state
legislatures have continued to impose, and the Court has
consistently upheld, restrictions on a woman’s ability to obtain
an abortion.3 In Roe, the Court held that, “the right of personal
1
Chicago Women’s Liberation Union Herstory Project, Abortion—A
Woman’s Decision, A Woman’s Right, http://www.cwluherstory.org/CWLUFeature/
Janebroch.html. The quote was taken from the original informational brochure passed
out by the Abortion Counseling Service, also known as “Jane,” a network of volunteers
who, in the years prior to the legalization of abortion provided illegal abortions. Id.
2
410 U.S. 113 (1973). See generally SUSAN GLUCK MEZEY, ELUSIVE EQUALITY, WOMEN’S RIGHTS, PUBLIC POLICY, AND THE LAW, 224-76 (2003). Mezey describes
the facts that led to the litigation in Roe v. Wade:
[Roe] arose when Norma McCorvey, an unmarried, pregnant carnival worker
sought an abortion in her home state of Texas in 1969. McCorvey consulted a
doctor, who informed her that abortion was illegal in Texas and suggested
she might try going to another state. With no money to travel, she sought
an attorney to arrange a private adoption and was referred to two . . .
attorneys . . . . [They] had been looking for a plaintiff to challenge the Texas
abortion law in federal court. They took her case, arguing that restricting the
right to abortion unconstitutionally infringed on a woman’s fundamental
right to privacy.
Id. at 224.
3
See, e.g., Mazurek v. Armstrong, 520 U.S. 968, 975-76 (1997) (upholding
Montana’s statute requiring that only licensed physicians perform abortions); Webster
v. Reprod. Health Servs., 492 U.S. 490, 511, 519-20 (1989) (upholding provisions of
a Missouri statute that prohibited use of public facilities or public personnel to
perform abortions and required ultrasound tests in pregnancies of twenty weeks or
more to determine viability by measuring gestational age, weight, and lung maturity);
Harris v. McRae, 448 U.S. 297, 326 (1980) (upholding as constitutional the Hyde
Amendment, which restricted federal funding of Medicaid abortions only to cases of
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privacy includes the abortion decision, but that this right is not
unqualified and must be considered against important state
interests in regulation.”4 In Planned Parenthood of Southeastern Pennsylvania v. Casey, the Court significantly limited
the constitutional right to choose to have an abortion created
through Roe, and instead established that the states have
broad authority to regulate second and third trimester
abortions.5 The Casey decision emphasized that abortion is not
a fundamental right that merits strict scrutiny review, but
is instead a “liberty claim” that is subject to the deferential
“undue burden” test.6 Accordingly, state legislation that
restricts abortion is not surprising in light of the Supreme
Court’s recent re-acknowledgement that, “subsequent to
viability, the State in promoting its interest in the potentiality
of human life may, if it chooses, regulate, and even proscribe,
abortion except where it is necessary, in appropriate medical
judgment, for the preservation of the life or health of the
mother.”7 In response to Roe and Casey, state legislators have
continually introduced and enacted numerous restrictions on
the availability of abortions, while pro-choice activists have
challenged such restrictions in the courts.8 Mandatory waiting
life endangerment); Maher v. Roe, 432 U.S. 464, 466, 478 (1977) (upholding a
Connecticut prohibition of the use of public funds for abortions, except those that are
“medically necessary”); Poelker v. Doe, 432 U.S. 519, 521 (1977) (upholding a St. Louis
policy against performance of abortion in public hospitals). But cf. Colautti v. Franklin,
439 U.S. 379, 390 (1979) (striking down as vague a Pennsylvania statute that required
physicians to use an abortion technique that would provide best opportunity for fetus
to be born alive in post-viability abortion).
4
Roe, 410 U.S. at 154.
5
Planned Parenthood of Se. Pa. v. Casey, 505 U.S. 833, 837 (1992). Casey
reaffirmed that a woman has a right “to choose to have an abortion before fetal
viability and to obtain it without undue interference from the State, whose pre-viability
interests are not strong enough to support an abortion prohibition or the imposition of
substantial obstacles to the woman’s effective right to elect the procedure.” Id. at 834.
Although Casey emphasizes that the abortion decision should be a well-informed one,
the Court did not acknowledge that their decision “might have an ‘incidental effect of
increasing the cost or decreasing the availability’ of abortion.” MEZEY, supra note 2, at
262.
6
See Casey, 505 U.S. at 846, 873-74. As one commentator notes, “The ‘undue
burden’ standard [Casey] articulates grants the state more power of regulation than
did Roe, undermining the ability of adult women to exercise their right to choose with
absolute impunity.” Pammela S. Quinn, Note, Preserving Minors’ Rights After Casey:
The “New Battlefield” of Negligence and Strict Liability Statutes, 49 DUKE L. J. 297,
306 (1999).
7
Stenberg v. Carhart, 530 U.S. 914, 921, 922 (2000) (striking down
Nebraska’s partial-birth abortion ban as vague and for failure to provide an exception
for the health of the mother).
8
See cases cited supra note 3. The Roe and Casey decisions gave the states
considerable discretion to choose to enact abortion restrictions. As it is unlikely that
2008]
RESTRICTIVE ABORTION LAWS AND THE BACKLASH
1465
periods, parental consent statutes, abortion counseling bans
and gag rules are all common state restrictions.9 Although
repressive, these restrictions have been upheld under the
notion that a state may legislate to protect its “interest in
potential life,” so long as the laws preserve access to abortion
when necessary to protect the life and health of a pregnant
woman.10
Although Roe remains settled law, the re-election of
President George W. Bush, the confirmations of conservative
Supreme Court judges Chief Justice John Roberts and Justice
Samuel Alito, and the possibility of Justice Stevens’s retirement and his replacement by another conservative judge have
encouraged anti-choice activists to once again step up their
efforts to overturn Roe.11 Rather than merely limiting the
availability of abortions through the above-mentioned restrictions, lawmakers have increasingly proposed and enacted
blatantly unconstitutional legislation that fails to provide
exceptions to protect the life and health of pregnant women.12
the Supreme Court will narrow, or overrule Casey, advocates and opponents of abortion
rights have taken the abortion debate to the states.
9
See, e.g., Casey, 505 U.S. at 837-39 (upholding law requiring mandatory
waiting periods, parental consent requirements, and state-scripted counseling
requirements); Ohio v. Akron Ctr. for Health, 497 U.S. 502 (1990) (upholding an Ohio
statute requiring minors to notify one parent or obtain a judicial waiver); Rust v.
Sullivan, 500 U.S. 173 (1991) (upholding federal regulations prohibiting family
planning clinics from receiving Title X funds for counseling or giving referrals to
women regarding abortion).
10
See, e.g., Casey, 505 U.S. at 876-77, 900-01.
11
See, e.g., Douglas McCollam, Can “Roe” Survive the Arrival of Alito?,
LEGAL TIMES, Dec. 7, 2005, http://www.law.com/jsp/article.jsp?id=1133863511391;
CENTER FOR REPRODUCTIVE RIGHTS, WHAT IF ROE FELL?—THE STATE-BY-STATE
CONSEQUENCES OF OVERTURNING ROE V. WADE 7 (2004) [hereinafter WHAT IF ROE
FELL] (“A Supreme Court decision overturning Roe most likely would not by itself make
abortion illegal in the United States. Rather, such a decision would remove federal
constitutional protection for the right to choose and give each state the authority to set
its own abortion policy, including banning it outright.” (footnote omitted)), available at
http://www.reproductiverights.org/pdf/bo_whatifroefell.pdf. Some states, aware that
Roe might be in jeopardy, have considered laws that automatically outlaw abortion if
the U.S. Supreme Court reverses Roe. Id. at 13. Such “trigger laws” are designed to ban
abortion as soon as the court overturns Roe or the Constitution is amended to allow
state regulation of abortion. Id. Six states currently have trigger laws on the books. Id.
12
I refer to abortion laws such as the now-defeated South Dakota abortion
ban as unconstitutional because they fail to include an exception to preserve the health
of the woman as required under Casey and Stenberg. While South Dakota’s controversial legislation was, in a sense, an act of legislative defiance, one commentator
suggests that the legislature was acting within its rights in passing a law that so
obviously violates Supreme Court precedent:
Given the legitimacy, indeed the necessity, of the Supreme Court’s sometimes
overruling its own precedents, legislators must be able to enact some laws
that they know to be unconstitutional under existing precedent, but which
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South Dakota’s failed anti-abortion statute, the Women’s
Health and Human Life Protection Act,13 was the most
draconian of these restrictions since the Supreme Court held
that the right of privacy encompasses “a woman’s decision
whether or not to terminate her pregnancy.”14 The law, which
its backers acknowledged was designed to test Roe v. Wade in
the courts,15 forbade abortion, even in cases where pregnancy
was a result of rape or incest, or in situations in which a
would be found valid if the Court overruled those precedents. Otherwise, the
Court would never have the opportunity to reverse itself—for the simple
reason that no case challenging the prior rulings would make it into court.
Precedents would remain in force, constraining elected officials, long after the
Court was willing to overrule them. Thus, legislatures should be able to enact
“test” legislation—laws designed to test the continued vitality of some
established line of precedent.
Michael C. Dorf, Does South Dakota’s New Abortion Ban Cross the Line Between “Test”
Legislation and Defiance of the Supreme Court?, FINDLAW, Mar. 15, 2006,
http://writ.news.findlaw.com/dorf/20060315.html.
13
H.R. B. 1215, 81st Leg. Assem., 2006 S.D. Sess. Laws ch. 119 (defeated by
referrendum Nov. 7, 2006).
14
Roe v. Wade, 410 U.S. 113, 153 (1973); see Kate Michelman, Editorial,
Reproductive Rights on the Line in South Dakota, THE NATION, Oct. 22, 2006, available
at http://www.thenation.com/doc/20061106/michelman. Though the South Dakota ban
drew a large amount of attention in the 2006 elections, Ohio’s House of Representatives, on June 13, 2006, held a hearing on a bill that would, according to the its
preamble, outlaw all abortions in the state. H.R. B. 228, 126th Gen. Assem., Reg. Sess.
(Ohio 2005-2006) (bill to amend, inter alia, OHIO REV. CODE ANN. § 2919.12(A) (“No
person shall . . . (1) Perform or induce an abortion; (2) Transport another, or cause
another to be transported, across the boundary of this state or of any county in this
state in order to facilitate the other person having an abortion.”); Jim Provance,
Legislators Debate Ban on Almost All Abortions, THE BLADE (Toledo, Ohio), June 14,
2006, available at 2006 WLNR 10220639; see also Patrick Cain, Abortion Bill Exposes
Divisions in Ohio GOP—Some Say Ban Is Drastic; They Want Other States to Take on
High Costs of Battling Roe v. Wade, AKRON BEACON J., June 17, 2006, at A1; Editorial,
The Abortion Strategy, THE BLADE (Toledo, Ohio), June 22, 2006 (“The Ohio bill would
outlaw abortion even when a woman’s life is in danger. As in South Dakota, no
exceptions would be allowed for rape, incest, or health of the mother.”), available at
2006 WLNR 10772281. Though the Ohio bill was short-lived, it succeeded in pushing
the “contentious abortion debate onto the front burner in Ohio politics.” Id.
15
In an interview on MSNBC, Governor Rounds stated:
Well, I am pro-life and I do know that my personal belief is that the best way
to approach elimination of abortion is one step at a time. And I do think that
this court will ultimately take apart Roe v. Wade one-step at a time.
Personally, do I think that they’re going to step in and do a frontal attack or
accept a frontal attack? No, I don’t. But there are a lot of people in South
Dakota and across the nation that believe that it’s worth a try.
The Abrams Report: South Dakota Legislature Attacks Roe v. Wade (MSNBC television
broadcast Feb. 24, 2006), available at http://www.msnbc.msn.com/id/11542260/. The
law explicitly stated, “Nothing in this Act may be construed to subject the pregnant
mother upon whom any abortion is performed or attempted to any criminal conviction
and penalty.” S.D. H.R. 1215. Nevertheless, the South Dakota law violated existing
constitutional precedent under Roe and Casey as it failed to provide an exception for
risks to a woman’s health.
2008]
RESTRICTIVE ABORTION LAWS AND THE BACKLASH
1467
pregnancy would be dangerous to the woman’s physical and/or
mental health.16 The only exception to the abortion ban was for
cases in which the procedure was necessary “to prevent the
death of a pregnant mother.”17 The Act made the performance
of an abortion a class 5 felony and set a penalty of up to five
years in prison and a $5000 fine for performing an abortion.18
The South Dakota statute was signed into law on March 6,
2006 by Governor Mike Rounds.19
Despite the Governor’s claims to the contrary, not
everyone in South Dakota supported the Act. The South
Dakota Campaign for Healthy Families20 launched a grassroots
mobilization in order to overturn the controversial legislation.21
16
S.D. H.R. 1215; see also Monica Davey & Carolyn Marshall, South Dakota
Bans Abortion, N.Y. TIMES, Mar. 7, 2006, at A1. For a discussion of some arguments
made against exceptions in the case of rape, incest, and the health of the mother, see
infra text accompanying notes 146-153.
17
S.D. H.R. 1215.
18
Id.; Amy Goodman & Juan Gonzalez, South Dakota Votes on Most
Restrictive Abortion Law in Country: A Debate, DEMOCRACY NOW!, Nov. 3, 2006
http://www.democracynow.org/2006/11/3/south_dakota_votes_on_most_restrictive (last
visited Apr. 17, 2008).
19
Chet Brokaw, South Dakota Governor Signs Abortion Ban into Law,
ASSOC. PRESS, Mar. 6, 2006, available at http://www.truthout.org/cgi-bin/artman/exec/
view.cgi/47/18189. The legislature rejected an effort to allow South Dakotans to decide
the question in a referendum. Monica Davey, Ban on Most Abortions Advances in
South Dakota, N.Y. TIMES, Feb. 23, 2006, at A14. The legislators chose to do so in “an
effort to prevent state tax dollars from financing what is certain to be a long and
expensive court battle.” Id.
20
According to the group’s website, the South Dakota Campaign for Healthy
Families
is a coalition of concerned citizens and groups fighting the abortion ban in
South Dakota. We are a political committee registered with the South Dakota
Secretary of State and the IRS and formed in an effort to repeal HB 1215, the
ban on abortions. The Campaign is co-chaired by 14 prominent South Dakota
leaders from all corners of the state, from both political parties, young and
old, ministers, doctors, nurses, and the leader of the largest Native American
tribe.
South Dakota Campaign for Healthy Families, http://sdhealthyfamilies.org/aboutus.php (last visited Apr. 2, 2008). For press coverage of the South Dakota controversy
concerning the abortion ban, see the Campaign for Healthy Families website,
http://sdhealthyfamilies.org/ (last visited Jan. 27, 2008).
21
See Brokaw, supra note 19. See generally Kristina Wilfore, Ballot
Initiatives on the Right: 2006, PUBLIC EYE MAG., Fall 2006, at 6, available at
http://www.publiceye.org/magazine/v20n3/wilfore_ballot.html (explaining that ballot
initiatives, such as the one used by pro-choice activists in South Dakota, “allow citizens
to push for a popular vote on a key issue in their state by gathering [a required number
of] voter signatures”). A state constitutional provision dating back to 1898 allowed
South Dakota voters to put a law to referrendum if they gathered a sufficient number
of signatures (here, petitioners needed 16,728). See S.D. CONST. art. III, § 1; S.D.
CODIFIED LAWS § 12-3-1 (2007); Monica Davey, Ripples from Law Banning Abortion
Spread Through South Dakota, N.Y. TIMES, Apr. 16, 2006, sec. 1, at 14; see also Peter
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Instead of challenging the ban in the courts, and for fear of
obtaining a precedent that would uphold the law, the group
strategically sought to refer the state abortion ban to the
November ballot.22 Although the voters of South Dakota
ultimately struck down the statute,23 it is unlikely that this will
be the last time that the states attempt to enact such an
extensive and oppressive ban on abortions.24
This premise is evidenced by the fact that South Dakota
was the first but not the only state to consider very severe
abortion restrictions in 2006.25 Legislators in numerous states
introduced bans similar to the one overturned in South
Dakota,26 while other states enacted abortion restrictions such
as waiting periods, parental and spousal notification laws, and
prohibitions against late-term abortions.27 This flurry of state
Slevin, S. Dakota Becomes Abortion Focal Point, WASH. POST, Aug. 28, 2006, at A1. The
campaign collected more than twice the required amount of signatures by the June 19,
2006 deadline to get the issue on the ballot. See Laura Vanderkam, Op-Ed., A Civil
Abortion Debate?, USA TODAY, Nov. 7, 2006, at 13A (“South Dakota’s referendum
represents one of the few times since 1973 . . . that voters have gotten to debate the
[abortion] question directly at the polls.”).
22
See Davey, supra note 21; Slevin, supra note 21; Judy Keen, Abortion Ban
Looms Large on S.D. Ballot, USA TODAY, Oct. 26, 2006, at 3A (noting that if the ban
had succeeded at the polls, Planned Parenthood planned to challenge the legislation in
the courts).
23
Ballot Initiatives: Pay Me More, Don’t Let Them Wed, The ECONOMIST,
Nov. 11, 2006, at 79. The voters struck down the measure 56% to 44%. Id.
24
See supra note 14 (describing Ohio’s attempt to enact an abortion ban
similar to the South Dakota ban).
25
Evelyn Nieves, S.D. Abortion Bill Takes Aim at ‘Roe,’ WASH. POST, Feb. 23,
2006, at A1.
26
Alabama, Arkansas, Georgia, Indiana, Kentucky, Louisiana, Mississippi,
Missouri, Ohio, Oklahoma, South Carolina, Tennessee, and West Virginia introduced
similar bans. Lisa Casey Perry, Attacks on Reproductive Rights Spread to 14 States,
PEOPLE’S WEEKLY WORLD, June 27, 2006. For example, Louisiana enacted legislation
banning abortion if Roe v. Wade is overturned. SB 33, 2006 La. Sess. Law Serv. 06RS
271 (West). Further, according to the Center for Reproductive Rights, in 2006
Louisiana enacted a ban on abortions in all stages of pregnancy except to avert
“substantial risk of death due to a physical condition, or to prevent the serious,
permanent impairment of a life-sustaining organ of a pregnant woman.” CENTER FOR
REPRODUCTIVE RIGHTS, 2006 MID-YEAR REPORT, http://www.crlp.org/st_leg_summ_
midyear_06.html [hereinafter 2006 MID-YEAR REPORT]. Also, Mississippi attempted
unsuccessfully to outlaw all abortions, providing exceptions only to save the life of the
pregnant woman or in cases of rape or incest. Id. Under Ohio’s proposed abortion ban,
discussed supra note 14, pregnant women could be charged with a felony for leaving
Ohio to have an abortion and doctors could face second-degree felony charges for
assisting in the procedure. Id.
27
The Center for Reproductive Rights report described legislative efforts in
2005 and 2006 as follows:
The Center also tracked fifteen bills in six states which attempt to restrict
so-called ‘partial birth abortions’. . . . Since the beginning of the 2006
legislative session, the Center has monitored ninety-two biased counseling
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RESTRICTIVE ABORTION LAWS AND THE BACKLASH
1469
restrictions and the contentious nature of the abortion debate
heighten the likelihood that the Supreme Court could once
again choose to reexamine its holding in Roe v. Wade.28 As
noted by retired Supreme Court Justice Sandra Day O’Connor,
“No one, it seems, considers the Supreme Court decision in Roe
v. Wade to have settled the issue for all time.”29
and/or mandatory delay bills introduced in thirty-nine states. . . . These
proposed laws used many different strategies, including a mandatory 24-hour
“reflection period” after counseling, written consent, coercion screening, and
mandatory receipt of information on the “medical and psychological risks of
abortion.” Moreover, lawmakers in West Virginia introduced a law that
would require medical facilities to warn women seeking an abortion of an
increased risk of breast cancer. Three biased counseling and/or mandatory
delay bills were enacted this legislative session and two were vetoed. . . .
Fetal pain provisions account for twenty-eight of the ninety-two biased
counseling/mandatory delay bills introduced this session. The majority of
these bills would require that the state’s informed consent materials be
amended to include information that the fetus has the capacity to feel pain at
a specified point in gestation. . . .
Seventy-nine bills have been introduced or carried over from the 2005
session dealing with minor’s access to abortion, contraception, and health
care. The Center also tracked eleven bills that would make it more difficult
for minors to access contraceptives. The majority of this legislation either
sought to require minors to secure parental consent before filling a
prescription for contraceptives or require a pharmacist to notify a parent
before filling a prescription for contraceptives. While none of these bills have
been enacted at this point in the session, they were introduced in seven
states and New York’s bill is still pending . . . .
While many state legislatures have sought to use public money to fund
crisis pregnancy centers during the 2006 session, they have also introduced
legislation to further restrict the use of public money to fund abortions for
low income women. At this point in the legislative session twenty-two bills
have been introduced in ten states that seek to prohibit or restrict the use of
state public funds to pay for abortions for low income women.
2006 MID-YEAR REPORT, supra note 26.
28
Though it was only seven years ago when the Supreme Court invalidated
Nebraska’s so-called ‘partial birth’ abortion ban in Stenberg v. Carhart, Congress
nevertheless enacted the Partial Birth Abortion Ban Act of 2003 (“PBABA”)—a federal
statute similar to that in Stenberg, that also failed to provide an exception for the
health of the mother. David Masci & Jon Shimabukuro, The Supreme Court Revisits
the Partial Birth Abortion Issue, Gonzales v. Carhart and Gonzales v. Planned
Parenthood, LEGAL BACKGROUNDER, Pew Forum on Religion & Public Life (Nov. 2006),
http://pewforum.org/publications/reports/partial-birth-abortion.pdf. On April 18, 2007,
the Supreme Court held in a 5-4 decision that the statute does not violate the
Constitution. Gonzales v. Carhart, 127 S. Ct. 1610, 1638-39 (2007). Justice Kennedy
wrote for the majority, which included Justices Alito, Thomas, Scalia, and Chief Justice
Roberts. Id. at 1618. Justice Ginsburg wrote for the dissent, which included Justices
Breyer, Souter, and Stevens. Id.
29
Dennis J. Hutchinson, Bench Press, N.Y. TIMES, June 29, 2003, § 7
(reviewing SANDRA DAY O’CONNOR, THE MAJESTY OF THE LAW: REFLECTIONS OF A
SUPREME COURT JUSTICE (2003)). Notably, it was Justice O’Connor who, in writing for
the Casey plurality, articulated the more deferential “undue burden” standard. See
Casey, 505 U.S. 833, 874-79 (1992).
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In light of changes to the Supreme Court’s composition
and increased advocacy in opposition to abortion, it is quite
possible that the Court could overturn Roe, or affirm even more
severe state restrictions on abortion.30 Consequently, it is
important to examine the implications of state legislation that
hinder a woman’s right to obtain an abortion.31 Though prochoice activists were successful in mobilizing South Dakota
voters to overturn the proposed abortion ban, states can and
will continue to enact legislation that curtails reproductive
choice.32 Therefore, this Note will explore the effects of current
state abortion laws on women seeking abortions in an effort to
analyze the reemergence of the abortion “underground railroad”—the means by which women travel to other states and
communities in order to obtain abortions and/or contraceptives
that are either unavailable or incredibly difficult to obtain in
their home states.33 Such an “underground railroad” is frighteningly reminiscent of the pre-Roe years when women sought
and obtained unsafe and unsanitary abortions both because of
and despite their illegality.34 Though a number of feminist
30
See supra text accompanying note 11.
Roe’s reversal would allow states to create abortion policy as they see fit.
“Given the variations in law and political climates in the 50 states, the overturning of
Roe would result in a patchwork of rights in which women seeking abortions would be
strongly protected in some states and completely denied the right in others, with
different levels of protection in between.” WHAT IF ROE FELL, supra note 11, at 7.
32
See supra notes 26-32 and accompanying text.
33
Debbie Nathan, The New Underground Railroad, N.Y. MAG., Dec. 12,
2005, available at http://nymag.com/nymetro/news/features/15249/index.html. I refer to
the “re-emergence” of the underground abortion railroad because these networks
existed prior to 1973, when abortion was still illegal. During the 1960s, two
underground networks emerged—the Society for Humane Abortion in California and
the Jane Collective in Chicago—whereby women were able to obtain illegal abortions.
See Chicago Women’s Liberation Union Herstory Project Website, http://
www.cwluherstory.org/featured-history/index.php (last visited March 19, 2008)
[hereinafter CWLU Website]. See generally LESLIE J. REAGAN, WHEN ABORTION WAS A
CRIME: WOMEN, MEDICINE, AND LAW IN THE UNITED STATES, 1867-1973 (1997),
available at http://ark.cdlib.org/ark:/13030/ft967nb5z5/. In 1969, a group of women in
Chicago began providing abortions through an illegal, underground network officially
known as the Abortion Counseling Service of Women’s Liberation, which was referred
to in code as “Jane.” The group, which was patterned after the Underground Railroad,
provided more than 11,000 safe abortions between 1969 and 1973. See CWLU Website.
34
See REAGAN, supra note 33, at 223. Another commentator describes the
pre-Roe years as follows:
31
While the problem of unintended pregnancy spanned all strata of society, the
choices available to women varied before Roe. At best, these choices could be
demeaning and humiliating, and at worst, they could lead to injury and
death. Women with financial means had some, albeit very limited, recourse
to a legal abortion; less affluent women, who disproportionately were young
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RESTRICTIVE ABORTION LAWS AND THE BACKLASH
1471
commentaries have discussed “underground movements” in
reference to issues including abortion,35 domestic violence,36 and
female genital mutilation,37 to date no legal scholar has argued
that laws which uniquely impact the lives of women often
result in movements underground and that such movements
therefore deserve greater attention from legislatures.
This Note will argue that women who move underground are typically reacting to gendered laws38 that fail to
acknowledge women’s interests in their own bodily integrity.
When state legislators fail to appreciate the likelihood that
their laws will result in underground movements, they relegate
women to a position of second-class citizenship, placing
women’s bodies and lives in danger. This Note will further
argue that legislatures oftentimes deliberately ignore and/or
fail to investigate the statistical, historical, and anecdotal
evidence that underground movements have in the past
emerged in response to newly enacted abortion restrictions,
and will continue to do so in the future. The mere likelihood
that a law will be evaded does not necessarily suggest that it
should be subject to a validity challenge; however, laws that
uniquely impact women, abortion laws in particular, deserve
careful scrutiny because the evasion of such laws will result in
the physical injuries and deaths of large numbers of women.
Such a result violates the constitutional mandate of Equal
Protection under the Fourteenth Amendment.39 This Note will
and members of minority groups, had few options aside from a dangerous
illegal procedure.
Rachel Benson Gold, Lessons from Before Roe: Will Past Be Prologue?, in GUTTMACHER
REPORT ON PUBLIC POLICY, Mar. 2003, at 8, available at http://www.guttmacher.org/
pubs/tgr/06/1/gr060108.html.
35
See generally Benson Gold, supra note 34; CWLU Website, supra note 33;
LAURA KAPLAN, THE STORY OF JANE: THE LEGENDARY UNDERGROUND FEMINIST
ABORTION SERVICE (1995).
36
See generally G. Kristian Miccio, Notes from the Underground: Battered
Women, the State, and Conceptions of Accountability, 23 HARV. WOMEN’S L.J. 133
(2000).
37
See generally Karen Hughes, The Criminalization of Female Genital
Mutilation in the United States, 4 J.L. & POL’Y 321 (1995).
38
Gendered laws are laws that apply to only one sex or laws that apply
differently to one sex than the other. Conversely, gender-neutral laws are laws that
apply equally to men and women. Despite the differences between the two, sex
discrimination can be present in either type of law.
39
The Fourteenth Amendment establishes that no state may deny persons
the equal protection of the laws. U.S. CONST. amend. XIV, § 1. As noted by one
commentator:
The Equal Protection Clause prohibits laws that ban abortion for these
reasons. First, an assertedly benign interest in protecting unborn life cannot
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therefore suggest that abortion advocates will best serve their
goals of making abortion safe, rare, and available through the
introduction of evidence regarding the deaths, injuries, and
frequency of abortion resulting from such movements in the
United States and elsewhere. If legislatures then still proceed
to enact restrictive laws, abortion advocates will have no
alternative but to make underground networks more accessible
and to ensure the safety of underground abortions.
Part II of this Note will describe restrictive anti-choice
legislation that has been proposed in the states. An examination of the varying and increasing number of such laws will
suggest that the South Dakota law was a natural progression
from these types of restrictions. Part III will analyze South
Dakota’s failed abortion ban and will question how fully or
fairly the lawmakers considered the medical, social and
personal implications of the abortion ban. Though voters
ultimately rejected the ban, an analysis of the legislative
history of the defeated ban will illustrate the failure on the
part of the legislature to explore the implications of the law
and the likelihood that it would result in an underground
movement. In Part IV, this Note will address the negative
effects that restrictive laws have on women seeking abortions,
with particular attention paid to the development of the
modern-day underground railroad whereby women travel to
states with more liberal laws to obtain abortions. Part V, then,
will offer a brief comparative analysis of abortion laws in
save an abortion ban from claims of sex discrimination if government recites
woman-protective justifications to secure the statute’s enactment. Equal
protection cases prohibit government from pursuing a discriminatory
purpose, not only when a discriminatory purpose is the sole purpose for the
challenged action, but also when that purpose is a “motivating factor” for the
challenged action. . . .
Second, under the Constitution, citizens are free to embrace traditional
gender-differentiated family roles, but government may no longer enforce
these roles, as it did for centuries. . . .
Third, these constitutional constraints on the way government can regulate
women’s roles apply equally to the regulation of pregnant women, whether
we treat the regulation of pregnant women as facially neutral or sex based
within the Court’s reasoning in Geduldig v. Aeillo. Laws regulating pregnant
women are unconstitutional if enforcing constitutionally proscribed views of
women was a motivating factor in the law’s enactment. If a law regulating
pregnant women reflects or attempts to enforce stereotypes about women’s
family roles, it violates the Equal Protection Clause, as the Court recently
demonstrated in Nevada Department of Human Resources v. Hibbs.
Reva B. Siegel, David C. Baum Memorial Lecture: The New Politics of Abortion: An
Equality Analysis of Woman-Protective Abortion Restrictions, 2007 U. ILL L. REV. 991,
1040, 1042-43 (footnotes and paragraph break omitted).
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RESTRICTIVE ABORTION LAWS AND THE BACKLASH
1473
other countries with particular attention paid to the rates of
abortions in countries where the procedure is illegal or severely
restricted. Finally, Part VI will conclude and will offer several
suggestions as to how to best avoid the increasing necessity of
the underground abortion movement.
II.
ANTI-CHOICE LEGISLATION IN THE STATES
Abortion remains a politically divisive issue within the
United States and the world, with activists on both sides of the
debate advocating for legislation that supports their respective
arguments. Notably, the anti-abortion movement has gained
considerable support since Roe and Casey were decided by the
Supreme Court. Abortion opponents, dismayed by the Court’s
unwillingness to overrule Roe, have adopted an incrementalist
strategy, whereby instead of “trying to make abortion illegal”
they are “trying to make it impossible.”40 Legislation has
included mandatory waiting periods before an abortion may be
performed, parental-consent and parental notification laws,
and refusal laws that allow doctors and hospitals to decline to
perform abortions.41 Other restrictions, such as requirements
that abortions be performed in a hospital after a certain point
in the pregnancy or that a second doctor be present for the
procedure, “add to the cost and affect the availability of
abortion.”42 So too, do restrictions on public funding of abortions
and on private insurance availability.43 Other abortion restrictions come in the form of laws that allow doctors to refuse to
perform abortions, bans on late term abortions, and postviability restrictions.44
The impetus to enact such an array of abortion
restrictions has only increased during the past decade.45 The
rightward political shift throughout the federal bench during
the Bush administration has increasingly influenced antiabortion activists and legislators to test the staying power of
40
Heather A. Smith, Comment, A New Prescription for Abortion, 73 U. COLO.
L. REV. 1069, 1075 (2002).
41
See infra Part II.A-C.
42
Christine Vestal, States Probe Limits of Abortion Policy, STATELINE,
June 11, 2007, at 15, http://archive.stateline.org/weekly/Stateline.org-Weekly-OriginalContent-2007-06-11.pdf.
43
Id.
44
Id.
45
See supra notes 11 and 27 and accompanying text.
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the Supreme Court’s 1973 Roe decision.46 Roe’s reversal would
clear the way for a state-by-state battle over whether, and
under what circumstances, abortion could remain legal.47 Even
though Roe remains good law, and the right to an abortion is
guaranteed, obtaining an abortion in some states is quite
difficult as local laws, culture, and politics create widely
varying experiences for women seeking to end their pregnancies.48 Existing abortion restrictions such as mandatory
delay laws, parental notification and consent laws, and refusal
laws already may be having the effect that many women
seeking abortions are forced into bearing unwanted children or
resorting to the “abortion underground.” The following sections
will briefly explore the impact of such legislation in these
states.
A.
Mandatory Delay Laws
In Casey, the Supreme Court held that mandatory
delay laws, though clearly designed to discourage abortions,49
do not pose a “substantial” obstacle as they do not eliminate
a woman’s right to obtain an abortion.50 One commentator
46
See supra note 11. Although the recent changes in the composition of the
Supreme Court have influenced state legislatures to renew and/or strengthen their
efforts to enact laws that limit a woman’s right to obtain an abortion, such legislation
is by no means novel. In fact, “within two years after Roe was decided, thirty-two states
enacted a total of sixty-two abortion-related laws.” MEZEY, supra note 2, at 227.
47
WHAT IF ROE FELL, supra note 11 at 7.
48
See Vestal, supra note 42; Nadine Strossen, Women’s Rights Under Siege,
73 N.D. L. REV. 207, 223 (1997) (“[S]tate and local governments have been imposing
onerous restrictions that, for all practical purposes, make abortion unavailable to many
women in our society, especially young women, poor women, and women who live far
away from abortion services.”); see also Benson Gold, supra note 34 (predicting that the
pre-Roe cultural factors that impeded access to abortion for many women may recur
should states regain regulatory authority); supra text accompanying notes 42-46.
49
See Strossen, supra note 48, at 220-28; see also Ted Joyce & Robert
Kaestner, The Impact of Mandatory Waiting Periods and Parental Consent Laws on the
Timing of Abortion and State of Occurrence Among Adolescents in Mississippi and
South Carolina, 20 J. POL’Y ANALYSIS & MGMT. 263 (2001) (finding that although the
overall abortion rate declined in Mississippi after the enactment of a mandatory delay
law, the proportion of procedures that were performed in the second trimester
increased by fifty-three percent among women whose closest provider was in-state).
50
Casey, 505 U.S. at 887. For an analysis of whether the Casey undue burden
standard has meaningfully protected a woman’s right to an abortion, see Linda J.
Wharton et al., Preserving the Core of Roe: Reflections on Planned Parenthood v. Casey,
18 YALE J.L. & FEMINISM 317 (2006). The authors assert that “mandatory waiting
periods . . . proliferated across the United States in the years following Casey. Although
these laws were on the books in approximately thirteen states prior to Casey, they were
not being enforced because they had been ruled constitutionally invalid in 1983.” Id.
at 319-20 n.9 (citations omitted).
2008]
RESTRICTIVE ABORTION LAWS AND THE BACKLASH
1475
described certain members of the Court’s willingness to uphold
state abortion restrictions as follows: “To complain about
having to wait an extra day, as the three justices saw it, was to
insist upon ‘abortion on demand.’”51 Accordingly, it comes as no
surprise that twenty-four states currently enforce mandatory
delay laws that require a woman to wait a certain number of
hours or days after receiving state-mandated information
drafted to discourage abortion.52 Such requirements do not
serve any health purpose, but instead exist at the behest of
legislatures that seek to discourage abortion through the
creation of obstacles to access.53 In fact, the American Medical
Association (“AMA”), the leading national physicians organization, found that mandatory delay laws “increase the
gestational age at which the induced pregnancy termination
occurs, thereby also increasing the risk associated with the
procedure.”54 As noted by numerous commentators and
advocates, these requirements are especially harsh for low51
Chris Whitman, Looking Back on Planned Parenthood v. Casey, 100 MICH.
L. REV. 1980, 1988 (2002).
52
GUTTMACHER INSTITUTE, STATE POLICIES IN BRIEF: AN OVERVIEW OF
ABORTION LAWS (Apr. 1, 2008), available at http://www.guttmacher.org/statecenter/
spibs/spib_OAL.pdf [hereinafter OVERVIEW OF ABORTION LAWS]; Mandatory Delays and
Biased Information Requirements (Dec. 9, 2005) (Center for Reprod. Rights, New York,
N.Y.), http://www.reproductiverights.org/pub_fac_manddelay1.html.
53
See Joyce & Kaestner, supra note 49; see also Jonathan Klick, Mandatory
Waiting Periods for Abortions and Female Mental Health, 16 HEALTH MATRIX 183, 186,
(2006). In describing the debate over mandatory delays, Klick notes that “[s]upporters
of mandatory delays suggest that women who make rash, irreversible decisions about
their pregnancies often regret those decisions.” Id. They assert that “waiting periods
should improve the mental health of women with unwanted pregnancies by giving
them a chance to reflect on their decisions.” Id. On the other hand, opponents of
mandatory delay laws argue that such legislation causes “delays in securing an
abortion” and “[i]n some cases, they argue, the delays will actually be harmful to a
woman’s mental health as she is forced to second-guess her decision potentially leading
to depression.” Id.
54
Council on Scientific Affairs, American Medical Association, Induced
Termination of Pregnancy Before and After Roe v. Wade: Trends in the Mortality and
Morbidity of Women, 268 JAMA 3231, 3238 (1992); see also Chinué Turner Richardson
& Elizabeth Nash, Misinformed Consent: The Medical Accuracy of State-Developed
Abortion Counseling Materials, 9 GUTTMACHER POL’Y REV. 4, 7 (2006), available at
http://www.guttmacher.org/pubs/gpr/09/4/gpr090406.pdf (noting that the AMA “has
long opposed any legislative measure that would require ‘procedure-specific’ informed
consent”). Women who encounter mandatory-delay laws are often forced to seek later
abortions. The study by Joyce and Kaestner, found that after a law requiring women to
make two trips to the clinic took effect in Mississippi, the proportion of abortions
performed after the first trimester increased by forty percent. This is particularly
problematic considering the fact that pushing an abortion into the second trimester
makes what would have been a routine procedure more complicated, risky, and
expensive. See Joyce & Kaestner, supra note 49; ACLU, Government-Mandated
Delays Before Abortion (Jan. 15, 2003), http://www.aclu.org/reproductiverights/abortion/
16397res20030115.html [hereinafter ACLU, Government-Mandated Delays].
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income women, underage girls, and women who live in rural
areas, and they fail to address the reasons why women seek
abortions.55 Moreover, critics have argued that the mandatory
counseling and waiting period legislation treats women as
though they are “incapable of autonomous choice.”56
B.
Parental Involvement Laws
In addition to their decision to uphold mandatory delay
laws, the Supreme Court in Casey also held that states have an
interest in ensuring that minors are protected from making
immature decisions, and affirmed states’ rights to pass certain
types of regulations that foster parental involvement in a
minor’s decision to have an abortion.57 Currently, thirty-five
states have laws in effect requiring either parental consent or
notification,58 while courts in nine other states have rejected
55
See ACLU, Government-Mandated Delays, supra note 54; 2006 MID-YEAR
REPORT, supra note 26; Klick, supra note 53; Wharton et al., supra note 50.
56
John A. Robertson, Reproductive Technology in Germany and The United
States: An Essay in Comparative Law and Bioethics, 43 COLUM. J. TRANSNAT’L L. 189,
202 (2004).
57
See Casey, 505 U.S. at 895 (“[O]ur judgment that [notification restrictions
for minors] are constitutional [is] based on the quite reasonable assumption that
minors will benefit from consultation with their parents and that children will often
not realize that their parents have their best interests at heart.”). Unlike the Court’s
decision in Planned Parenthood v. Danforth, holding that “[a]ny independent interest
the parent may have in the termination of the minor daughter’s pregnancy is no more
weighty than the right of privacy of the competent minor mature enough to have
become pregnant,” 428 U.S. 52, 75 (1976), Casey is far less lenient, reflecting the
Court’s unwillingness to trust in a minor’s decision. See id. “[T]he Court has not
wavered from its belief in these interconnected assumptions about teen decisional
incapacity and the ameliorative effect of parental engagement, using this belief to
justify limiting the reproductive rights of young women.” J. Shoshanna Ehrlich,
Grounded in the Reality of Their Lives: Listening to Teens Who Make the Abortion
Decision Without Involving Their Parents, 18 BERKELEY WOMEN’S L.J. 61, 65 (2003);
see Christine Vestal, Calif., Ore. Voters to Decide Parental Notice, STATELINE, Oct. 19,
2006, at 9, http://archive.stateline.org/weekly/Stateline.org-Weekly-Original-Content2006-10-16.pdf.
58
GUTTMACHER INSTITUTE, ST. POLICIES IN BRIEF: PARENTAL INVOLVEMENT
IN MINORS’ ABORTIONS 1 (2008), available at http://www.agi-usa.org/statecenter/spibs/
spib_PIMA.pdf; Teresa Stanton Collett, Transporting Minors for Immoral Purposes:
The Case for the Child Custody Protection Act & the Child Interstate Abortion
Notification Act, 16 HEALTH MATRIX 107, 113 n.18 (2006) (citing the following state
laws: ALA. CODE §§ 26-21-2 to -4 (1992); ALASKA STAT. §§ 18-16.010 to -16.030 (2004);
ARIZ. REV. STAT. ANN. § 36-2152 (2003); ARK. CODE ANN. §§ 20-16-801 to -804 (2000);
CAL. HEALTH & SAFETY CODE § 123450 (West 1996); COLO. REV. STAT. §§ 12-37.5-101
to -108 (2004); DEL. CODE ANN. tit. 24, § 1783 (1997); FLA. STAT. § 390.01114 (2005);
GA. CODE ANN. § 15-11-112 (2001); IDAHO CODE ANN. §§ 18-609, 18-609A (2004); 750
ILL. COMP. STAT. 70/15 (West 2005); IND. CODE § 16-34-2-4 (1997); IOWA CODE
§§ 135L.1-L.6 (West 1997); KAN. STAT. ANN. § 65-6705 (2002); KY. REV. STAT. ANN.
§ 311.732 (West 2004); LA. REV. STAT. 40.1299.35 (2008); ME. REV. STAT. ANN. tit. 22,
§ 1597-A (2004); MD. CODE ANN. [HEALTH-GEN.] § 20-103 (LexisNexis 2005); MASS.
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RESTRICTIVE ABORTION LAWS AND THE BACKLASH
1477
such statutes as violating the privacy and equal-protection
clauses in their state constitutions.59 In fact, all but five states
have passed some type of parental involvement law.60 Though
judicial bypass procedures allow for mature and well-informed
minors to legally circumvent parental involvement laws,61
statistical and anecdotal evidence suggest that minors often
cross state lines to evade parental notification or consent
requirements.62 Further, commentators have correctly criticized
GEN. LAWS ch. 112, § 12S (2003); MICH. COMP. LAWS ANN. §§ 722.901-.904 (West 2003);
MINN. STAT. ANN. §144.343 (2005); MISS. CODE ANN. §§ 41-41-51 to -59 (West
1999); MO. REV. STAT. § 188.028 (2004); MONT. CODE ANN. §§ 50-20-202 to -212
(West 2005); NEB. REV. STAT. §§ 71-6901 to -6902 (2003); NEV. REV. STAT. § 442.255
(2004); N.H. REV. STAT. §§ 132:24-:26 (Supp. 2004) (repealed June 29, 2007); N.J. STAT.
ANN. §§ 9:17A-1 to -1.6 (West 2005); N.M. STAT. ANN. § 30-5-1 (LexisNexis 2003); N.C.
GEN. STAT. §§ 90-21.6 to -21.7 (2003); N.D. CENT. CODE § 14.02.1-03 (2004); OHIO REV.
CODE ANN. § 2919.121 (West. Supp. 2005); OKLA. STAT. tit. 63, § 1-740; 18 PA. CONS.
STAT. ANN. § 3206 (West 2000); R.I. GEN. LAWS § 23-4.7-6 (2001); S.C. CODE ANN. § 4441-30 (2002); S.D. CODIFIED LAWS § 34-23A-7 (1994); TENN. CODE ANN. §§ 37-10-301 to
-303 (2001); TEX. FAM. CODE ANN. §§ 33.001-.011 (Vernon 2002); UTAH CODE ANN. § 767-304(2) (2003); VA. CODE ANN. § 16.1-241 (2003); W. VA. CODE § 16- 2F-3 (2003); WIS.
STAT. ANN. § 48.375 (2004); WYO. STAT. ANN. § 35-6-118 (2005)).
59
Vestal, supra note 57 (identifying Alaska, California, Idaho, Illinois,
Montana, Nevada, New Hampshire, New Jersey, and New Mexico); see also Stanton
Collett, supra note 58, at 114 n.19.
60
Stanton Collett, supra note 58, at 113 n.18 (noting that the only states
without such laws are Hawaii, New York, Oregon, Vermont, and Washington.).
61
The Supreme Court has upheld state parental consent or notification
statutes so long as the statute contains a mechanism to bypass parental involvement.
See Lambert v. Wicklund, 520 U.S. 293 (1997); Casey, 505 U.S. 833 (1992); Planned
Parenthood Assoc. of Kansas City, Mo. v. Ashcroft, 462 U.S. 476 (1983); Bellotti v.
Baird, 443 U.S. 622 (1979). But see Adam Liptak, On Moral Grounds, Some Judges Are
Opting Out of Abortion Cases, N.Y. TIMES, Sept. 4, 2005, at § 1 (noting that judges who
morally or religiously oppose abortion are opting out of their duty to hear abortion
cases in states where the law requires a minor to have parental consent or to seek a
judicial bypass before she can legally obtain an abortion). Such refusals by judges are
certainly problematic. It has been recognized that “[m]eaningful access to a judicial
bypass protects some of [the] most vulnerable minors.” Shelia Cheaney & Laura Smith,
Staying Open: How Restricting Venue in Texas’s Judicial Bypass Cases Would Hurt
Minors and Violate the Constitution, 9 SCHOLAR 45, 47, 65 (2006) (discussing Texas law
as it relates to judicial bypass procedures).
62
The Council on Ethical and Judicial Affairs notes:
Because the need for privacy may be compelling, minors may be driven to
desperate measures to maintain the confidentiality of their pregnancies.
They may run away from home, obtain a “back-alley” abortion, or resort to
self-induced abortion. The desire to maintain secrecy has been one of the
leading reasons for illegal abortion deaths since the U.S. Supreme Court
decided the existence of a constitutional right to abortion in 1973.
Council on the Ethical and Judicial Affairs, Mandatory Parental Consent to Abortion,
269 JAMA 82, 83 (1993); see also Helena Silverstein & Leanne Speitel, “Honey, I Have
No Idea”: Court Readiness to Handle Petitions to Waive Parental Consent for Abortion,
88 IOWA L. REV. 75, 77 (2002) (finding that Alabama’s parental consent statute and its
judicial waiver process failed to secure the rights of pregnant minors). But cf. Cheaney
& Smith, supra note 61, at 47 n.8 (citing a 1992 study by Stanley K. Henshaw and
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such laws because they compromise the health and safety of
minors seeking abortions, and they unnecessarily delay the
procedure.63 Numerous medical organizations—including the
American Medical Association, the American Academy of
Pediatrics, the Society for Adolescent Medicine, the American
College of Obstetricians and Gynecologists, and the American
Public Health Association—also oppose such legislation and
instead support confidential health care for minors.64 Parental
consent laws unquestionably encourage minor women to seek
abortions in other states without such requirements,65 as
evidenced by Congressional efforts to enact legislation prohibiting such maneuvers.66 Such legislation will not likely deter
Kathryn Kost concluding that “in states devoid of parental involvement laws,
approximately seventy-five percent of teens seeking abortions had told their parents
about the pregnancy.”).
63
See Layla Summers, Note, The Future of the Abortion Right: Ayotte v.
Planned Parenthood & the Roberts’ Court, 5 WHITTIER J. CHILD & FAM. ADVOC. 669,
682-83 (2006) (arguing that parental consent/notice laws deny “the ‘reality of
adolescent sexual activity’,” and, “can compromise the health and safety of a minor
seeking an abortion by delaying the procedure”).
64
2005 Child Interstate Abortion Notification Act: Hearing on H.R. 748 Before
the Subcomm. on the Constitution, H. Comm. on the Judiciary, 109th Cong. 8 (2005)
[hereinafter CIANA Hearing] (opening statement of Rep. Steve Chabot, Chairman,
Subcomm. on the Constitution).
65
In Pennsylvania, where the parental consent law went into effect in March
1994, the number of teen-agers terminating pregnancies dropped from 4037 in 1992 to
3276 in 1994 according to a spokesman for the Pennsylvania Department of Health.
Teen-Agers Cross State Lines in Abortion Exodus, N.Y. TIMES, Dec. 18, 1995, at 6. Such
numbers, though, must be examined in light of the reality that many teenagers simply
resorted to out-of-state abortion clinics. According to one commentator:
There are some indications that taking minors across state lines to avoid
parental knowledge or consent is a significant problem. For example, after
the Pennsylvania Abortion Control Act was implemented, officials at clinics
in New Jersey and New York noted an increase in the number of Pennsylvania patients: “At the South Jersey Women’s Center in Cherry Hill, the
percentage of patients from Pennsylvania more than tripled over [ten]
months, from 7 percent in January 1995 to about 25 percent in October, said
George Dainoff, the clinic’s medical director.” A significant increase was also
reported by the administrator of Southern Tier Women’s Services in Vestal,
New York.
Stanton Collett, supra note 58, at 115.
66
See Child Custody Protection Act (“CCPA”), S. 403, 109th Cong. (2006).
The CCPA would make it a federal crime to circumvent a homestate law requiring
notification or consent of one or both parents prior to an abortion by transporting a
minor across state lines to obtain an abortion. The Child Interstate Abortion
Notification Act (“CIANA”) “would make it a federal offense to . . . circumvent . . . a
valid state parental consent or notification law by knowingly transporting a minor
across a state line with the intent that she obtain an abortion.” The CIANA “builds on
the [CCPA] by also requiring that an abortion provider,” before performing an abortion
on a minor resident of a different state, “notify a parent, or if necessary a legal
guardian.” CIANA Hearing, supra note 64. Opponents of the CCPA have noted that
laws that require parental consent could cause minors harm. Among minors who did
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young women from obtaining abortions. Instead, if young
women are unable to travel out of state, they will likely resort
to illegal abortions.67
C.
Refusal Laws
The negative impact that mandatory delay laws and
parental involvement laws have on women is further
compounded by the fact that doctors and hospitals are increasingly unwilling to perform abortions.68 In fact, eighty-seven
percent of all counties in the United States do not have a single
abortion provider.69 Forty-six states currently have refusal
laws, which allow doctors and healthcare providers to opt out of
performing or assisting in abortions on the grounds that they
conflict with the provider’s religious beliefs, and which allow
pharmacists to refuse to provide contraceptives to women
seeking them.70 Though such legislation varies amongst the
not tell a parent of their abortion, thirty percent had experienced violence in their family
or feared violence or being forced to leave home. For example, in Idaho, a 13-year-old girl
named Spring Adams was shot to death by her father after he learned that she planned
to terminate a pregnancy caused by his acts of incest. Margie Boule, An American
Tragedy, SUNDAY OREGONIAN, Aug. 27, 1989, at E1.
67
Summers, supra note 63, at 686 n.126 describes one such situation where a
minor, seeking to avoid a parental notice provision, had an illegal abortion:
In 1988, Indiana teenager Becky Bell, was confronted with an unplanned
pregnancy. She visited a clinic where the staff told her that under Indiana
law, she would need to tell her parents that she planned to have an abortion.
When clinic staff explained the judicial bypass procedure to her she said, “If I
can’t tell my mom and dad, how can I tell a judge who doesn’t even know
me?” A neighboring state that did not have a parental involvement law was
too far away for her to travel to. Instead, she had an illegal abortion under
unsanitary conditions. Six days later, she died. Her parents believe that the
parental consent law in Indiana was responsible for her death.
Id. (citations omitted). For more stories, including more about Becky Bell, see http://
www.prochoice.org/about_abortion/stories/parental_involvement.html (last visited Apr.
8, 2008).
68
Moreover, in some instances hospitals have refused to treat rape victims
with the morning after pill. Strossen, supra note 48, at 224. Pharmacists’ refusals to
provide contraceptives is particularly problematic considering the reality that
contraceptives and emergency contraception can dramatically reduce the number of
unintended pregnancies and abortions. NARAL Pro-Choice America Foundation,
Emergency Contraception Can Help Reduce the Teen-Pregnancy Rate, at 1 (2007),
available at http://www.prochoiceamerica.org/assets/files/Birth-Control-EC-teens.pdf.
69
See Guttmacher Institute, Facts in Brief: Induced Abortion in the United
States (2006), http://www.guttmacher.org/pubs/fb_induced_abortion.pdf (last visited
Apr. 8, 2008) [hereinafter Induced Abortion].
70
Guttmacher Institute, State Policies in Brief: Refusing to Provide Health
Services 1 (Apr. 1, 2008), available at http://www.guttmacher.org/statecenter/spibs/
spib_RPHS.pdf. “All states except Alaska, New Hampshire, Vermont, and West
Virginia allow doctors to refuse to perform abortions; and all states except Alaska, New
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states, refusal clauses generally allow health care providers
and institutions to refuse “to provide, pay for, or make referrals
for reproductive health services, based on their subjective
religious or personal beliefs.”71
Legislation that permits medical professionals to refuse
to treat patients has already had a substantial impact on a
number of women.72 These laws fail to protect patients’ rights
because they typically do not require that a refusing healthcare
provider or institution supply patients seeking abortions with
notice that the reproductive health services that they seek are
available elsewhere.73 Such issues affect huge numbers of
women and yet somehow many state legislatures still discredit
these arguments and enact abortion restrictions instead.74
D.
State Legislatures Fail to Address the Ramifications of
Restrictive Abortion Laws
It is noteworthy that very little time in legislative
debates is spent addressing the likelihood that severe abortion
restrictions will harm women’s health and will cause women to
resort to underground networks where such procedures can be
made available.75 Worldwide statistics support the argument
Hampshire, Vermont, West Virginia, Connecticut, New York, and Rhode Island allow
private and/or religious medical institutions to refrain from offering abortion services.”
Vestal, supra note 42; see Claire A. Smearman, Drawing The Line: The Legal, Ethical
and Public Policy Implications of Refusal Clauses, 48 ARIZ. L. REV. 469, 474 (2006)
(noting that the term “refusal clause,” rather than “conscience clause,” better
characterizes such provisions because the laws allow doctors to refuse to perform “an
otherwise legal or ethical duty”).
71
NATIONAL ABORTION FEDERATION, 2003 STATE LEGISLATIVE REPORT 5
(2004), available at http://www.prochoice.org/pubs_research/publications/downloads/
public_policy/state_bill_report_2003.pdf.
72
See Sabrina Rubin Erdely, Doctors’ Beliefs Can Hinder Patient Care: New
Laws Shore Up Providers’ Right to Refuse Treatment Based on Values, MSNBC,
June 22, 2007, available at http://www.msnbc.msn.com/id/19190916/ (describing the
experiences of rape victims who were denied emergency contraception by doctors); Tom
C.W. Lin, Treating An Unhealthy Conscience: A Prescription for Medical Coverage, 31
VT. L. REV. 105, 105-06 (2006) (describing the experience of a rape victim who was not
offered emergency contraception even after her mother requested it because she was
being treated at a Catholic hospital); The Limitations of Conscientious Refusal in
Reproductive Medicine, ACOG Committee Opinion No. 385, American College of
Obstetricians and Gynecologists (Nov. 2007).
73
See Smearman, supra note 70, at 487-88; Lin, supra note 72, at 125 (“How
can a patient grant ‘informed consent’ for a treatment when she does not receive all of
the relevant information?”).
74
See Adam Sonfield, New Refusal Clauses Shatter Balance Between Provider
‘Conscience,’ Patient Needs, at 2-3 (Guttmacher Rep. on Pub. Pol’y, Aug. 2004),
http://www.guttmacher.org/pubs/tgr/07/3/gr070301.pdf.
75
See infra Part V.
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RESTRICTIVE ABORTION LAWS AND THE BACKLASH
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that if abortion is made illegal, it will not disappear. As the
Center for Reproductive Rights reports:
Of the 40 to 60 million abortions that take place annually, at least 20
million are performed under unsafe, illegal conditions and up to 50%
of these women require follow-up gynecological care. Millions suffer
permanent physical injuries, and at least 78,000 women die. Most of
these deaths are preventable, and occur in countries where access to
abortion is highly restricted or illegal altogether.76
Studies on abortion worldwide reflect the trends mentioned above and support the proposition that by legalizing
abortion, countries can help reduce or eliminate the need for
unsafe abortions.77 The United States, unlike many developing
countries where abortions are often illegal and unsafe, has high
rates of both unplanned pregnancies and legal abortions.78
Anti-choice activists urge that such high rates of abortion are
attributable to the United States’ permissive abortion policy.79
76
Center for Reproductive Rights, Briefing Paper, The Bush Global Gag
Rule A Violation of International Human Rights (2000), http://www.crlp.org/pdf/pub_
bp_bushggr_violation.pdf. Though the above mentioned figures do include data on
developing nations where medical services and sanitary conditions are far worse than
they would be in the United States, illegal abortions even in the most sanitary
conditions could still cause injury and death. See Naomi Cahn & Anne T. Goldstein,
Roe and Its Global Impact, 6 U. PA. J. CONST. L. 695, 720 (2004) (“In the United States,
our focus on abortion rights fundamentally relates to women’s rights and we can
assume that decent health care is available.”).
77
Moreover, such statistics reflect the fact that “reproductive rights are an
essential part of any larger struggle for women’s human rights,” and for women
worldwide, “control over their own reproduction is a prerequisite for any meaningful
conception of women’s human rights. Symposium, Crazy Jane Talks with the Bishop:
Abortion in China, Germany, South Africa and International Human Rights Law, 12
TEX. J. WOMEN & L. 287, 288-89 (2003); see also David Sho-Chao Hung, Abortion Rights
in the United Stated and Taiwan, 4 CHI.-KENT J. INT’L & COMP. L. 2 (2004) (discussing
illegal abortions in Taiwan and the need for more liberal approaches to abortion laws);
Cahn & Goldstein, supra note 76 (describing reproductive health issues that women
face in the Democratic Republic of the Congo); Fay Sliger, Since Roe: Access to Abortion
in the United States and Policy Lessons from Western Europe, 10 NEW ENG. J. INT’L &
COMP. L. 229, 264 (2004) (comparing European abortion laws to those of the United
States and asserting, “By persisting in efforts to restrict abortion services, the United
States will not only continue to infringe upon women’s rights and place their health
and lives at risk, but its aim of making abortions rare will continue to be elusive.”); see
infra Part V.
78
GUTTMACHER INSTITUTE, SHARING RESPONSIBILITY: WOMEN, SOCIETY AND
ABORTION WORLDWIDE 27, 42 (1999), available at http://www.guttmacher.org/pubs/
sharing.pdf [hereinafter Sharing Responsibility]; see also Suzanne Delbanco et
al., Public Knowledge and Perceptions About Unplanned Pregnancy and Contraception
in Three Countries, 29 FAM. PLAN. PERSPECS. 70, 70 (1997), available at http://
www.guttmacher.org/pubs/journals/2907097.pdf (comparing the United States, Canada
and the Netherlands and noting that the United States has the highest rates of
unplanned pregnancy).
79
Cynthia Dailard, Issues in Brief, Abortion in Context: United States and
Worldwide (May 1999), at 5, http://www.guttmacher.org/pubs/ib_0599.pdf.
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They argue that states should enact even more abortion
restrictions in an effort to lessen the number of abortions.80
Such claims, however, have little merit because worldwide
statistics suggest that “the key variable that accounts for the
high U.S. abortion rate is not a permissive law, but a high
unintended pregnancy rate.”81
Although very few states have been as bold as South
Dakota in their attempt to ban abortion outright, state legislatures considering abortion restrictions should acknowledge
the reality in the United States, and in the world, that when
abortions are unavailable or severely restricted, women will
suffer.82 Even if legislatures refuse to consider statistics on
illegal abortions during the pre-Roe years,83 current statistics
80
Id.
Id. See generally Sharing Responsibility, supra note 78; Delbanco et al.,
supra note 78.
82
See generally Dailard, supra note 79. Dailard notes:
81
In this regard, understanding that the legal status of abortion correlates
much more with its safety than with its incidence is critical. One need only
look at the experience in many developing countries—with their high rates of
maternal death and disability related to illegal, unsafe abortions—for a
powerful reminder of the social and medical costs routinely borne by women
when access to safe abortion is denied.
Id. at 5-6.
83
There is some dispute as to number of deaths that were the result of backalley abortions in the pre-Roe years. For instance, some commentators urge that
proponents of abortion rights exaggerate the number of deaths. See, e.g., Jason A.
Adkins, Note, Meet Me at the (West Coast) Hotel: The Lochner Era and the Demise of
Roe v. Wade, 90 MINN. L. REV. 500, 523-24 (2005). Adkins states:
One of the major claims of abortion proponents both in 1973 and today is that
if abortion is made illegal, women will have to resort to “back-alley” abortions
where their lives will be in significant danger. This claim does not hold up
under the weight of the facts. According to the Centers for Disease Control
and Prevention’s National Center for Health Statistics, from 1940 to 1972,
deaths due to illegal abortions declined from 1,313 to 41 annually. If Roe
were overturned today, the incidences of abortion deaths from illegal
abortions would most likely be drastically less than in 1972 due to
developments in technology, antibiotics, and the safety procedures of medical
practice. A large percentage of illegal abortions performed prior to Roe were
by licensed physicians. There is no reason to think this would be different
today.
Id. (footnotes omitted); Associated Press, Potential Abortion Deaths in Dispute as
Senate Girds for High Court Battle, July 19, 2005 (“Abortion rights supporters argue
that those figures badly underestimate how many deaths actually occurred; they say
very few doctors and parents wanted to admit that their patients or daughters died
from illegal procedures.”), available at http://www.signonsandiego.com/news/nation/
20050719-1258-ca-scotus-abortion.html. But Benson Gold notes:
In 1930, abortion was listed as the official cause of death for almost 2,700
women—nearly one-fifth (18%) of maternal deaths recorded in that year. The
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RESTRICTIVE ABORTION LAWS AND THE BACKLASH
1483
on illegal abortions worldwide surely can provide valuable
information to state lawmakers who claim that they strive to
enact laws that protect women’s health. Nevertheless, there is
no indication that the South Dakota legislature, or the
legislatures of other states, have given serious attention to data
which indicates that, “where abortion is illegal, [the procedure]
is too often also unsafe—performed by unskilled providers in
hidden, often hazardous circumstances.”84 The rare testimony
before state legislatures that addresses the likelihood that
women will seek illegal abortions often takes the form of a
sentence or two where an anti-abortion advocate calls into
question the reliability of statistics on illegal abortions in the
United States.85 These abortion opponents often assert that
parental notification laws do not lead to an increase in illegal
abortions,86 yet they fail to acknowledge that the reason for this
is because minors still have the option to travel other places to
obtain abortions.87
death toll had declined to just under 1,700 by 1940, and to just over 300 by
1950 (most likely because of the introduction of antibiotics in the 1940s,
which permitted more effective treatment of the infections that frequently
developed after illegal abortion). By 1965, the number of deaths due to illegal
abortion had fallen to just under 200, but illegal abortion still accounted for
17% of all deaths attributed to pregnancy and childbirth that year. And these
are just the number that were officially reported; the actual number was
likely much higher.
Benson Gold, supra note 34 (emphasis added).
84
Adovcates for Youth, The Facts: Adolescents and Abortion, http://
www.advocatesforyouth.org/publications/factsheet/fsabortion.htm (last visited Apr. 8,
2008); see also GUTTMACHER INSTITUTE, PREVENTING UNSAFE ABORTION AND ITS
CONSEQUENCES: PRIORITIES FOR RESEARCH AND ACTION 2 (Ina K. Warriner & Iqbal H.
Shah eds., 2006) [hereinafter PREVENTING UNSAFE ABORTION], available at http://
www.guttmacher.org/pubs/2006/07/10/PreventingUnsafeAbortion.pdf; Sharing Responsibility, supra note 78, at 32.
85
Some abortion opponents acknowledge that if abortion were made illegal in
all of the states, rates of illegal abortion might range from “25,600 to 209,600 illegal
abortions (their worst projections) yearly,” yet they assert that such numbers are
promising for although it is “still too many,” it is far fewer than the estimated 1.6
million women obtaining legal abortions each year. Physicians For Life—Abstinence,
Abortion, Birth Control, If Abortion Is Made Illegal, Will U.S. Women Return to the
Back Alley?, http://www.physiciansforlife.org/index2.php?option=com_content&do_pdf=
1&id=74 (last visited Apr. 8, 2008).
86
Id. But see Jennifer Blasdell, Mother, May I?: Ramifications for Parental
Involvement Laws for Minors Seeking Abortion Services, 10 AM. U. J. GENDER SOC.
POL’Y & L. 287, 288 (2002) (asserting that risks associated with abortions increase as
the pregnancy progresses and therefore parental notification laws increase the
incidence of late term abortions which are more risky medical procedures).
87
See Summers, supra note 63 (describing one girl’s death that resulted from
her having an illegal abortion because she was not able to travel to a neighboring state
and she was too scared to tell her parents or a court that she was pregnant and wanted
to have an abortion).
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Although Congressional debates have elicited ample
testimony describing the effects of restricting abortion and the
details of the underground movements that result both in the
United States and abroad, such empirical and anecdotal data is
often ignored by conservative state legislatures determined to
outlaw the procedure.88 For example, it is noteworthy that the
South Dakota legislature, prior to the drafting of the nowdefunct abortion ban, created a Task Force to study abortion
since it has been legalized.89 If the legislature had instead
requested an analysis of abortion that included facts, statistics,
and anecdotes detailing the high rates of illegal abortion before
it was legalized, perhaps the legislatively created Task Force
would have presented a more balanced picture of abortion in
South Dakota.
III.
SOUTH DAKOTA’S ABORTION RESTRICTIONS: TESTING
THE LIMITS
Although only 780 abortions are performed each year
in South Dakota (which has a population of approximately
156,116 women of childbearing age90), the state has “becom[e] a
leading national laboratory for testing the limits of state laws
restricting abortion.”91 South Dakota law currently requires
that a woman seeking an abortion receive state-directed
counseling that includes materials of information designed to
discourage her from having the procedure.92 The materials
88
See supra note 83 and accompanying text; see, e.g., Child Custody
Protection Act of 1998: Hearing on S. 1645 Before the S. Comm. on the Judiciary, 105th
Cong. 24 (1998) (testimony of Rosemary J. Dempsey, Director of Washington, D.C.
Office of the Center for Reproductive Law and Policy (“CRLP”)).
89
REPORT OF THE SOUTH DAKOTA TASK FORCE TO STUDY ABORTION (2005), at
5, http://www.voteyesforlife.com/docs/Task_Force_Report.pdf [hereinafter TASK FORCE
REPORT].
90
Guttmacher Institute, State Facts About Abortion: South Dakota (2008),
http://www.guttmacher.org/pubs/sfaa/pdf/south_dakota.pdf. “In 2005, 98% of South
Dakota counties had no abortion provider. 78% of South Dakota women lived in these
counties. In the Midwest census region, where South Dakota is located, 19% of women
having abortions traveled at least 50 miles, and 9% traveled more than 100 miles.” Id.
91
Evelyn Nieves, S.D. Makes Abortion Rare Through Laws and Stigma,
WASH. POST, Dec. 28, 2005, at A1.
92
See S.D. CODIFIED LAWS § 34-23A-10.1 to -10.4 (2007). The Center for
Reproductive Rights reports:
In 2005, a court in South Dakota temporarily enjoined the State from
enforcing an amendment to the biased counseling law, which required
abortion providers to orally inform a woman that an abortion ends “the life of
a whole, separate, unique, living human being,” that she has a relationship
with the “unborn human being” and this relationship is protected under law,
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RESTRICTIVE ABORTION LAWS AND THE BACKLASH
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assert that “a woman may experience suicidal thoughts or that
she will suffer from what abortion foes call ‘postabortion
traumatic stress syndrome.’”93 The materials also state that “an
unborn child may feel physical pain.”94 After receiving these
materials, the woman must then wait twenty-four hours before
the procedure is provided.95 Public funding by the state is
available for abortion only in cases of life endangerment,96 and
state law requires parental notification if a minor seeks to
obtain an abortion.97 South Dakota has also enacted a ban on a
method of late term abortion; proponents of such bans have
dubbed the procedure “partial-birth” abortion.98 On top of all
these restrictions, there is only one health center in the entire
state of South Dakota that provides abortions,99 and its one
clinic offers the procedure only once a week.100
and that “the relationship and the constitutional rights she enjoys with
regards to that relationship will end when she has an abortion.” The matter
is currently awaiting appellate review by the U.S. Court of Appeals for the
Eighth Circuit. Planned Parenthood MN, ND, SD v. Rounds, No. 05-3093
(D.S.D. 2005), appeal filed (8th Cir. Aug. 1, 2005).
CENTER FOR REPRODUCTIVE RIGHTS, MANDATORY DELAYS AND BIASED INFORMATION REQUIREMENTS: SOUTH DAKOTA, Aug. 2, 2006, http://www.crlp.org/pdf/mdbc_
SouthDakota.pdf [hereinafter SOUTH DAKOTA MANDATORY DELAYS]; see also Chinué
Turner Richardson & Elizabeth Nash, Misinformed Consent: The Medical Accuracy of
State-Developed Abortion Counseling Materials, 9 GUTTMACHER POL’Y REV. 6, 9 (2006),
available at http://www.guttmacher.org/pubs/gpr/09/4/gpr090406.pdf.
93
Richardson & Nash, supra note 93, at 9. But see Planned Parenthood
Federation of America, The Emotional Effects of Induced Abortion (2007) http://
www.plannedparenthood.org/files/PPFA/fact-induced-abortion.pdf (citing studies by
numerous authors to support the contention that “[r]esearch studies indicate that
emotional responses to legally induced abortion are largely positive. . . . [and] that
emotional problems resulting from abortion are rare and less frequent than those
following childbirth”).
94
See Richardson & Nash, supra note 92, at 9-10 (describing fetal pain
legislation and stressing that data on fetal pain is limited and conflicting).
95
SOUTH DAKOTA MANDATORY DELAYS, supra note 92.
96
S.D. CODIFIED LAWS § 28-6-4.5 (2007); OVERVIEW OF ABORTION LAWS,
supra note 52.
97
S.D. CODIFIED LAWS § 34-23A-7.
98
Id. §§ 34-23A-27 to -32. Though the law has not yet been challenged in the
courts, it is presumably unenforceable and “unconstitutional based on the Supreme
Court’s ruling in Stenberg v. Carhart because it prohibits abortions prior to viability
and fails to adequately protect women’s health.” Center for Reproductive Rights,
Briefing Paper: So-Called “Partial-Birth Abortion” Ban Legislation: By State, Feb.
2004, at 3, available at http://www.crlp.org/pdf/pub_bp_pba_bystate.pdf.
99
Nieves, supra note 91. Mississippi and North Dakota are the other states
with only one abortion provider. Id.
100
Id. The Planned Parenthood clinic in Sioux Falls is operated by four
doctors who fly in from Minnesota on a rotating basis to perform abortions because no
doctor in the state will provide abortions because of the heavy stigma attached. See id.
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South Dakota provides an interesting starting point for
an investigation of the underground abortion railroad. As the
state already has some of the most restrictive abortion
regulation schemes in the country,101 it is likely that a number
of South Dakota women have gone and will go “underground” if
legislators continue to restrict their reproductive freedom. In
order to best understand South Dakota’s decision to enact such
a sweeping abortion ban, it is necessary to examine the
legislative history of the Women’s Health and Human Life
Protection Act.
A.
The South Dakota Task Force to Study Abortion
During its 2005 session, the South Dakota Legislature
voted to create the South Dakota Task Force to Study
Abortion.102 Though nominally bipartisan, the Task Force
ultimately consisted of a majority of staunchly anti-abortion
members, including a representative of the Catholic Diocese of
Sioux Falls and a chiropractor whose wife runs the largest
“crisis pregnancy center”103 in the state.104 This conservative
push ensured that the Task Force would recommend legislation
that represented the goals of the anti-choice legislature to
enact numerous abortion restrictions until pro-life lobbyists
succeeded in overturning Roe v. Wade.105 The job of the Task
101
See supra text accompanying notes 90-100.
H.R. B. 1233, 80th Legis. Assem., Reg. Sess. (S.D. 2005).
103
According to the National Abortion Federation, Crisis Pregnancy Centers
(“CPCs”) are designed to discourage pregnant women from seeking abortions:
102
In many instances, they misinform and intimidate women to achieve their
goal. Women describe being harassed, bullied, and given blatantly false
information. . . . By and large, CPCs are not medical facilities, and most CPC
volunteers who work directly with women are not medical professionals.
Their main qualifications are a commitment to Christianity and anti-choice
beliefs. Although CPCs historically have not employed medical staff, there is
an emerging trend on the part of CPCs to gain validity by hiring part-time
anti-choice medical providers and purchasing ultrasound equipment. . . .
CPCs have a long history of engaging in deceptive advertising. For example,
some CPCs intentionally choose their name to mislead women into believing
that they offer a wide range of services, including family planning and
abortion care.
National Abortion Federation, Crisis Pregnancy Centers: An Affront to Choice 11
(2006), available at http://www.prochoice.org/pubs_research/publications/downloads/
public_policy/cpc_report.pdf.
104
Nancy Hatch Woodward, Planned Parenthood News, Abortion in South
Dakota, Dec. 12, 2005, http://www.plannedparenthood.org/issues-action/abortion/
sdakota-abortion-6156.htm.
105
See id.
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Force was to study the practice of abortion since its
legalization, evaluate medical evidence, report its findings, and
make recommendations as to the need for additional legislation
governing abortion.106 Though the Task Force Report purports
to be impartial and to have fully examined and evaluated
evidence, a self-proclaimed pro-life doctor who chaired the Task
Force admitted that, “The final report was authored by a few
people on the Task Force, and it is less than completely
objective and factual.”107
The findings of the seventy-one page report authored by
the Task Force are cited within the first clause of the nowrejected abortion ban as the scientific rationale for the
statute.108 The Task Force Report asserts that abortion harms
106
The Task Force was directed to study:
A. the practice of abortion since its legalization,
B. the body of knowledge concerning the development and behavior of the
unborn child which has developed because of technological advances and
medical experience since the legalization of abortion,
C. the societal, economic, and ethical impact and effects of legalized abortion,
D. the degree to which decisions to undergo abortions are voluntary and
informed,
E. the effect and health risks that undergoing abortions has on the women,
including the effects on the women’s physical and mental health, including
the delayed onset of cancer, and her subsequent life and socioeconomic
experiences,
F. the nature of the relationship between a pregnant woman and her unborn
child,
G. whether abortion is a workable method for the pregnant woman to waive
her rights to a relationship with the child,
H. whether the unborn child is capable of experiencing physical pain,
I. whether the need exists for additional protections of the rights of
pregnant women contemplating abortion, and
J. whether there is any interest of the state or the mother or the child which
would justify changing the laws relative to abortion.
TASK FORCE REPORT, supra note 89, at 5-6.
107
South Dakota Task Force Approves Final Report on Abortion-Related
Issues; Some Members Disappointed with Outcome, Henry J. Kaiser Family Foundation Daily Women’s Health Policy Report (Washington, D.C.), Dec. 15, 2005 (quoting
Task Force Chair Marty Allison, an abortion-rights opponent), available at http://
www.kaisernetwork.org/Daily_reports/rep_index.cfm?DR_ID=34333.
108
H.R. B. 1215, 2006 Leg., 81st Sess. (S.D. 2006).
The Legislature accepts and concurs with the conclusion of the South Dakota
Task Force to Study Abortion, based upon written materials, scientific
studies, and testimony of witnesses presented to the Task Force, that life
begins at the time of conception, a conclusion confirmed by scientific
advances since the 1973 decision of Roe v. Wade, including the fact that each
human being is totally unique immediately at fertilization.
Id. § 1.
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women, stressing that women in South Dakota have not chosen
to have abortions, but instead that abortion providers, spouses
and/or parents of pregnant women have misled and coerced
women into obtaining abortions.109 The Report further argues
that a ban on abortion will help prevent the exploitation of
women because abortions inflict psychological and physical
harm on women.110 The Task Force justifies such findings by
asserting that the 2000 testimonies it received from women
who experienced abortions, and which described the devastating impact that abortion had on their lives, is explanation
enough for such a broad ban.111 Though the Report largely
consists of many gender-based arguments to support its
conclusion that abortion harms women, it also sets forth
several fetal-focused anti-abortion arguments and policy
considerations.112
109
See TASK FORCE REPORT, supra note 89, at 37-39; Siegal, supra note 39, at
991. The Report’s analysis of the coercion and pressure that women face fails to
address the fact that an outright ban on abortion will result in women being coerced
into pregnancy. Reva Siegel & Sarah Blustain, Mommy Dearest?, AM. PROSPECT, Oct.
1, 2006, at 22, available at 2006 WLNR 17116964 (quoting Kate Looby, one of the only
pro-choice members of the Task Force: “The idea coming out . . . of the task force [is]
that women just really aren’t smart enough to figure out what they want, they need to
be told.”).
110
TASK FORCE REPORT, supra note 89, at 31-34. But Klick asserts:
[I]t is interesting to note, anti-abortion advocates have claimed there is a
causal link between abortion and suicide arising out of this regret-based
depression. Relying on some academic work on the subject, they point out
that suicide rates tend to be higher among women who abort their pregnancy
rather than miscarry or carry the baby to term. However, such a finding
could very well be the result of a self-selection bias. That is, it could be the
case that women who choose to abort their pregnancies tend to be those who
are predisposed to depression, implying that the link between abortion and
suicide is coincidental as opposed to causal.
Klick, supra note 53, at 186-87.
111
TASK FORCE REPORT, supra note 89, at 48; see also Siegel, supra note 39, at
991. But see Klick, supra note 53, at 207-08 (suggesting that abortion restrictions lead
women to bear significant burdens in the form of childbirth and child rearing and thus
such burdens could increase stress levels and bring about a rising suicide rate).
112
For a discussion of one such argument, see Siegel, supra note 39, at 101423. Siegel argues that the Task Force Report purports to protect women, yet in doing so
it reinforces gender-stereotypes about women. For example, the Report asserts that
women must be protected from others who will coerce them into having abortions. Such
an assertion reflects the paternalistic assumption that women lack the capacity to
make well-informed and responsible decisions. TASK FORCE REPORT, supra note 89, at
44. Though the Report does assert that the fetus should be protected, see infra note
114, it does so by reinforcing stereotypes about women’s roles as mothers. TASK FORCE
REPORT, supra note 89, at 47. The Report stresses the “great benefit and joys that the
mother-child relationship brings to the mother,” and therefore it seemingly implies
that a ban on abortion can protect both a woman and her unborn child. Id. at 9.
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The Report ultimately concludes that “the unborn child
from the moment of conception is a whole separate human
being . . . . [and] all abortions, whether surgically or chemically
induced, terminate the life of a whole, separate, unique, living
human being.”113 The Task Force bases this assertion upon
scientific studies that indicate that the unborn child can
experience pain at twenty-four weeks post-conception.114 The
Report goes on to explain that, although it has not been proven,
an unborn child may be able to experience pain as early as
seven weeks post-conception and therefore state abortion law
should reflect such findings.115 The Task Force relied on these
scientific findings and on the claim that a mother’s relationship with her child during pregnancy “has intrinsic beauty and
benefit to both the mother and the child”116 to urge the legislature that until an outright ban on abortion can constitutionally be implemented, South Dakota state laws should aim
to lessen the loss of life and harm caused by abortion.117
B.
Task Force Recommendations for Legislation
The Task Force Report set forth fourteen legislative
recommendations, including a requirement that no abortion be
performed unless the pregnant mother, prior to making an
appointment for an abortion, receives counseling and disclosures about the nature of the risks and the alternatives to
abortion by a pregnancy care center that does not perform
abortions.118 The Task Force also recommended more stringent
informed consent requirements such as a requirement that the
abortion doctor show the pregnant mother a quality ultrasound
image of her unborn child before the procedure is performed,
and prior to her signing a consent form indicating that she had
viewed the ultrasound.119 The Task Force further urged that
113
TASK FORCE REPORT, supra note 89, at 10.
Id. at 58. Although research on fetal pain has produced varying results, see
Richardson & Nash, supra note 92, at 9, the Task Force accepts as fact that a fetus can
experience pain. TASK FORCE REPORT, supra note 89, at 58. Richardson & Nash note
that South Dakota is one of only five states where women seeking abortions are given
state-scripted information asserting that a fetus may be able to feel pain. Richardson &
Nash, supra note 92, at 11. South Dakota requires that every woman be given such
information, regardless of her stage of pregnancy. Id.
115
TASK FORCE REPORT, supra note 89, at 58.
116
Id. at 55.
117
Id. at 69.
118
Id. at 69-71; see also South Dakota Mandatory Delays, supra note 92.
119
TASK FORCE REPORT, supra note 89, at 70.
114
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South Dakota “strengthen [its] child support laws including the
requirement that the father of an unborn child support the
mother and their unborn child during the pregnancy and
thereafter . . . and strengthen state laws that provide financial
and other support to pregnant women, so that lack of support
no longer compels a woman to seek an abortion.”120 Because
much of the data contained within the Task Force Report will
likely be used by anti-abortion lobbyists and legislators in the
future around the country,121 the following section will evaluate
such data in order to determine how accurately and fully it
reflects the actual and scientific realities of abortion in both
South Dakota and the United States.
1. A Legislative History Based on Biased Policy and
Bad Science
Though the Task Force stressed that the evidence it
included in its report represented a balanced viewpoint, and
that testimony was divided almost equally between witnesses
who opposed abortion and those who thought it should be
legal,122 the openly anti-abortion chairwoman123 of the Task
Force admitted, “[T]he report does not reflect all the information that the task force gathered from experts and the public on
both sides of the issue, and it does not deal with preventing
unintended pregnancies and other important issues.”124 The
120
Id. But, as Siegel notes, the Report never mentions the necessity of
strengthening state laws to ensure that employers do not discriminate against
pregnant women. Siegel, supra note 39, at 1050.
121
See generally Siegel, supra note 39 (noting the power of the gender-based
antiabortion argument and the fact that in using such arguments the pro-life
movement can be both ‘pro-woman’ and yet still oppose abortion); see also Siegel &
Blustain, supra note 109 (“[The Report is] by far the most comprehensive government
account of the arguments and evidence for protecting women from abortion.”).
122
Lauren Bans, Anatomy of a Bad Law, THE NATION, Mar. 30, 2006,
http://www.thenation.com/doc/20060417/bans (asserting that “[o]f the nine physicians
who testified, eight claimed it was not medically advisable to create an environment
where abortion was illegal,” yet such statements are absent from the final Report).
123
Siegel & Blustain, supra note 109. Although Allison served as chairwoman
of the Task Force, she voted against the final Report, stating that she was disappointed
with the process and stressing that “minds were already made up from the very
beginning. . . . There was a limited amount of discussion on a lot of the issues because
of that.” Abortion Task Force Chair Disappointed with Final Report, Process, SIOUX
CITY J., available at http://www.siouxcityjournal.com/articles/2005/12/14/news/south_
dakota/bcb56c23098be88f862570d70018961b.txt (last visited Apr. 4, 2008) [hereinafter
Task Force Chair Disappointed].
124
See TASK FORCE REPORT, supra note 89, at 70-71 (recommending that
“abstinence education in South Dakota is to exclude contraceptive-based sexuality
education”); see also Siegel & Blustain, supra note 109 (noting that Dr. Allsion opposed
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legislature, nevertheless, relied upon the Report when they
enacted the now-defunct abortion ban, and therefore it remains
necessary to examine the Task Force Report, as well as the
testimony that the Task Force chose to ignore or omit from its
final Report.
The Report asserts as fact only those scientific findings
made by doctors who oppose abortion.125 It states that abortion
causes psychological and physical harm to women despite the
fact that a large number of medical professionals and thirdparty organizations, including the South Dakota Section of the
American College of Obstetricians and Gynecologists (“ACOG”),
opposed the South Dakota abortion ban and expressed very
different opinions as to the medical effects of this procedure.126
In their position statement condemning South Dakota’s
measure, ACOG asserted, “[The] reproductive health ban . . . is
not based on science, strips women of their legal rights, and
criminalizes essential aspects of women’s health care.”127 Such
findings by medical professionals reflect the one-sided nature of
the Report and the obvious lack of credible evidence to support
the Task Force’s findings and recommendations.128 Nonetheless,
“South Dakota’s official endorsement of these faulty arguments
gives such arguments more validity than ever and antiabortion activists will likely urge that these arguments be
employed to lobby for abortion restrictions across the nation.”129
such recommendations); Bans, supra note 122; Task Force Chair Disappointed, supra
note 123 (quoting Dr. Allison: “It got to the point at the end that part of the task force
members, as well as the vast majority of our public audience, left the meeting because
it just got so ridiculous. It was an embarrassing end . . . .”).
125
See infra notes 138-154 and accompanying text. As noted by Kate Looby,
one of the pro-choice members of the Task Force, the Report failed to include testimony
from almost every medical expert witness stating that they would not ever “want to
practice in an environment in which all abortions were illegal.” Bans, supra note 122.
126
South Dakota Section of the American College of Obstetricians and
Gynecologists, Position Statement Opposing H.B. 1215/Referred Law 6 (Sept. 26,
2006), http://www.sdhealthyfamilies.org/media/pdf/ACOGPositionStatementHB1215.pdf
[hereinafter ACOG Statement]. The Report explicitly rejects the research and findings
of the ACOG. TASK FORCE REPORT, supra note 89, at 48; see Reva Siegel 2007 Baum
Lecture: Enforcing Sex Roles in South Dakota: An Equality Analysis of Abortion
Restrictions, U. ILL. L. REV. (forthcoming), available at http://papers.ssrn.com/sol3/
papers.cfm?abstract_id=958254&download=yes.
127
ACOG Statement, supra note 126.
128
Siegel & Blustain, supra note 109; Siegel, supra note 39, at 1012-14.
Ultimately, four members walked out of the final meeting because of the biased
nature of the proceedings. South Dakota Task Force on Abortion’s Final Report Altered,
Planned Parenthood Official Says, MED. NEWS TODAY, Jan. 19, 2006, http://
www.medicalnewstoday.com/medicalnews.php?newsid=36299 [hereinafter South Dakota
Task Force].
129
Siegel & Blustain, supra note 109.
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The Task Force Report also asserts that women are
coerced and misled into having abortions by their lovers,
parents, and abortion doctors.130 This is a questionable proposition considering the widely accepted acknowledgement that
“women will seek abortions, whether access to the procedure is
guaranteed by or prohibited by the law.”131 One must inquire
why the Task Force Report neither addressed the devastating
impact that illegal abortions had on many other women,132 nor
addressed the likelihood that women may face negative
physical, mental and social consequences from being coerced or
pressured into bearing children.133 There was, however, a minor
mention made in testimony before the Task Force that rates of
illegal abortion in the United States in the 1960s ranged from
200,000 to 1,200,000.134 Lynn M. Paltrow, Executive Director of
National Advocates for Pregnant Women, testified to these
figures and stated, “The fact that women had abortions in the
past, despite criminalization, and continue to have abortions in
America today in spite of increasing barriers to that health
care service makes clear that the decision to have an abortion
is a voluntary decision.”135 Although the Task Force had the
discretion to reject testimony that it found problematic, their
decision to omit from the Report all of the testimony of those
who supported keeping abortion a safe and legal option illuminates the Task Force’s inability to approach their investigation
objectively.136
130
TASK FORCE REPORT, supra note 89, at 56; see Siegel, supra note 39, at 991,
1009-14, 1019.
131
Douglas R. Miller, The Alley Behind First Street, Northeast: Criminal
Abortion in the Nation’s Capital, 1872-1973, 11 WM. & MARY J. WOMEN & L. 1, 45
(2004) (describing illegal abortions during the pre-Roe years and stating that “abortion
has always been a part of human experience and remains so even when prohibited”).
132
See id.; supra note 66; infra note 157 and accompanying text; see also Lynn
M. Paltrow, Executive Director, National Advocates for Pregnant Women, Testimony
Before the Task Force: Sept. 22, 2005, http://www.advocatesforpregnantwomen.org/
articles/so_dak_tf.htm [hereinafter Paltrow Testimony].
133
For an analysis of “coerced pregnancy” as a violation of the Thirteenth
Amendment, see Andrew Koppelman, Forced Labor: A Thirteenth Amendment Defense
of Abortion, 84 NW. U. L. REV. 480, 487 (1990) (“When abortion is outlawed, a woman
who does not want to carry her pregnancy to term must serve the fetus, and that
servitude is involuntary.”).
134
Paltrow Testimony, supra note 132.
135
Id.
136
See Siegel, supra note 39, at 1008-09; Bans, supra note 122; Task Force
Chair Disappointed, supra note 123.
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2. Expert Testimony Before the Task Force
The testimonies by experts and witnesses who support
legalized abortions are noticeably absent from the Report,
although the Task Force did hear such testimonies.137 The Task
Force instead relied solely upon studies performed by antichoice doctors,138 and failed to give any weight to empirical data
on abortion which differed from that submitted by these doctors and anti-abortion lobbyists.139 The Report accepts scientific
findings that women who have had abortions experience postabortion depression,140 despite the fact that testimony and
studies by the American Psychological Association (“APA”)
and the American Psychiatric Association controvert such
findings.141 The Report also overtly raised a question as to the
biases and validity of the testimony and research offered by
doctors who advocate for abortion rights.142 For example,
when confronted with testimony by a doctor from the Alan
Guttmacher Institute143 stating that abortion does not cause
physical and mental health problems, the Task Force explicitly
questioned the credibility of the doctor’s opinions regarding the
effects of abortion due to the biases and goals of the Institute
and its representatives.144
Apparently the Task Force chose to ignore the biases of
the studies and doctors upon which it relied in recommending
137
See South Dakota Task Force, supra note 128. Ultimately, four members of
the Task Force walked out of the final meeting because of the biased nature of the
proceedings and the unwillingness of the majority of the Task Force to accept any
testimony from experts in favor of keeping abortion legal and available. Id.
138
Commonly, these studies are by Dr. David Reardon, Director of the Elliot
Institute, an Illinois-based organization that opposes abortion, and Priscilla Coleman,
assistant professor in the School of Family and Consumer Sciences at Bowling Green
State University. See Siegel, supra note 39, at 1015-47. Many of their studies claim
that women are harmed physically and psychologically when they obtain abortions. Id.
at 1011-13.
139
See id. at 1034-35 (citing a variety of research studies that refute the
findings of both Coleman and Reardon).
140
Reardon, who “is said to have a doctorate in biomedical ethics from Pacific
Western University, an unaccredited correspondence school,” uses his controversial
studies to argue that women who have abortions experience depression. Emily Bazelon,
Is There a Post-Abortion Syndrome?, N.Y. TIMES, Jan. 21, 2007, at § 6.
141
See Siegel, supra note 39, at 1011.
142
TASK FORCE REPORT, supra note 89, at 46, 50-51.
143
Id. at 50-51. Dr. Stanley Henshaw, Fellow at the Guttmacher Institute,
testified before the Task Force. The Report emphasizes that he has been “long
associated with Planned Parenthood Federation of America” and used his association
with the organization to justify their unwillingness to accept, as credible, his research.
See id. at 36.
144
Id. at 46.
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the abortion ban, and never called into question the research of
doctors who are activists in the anti-abortion movement. For
example, Dr. David Reardon, whose testimony and research is
cited numerous times within the Report, is active in the antiabortion movement.145 Dr. Reardon founded the Elliot Institute,
a self-proclaimed outreach organization and ministry dedicated
to the study of the effects of abortion on women, men, families
and society. He has publicly asserted that he believes that
abortion is “evil” and that “because abortion is morally wrong,
women will suffer.”146 The Elliot Institute’s publications cite oftdisputed research147 and emotionally charged news stories148 in
support of their claim that most abortions are coerced,
unwanted, or based on insufficient information.149 They assert
that the state, in the interest of women’s health, must protect
women from abortion, a claim which necessarily suggests that
women’s best interests will be promoted only through forced
childbirth.150
“The Report even went so far as to denigrate the need
for access to abortion in cases of incest, citing evidence that
97 percent of the time such pregnancies result in healthy
babies.”151 Instead of questioning the injustice of the state
145
As noted by Siegel, supra note 39, at 1016-21, and Bazelon, supra note 140,
Dr. Reardon’s research and writing has become an integral part of the anti-abortion
movement. See infra notes 146-149 and accompanying text.
146
Siegel, supra note 39, at 1021.
147
See Siegel, supra note 39, at n.96 (listing numerous studies that reject or
contradict the theory of post-abortion syndrome). Reardon’s studies have been criticized
by several experts who have found flaws in his methodology; one noted that while “up
to 10 percent of women have symptoms of depression or other psychological distress
after an abortion[,] the same rates [are] experienced by women after childbirth.”
Bazelon, supra note 140.
148
Reardon’s Elliot Institute website, http://www.afterabortion.org/, makes
reference to recent news stories to suggest that abortion is forced upon all women
(whether they know it or not). For instance, one fact sheet recites:
In Jackson, MS, a judge issued a temporary restraining order against the
parents of a 16-year-old girl after they allegedly tried to force her into having
an abortion. The girl said she pleaded with her parents to let her have the
baby but they made an appointment for her at a local abortion clinic.
Elliot Institute, Forced Abortion in America, http://www.unfairchoice.info/pdf/
ForcedAbortions.pdf (last visited Apr. 8, 2008).
149
See id.
150
See Siegel, supra note 39, at 1018-24 (discussing the anti-choice agenda
and Dr. Reardon’s approach to changing the abortion dialogue).
151
Paul Demko, The Final Frontier, CITY PAGES, Mar. 8, 2006, available at
http://citypages.com/databank/27/1318/article14169.asp; see also TASK FORCE REPORT,
supra note 89, at 32-33. Dr. Donald Oliver, a pediatrician in Rapid City, South Dakota
testified:
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requiring rape and incest victims to carry a child to term, the
Task Force relied on testimony from the founder of the
International Right to Life,152 who argued that women who
have been victimized should report the crimes, and carrying
the child to term will encourage such reporting.153 The Report
further failed to refute some of “the most scientifically dubious
assertions about abortion, such as that it causes breast
cancer.”154 Scholars rightfully criticize the findings of the Task
Force Report. For example, Reva B. Seigel, a law professor at
Yale University, addressed the failure of the Task Force to
investigate the reasons why women seek abortions. Seigel
asserted:
I personally took care of a baby boy born to a very young teenage mother who
was allegedly raped by her brother. So here we have the two scenarios
brought forth most often by those on the pro-abortion side, rape and incest.
This brave young lady carried her child to term and delivered a healthy
normal boy. Here is an interesting fact that you may not be aware of. Just as
two bad genes might pair up and lead to an unfortunate outcome, two good
genes can pair up, and the infant of this incestuous relationship, may become
the brightest person in the family—sometimes in the genius range of
intellect.
Id. at 32.
152
“[The] International Right To Life Federation is a worldwide, non-sectarian
federation of pro-life organizations from over 170 countries. [It is] dedicated to the
protection of all innocent human life from conception to natural death.” Jeanie E.
Head, U.N. Representative, International Right to Life Federation, Inc., Statement to
the Hague Forum (Feb. 11, 1999), available at http://www.un.org/popin/icpd/icpd5/
hague/irlf.pdf. Dr. J.C. Willke is the founder of the Right to Life organization and
president of International Right to Life. TASK FORCE REPORT, supra note 89, at 32.
153
TASK FORCE REPORT, supra note 89, at 32 (“The woman has been subjected
to an ugly trauma, and she needs love, support and help. But she has been the victim of
one violent act. Should we now ask her to be a party to a second violent act—that of
abortion? Reporting the rape to a law enforcement agency is needed.” (quoting J.C.
WILLKE & BARBARA WILLKE, WHY CAN’T WE LOVE THEM BOTH 263 (2003)).
154
See Demko, supra note 151; see also South Dakota Task Force, supra note
128 (reporting that many Task Force members were angered by the Report’s inaccurate
claim that “the reasons to suspect such a connection [are] sufficiently sound,” see TASK
FORCE REPORT, supra note 89, at 52). Physicians for Reproductive Choice and Health
states explicitly that it
objects to laws that require abortion providers to warn women of the
potential risk of breast cancer. This is not informed consent—this is
misinformed consent, requiring physicians to make inaccurate and
misleading statements to their patients. These mandates are particularly
nefarious because they prevent physicians from open and honest dialogue
with patients.
Physicians for Reproductive Choice and Health, Policy Statement on the Purported
Link Between Abortion and Breast Cancer (Apr. 2005), available at http://
www.prch.org/assets/library/48_48breastcancer.pdf.
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Criminalizing abortion would not, for instance, address the needs of
women who seek an abortion because they lacked contraception or
were raped or are living in abusive relationships, or will have to drop
out of work or school to raise a child alone, or are stretched so thin
that they cannot emotionally or financially provide for their other
children.155
The lack of investigation into such fundamentally important
questions is significant as it suggests that the Task Force
approached its investigation with the premeditated intention of
eliminating all abortions, regardless of what they actually
found. Instead of hearing all testimony before determining
whether additional abortion laws are necessary, the Task Force
approached its hearings with a clear intent to recommend
additional abortion restrictions.
One must question the wisdom of abortion bans and
restrictions in light of well-known horror stories about the preRoe years when abortion was illegal and women were either
forced into pregnancy or subjected to “back alley abortions”
that resulted in numerous deaths, injuries and even rapes.156
History has proven that women will seek and ultimately obtain
abortions, even if they are illegal or hard to get,157 yet far too
often such considerations are absent from debates over
abortion bans and restrictions. The Task Force Report did not
attempt to address the reasons that women seek abortions.
And, in failing to question why a woman would desire to
terminate a pregnancy, the Report failed to address the
155
Siegel, supra note 39, at 1049 n.229.
See generally Senate Comm. on Labor And Human Resources, the Freedom
of Choice Act of 1992, S. Rep. No. 321, 102d Cong., 2d Sess. 4 (1992) (attempting to
codify the holding of Roe, Congress heard testimony on the increase in illegal abortions
and the burdens placed on women who were forced to travel significant distances to
obtain abortions).
156
The report included testimony by survivors of illegal abortions. One woman
testified that she was forced by the unavailability of a legal abortion to pay
$1000 in the mid-1950s for an illegal abortion with a dirty knife. Another
woman related her attempts to self abort by taking a quinine and turpentine,
laxatives, steaming hot baths, and eventually turning to knitting needles.
Finally, a retired Marine testified that his mother had been given, illegally, a
quantity of the controlled drug “ergot apiol” by a back alley abortionist on
which she overdosed, went into convulsions, and died in front of her family.
Id.
157
See, e.g., Naomi Cahn & Anne T. Goldstein, Roe and Its Global Impact, 6
U. PA. J. CONST. L. 695, 701 (2004) (arguing that “[w]omen are still dying in back
alleys” and, according to World Health Organization estimates, “more than 80,000
women die each year from medically unsafe abortions in countries where abortion is
restricted”).
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likelihood that women will continue to obtain abortions, even if
prevented from doing so by the South Dakota Legislature.
IV.
THE MODERN DAY ABORTION UNDERGROUND RAILROAD
The debate over the South Dakota abortion ban demonstrates that abortion is one of the most divisive political issues
that our country has confronted since the abolition of slavery.158
In fact, opponents of abortion, whose activism includes, among
other things, the physical obstruction of women’s access to
abortions clinics, have likened themselves to abolitionists who
maintained the Underground Railroad.159 Pro-choice activists
have also seized the slavery metaphor in their assertion that
forced pregnancy is, in essence, “forced labor.”160 Although
commentators have raised valid criticism as to the problematic
nature of using such a racially charged and polarizing metaphor in the context of the abortion debate,161 such disapproval
should not preclude a pointed analysis of the underground
movement as it relates to the gendered struggles that women
have faced—with particular attention to their attempts to
obtain abortions—when the laws of this country fail to protect
their freedom and bodily integrity.
The modern-day abortion “underground railroad” is a
network of volunteers and organizations that has developed in
two contexts.162 First, the underground railroad provides
overnight lodging for women seeking second-term abortions.163
Second, the underground railroad contributes donated funds to
subsidize abortions for low-income women.164 Late-term abor158
See Klick, supra note 53, at 206 (stressing that the abortion debate has
“not grown any more conciliatory” since 1973 when the Supreme Court decided Roe v.
Wade). See generally Deborah Threedy, Slavery Rhetoric and the Abortion Debate, 2
MICH. J. GENDER & L. 3 (1994).
159
See, e.g., Charles E. Rice, Issues Raised by the Abortion Rescue Movement,
23 SUFFOLK U. L. REV. 15, 30 (1989).
160
See generally Koppelman, supra note 133.
161
See Threedy, supra note 158, at 24 (arguing that the use of the slavery
metaphor by proponents and opponents of abortion is problematic as it is racist and it
“shuts down the dialogue between the pro-choice and anti-abortion sides of the
debate”).
162
See Nathan, supra note 33.
163
Id. For a description of the services offered by one such underground
network, see Haven Coalition, http://www.havencoalition.org/ (last visited Apr. 8,
2008).
164
For a description of the many abortion funds and their goals, see Nat’l
Network of Abortion Funds, http://www.nnaf.org/fundinfo.html (last visited Apr. 8,
2008).
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tions are a major point of controversy in the ongoing abortion
debate, especially since the Supreme Court upheld the federal
partial-birth165 abortion ban in Gonzales v. Carhart.166 Antiabortion activists and politicians have publicized the debate
over late-term abortions, urging that the procedures are the
equivalent of infanticide and that they are “never medically
necessary.”167 They argue that abortions are typically elective
and that only rarely do women have abortions for health
reasons.168 Abortion rights proponents counter these arguments
by asserting that women seek late-term abortions for a variety
of reasons, including a nonviable or severely deformed fetus,
maternal health, rape or incest, failure to detect pregnancy or
lateness of stage,169 difficulty in arranging for and paying for
an abortion, and, in the case of teenagers, fear of parental
reaction.170 The controversy surrounding the issue of late-term
abortion is interesting in light of the fact that only one percent
of all abortions take place after twenty-one weeks of
pregnancy.171 Nevertheless, women seeking late-term abortions
face significant financial and geographic obstacles, and the
underground abortion railroad network has emerged to assist
them.172
165
The term “partial-birth abortion,” originally coined by abortion opponents
to refer to late-term abortions, is not recognized as a medical term by the AMA, see
H-5.982 Late-Term Pregnancy Termination Techniques, http://www.ama-assn.org/apps/
pf_new/pf_online?f_n=resultLink&doc=policyfiles/HnE/H-5.982.HTM&s_t=abortion&catg
=AMA/HnE&&nth=1&&st_p=0&nth=2& (last visited Apr. 21, 2008), nor by the
American College of Obstetricians and Gynecologists (“ACOG”), see Press release,
ACOG, ACOG Files Amicus Brief in Gonzales v. Carhart and Gonzales v. PPFA (Sept,
22, 2006), http://www.acog.org/from_home/publications/press_releases/nr09-22-06.cfm
(last visited Apr. 20, 2008).
166
Gonzales v. Carhart, 127 S. Ct. 1610, 1638-39 (2007); See Masci &
Shimabukuro, supra note 28, at 2-3.
167
See Masci & Shimabukuro, supra note 28, at 2-3.
168
Douglas Johnson, National Right to Life, The Partial-Birth Abortion Ban
Act—Misconceptions and Realities (Nov. 5, 2003), http://www.nrlc.org/abortion/pba/
PBAall110403.html.
169
See Nathan, supra note 33; Guttmacher Institute, Issues in Brief: The
Limitations of U.S. Statistics on Abortion, Jan. 1997, at 1, 3, available at http://
www.guttmacher.org/pubs/ib14.pdf.
170
See supra Part II.B (discussing parental involvement laws).
171
See Nathan, supra note 33.
172
Id. Nathan notes:
[O]ften as not, it’s poverty that has pushed their bellies into the fifth or sixth
month. Medicaid in most states won’t cover abortions, and money for the
procedure is hard to round up. Ending a seven- or eight-week pregnancy costs
about $400. . . . And the price shoots up as the weeks pass and the procedure
grows more complex. At 24 weeks, the price is about $2,000 in New York—
2008]
RESTRICTIVE ABORTION LAWS AND THE BACKLASH
A.
Finding a Safe Haven in a Strange City
1499
Women who decide to have second-term abortions often
have to travel from states where the procedure is too costly or
unavailable to other states, primarily New York, to have such
abortions.173 Because late-term abortion procedures require two
visits to the clinic, women who travel from other states to get
this procedure must choose to absorb the cost of a hotel stay,
sleep on the streets, or rely on the “underground.”174 Haven
Coalition is one underground volunteer network, maintaining
relationships with several clinics, in which volunteers open
their homes to women—and anybody who accompanies them—
who travel to New York seeking second-term abortions.175
Haven Coalition, though, is not truly “underground” because
the women who reach out to the organization are not undergoing illegal abortions.176 Instead, Haven provides a safe and
confidential means by which women can obtain abortions that,
although illegal or unavailable in their home states, are legal
elsewhere.177
much cheaper than the $7,000 it costs in New Jersey, but still a virtually
insurmountable sum.
Id.
173
Id. One commentator describes New York as the “abortion capital of
America,” noting:
New York has the highest abortion rate in America. In 2000, the last year for
which good data are available, 39 out of every 1,000 women in the state
ended a pregnancy, for a total of 164,000 abortions that year. In America, one
of every ten abortions occurs in New York, and in New York, seven of every
ten abortions are performed in New York City. In absolute terms, there are
more abortions performed on minors, more repeat abortions, and more late
abortions (over 21 weeks) in New York City than anywhere else in the
country.
Ryan Lizza, The Abortion Capital of America, NEW YORK MAG., Dec. 4, 2005, available
at http://nymag.com/nymetro/news/features/15248/. In addition, New York has no
parental consent laws, waiting periods, or mandatory counseling laws, and the state
subsidizes abortions for low-income women. See Overview of Abortion Laws, supra
note 52. Therefore, it is not surprising that New York has become the home base for
the underground abortion railroad and what one author has termed, “a late-term
abortion mecca.” See Eleanor Bader, Sisterhood Is Local, BROOKLYN RAIL, Apr. 2006,
available at http://www.brooklynrail.org/2006/04/local/sisterhood-is-local-offering-womenan-abortion-haven.
174
Bader, supra note 173.
175
Id.; Jennifer Block, Emergency Landing, VILLAGE VOICE, July 2, 2002,
available at http://www.villagevoice.com/news/0227,block,36211,1.html.
176
See id.
177
Haven Coalition, http://www.havencoalition.org/ (last visited Apr. 8, 2008).
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Though yearly women have about 2000 late-term abortions in New York,178 Haven Coalition has only been able to aid
fewer than 150 women each year.179 Such figures are indicative
of the very nature of underground networks—their absence
from the mainstream ensures that volunteer organizations are
only able to serve the needs of a small number of women.180 And
in fact, it is probable that very few women are actually aware
of the existence of such underground organizations. Yet it is
increasingly likely that women seeking abortions will require
the assistance of these networks. Presently, only seventeen
states fund abortions for low-income women,181 87% of United
States counties have no abortion provider,182 and 16% of women
have to travel between fifty and one-hundred miles to obtain
first-trimester abortions.183 Such statistics, in conjunction with
the anti-abortion legislation of states like South Dakota, will
likely drive many women to states such as New York that have
more liberal abortion laws.
B.
The Economics of Abortion
The second way that the underground railroad aids
women seeking abortions is by providing some, if not all, of the
money for the procedure.184 There are a variety of funds that
subsidize the cost of abortion,185 including the National
Network of Abortion Funds and the Women’s Medical Fund.186
These organizations also provide “information and support, and
some provide related services such as transportation, housing,
178
Nathan, supra note 33; Block, supra note 175.
See Block, supra note 175. Even in the pre-Roe years when underground
abortion networks consisted of many more volunteers, many women still were forced to
carry a child to term that was unwanted or to seek out alternative and dangerous ways
to terminate the pregnancy. See supra note 156; see also notes 33-35 and accompanying
text.
180
See Block, supra note 175; Nathan, supra note 33.
181
Induced Abortion, supra note 69.
182
Id.
183
Stanley K. Henshaw & Laurence B. Finer, The Accessibility of Abortion
Services in the United States, 2001, PERSPECTIVES ON SEXUAL AND REPRODUCTIVE
HEALTH, Jan./Feb. 2003, at 16, 18, available at http://www.guttmacher.org/pubs/
journals/3501603.pdf; see Benson Gold, supra note 34 (discussing the history of
impediments to abortion access).
184
See National Network of Abortion Funds, http://www.nnaf.org/
fundinfo.html (last visited Apr. 8, 2008).
185
Id.
186
Id.; see also Women’s Medical Fund, http://www.womensmedicalfund.org/
(last visited Apr. 8, 2008).
179
2008]
RESTRICTIVE ABORTION LAWS AND THE BACKLASH
1501
child care, options counseling, or funding for ultrasound, pregnancy testing, or followup care.”187 These funds rely upon the
donations of individuals and organizations, and consequently
they, like the underground abortion network discussed above,
will likely be unable to meet the needs of all of the women
seeking their services.188 For example, some funds only provide
women with loans that they must later repay, and others are
only able to serve small geographic areas.189
Although abortion funds provide assistance to women
seeking both first-trimester and late-term abortions, women
typically require a great deal more financial assistance to pay
for a late-term abortion.190 While it is quite probable that
poverty is one of the primary factors that causes delays that
push women’s pregnancies into the second trimester,191 the
extraordinary costs associated with late-term abortions procedures can in many instances ensure that poor women and
girls who desire abortions are instead forced to carry unwanted
pregnancies to term.192 Given the fact that late-term abortions
can cost anywhere from $400 to $7000193 and that states
typically restrict the use of state funds,194 if not for the
existence of underground networks like the National Network
of Abortion Funds, many more women would be unable to
obtain abortions.195
C.
Changing the Abortion Dialogue
Underground networks should be addressed by the state
legislatures considering abortion restrictions and bans because
such networks provide valuable evidence of the necessity of
187
National Network of Abortion Funds, http://www.nnaf.org/fundinfo.html
(last visited Apr. 8, 2008).
188
I do not mean to imply that these funds turn away women seeking help;
rather, I argue that the very nature of these networks—as part of the underground—
ensures that the number of women that they can help is very limited. If activists
organize and develop these networks, as they did in the years when abortion was
illegal, it is likely that they can increase the number of women they help. Nevertheless,
the only way to ensure that abortions are available and affordable is through
legislation that liberalizes abortion laws.
189
See Nat’l Network of Abortion Funds, http://www.nnaf.org/fundinfo.html
(last visited Apr. 8, 2008).
190
See Block, supra note 175; Nathan, supra note 33.
191
Nathan, supra note 33.
192
Block, supra note 175.
193
Nathan, supra note 33.
194
See supra note 3.
195
See Block, supra note 175; Nathan, supra note 33.
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liberalizing, rather than criminalizing, abortions. Instead of
continually seeking to eliminate abortion, legislatures should
consider the major reasons why women seek abortions and why
they are, in some circumstances, resigned to seeking them in
late stages of pregnancy. Arguably, the very reasons that
women seek late-term abortions196 will, in the future, influence
women to seek illegal abortions should a state legislature
succeed in enacting an outright ban on abortion. The stories of
the women who have had abortions and who have used the
underground railroad will likely differ considerably from those
of women who assert that abortions have negatively impacted
their lives.197 The contrasting narratives of women on both sides
of the abortion debate reflect the stark reality that the decision
to have an abortion or to carry a pregnancy to term, though
politically charged, is a deeply personal one. Women’s life
experiences vary considerably and for this reason, state legislatures should listen to the narratives of women on both sides
of the debate in order to understand the reasons why women
seek abortions and to determine whether there is any middle
ground whereby laws can ensure that abortions are both safe
and rare.198
A variety of studies and statistics from both the United
States and abroad support the claims of pro-choice advocates
that abortion laws ought to be liberalized rather than
restricted.199 For instance, state legislatures should recognize
that women who live in states with restrictive laws seek
196
See Block, supra note 175; Nathan, supra note 33.
One of the problems in trying to get women to tell their stories about their
personal experiences with abortion is that even today significant stigma attaches to the
experience. Conversely, women who speak out about abortion harming them will gain
support from both proponents and opponents of abortion rights.
198
Proponents of a woman’s right to choose to have an abortion often stress
that, each year, women in the United States experience a very large number of
unintended pregnancies. See, e.g., Kathryn Kolbert, Two Steps Forward and One Step
Back, 6 U. PA. J. CONST. L. 686, 690 (2004) (“[W]e—as a movement—have an obligation
to put many more of our resources into reducing the number of women who face
unintended pregnancies.”).
199
See, e.g., Michèle Alexandre, Dance Halls, Masquerades, Body Protest and
The Law: The Female Body as a Redemptive Tool Against Trinidad’s Gender-Biased
Laws, 13 DUKE J. GENDER L. & POL’Y 177, 198 (2006). Alexandre states:
197
Abortions are illegal in Trinidad, except to protect the life or health of the
mother; those who are found guilty of procuring an abortion can be
imprisoned for up to four years. Despite its being illegal, the abortion rate in
Trinidad is thought to be higher than in the United States, and abortion has
turned into a lucrative business for those willing to perform them.
Id.; see supra note 76; infra Part V.
2008]
RESTRICTIVE ABORTION LAWS AND THE BACKLASH
1503
abortions in other states, and women will continue to seek
abortions, even when their availability is severely restricted.200
In 2000, a study by the Alan Guttmacher Institute documented
Mississippi’s abortion frequency following the enactment of a
twenty-four hour mandatory delay.201 According to the study,
the overall abortion rate declined among women in the
treatment group, but the percentage of second-trimester
procedures increased by fifty-three percent.202 Moreover, the
percentage of Mississippi women traveling out of state for
abortions increased by some forty percent.203 Such figures
indicate that restrictive state abortion laws fail to decrease
abortion rates, but they simultaneously ensure that women
already facing the difficult question of whether to terminate a
pregnancy are forced to travel far from their homes to get
abortions or to delay the procedure until well into their
pregnancy. If state legislatures examined such figures and
discussed them frankly, then perhaps current state abortion
laws would look quite different than they are today.
V.
ABORTION AT HOME AND ABROAD—HARSH LAWS HAVE
HARSH CONSEQUENCES ON WOMEN
An analysis of abortion undergrounds in other countries
also provides valuable information that may aid legislatures in
drafting laws that promote sound policy aimed at ensuring that
“women seeking to fulfill their childbearing goals . . . are able
not only to protect their lives and health should they decide to
have an abortion, but to avoid unplanned pregnancies in the
first place.”204 A comparative analysis of abortion in countries
with restrictive abortion laws is particularly telling, considering that women “have relied on abortion to end unwanted
pregnancies throughout history and in every region of the
world, even though abortion was illegal in almost every country
200
See infra Part V.
Joyce & Kaestner, supra note 49.
202
Id. The authors found that the fifty-three percent increase in secondtrimester procedures was among women whose closest provider was in-state. Id. They
found, however, only an eight percent increase among women whose closest provider
was out-of-state. Id. “And although the overall abortion rate declined among women in
the treatment group over the period (from 11.3 procedures per 1000 women aged 15-44
to 9.9), the rate of second-trimester procedures increased among these women (from 0.8
per 1000 women to 1.1).” Id.
203
Id.
204
Dailard, supra note 79, at 1.
201
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until the second half of this century.”205 Moreover, worldwide
statistical data establishes that “the legal status of abortion
correlates much more with its safety than with its incidence.”206
Therefore, abortion rights advocates should reference such data
whenever possible during legislative debates in an effort to
persuade Unites States lawmakers that their attempts to
eliminate abortion through bans and restrictions is misguided,
and will ultimately prove to be unsuccessful.
Countries such as Chile, Colombia, El Salvador, Ireland,
and Nicaragua, all legally forbid abortions,207 while a significant number of other countries have enacted severe abortion
restrictions.208 Poland, for example, has numerous restrictions
in place, yet
[u]nderground private abortion services are robust in Poland, as is
“tourism” abortion by Polish women who travel to neighbouring
countries including, Austria, Belarus, Belgium, the Czech Republic,
Germany, Holland, Lithuania, the Russian Federation, Slovakia and
Ukraine. Rough 1996 estimates suggest there may be 50,000
underground abortions a year.209
Such statistics are relevant to any abortion legislation as they
refute arguments that abortion, if criminalized or severely
restricted, will disappear. In Ireland, for example, abortion is
illegal and yet it is estimated that some 72,000 Irish women
have travelled to England to obtain abortions since 1970.210
That number continues to climb.211
Similarly, the government in El Salvador has succeeded
in doing that which South Dakota failed to do—outlawing
abortion in all instances, even when the pregnancy is the result
of rape, incest or fetal malformation.212 The outright ban on
205
Id. at 2-3.
Id. at 5.
207
Stanley K. Henshaw et al., The Incidence of Abortion Worldwide, 25 INT’L
FAMILY PLANNING PERSP. S30 (Supp. 1999), available at http://www.guttmacher.org/
pubs/journals/25s3099.html.
208
Dailard, supra note 79, at 2-3.
209
UNITED NATIONS POPULATION DIVISION, ABORTION POLICIES: A GLOBAL
REVIEW 40 (2001) [hereinafter U.N. ABORTION REVIEW].
210
Maureen C. McBrien, Note, Ireland Balancing Traditional Domestic
Abortion Law with Modern Reality and International Influence, 26 SUFFOLK
TRANSNAT’L L. REV. 195, 195-96 (2002).
211
Id.
212
U.N. ABORTION REVIEW, supra note 209, at 136; see also David A.
206
Grimes et al., Unsafe Abortion: The Preventable Pandemic, 368 LANCET 1908, 1908
(2006), available at http://cdrwww.who.int/reproductive-health/publications/articles/
article 4.pdf.
2008]
RESTRICTIVE ABORTION LAWS AND THE BACKLASH
1505
abortions in El Salvador has resulted in unsafe “back-alley
abortions” where women use a variety of tools including coat
hangers and fertilizers to rid themselves of unwanted
pregnancies.213 The country also prohibits abortion in cases
where the life of the mother is in danger.214 Though many
countries with abortion laws in place largely fail to enforce
them, El Salvador has “an active law-enforcement apparatus—
the police, investigators, medical spies, forensic vagina
inspectors and a special division of the prosecutor’s office
responsible for Crimes Against Minors and Women, a unit
charged with capturing, trying and incarcerating” any abortion
provider and women seeking the procedure.215 Such drastic
measures should provide warning enough to United States and
individual state lawmakers that women’s interests will be best
served by laws which protect their health, not laws that
constrict their reproductive choices.
VI.
CONCLUSION
Despite its illegality or near impossibility, women who
live in places where abortion is illegal will seek out abortions
even though they pose serious health risks as well as deep
psychological trauma.216 The high mortality rates that resulted
from illegal “abortion mills” in the years prior to Roe influenced
state legislatures to regulate the conditions for abortion in
order to prevent abortion-related injuries and deaths.217 As
noted by Supreme Court Justice Harry A. Blackmun sixteen
years after authoring Roe v. Wade, “To overthrow [Roe] . . . .
will turn thousands of American women into criminals & their
MD’s too. Or [it] will return us to the back alley, and a number
of these women, an unconscionable number, will die.”218 Despite
Justice Blackmun’s all too accurate prediction, some state’s
laws continue to restrict the abortion right.
213
Jack Hitt, Pro-Life Nation, N.Y. TIMES MAG., Apr. 9, 2006.
U.N. ABORTION REVIEW, supra note 209, at 136.
215
Hitt, supra note 213. The country’s penal code provides stiff penalties: the
abortion provider, whether a medical doctor or a back-alley practitioner, faces six to
twelve years in prison. The woman herself can get two to eight years. Anyone who
helps her can get two to eight years. U.N. ABORTION REVIEW, supra note 209, at 137.
216
See supra note 156 and accompanying text.
217
Id.
218
LINDA GREENHOUSE, BECOMING JUSTICE BLACKMUN: HARRY BLACKMUN’S
SUPREME COURT JOURNEY 190 (2005).
214
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When legislatures choose to ignore the desperate and
deadly lengths to which women are willing to go to obtain
abortions, they send a significant message to the citizenry that
women’s bodies and lives are less valuable than those of men,
and that women’s bodies must be controlled. Rather than
allowing women to determine when and whether they are
prepared to bear and rear children, these legislatures have
attempted to restrict, or even eliminate, a right to abortion.
They have done so under the guise of protecting women.219
Typically, as was the case in South Dakota, lawmakers argue
that a woman could never voluntarily choose to abort her child,
but instead that spouses, boyfriends, parents, abortion doctors,
and even society, promote and pressure women in our abortion
culture.220 Such arguments, though, promote gender stereotypes
of women as dependent and easily controlled. Such arguments
ultimately allow for state lawmakers to control women’s bodies
and to determine their futures.
Excessive abortion restrictions do not prevent abortions,
but instead they relegate the procedures to back-alleys and to
clinics in other states.221 What is worse, such laws harm poor
women to a greater degree because restrictive state abortion
laws ensure that these women are forced into unwanted
pregnancy while “wealthy women, middle class women, and
women who have some money stashed away will be able to
obtain abortions in another country or across a state line or
from a doctor who is a relative or friend.”222 When legislators
ignore the obvious impact of state laws, they ensure that
women go underground and take matters into their own hands.
The increasingly active and visible anti-abortion movement has made significant strides in recent years in politicizing
abortion and gaining allies in the U.S. Congress.223 Their political efforts, in conjunction with medical advances that allow
fetuses to survive outside of the womb at much younger ages,
have in many instances silenced pro-choice lobbyists. In order
to ensure that abortion bans and restrictions are not enacted,
219
See Siegel, supra note 39 (examining the arguments of certain pro-life
activists).
220
See supra notes 109-112 and accompanying text.
See supra notes 109-112 and accompanying text.
222
Hearing on H.B. 239 Before the Ohio H. Health Comm. (2005) (statement of
Barbara Avery, Director, Ohio Religious Coalition for Reproductive Choice), available
at http://www.ohiorcrc.org/assets/documents/Testimony%20opposing%20HB%20239 –
November%202,%202005.doc.
223
See supra notes 11-12 and accompanying text.
221
2008]
RESTRICTIVE ABORTION LAWS AND THE BACKLASH
1507
abortion rights activists must advocate against abortion
restrictions and bans by introducing into legislative debates
evidence that such laws do not curb the large numbers of
unintended pregnancies in our nation. They must describe the
dangers and deaths that resulted from back-alley abortions,
the re-emergence of the underground, and encourage women
who have had abortions to speak out about their experiences,
and to reject the claims by anti-abortion activists that abortions harm women.
Proponents of abortion rights, though, must tread
carefully when arguing about abortion and inquiring into
whether women actually suffer physical or psychological harm
as a result of abortions. They must reject the impulse to deny
the veracity of the narratives and the powerfulness of the
experiences of women who have obtained abortions and later
regretted the decision. By supporting these women and trying
to understand their viewpoints, abortion proponents may
gain support from many women. Like their anti-abortion
counterparts, abortion proponents should show support and
compassion for women who have been negatively affected by
abortion.224 Such a strategy will then promote the healing of
those women who have undergone the procedures while also
promoting the agenda of pro-choice advocates: to ensure that
abortions are safe and rare, and that there is no need for an
underground abortion network.225
If, however, pro-choice activists are unsuccessful in
slowing the progress of the anti-choice movement, they will
ultimately be forced to retreat into the underground. Such a
maneuver, though, would unquestionably prove quite daunting.
Just as the Jane Collective in the pre-Roe years assisted
women who sought abortions while also training doctors to
perform the procedures safely, so too will the modern day
abortion railroad activists.226
The ability of women to participate equally in the
economic and social life of the nation has been facilitated by
224
For a discussion of some anti-abortion strategies, see Siegel, supra note 39.
Charlotte E. Hord, Unsafe Abortion in the Developing World, ProChoice
Action Network (1997), http://www.prochoiceactionnetwork-canada.org/prochoicepress/
97autumn.shtml#unsafe.
226
“Jane was the contact name for a group in Chicago officially known as the
Abortion Counseling Service of Women’s Liberation.” KAPLAN, supra note 35, at ix.
Organized in 1969, the group counseled women and originally only made referrals to
underground abortion networks. Id. The group eventually had many members learn
the technical skills necessary to perform abortions safely. Id. at x.
225
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their ability to control their reproductive lives. In order to best
ensure that women retain control over their reproductive freedom, abortion proponents must reframe the abortion debate.
When attention is drawn to injuries and deaths caused by
illegal abortions, activists will be more successful in lobbying
for more liberal abortion laws. Until then, it seems that the
underground abortion railroad will provide the means by which
women resist laws that control their bodies. But as with any
underground movement, many are left behind due to lack of
funds, lack of volunteers, lack of knowledge about the existence
of these networks, and the inability of such small organizations
to provide a meaningful level of outreach. The best strategy to
ensure that abortions are not made illegal or almost impossible
to obtain is through the sharing of stories about illegal and
unsanitary abortions that have caused death and injury to so
many women throughout the world. If that tactic fails, abortion
proponents will be forced to retreat underground, mobilize as
many volunteers as possible, and emulate their sisters and
brothers of the pre-Roe years who mobilized an effective and
safe underground abortion railroad.227
Janessa L. Bernstein†
227
In Leslie J. Reagan’s book, she aptly describes the impact of the two
underground abortion networks, Society for Humane Abortion, in California, and Jane,
in Chicago:
Both challenged the state in the most fundamental way and made obvious
what had long been true: illegal abortions were readily available to
thousands, and the state was powerless to stop them. In creating their own
illegal abortion networks, the California and Chicago projects circumvented
the medical establishment and hinted at the possibility of a health-care
system for women run by feminists in competition with the existing medical
system. These initiatives were not at first identified as women’s liberation
efforts—that phrase had not been coined yet. The second wave of feminism,
on the verge of breaking, would follow the analysis and activism of these
innovative organizers.
REAGAN, supra note 33, at 223. Now we find ourselves in the third wave of feminism
and facing strict abortion laws throughout our country. It is likely that the
underground abortion railroad will continue to develop as laws become more and more
restrictive.
†
J.D. Candidate, Brooklyn Law School, 2008; B.A., Vanderbilt University,
2003. I would like to thank the editors and staff of the Brooklyn Law Review for their
invaluable assistance with and support of this Note. I thank my mother, Catherine
Bernstein, and my grandmother, Cynthia O. Smyth, for their love and support. I
especially thank Shane Jussen and the Williams family for their love and encouragement during these trying law school years. I dedicate this Note in loving memory of my
father, Gary Bernstein (1942-2003)—thank you for always believing in me.
The Hedge Fund Holdup
THE SEC’S REPEATED UNNECESSARY
ATTACKS ON THE HEDGE FUND INDUSTRY
I.
INTRODUCTION
Hedge funds have produced vastly different results for
investors in 2008. Some have profited by immense amounts,
while others have suffered great losses at the hands of funds
that collapsed as a result of the subprime credit crisis.1
Irrespective of their success, most hedge fund investors would
agree on one thing: the Securities and Exchange Commission
(“SEC”) should not regulate hedge funds.
The public debate over whether to regulate hedge funds
began in late 2004 when the SEC released a proposed regulation of hedge funds. This proposal, known as the Hedge Fund
Rule,2 was finalized after a period of public comment, and took
effect on February 1, 2006.3 The purpose of this Rule was to
1
Beginning in the summer of 2007, the country was hit by what has become
known as the “subprime credit crisis.” Borrowing money is of key importance, as credit
funds everything from the mergers of large corporations to consumer home loans. The
subprime credit crisis has in part been driven by the default of many home loans that
were made to “subprime” borrowers, that is, those having less than stellar credit. In
2007, a series of defaults by these subprime debtors caused the credit markets to
tighten and shut off the easy access to credit that borrowers enjoyed previously. This
caused a chain reaction that affected even the largest of banks as many of the original
loans were repackaged and sold in a variety of investment products. For a detailed
account of the many stories that have been spawned by this crisis, see Reuters.com,
Subprime Mortgage Trouble, http://www.reuters.com/news/globalcoverage/subprime
(last visited Mar. 15, 2008).
Most recently, Henry Paulson, Secretary of the Treasury, introduced a
sweeping proposal to change the entire financial regulatory system in the United
States. See Damian Palletta et al, Plan Begins Battle Over How to Police Market—
Amid Crisis, a Bid to Shuffle Powers; Fast Fixes Unlikely, WALL ST. J., Mar. 31, 2008,
at A1. This proposal includes such long-term goals as reducing the power of the SEC
and giving the Federal Reserve regulatory oversight authority. Although the shortterm goal is the creation of a Mortgage Origination Commission to monitor mortgage
lending, it is unlikely that anything will be accomplished, given that it is a presidential
election year and that these changes would affect every executive agency affiliated with
the financial markets. Id.
2
See Goldstein v. SEC, 451 F.3d 873, 877 (D.C. Cir. 2006).
3
See Registration Under the Advisers Act of Certain Hedge Fund Advisers,
69 Fed. Reg. 72,054 (Dec. 10, 2004) [hereinafter Hedge Fund Rule Release]. (The rule
that was created by this release was vacated on June 23, 2006.)
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increase hedge fund accountability through mandatory filings.4
Prior to this regulation, hedge funds had not been required to
register with the SEC and thus were exempt from regulatory
and disclosure mandates. The new rule required almost all
hedge funds to register, thereby giving the SEC substantially
greater control and eliminating the secrecy with which hedge
funds had been operating.5 The rule, however, was not in effect
for very long. Phillip Goldstein, co-owner of two hedge funds,
challenged the rule on the basis that it misinterpreted an
existing regulation.6 On June 26, 2006, the United States Court
of Appeals for the District of Columbia Circuit ruled in favor of
Goldstein, vacating the Hedge Fund Rule.7
The SEC chose not to appeal the decision to the
Supreme Court, instead formulating as a replacement for the
Hedge Fund Rule two new proposals in late December 2006.8
One proposal was a pair of anti-fraud provisions, increasing the
accountability of hedge fund manager conduct as well as the
amount of information released to investors.9 The SEC later
adopted this rule on September 10, 2007.10 The second proposal,
the “Accredited Investor Proposal”—released in December 2006
and further revised in August 200711—is a push to increase the
minimum amount that an investor must have in net worth in
order to invest in hedge funds.12 This is a proposed change to
Regulation D,13 a set of regulatory provisions that allows for
certain investment vehicles to escape registration with the SEC
4
See id. at 72,054.
Id. Hedge fund secrecy has become something of a legend throughout the
financial world. Those involved in hedge funds are so tight lipped that some employees
were even reluctant to discuss their daily commute with reporters for fear of reprisal
from the hedge fund manager. See Michael S. Schmidt, A Trader’s Train to Wall Street,
Conn., N.Y. TIMES, Aug. 4, 2006.
6
Goldstein, 451 F.3d at 874, 878.
7
Id. at 884.
8
Prohibition of Fraud by Advisers to Certain Pooled Investment Vehicles;
Accredited Investors in Certain Private Investment Vehicles, Investment Advisers Act
Release No. 2,576, 72 Fed. Reg. 400 (Jan. 4, 2007) (to be codified at 17 C.F.R. pts. 230,
275) [hereinafter Fraud & Accredited Investor Proposals].
9
Id. at 400.
10
See 17 C.F.R. § 275.206(4)-8 (2008).
11
See Revisions of Limited Offering Exemptions in Regulation D, 72 Fed.
Reg. 45,116 (Aug. 10, 2007) (to be codified at 17 C.F.R. 200, 230, and 239) [hereinafter
August 2007 Revision].
12
Fraud & Accredited Investor Proposals, 72 Fed. Reg. at 400 n.4 (“We are
proposing a rule that would revise the requirements for determining whether an
individual is eligible to invest in certain pooled investment vehicles.”).
13
17 C.F.R. §§ 230.501-.508.
5
2008]
THE HEDGE FUND HOLDUP
1511
if they conform to specific requirements.14 These latest proposals have prompted the hedge fund industry to take notice:
the SEC is not walking away.
This Note will argue that the recent rules promulgated
by the SEC demonstrate the Commission’s insistence on
keeping a regulatory hand in the hedge fund industry without
considering the necessity, effectiveness, or consistency behind
its rules. Moreover, the combination of existing hedge fund
practices and the requirements of Regulation D make further
regulation unnecessary to protect investors. Part II of this Note
will briefly explain what hedge funds are and will set forth the
applicable statutes and rules that control the hedge fund
industry. Part III will outline the SEC proposals, the defunct
Hedge Fund Rule, the anti-fraud rules, and the Accredited
Investor Proposal. Part IV will analyze the reasons behind both
the anti-fraud rules and the Accredited Investor Proposal, and
will focus on the lack of necessity for the rules and the
inconsistencies between them. Additionally, the arbitrary
nature by which the SEC created the Accredited Investor
Proposal will be discussed. Finally, Part V will illustrate how
additional SEC regulations, with the stated purpose of protecting small investors, are unnecessary due to a combination
of current hedge fund practices and Regulation D provisions
that sufficiently protects small investors.15
II.
HEDGE FUNDS AND THE RULES THAT GOVERN THEM
“Hedge fund” has become a buzzword whose use has
extended far beyond the financial communities of Wall Street
and Greenwich, Connecticut.16 As a part of the national news
landscape, hedge fund activities and the regulations that affect
them have become a regular feature in national newspapers
and on the evening news. To provide context for a discussion of
the SEC’s initiatives, this Part describes what hedge funds
are and briefly examines the securities regulations that affect
them.
14
See Investopedia.com, Regulation D, http://www.investopedia.com/terms/r/
regulationd.asp (last visited Mar. 16, 2008).
15
“Small investors” in this Note refers to investors with a relatively small
amount of capital, as opposed to wealthy individuals or institutional investors such as
pension funds.
16
Greenwich, Connecticut has become the Wall Street of the hedge fund
industry, fast becoming a hub of this low-key industry. For an interesting article about
Greenwich and its link to the hedge fund world, see Schmidt, supra note 5.
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Hedge Funds: What Are They and What Do They Do?
Defining the term “hedge fund” is not a simple task.
Securities law has never formally defined the term.17 A basic
working definition is that a hedge fund is a pool of money
managed by a professional who designs strategies to maximize
return18 and that has certain limits in place as to who may
invest in the fund.19 In addition, hedge funds have traditionally
been characterized by their lack of registration with the SEC,
thereby allowing them the freedom to avoid reporting investment activities.20
Hedge funds offer three main benefits to their investors:
(1) they provide diversification by investing in a wide array of
typical financial products, including more complex and higher
risk investments such as derivatives;21 (2) they attempt to
remain uncorrelated to the stock or bond markets,22 giving
17
William Donaldson, Chairman, SEC, Testimony Concerning Investor
Protection Implications of Hedge Funds Before the Senate Committee on Banking,
Housing, and Urban Affairs (Apr. 10, 2003), available at www.sec.gov/news/testimony/
041003tswhd.htm.
18
“Return” is defined as “the gain or loss of a security in a particular period.”
Investopedia.com, Return, http://www.investopedia.com/terms/r/return.asp (last visited
Mar. 16, 2008). Return comprises both the income from an investment as well as the
capital increase of the investment. Id.
19
See Goldstein v. SEC, 451 F.3d 873, 875 (D.C. Cir. 2006) (quoting the
PRESIDENT’S WORKING GROUP ON FIN. MKTS., HEDGE FUNDS, LEVERAGE, AND THE
LESSONS OF LONG-TERM CAPITAL MANAGEMENT 1 (1999) [hereinafter PRESIDENT’S
WORKING GROUP ON FIN. MKTS.]); see also Jessica Natali, Trimming the Hedges Is a
Difficult Task: The SEC’s Attempt to Regulate Hedge Funds Falls Short of Expectations,
15 U. MIAMI BUS. L. REV. 113, 116 (2007). In addition to restrictions on who may invest,
hedge funds generally require lockups whereby an investor agrees to be barred from
withdrawing his investment capital for a specified length of time.
20
See SEC, STAFF REPORT TO THE SEC. EXCH. COMM’N, IMPLICATION OF THE
GROWTH OF HEDGE FUNDS viii (2003) [hereinafter STAFF REPORT], available at
http://www.sec.gov/news/studies/hedgefunds0903.pdf.
21
A derivative is “a security whose price is dependent upon or derived from
one or more underlying assets.” Investopedia, Derivative, http://www.investopedia.com/
terms/d/derivative.asp (last visited Apr. 7, 2008). A “future” is a common form of a
derivative consisting of a contract to buy or sell an asset at an agreed upon price on a
certain date in the future. The contract itself is then bought and sold on a secondary
market. Much of the risk of derivatives is whether the price of the underlying asset will
decline or increase by the agreed upon date. Common underlying assets include
“stocks, bonds, commodities, currencies, interest rates and market indexes.” Id.; see
also STAFF REPORT, supra note 20, at 4-5.
22
The advantage to investors who invest in hedge funds that attempt to be
uncorrelated to these markets is that the value of the fund will not necessarily
fluctuate when those markets go up or down. This allows for a counterbalancing of the
risks in investing in the stock and bond markets. STAFF REPORT, supra note 20, at 5.
For an example and in-depth explanation of how some hedge funds attempt to hedge
against the general markets, see KEITH H. BLACK, MANAGING A HEDGE FUND 39-40
(2004).
2008]
THE HEDGE FUND HOLDUP
1513
investors a method of further reducing broad systemic risk;23
and (3) they offer complex investment strategies, including
short selling,24 which allow hedge funds to “hedge” against the
decline of that investment.25 A typical example of a hedging
technique is when a fund buys an underlying asset, a stock for
example, and then sells a futures contract for that stock at a
certain price.26 This technique hedges against a decline in the
stock’s value as the investor has ensured that he will have a
buyer for the stock at the set price.27 Some hedge funds still
strategize to exclusively provide protection from a fall in the
broader markets, although many of them have become pure
profit machines at the expense of risk diversification.28
B.
Hedge Fund Governance Law
Most hedge funds have been able to avoid SEC registration and reporting requirements through a variety of statutory
exemptions. This section provides a brief background of the
current regulatory structure that allows hedge funds to operate
in “secrecy” and the statutes that the SEC seeks to modify.29
In order to better understand the laws affecting hedge
funds, it is important to understand generally what each of
the governing acts accomplishes. When a security30 is offered
23
STAFF REPORT, supra note 20, at 5.
“Short selling” is defined as “[t]he selling of a security that the seller
does not own . . . . Short sellers assume that they will be able to buy the stock at
a lower price than that at which they sold short.” Investopedia, Short Selling,
http://www.investopedia.com/terms/s/shortselling.asp (last visited Apr. 7, 2008).
25
STAFF REPORT, supra note 20, at 5.
26
A futures contract is a contract to buy or sell an underlying security
at a set price on a specific date. Investopedia.com, Futures Contract, http://
www.investopedia.com/terms/f/futurescontract.asp (last visited Apr. 7, 2008).
27
Investopedia, Hedge, http://www.investopedia.com/terms/h/hedge.asp (last
visited Apr. 7, 2008).
28
Hedge Fund Rule Release, Investment Advisers Act Release No. 237, 69
Fed. Reg. 72,054, 72,055 (Dec. 10, 2004). For a full discussion of the various trading
practices that hedge funds employ, see PRESIDENT’S WORKING GROUP ON FIN. MKTS.,
supra note 19, at 4-5.
29
For a full account of the various statutes and regulations that affect hedge
funds, see STAFF REPORT, supra note 20, at 11-32.
30
A “security” is defined by the Securities Act of 1933 as
24
any note, stock, treasury stock, security future, bond, debenture, evidence of
indebtedness, certificate of interest or participation in any profit-sharing
agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil, gas, or
other mineral rights, any put, call, straddle, option, or privilege on any
security, certificate of deposit, or group or index of securities (including any
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for sale, it is governed by the Securities Act of 1933 (“Securities
Act”).31 This Act has two purposes: The first is to provide an
investor with significant information concerning the security
being offered for sale.32 The second is to prohibit fraud in the
offering of the security.33 The Securities Exchange Act of 193434
is a broad statute that covers securities industry participants,
including brokerage firms, clearing agencies, and the actual
security exchanges.35 It has many different components and
includes the registration of exchanges, a prohibition of insider
trading, and the requirement that certain investors must
report their holdings to the SEC.36
The final two acts relevant to this discussion are the
Investment Company Act of 194037 and the Investment
Advisers Act of 1940.38 The Investment Company Act regulates
companies, such as mutual funds,39 that invest and trade for
others. The purpose of the act is to provide the public with
interest therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange relating to
foreign currency, or, in general, any interest or instrument commonly known
as a “‘security,” or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to or purchase, any of the foregoing.
15 U.S.C. § 77b(a)(1)(2006). This definition includes essentially every financial product
and therefore puts almost every sale of a financial product under the auspices of the
Securities Act.
31
Id. § 77a.
32
SEC, The Laws That Govern the Securities Industry, http://www.sec.gov/
about/laws.shtml (last visited Apr. 7, 2008) (“This information enables investors, not
the government, to make informed judgments about whether to purchase a company’s
securities. . . . Investors who purchase securities and suffer losses have important
recovery rights if they can prove that there was incomplete or inaccurate disclosure of
important information.”).
33
Id.
34
15 U.S.C. § 78a.
35
SEC, supra note 32. The security exchanges that are covered by the
Securities Exchange Act include the New York Stock Exchange, the American Stock
Exchange, and the NASDAQ. Id.
36
Id.
37
15 U.S.C. § 80a-1.
38
Id. § 80b-1.
39
The SEC describes a mutual fund as follows:
A mutual fund is a company that pools money from many investors and
invests the money in stocks, bonds, short-term money-market instruments,
other securities or assets, or some combination of these investments. The
combined holdings the mutual fund owns are known as its portfolio. Each
share represents an investor’s proportionate ownership of the fund’s holdings
and the income those holdings generate.
SEC, Invest Wisely: An Introduction to Mutual
investor/pubs/inwsmf.htm (last visited Apr. 7, 2008).
Funds,
http://www.sec.gov/
2008]
THE HEDGE FUND HOLDUP
1515
information about the fund and its objectives, including its
structure and operation.40 This is accomplished through regular
disclosures to the SEC.41 The Investment Advisers Act is a
companion act, and governs the role of the investment advisor
to a fund or investment company. This Act requires that the
advisor register with the SEC and provide certain disclosures
directly to the agency with the purpose of protecting the
individual investor from fraud perpetrated by the advisor.42
1. The Securities Act of 1933
The purpose of the Securities Act of 1933 is to provide
for disclosure and accountability to investors through mandatory registration with the SEC.43 Without an exemption, any
company issuing a security to the public is required to register
with the SEC and provide information about the issuer and the
security.44 The specific requirements of disclosure include a
description of the properties and business owned by the
company issuing the security, a description of the security
being sold, information about the management of the company
issuing the security, and financial statements of the company.45
Hedge funds must comply with the mandatory requirements
under the Securities Act because they sell a security to their
investors.46 Thus, unless they fall within an exception, they
must comply with all of the disclosure requirements.47
As a companion to the Securities Act, the SEC created a
regulation48 with the express purpose of exempting certain
40
SEC, supra note 32.
Id.
42
Id.
43
STAFF REPORT, supra note 20, at 13-14.
44
See id.
45
SEC, supra note 32.
46
Unless a security is registered with the SEC, it is prohibited from being
sold under the Securities Act. 15 U.S.C. § 77(e) (2006) (“Unless a registration is in
effect as to a security, it shall be unlawful for any person directly, or indirectly . . . to
carry or cause to be carried through the mails or in interstate commerce, by any means
or instruments of transportation, any such security for the purpose of sale or for
delivery after sale.”).
47
STAFF REPORT, supra note 20, at 13.
48
The SEC is an administrative agency that derives its power from the
executive branch. Congress will typically set up a broad statute that sets out what
it would like to accomplish, and then the administrative agency creates regulations
with the purpose of carrying out Congress’s mandate. Cornell University Law School,
Administrative Law, http://www.law.cornell.edu/wex/index.php/Administrative_law (last
visited Mar. 25, 2008).
41
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types of companies from the requirement to register with the
SEC. Regulation D,49 enacted in 1982, provides three exemptions for certain private companies from registering with the
SEC.50 These exemptions are known as Rules 504, 505, and
506.51 Rule 506 is the exemption used most widely by hedge
funds.52 This Rule allows a company to avoid registration as
long as it does not make a general solicitation or advertisement to the public, and allows only “accredited investors” to
invest.53 An accredited investor is an individual with a net
worth or joint net worth above $1,000,000, or total income
above $200,000 or joint income of $300,000.54 For institutional
investors,55 the accredited investor standard is higher, requiring $5,000,000 in investment assets.56
Funds that take advantage of the Rule 506 exemption
must obey the strict restriction on the marketing of the funds.
This restriction prohibits the marketing of
securities by any form of general solicitation or general advertising,
including, but not limited to, the following: (1) [a]ny advertisement,
article, notice or other communication published in any newspaper,
magazine, or similar media or broadcast over television or radio; and
(2) [a]ny seminar or meeting whose attendees have been invited by
any general solicitation or general advertising.57
The solicitation restriction applies to private placements of
securities over the Internet as well.58 This restriction complies
with the thrust of the exemption, which is specifically targeted
49
17 C.F.R. §§ 230.501-.508 (2008).
August 2007 Revision, 72 Fed. Reg. 45,116, 45,116 (Aug. 10, 2007).
51
See 17 C.F.R. §§ 230.504-.506.
52
Id. § 230.506; see also August 2007 Revision, 72 Fed. Reg. at 45,116. Rules
501 through 503 “contain definitions, conditions, and other provisions that apply
generally throughout Regulation D.” Id. Rule 504 contains an exemption for companies
that offer less than $1,000,000 in securities to the public in a 12 month period. Rule
505 exempts up to $5,000,000 in securities offered in a 12 month period, as long as the
offering company does not make a general advertisement or solicitation. Id. at 45,11617.
53
17 C.F.R. § 230.506. Rule 506 states: “To qualify for an exemption under
this section, offers and sales must satisfy all the terms and conditions of §§ 230.501 and
230.502.” Id. Rule 501 contains the definition of “accredited investor,” and Rule 502
requires the exempted issuer to comply with the prohibitions on advertising. 17 C.F.R.
§§ 230.501-.502; see also STAFF REPORT, supra note 20, at 15.
54
STAFF REPORT, supra note 20, at 15; see also 17 C.F.R. § 230.501(a).
55
Institutional investors include banks, insurance companies, pension funds
and other large scale investors. See August 2007 Revision, 72 Fed. Reg. at 45,123 n.8.
56
17 C.F.R. § 230.501(a)(3).
57
Id. § 230.502(c)(1)-(2).
58
STAFF REPORT, supra note 20, at 16-17.
50
2008]
THE HEDGE FUND HOLDUP
1517
at private investment vehicles. By restricting mass advertising,
the SEC ensures that the investment vehicle is indeed
“private.”
2. Investment Company Act of 1940
The Investment Company Act is quite broad, governing
any company that “holds itself out as being engaged primarily,
or proposes to engage primarily, in the business of investing,
reinvesting, or trading in securities.”59 This encompasses all
types of funds including hedge funds and mutual funds. The
Act requires that the companies report their financial condition
and investment policies to investors on a regular basis as well
as when new securities are sold.60 Hedge funds employ one of
two exemptions to avoid the requirements of the Act.61 First, if
a hedge fund has less than 100 investors and does not offer the
securities to the general public, it is exempt from the requirements of the Investment Company Act.62 Second, a hedge fund
can exempt itself from the requirements, while retaining the
ability to have unlimited numbers of investors, as long as the
investors in the fund are “qualified purchasers.”63 A “qualified
purchaser” is any investor who has at least $5 million in
investments.64 Thus, although the Investment Company Act
covers practically all hedge funds, most hedge funds are able to
avoid registration by virtue of being “qualified purchasers” or
by limiting participation in the fund to less than 100 investors.
59
15 U.S.C. § 80a-3(a)(1)(A) (2006).
SEC, supra note 32.
61
Id.
62
15 U.S.C. § 80a-3(c)(1) (“None of the following persons is an investment
company within the meaning of this subchapter. . . Any issuer whose outstanding
securities (other than short-term paper) are beneficially owned by not more than one
hundred persons and which is not making and does not presently propose to make a
public offering of its securities.”).
63
Id. § 80a-3(c)(7)(A) (“None of the following persons is an investment
company within the meaning of this subchapter . . . . Any issuer, the outstanding
securities of which are owned exclusively by persons who, at the time of acquisition of
such securities, are qualified purchasers, and which is not making and does not at that
time propose to make a public offering of such securities.”).
64
Id. § 80a-2(a)(51) (“Any natural person (including any person who holds a
joint, community property, or other similar shared ownership interest in an issuer that
is excepted under section 80a-3(c)(7) of this title with that person’s qualified purchaser
spouse) who owns not less than $5,000,000 in investments, as defined by the
Commission.”).
60
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3. Investment Advisers Act of 1940
The Investment Advisers Act of 1940 was created to
allow the SEC to monitor advisors to funds and streamline any
fraud investigations, as well as to better respond to complaints
by investors against an advisor.65 Almost all advisors to hedge
funds fall under the definition of “investment advisor” in the
Advisers Act.66 The Advisers Act requires that advisors register
with the SEC and provide the SEC with a bevy of information,
including the manner in which the advisor provides advice, the
basis upon which the advisor is compensated, and the balance
sheet of the advisor.67 In addition, the Advisers Act prohibits
fraud by advisors perpetrated against the managed fund.68
Hedge fund advisors generally utilize an exemption to
registration under the Advisers Act, thereby avoiding the
disclosure requirements.69 The exemption applies to advisors
who have fewer than fifteen “clients” and who do not hold
themselves out as advisors to the public or to a registered
investment company under the Investment Company Act of
1940.70 Although most advisors advise funds that have more
than fifteen individual investors, the SEC traditionally in its
65
Goldstein v. SEC, 451 F.3d 873, 876 (D.C. Cir. 2006).
15 U.S.C. § 80b-2(a)(11) (“‘Investment adviser’ means any person who, for
compensation, engages in the business of advising others, either directly or through
publications or writings, as to the value of securities or as to the advisability of
investing in, purchasing, or selling securities, or who, for compensation and as
part of a regular business, issues or promulgates analyses or reports concerning
securities . . . .”).
67
Id. § 80b-3(c)(1). Other examples of disclosure requirements under the
Advisers Act include: the names and addresses of the advisor’s partners, officers, and
directors of the fund; the advisor’s education and the past 10 years of business
affiliations, as well as the current business affiliations of not only the advisor, but his
partners, officers, and directors; whether the principal business of the investment
advisor is the role of advising funds. See id.
68
Id. § 80b-6 (“It shall be unlawful for any investment adviser, by use of the
mails or any means or instrumentality of interstate commerce, directly or indirectly (1)
to employ any device, scheme, or artifice to defraud any client or prospective client; (2)
to engage in any transaction, practice, or course of business which operates as a fraud
or deceit upon any client or prospective client.”). It is important to note the language of
the act, which specifically uses the word “client.” Under the Hedge Fund Rule, the SEC
attempted to change the definition of client, from the fund as a whole to an individual
client. After the Hedge Fund Rule was vacated in Goldstein, the SEC created the antifraud rules, which specifically prohibited fraud promulgated by an advisor against an
individual investor, as opposed to the previous version that prevented fraud against
the fund as a whole. See infra Part III.A.
69
15 U.S.C. § 80b-3(b)(3). The following discussion about the exception and
the definition of the term “client” reflect the current state of the law, after the D.C.
Circuit rejected the SEC’s contrary position in Goldstein. See infra Part III.A.
70
15 U.S.C. § 80b-3(b)(3).
66
2008]
THE HEDGE FUND HOLDUP
1519
regulations allowed for the fund itself to be considered a single
“client.”71 An advisor may treat the entire fund as a single
client, provided that the investment advice given is based on
the entire organization’s objectives, and not on the objectives of
any individual investor.72 This powerful exemption allows
advisors that advise less than fifteen funds, although possibly
hundreds of individual investors, to avoid registration with the
SEC under the Advisers Act. Although the advisors to these
funds are exempt from registration, the anti-fraud provisos of
the Investment Advisers Act apply as they would to a
registered advisor.73 This exemption, categorizing a “client” as
the fund itself rather than the individual investors in the fund,
was the target of the SEC’s failed 2004 Hedge Fund Rule.74
In sum, the Securities Act requires the registration of
any sale of a security. Most hedge funds, however, use
Regulation D to avoid registration. The Investment Company
Act requires registration by the company that issues the
security, a requirement from which most hedge funds are
exempted. Finally, the Investment Advisers Act governs the
advisor to a fund and requires the registration and periodic
monitoring of the advisor by the SEC. Hedge fund advisors
utilize an exemption from registration for all advisors who have
fewer than fifteen “clients.” Because an entire fund is deemed a
“client” an advisor can avoid registration if he advises less than
fifteen funds. This definition of “client” was the target of the
SEC’s Hedge Fund Rule.
III.
THE SEC’S PROPOSALS: TWO ATTEMPTS
The SEC’s rules have made a significant impact not only
on the hedge fund industry, but on the entire financial
community as well. This is a result of the SEC’s persistent
attempts, beginning with the Hedge Fund Rule, to change the
regulatory landscape affecting hedge funds. After the D.C.
Circuit vacated the Hedge Fund Rule in Goldstein v. SEC,75 the
SEC introduced two more provisions targeting the industry
71
17 C.F.R. § 275.203(b)(3)-1(a)(2)(i) (2004). This is the version of the rule
prior to the enactment of the Hedge Fund Rule. Although Goldstein vacated the Hedge
Fund Rule, a decision that the SEC itself has not challenged, the SEC has never
changed its own regulation to reflect Goldstein.
72
Id.
73
STAFF REPORT, supra note 20, at 21.
74
See Hedge Fund Rule Release, 69 Fed. Reg. 72,054, 72,058 (Dec. 10, 2004).
75
451 F.3d 873, 884 (D.C. Cir. 2006).
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from a different angle. This section discusses the Hedge Fund
Rule as well as the recent set of regulatory proposals.
A.
Changing the Investment Advisers Act: Redefining
“Client”
On December 10, 2004, the SEC approved and released
the final version of what is now known as the Hedge Fund
Rule.76 The purpose of the rule was to change the definition
of the term “client” under the Advisers Act to include all
individual investors in hedge funds. This change had the effect
of requiring every advisor to a hedge fund with more than
fifteen individual investors to register under the Investment
Advisers Act. Additionally, the SEC sought to ensnare only
hedge funds in the new regulation, purposely excluding
venture capital funds77 that would not be subject to the
requirement to register.78
76
Hedge Fund Rule Release, 69 Fed. Reg. at 72,054. The SEC articulated the
rule and its purpose:
The Commission is adopting a new rule and rule amendments under the
Investment Advisers Act of 1940. The new rule and amendments require
advisers to certain private investment pools (“hedge funds”) to register with
the Commission under the Advisers Act. The rule and rule amendments are
designed to provide the protections afforded by the Advisers Act to investors
in hedge funds, and to enhance the Commission’s ability to protect our
nation’s securities markets.
Id.
77
A venture capital fund is an investment fund that specializes in providing
start-up capital to small and mid-sized companies, and “[a]re generally characterized
as high-risk/high-return opportunities.” Investopedia.com, Venture Capital Funds,
http://www.investopedia.com/terms/v/vcfund.asp (last visited Apr. 8, 2008).
78
Hedge Fund Rule Release, 69 Fed. Reg. at 72,073. The SEC accomplished
the targeting of hedge funds for registration by creating a separate regulation defining
a “private fund.” The changed definition of “client” would only apply to a “private fund.”
The SEC defined a “private fund” as containing three characteristics that are virtually
uniform among hedge funds. Id. First, it included a fund that would be “subject to
regulation under the Investment Company Act but for the exception from the definition
of ‘investment company’ . . . .” Id. This refers to the exemption to the Investment
Company Act for funds with less than one hundred investors, 15 U.S.C. § 80a-3(c)(1)
(2006), or that have only “qualified investors,” Id. § 80a-3(c)(7). Almost every hedge
fund uses one of these exceptions to circumvent the requirements under the
Investment Company Act. See supra Part II.B.2. The second characteristic of a “private
fund,” is a fund that requires investors to lock up capital invested with them for a
minimum of two years. Hedge Fund Rule Release, 69 Fed. Reg. at 72,074. Finally, if a
fund has “interests in it [that] are offered based on the investment advisory skills,
ability or expertise of the investment advisor” (that is, the fund is professionally
managed), it is a “private fund.” 69 Fed. Reg. at 72,075. Although most venture capital
funds would be included in this rule, the SEC specifically exempted them. See infra
text accompanying notes 200-201.
2008]
THE HEDGE FUND HOLDUP
1521
Under the new rule, advisors could no longer count the
whole hedge fund as the client, but had to consider each
investor in the fund as a single client.79 The effect of this
amendment was to limit the registration exemption under the
Act to hedge funds having fewer than fifteen investors. Funds
with fifteen or more investors would be required to register
with the SEC and be subject to the disclosure requirements
of the Advisers Act.80 Additionally, as a companion to the proposed re-definition of “client,” the SEC enacted a clarification to
the disclosure requirements.81 Under the new disclosure rule,
the vast majority of all hedge fund managers would be forced to
allow the SEC to inspect the books of the hedge funds they
manage in addition to the advisor’s own books.82 In doing so,
the SEC could ensure that the advisor is performing his
fiduciary duties to the fund.83 This one-two regulatory punch
moved hedge funds from relative secrecy to a status only a few
regulatory steps away from its highly transparent half-brother,
the mutual fund.84
Forcing hedge funds to register with the SEC was a
short-lived requirement. Immediately after it took effect in
February 2006,85 the requirement came under attack by Philip
Goldstein in Goldstein v. SEC.86 In reaching its conclusion, the
D.C. Circuit Court conducted an in-depth review of the history
of the use of the word “client” in the investment advisor arena,
and the definition that Congress, the courts, and the SEC itself
used over the history of the Advisers Act.87 In June 2006, the
79
17 C.F.R. § 275.203(b)(3)-2(a) (2007) (“[Y]ou must count as clients the
shareholders, limited partners, members, or beneficiaries . . . of a private fund. . . .”).
80
Hedge Fund Rule Release, 69 Fed. Reg. at 72,075.
81
The clarification was made to apply to those funds that were now defined
as “private funds.” 17 C.F.R. § 275.204-2(e)(3)(ii).
82
Hedge Fund Rule Release, 69 Fed. Reg. at 72,076.
83
Id. (“Our examiners require access to these records to determine whether a
hedge fund adviser is meeting its fiduciary obligations to a private fund under the
Advisers Act and rules.”).
84
As a result of the Hedge Fund Rule, hedge funds and their advisors
would be forced to allow the SEC to examine their operations. This has generally been
the case with mutual funds, which are highly regulated and are forced to report to the
SEC a tremendous amount of information including books and trading positions. See
INVESTMENT COMPANY INSTITUTE, 2007 INVESTMENT COMPANY FACT BOOK app. A
(47th ed. 2007), available at http://www.icifactbook.org/pdf/2007_factbook.pdf.
85
Hedge Fund Rule Release, 69 Fed. Reg. at 72,054.
86
451 F.3d 873 (D.C. Cir. 2006).
87
Id. at 873, 878-84. The court was highly critical of the SEC’s change to the
definition of the word “client.” Specifically, the court considered that the SEC was a
regulatory agency, lacking the power to change a definition that was established by
Congress. Id. at 878. Furthermore, the court criticized the policy behind the change,
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court held that the SEC’s attempt to shift the definition of the
term “client” from the hedge fund itself to those who invest in a
fund was supported neither by statutory interpretation nor by
the twenty-year precedent set by the SEC in using the term.88
By vacating the Hedge Fund Rule, the D.C. Circuit Court left
the SEC with two options: appeal the case to the Supreme
Court, or create a new rule.
B.
The SEC’s Second Attempt to Regulate the Industry
Of the two options noted above, the SEC chose the latter
and never appealed to the Supreme Court. In fact, the SEC
abandoned the entire effort to register hedge funds through the
Investment Advisers Act. Instead, the SEC quickly attempted
to bring new regulatory action to the hedge fund industry with
a pair of proposals released on January 4, 2007,89 just over six
months after the Goldstein decision. The first of the proposals,
the anti-fraud rules, went into effect on September 10, 2007.90
The anti-fraud rules consist of two additional anti-fraud
provisions to the Advisers Act.91 The new anti-fraud rules
enhance the existing anti-fraud provisions of the Advisers Act,
which prohibit fraudulent conduct by the advisor against the
fund, by explicitly prohibiting fraudulent conduct by the
advisor against individual investors in the fund.92 Specifically,
the new rules prohibit two types of conduct. First, advisors are
prohibited from making untrue or fraudulent statements to
investors or prospective investors in a fund, regardless of the
intent behind the statements.93 Second, advisors are prohibited
from “[o]therwise engag[ing] in any act, practice, or course of
business that is fraudulent, deceptive, or manipulative with
stating that the change would not be “any more rational when viewed in light of the
policy goals underlying the Advisers Act.” Id. at 883.
88
Id. at 883.
89
See Fraud & Accredited Investor Proposals, 72 Fed. Reg. 400 (Jan. 4,
2007). The quick turnaround by the SEC in creating new regulations further exhibits
the SEC’s focus on regulating the hedge fund industry.
90
17 C.F.R. § 275.206(4)-8 (2008).
91
Id. In the release accompanying the proposal the SEC cited the Advisers
Act as delegating power to the SEC to create rules and regulations to prevent fraud.
Fraud & Accredited Investor Proposals, 72 Fed. Reg. at 401; see also 15 U.S.C.
§ 80b-6(4) (2006) (“The Commission shall, for the purposes of this paragraph . . . by
rules and regulations define, and prescribe means reasonably designed to prevent, such
acts, practices, and courses of business as are fraudulent, deceptive, or manipulative.”).
92
See Fraud & Accredited Investor Proposals, 72 Fed. Reg. at 401-03.
93
17 C.F.R. § 275.206(4); see also Fraud & Accredited Investor Proposals, 72
Fed. Reg. at 403.
2008]
THE HEDGE FUND HOLDUP
1523
respect to any investor or prospective investor in the pooled
investment vehicle.”94 These combined regulations are intentionally broad, allowing the SEC to prosecute anything that it
later deems to be “deceptive conduct.”95
The second change that the SEC proposed in December
2006 is a change to the level of requirement in order to be
exempted under the Securities Act. Most hedge funds avoid
registration under the Securities Act by use of Regulation D,
which exempts certain offers and sales.96 Regulation D allows
funds to avoid registration if they allow investment only from
accredited investors—those that have at least $1,000,000 in net
worth or income of $200,000 (or $300,000 jointly).97 Under this
proposal the SEC sought to force a two-part test for
exemption.98 First, the investor would have had to meet the
current definition of an “accredited investor.” Second, the
investor would have needed $2.5 million in investments in
addition to being an “accredited investor.”99 As a result, an
investor who would have been able to invest in hedge funds
based on his $200,000 salary would be shut out unless he had
$2.5 million in saved capital. Both the new requirement of $2.5
million in investments and the already established income
levels would not be stagnant, but would be adjusted for
inflation beginning in 2012 and would continue to adjust every
five years thereafter.100 The definition of “investments” under
Regulation D would also be changed to specifically exclude a
person’s residence or place of business or “real estate held in
connection with a trade or business.”101 Hedge funds would be
the only target for this new requirement, as the SEC in its
proposal expressly excluded venture capital funds.102 The SEC’s
rationale for the exclusion of venture capital funds was based
on the belief that venture capital funds are necessary to help
small businesses.103
94
17 C.F.R. § 275.206(4)-8.
Fraud & Accredited Investor Proposals, 72 Fed. Reg. at 403.
96
See 17 C.F.R. § 230.506 (2007). As of March 2008, there have not been any
changes to Regulation D on the basis of any of the proposals.
97
See id. § 230.501(a).
98
August 2007 Revision, 72 Fed. Reg. 45,116, 45,127 (Aug. 10, 2007).
99
Id.
100
See Fraud & Accredited Investor Proposals, 72 Fed. Reg. at 406.
101
Id. at 407.
102
Id. at 407-08.
103
Id.
95
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After the SEC published its proposal, it extended the
usual comment period.104 A strong showing of displeasure with
the SEC’s new definition ultimately led the Commission to
revise the proposal’s $2.5 million requirement.105 The revised
proposal, released in August 2007, eliminated the two-step
test.106 The revised proposal retains the accredited investor test
at the existing threshold amounts, but provides in the
alternative that an investor with $750,000 in investments also
qualifies as an accredited investor.107
However, remaining in place from the Accredited
Investor Proposal are two extremely potent changes. First,
personal real estate and the value of a place of business are
excluded from the calculation of an investment for use in
qualifying as an “accredited investor.”108 Investors that had a
high net worth as a result of a property they owned would be
excluded from investing in hedge funds. Second, the dollar
amounts applicable to all of these exemptions would be
adjusted in July 2012 for inflation occurring since 1982, the
year the income levels were established, and would continue to
adjust every five years thereafter.109 The effect of the August
2007 revised proposal is that the changes will be made quietly,
five years later when the inflation adjustment hits. This
change cannot be underestimated. Although the current
income requirement for a single person is $200,000 that figure
adjusted for inflation is $442,545.08 in 2008 dollars.110 By
extrapolating that five more years, it is likely that in 2012 the
required net income to become an accredited investor will be
over $500,000, which is $300,000 more than it is today.
Thus, the Hedge Fund Rule sought to force hedge fund
managers to register by changing the way a term was defined
in the Advisers Act. This rule was vacated by Goldstein.111 In its
place, the SEC devised two sets of changes to the regulations to
104
A comment period follows the release of a proposed rule to afford the public
a chance to express its views on the merits of the proposal. SEC, How to Submit
Comments on SEC Rulemaking, http://sec.gov/rules/submitcomments.htm (last visited
Apr. 17, 2008).
105
August 2007 Revision, 72 Fed. Reg. at 45,123, 45,127.
106
Id. at 45,123.
107
Id.
108
Id. at 45,124.
109
Id. at 45,126.
110
See U.S. Dep’t of Labor, CPI Inflation Calculator, http://data.bls.gov/cgibin/cpicalc.pl (last visited Apr. 17, 2008). The calculator uses the rise in the consumer
price index to adjust for inflation.
111
Goldstein v. SEC, 451 F.3d 873, 884 (D.C. Cir. 2006).
2008]
THE HEDGE FUND HOLDUP
1525
the Securities Act. The first set, the anti-fraud provisions, seek
to allow the SEC to prosecute fraud by hedge funds both in
their offering documents and in their conduct. This has been
adopted by the SEC and is now a part of the regulations under
the Securities Act.112 The second set of proposals, first released
in December 2006 and then changed in August 2007, seek to
change the level of money that an investor must have in order
to invest in hedge funds. As it stands after the August 2007
revised proposal, the original levels remain in place.113 If the
proposal was adopted, however, the levels would change in
2012 to reflect inflation from 1982 dollars. This is likely to have
a significant effect on hedge funds and investors, limiting the
amount of available investment dollars to hedge funds as well
as the number of investors eligible to invest.
IV.
THE HEDGE FUND RULE AND THE CURRENT PROPOSAL:
TWO RULES, NO DIRECTION
The SEC has made two attempts in the past several
years to insert itself into the hedge fund industry—through the
Hedge Fund Rule as well as the December 2006 proposals. This
section of the Note will demonstrate how the SEC’s almost
singular interest in regulating the hedge fund industry has led
it to create regulations that are either unnecessary or that do
not properly address the original concerns that the SEC cites.
Part A will address the SEC’s first concern, which the SEC
articulated in the Hedge Fund Rule release, that hedge funds
have grown by a tremendous rate in recent years.114 Part B will
discuss the SEC’s concern regarding a number of hedge fund
fraud cases brought by the enforcement division of the SEC.115
Part C will address the third concern: that small investors are
opening themselves up to the risks taken by hedge funds
through their investment in pension funds and “funds of
funds.” Finally, Part D will illustrate the inconsistencies
between the Hedge Fund Rule and the recent rules, further
demonstrating the SEC’s fixation on regulating hedge funds
without regard for the consistency of its approach.
112
See 17 C.F.R. § 275.206(4)-8 (2008); see also supra text accompanying notes
113
See supra text accompanying note 106-109.
Hedge Fund Rule Release, 69 Fed. Reg. 72,054, 72,054-56 (Dec. 10, 2004).
Id. at 72,056-57.
90-95.
114
115
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Hedge Fund Growth: Cause for Concern or a Natural
Expansion?
The SEC expressed concern in the release accompanying the Hedge Fund Rule regarding the growing rise in hedge
fund assets and the rapid expansion in the number of funds.116
The Hedge Fund Rule estimated that there were $870 billion
managed by approximately 7000 funds.117 Highlighting the
growth of the industry, the SEC demonstrated that between
1999 and 2004 hedge funds had grown by 260%, nearly
becoming a $1 trillion business.118 Although the rise in hedge
funds has not been completely uphill, due in part to the weak
credit market beginning in late 2007,119 assets managed by the
largest of hedge funds in 2007 were still over $1.6 trillion, a
34% increase over 2006.120 Hedge funds have undoubtedly
become a huge part of the marketplace, and by some indications they amount to the equivalent of 10% of the value of the
entire New York Stock Exchange.121
The SEC cited the enormous growth of hedge funds as a
basis for creating the Hedge Fund Rule, yet it never actually
116
Id. at 72,055-56.
Id. at 72,055.
118
Id. at 72,055-56 (“What is remarkable is the growth of the hedge funds. In
the last five years alone, hedge fund assets have grown 260 percent, and in the last
year, hedge fund assets have grown over 30 percent. Some predict the amount of hedge
fund assets will exceed $1 trillion by the end of the year. Hedge fund assets are
growing faster than mutual fund assets and already equal just over one fifth of the
assets of mutual funds that invest in equity securities.”).
119
See Natali, supra note 19, at 125-26; see also Aaron Pressman, Hedge
Funds: The Pool Is Shrinking, BUS. WK., Jan. 19, 2006, at 32. There has been a
tremendous amount of discussion about hedge funds and their Cinderella rise. The
credit crisis has taken its toll on many hedge funds including some from household
name investment banks, see Finalternative.com, Bear to Close Third Hedge Fund After
40% Decline (Jan. 10, 2008), available at http://www.finalternatives.com/node/3246. In
evaluating the rise in hedge funds and some of their recent declines, it is important to
bear in mind that hedge funds are not a single market, akin to the stock market, but
are individually managed by independent advisors who make decisions as to what to
invest in. See Natali, supra, at 116. If a manager is considered successful over a period
of time then investors will be attracted to the fund. If a fund suffers heavy losses then
investors will seek to withdraw their money from that fund and find a fund with a
better track record. During the credit crisis in 2007-2008, some hedge funds bore losses
due to a “run on the fund.” This was not limited to hedge funds, but in fact was a
phenomenon that caused the demise of one of the oldest of brokerage houses, Bear
Stearns, in March 2008. See Landon Thomas Jr., Aftershocks of a Collapse, with a
Bank at the Epicenter, N.Y. TIMES, Mar. 18, 2008.
120
Press Release, Hedgefundintelligence.com, Top Hedge Fund Assets
Surpass $1.6 Trillion According to Absolute Return Survey (Mar. 4, 2008).
121
Kevin G. Hall & Robert A. Rankin, Hedge Funds May Pose a Risk to U.S.
Economy, MCCLATCHY, Aug. 8, 2007, http://www.mcclatchydc.com/227/story/18766.html.
117
2008]
THE HEDGE FUND HOLDUP
1527
defined the “problem.”122 In contrast, the Accredited Investor
Proposal and the anti-fraud rules never mention the extreme
growth of hedge funds as a reason for concern. In the Hedge
Fund Rule release, the SEC detailed the growing size of funds,
but failed to connect that to a concern that warrants the
further regulation of hedge funds.123 In fact, the SEC, after
listing a host of statistics regarding hedge fund growth, stated
that “[a]s a result, hedge fund advisors have become significant
participants in the securities markets.”124 This basically ended
the section regarding this problem, leaving the reader to
wonder why the fact that hedge funds are market players is a
logical basis for changing regulatory rules. Former Chairman
of the SEC, William Donaldson, expressed similarly vague
concerns about the growth of hedge funds in April of 2003 when
he testified before the Senate Committee on Banking, Housing
and Urban Affairs, and began lobbying on behalf of the 2004
Hedge Fund Rule.125 Donaldson called for an investigation into
“market impact issues” stemming from hedge funds and
maintained that it “may be that there are other, more subtle or
nuanced results of hedge fund activity that merit attention.”126
Creating regulations to deal with unknown problems is akin to
hunting in the dark: you never know what you may hit.
One plausible concern that the SEC might have is that
the larger the hedge funds are, the harder they could fall.127
This concern is borne out of the near failure of Long Term
122
Hedge Fund Rule Release, 69 Fed. Reg. at 72,055-56. 72,054
Id.
124
Id.
125
Donaldson, supra note 17.
126
Id. at 9. William Donaldson has been the chairman of the SEC board of
commissioners since 2003. SEC, SEC Biography: Chairman William H. Donaldson,
http://www.sec.gov/about/commissioner/donaldson.htm (last visited January 23, 2008).
Since taking over the helm of the SEC, Donaldson has spearheaded the campaign
to regulate the hedge fund industry. He has introduced three separate regulations
that target the industry: the Hedge Fund Rule, the anti-fraud rules, and the Accredited
Investor Proposal. Perhaps not coincidently, he became chairman and began his push
to regulate hedge funds shortly after a number of scandals rocked the financial
markets, including the great Enron collapse and the fallout from it. Id. Although
President George W. Bush appointed Donaldson as chairman of the SEC, see Press
Release, President Bush Announced His Intention to Nominate William Donaldson
to be Commissioner of the Securities and Exchange Commission (Dec. 10, 2002),
available at http://www.whitehouse.gov/news/releases/2002/12/20021210-9.html, he has
disagreed with Donaldson’s targeting of hedge funds for further regulation. See
Stephen Labaton, Officials Reject More Oversight of Hedge Funds, INT’L HERALD TRIB.,
Feb. 23, 2007, http://www.iht.com/articles/2007/02/23/business/web-0223hedge.php.
127
See Roberta S. Karmel, Mutual Funds, Pension Funds, Hedge Funds and
Stock Market Volatility—What Regulation by the Securities Exchange Commission is
Appropriate?, 80 NOTRE DAME L. REV. 909, 945 (2005).
123
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Capital Management (“LTCM”).128 LTCM was a hedge fund that
started in 1994 with $1.25 billion in capital.129 The fund quickly
amassed $102 billion in assets, almost completely in borrowed
funds, as the equity in the fund was only $3.6 billion.130 In late
1998, after a series of crippling losses for the fund, the fund
was left with between $1.75 to $1.85 billion in equity, but over
$100 billion in debt.131 In other words, LTCM was dangerously
overleveraged132 and heading to a failure that would cause
catastrophic market tremors.133 Consequently, the Federal
Reserve was forced to put together a syndicate of leading
investment banks who agreed to invest $3.65 billion of capital
in exchange for 90% of the shares of LTCM.134 Following the
near collapse, LTCM was able to recover and regain profitability.135 This Note assumes that the SEC fears that the risks
taken by hedge funds could cause a collapse like the one
narrowly avoided by LTCM. An assumption about the nature of
the risk is necessary because although the Hedge Fund Rule
cites the growth of hedge funds as requiring regulation, it fails
to explicitly state what specific risk this growth poses.136 The
SEC presumably believes that the growth of the hedge fund
128
See Matthew Goldstein, Note, A Secret Society: Hedge Funds and Their
Mysterious Success, 6 HOFSTRA J. OF INT’L BUS. & L. 111, 118 (2007).
129
See Justin Asbury Dillmore, Leap Before You Look: The SEC’s Approach to
Hedge Fund Regulation, 32 OHIO N.U. L. REV. 169, 170 (2006).
130
See id. at 171. LTCM’s debt was approximately $98.4 billion, while the
fund’s equity was $3.6 billion. Id. The ratio of debt to fund equity in LTCM was 27.33.
A ratio of 1 or less would mean that the fund only borrows against the amount of its
equity. The 27.33 figure signifies significant risk because the fund could not sustain
itself if its value dropped and some of the debt would be called by the lenders. Consider
the example of purchasing items on a credit card. Using the card only to the extent that
the cardholder has money in a bank account to cover the charges would keep the
debt/equity ratio under 1. Spending twenty-seven times the amount in the account in a
month would be similar to LTCM’s position.
131
Id. at 171-72.
132
Leverage is defined as “the amount of debt used to finance a firms assets.”
Investopedia, Leverage, http://www.investopedia.com/terms/l/leverage.asp (last visited
Mar. 19, 2008). The amount of leverage that a fund employs is an important indicator
of its health. If it has only a small amount of equity (the money actually invested in the
fund) and a high amount of debt and the fund starts to decrease in value, it may
become impossible for it to continue to finance its debt, which often leads to a further
decrease in fund value as investors become concerned that about its financial health.
133
See Dillmore, supra note 129, at 172.
134
Id. at 173.
135
Id.
136
See Hedge Fund Rule Release, 69 Fed. Reg. 72,054, 72,055-56 (Dec. 10,
2004). Although the release accompanying the Hedge Fund Rule is over 100 pages long,
the discussion regarding the risk posed by the growth of hedge funds is a single
paragraph. Id.
2008]
THE HEDGE FUND HOLDUP
1529
industry creates risks that could lead to larger market ripples
if hedge funds collapse, thus making regulation necessary.
Although a risk to the general markets caused by the
increasing growth of hedge funds is a legitimate SEC concern,137
the Hedge Fund Rule and the anti-fraud rules, as well as the
Accredited Investor Proposal and August 2007 revision, all fail
to address the risk caused to the market by hedge funds. The
Hedge Fund Rule forced hedge funds advisors to register under
the Advisers Act.138 The requirement to register would have
subjected the funds to examination by the SEC.139 This includes
enforcement agents reviewing the procedures for valuing client
assets, procedures for placing trades, arranging for custody of
client funds and securities, and the full disclosure of any
conflict of interests.140 The SEC would not have been privy to
the actual positions of the hedge funds and would not have had
any say over the strategy that the hedge fund employs.141 The
137
See Karmel, supra note 127, at 945. Professor Karmel gives a more
detailed background to the LTCM’s near collapse. The focus of the article is on the
risks to the general market that stem from positions and trading strategies of hedge
funds, mutual funds, and pension funds. The article is broad and devotes a small
section to examining the risks that arise from hedge funds. Id. at 934-35. Part of the
problem of examining the risks that hedge funds pose is that there is a lack of
empirical evidence showing how the collapsing of hedge funds has affected the broader
markets. Although some articles address this potential threat, they almost exclusively
use LTCM as their example of hedge funds’ detrimental effects on broader markets.
See, e.g., Dustin G. Hall, Note, The Elephant in the Room: Dangers of Hedge Funds in
Our Financial Markets, 60 FLA. L. REV. 183, 185 (2008). This is likely a result of a lack
of other examples of spectacular hedge fund collapses that have led to broader market
ripples. Although the LTCM episode is telling, a single example is not enough to tell
the whole story. Contrary to the belief that hedge funds have a purely negative impact
on the broader markets, Paul F. Roye, former Director of the Division of Investment
Management at the SEC, in a speech at a hedge fund conference extolled the value that
hedge funds provide the general markets in the way of liquidity and efficiency. See
Paul F. Roye, Speech by SEC Staff: General Session Speaker at the SIA Hedge Funds
Conference: New Regulation: Weighing the Impact (Nov. 30, 2004), available at
http://www.sec.gov/news/speech/spch113004pfr.htm. The debate about the potential
fallout from hedge fund collapses will probably continue until there is more empirical
evidence gleaned from hedge fund collapses and their effects on the general markets.
138
Hedge Fund Rule Release, 69 Fed. Reg. at 72,060.
139
Id. at 72,061.
140
Id. at 72,061 n.85 (“During an examination, our staff may review the
advisory firm’s internal controls and procedures; they may examine the adequacy of
procedures for valuing client assets, for placing and allocating trades, and for
arranging for custody of client funds and securities. Examination staff also may review
the advisor’s performance claims and delivery of its client disclosure brochure. Each of
these operational areas presents a greater opportunity for misconduct if it is not open
to examination.”).
141
Id. at 72,060 n.68 (“Nor does the Act restrict the ability of advisers to
engage in short-selling. Moreover, nothing in the Act or our rules requires any
investment adviser to disclose its securities positions. Indeed, we recently declined
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SEC, therefore, would have lacked the necessary ability to act
upon the risks taken by the funds,142 including how much
leverage a fund could employ.143 Thus, the SEC would be unable
to prevent the same type of problem that caused the near
collapse of LTCM. Moreover, the recently enacted anti-fraud
rules do not give the SEC a say in hedge fund strategies or
investments, as they focus solely on fraud.144 Finally, the
Accredited Investor Proposal to raise the accredited investor
standard seeks only to change the threshold of who can invest
in hedge funds, not what hedge funds can invest in.145
In addition, the releases accompanying both the antifraud rules and the Accredited Investor Proposal completely
ignore the concern of hedge fund growth that the Hedge Fund
Rule addressed, as they do not even list it as a reason to
regulate.146 Neither of them ameliorates the risks that the
funds take, which the SEC considered so important when it
formulated the Hedge Fund Rule. Thus, the SEC is creating
rules that are inconsistent with the problems it sees in the
hedge fund industry.
B.
Hedge Fund Fraud: Never a Good Thing, But Worthy
of Regulation?
The SEC cited a “substantial and troubling growth in
the number of . . . hedge fund fraud enforcement cases” as one
of the reasons for implementing the Hedge Fund Rule.147 The
agency pointed to fifty-one cases of hedge fund fraud in the
requests to require advisers to publicly disclose how they voted client proxies out of a
concern that they would thereby divulge client securities positions.”).
142
Id. at 72,061-63.
143
Although leverage is an increased risk, it is also one of the ways that a
hedge fund can increase its profit. Borrowing money against capital invested in the
fund allows the fund managers to take larger positions in investments, thereby
increasing the possible return. A very simplified example of how leverage can increase
return is borrowing money to bet on a horse race. If an investor has $10 and borrows
$90, the total bet will be $100. If the investor wins, and it was a 10 for 1 payout, the
investor walks away with $910, the $1000 won less the $90 loan (less the interest on
the loan, which can vary). Compare this to betting only the $10 that the investor has on
the horse, and a win will only garnish a total of $100. Of course if the investor borrows
the $90 and loses, then he will have to pay the $90 back, in addition to the $10 of his
own money that is lost. This example demonstrates the risk that is inherent in
leverage, yet also the possible reward.
144
See 17 C.F.R. § 275.206(4)-8 (2008).
145
See Fraud & Accredited Investor Proposals, 72 Fed. Reg. 400, 400 (Jan. 4,
2007).
146
See supra text accompanying notes 122-125.
147
Hedge Fund Rule Release, 69 Fed. Reg. at 72,056.
2008]
THE HEDGE FUND HOLDUP
1531
five-year period ending in 2004.148 Additionally, the SEC made
much of the fact that several hedge funds were deeply involved
in the 2003 market-timing scandal involving mutual funds149
and noted that the SEC was continuing to bring enforcement
actions.150 This type of suspicious activity provided an impetus
not only for the Hedge Fund Rule, but also for the recently
implemented anti-fraud rules.151
Although there have been several instances of fraud in
the hedge fund industry, it is not apparent that the Hedge
Fund Rule could have prevented a substantial number of the
fraudulent acts.152 This argument was made by SEC Commissioner Paul Atkins at a meeting in 2004 discussing the Hedge
Fund Rule.153 Atkins broke down all of the hedge fund fraud
cases and concluded that registration under the Hedge Fund
Rule would have prevented a total of twenty-six cases of fraud
in an industry with, at the time, over 7000 funds.154 Out of the
original forty-six cases of fraud that the SEC cited as a basis
for the implementation of the Hedge Fund Rule, eight of the
funds were previously registered with the SEC, while twenty of
them were too small to be covered by the registration rule.155
Many of the other cases involved the fraudulent valuation of
funds, something that has been traditionally difficult to detect,
even in a registered fund.156 Although the rule’s effect on
preventing fraud is debatable, the fact that the SEC was going
forward with a proposal that would affect over 7000 hedge
funds on the basis of several cases undermines the SEC’s push
to act. This effort’s limited utility in eliminating fraud is
further demonstrated by the SEC’s acknowledgment that only
148
Id.
The market-timing scandal involved mutual fund managers profiting from
short-term market moves. ICI.org, Questions and Answers About the Mutual Fund
Investigations, http://www.ici.org/funds/abt/faqs_timing.html (last visited Mar. 20,
2008). Although market timing itself is not illegal, mutual funds discourage it as it
disrupts the price of the funds. Id. Much of the scandal focused on certain funds’
selective enforcement of market timing, allowing some managers to escape inquiry
while others received a penalty for their actions. Id.
150
Hedge Fund Rule Release, 69 Fed. Reg. at 72,056 n.29.
151
See Fraud & Accredited Investor Proposals, 72 Fed. Reg. at 401-02.
152
Paul S. Atkins, Statement by SEC Commissioner at Open Meeting
Considering Proposed Regulation Under the Advisers Act of Certain Hedge Fund
Advisors, (July 14, 2004), available at http://sec.gov/news/speech/spch071404psa.htm.
153
Id. Atkins was publicly critical of the Hedge Fund Rule, and voted against
it when it was brought before the commission. Id.
154
Id.
155
Id.
156
See Dillmore, supra note 129, at 183.
149
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about half of the funds involved in the fraud cases would have
been forced to register under the new rule.157 The agency
nevertheless supported its position by stating that the number
of fraud cases indicates an increase in overall hedge fund
fraud.158 Thus, the SEC’s implementation of the Hedge Fund
Rule illustrates how the SEC is trying to regulate the hedge
fund industry regardless of both the size of the problem and the
effectiveness of its proposed solution.
Under the anti-fraud rules, hedge funds are strictly
liable for fraud,159 evidencing the SEC’s interest in creating a
regulatory system that targets hedge funds. The recently
approved anti-fraud rules prohibit the dissemination of untrue
or fraudulent information by hedge fund advisors to their
investors.160 It also implements a broad anti-fraudulent conduct
provision.161 It appears that the SEC is so eager to have a regulatory role in hedge funds that it has created the rules with a
negligence standard,162 abandoning the scienter standard that
is used in other anti-fraud provisions.163 The scienter standard
has been interpreted to require at a minimum knowledge of the
wrongdoing, if not an always an intent to deceive.164 With the
157
Hedge Fund Rule Release, 69 Fed. Reg. 72,054, 72,056 n.28 (Dec. 10, 2004).
Id. (“[R]egardless of whether any particular adviser would be required to
register with us, these cases demonstrate the increased prevalence of fraud associated
with hedge funds.”).
159
See 17 C.F.R. § 275.206(4)-8 (2008). It is a violation under the anti-fraud
rules to “[m]ake any untrue statement of a material fact or to omit to state a material
fact necessary to make the statements made . . . to any investor or prospective investor
in the pooled investment vehicle.” Id.
160
Id.; see also Fraud & Accredited Investor Proposals, 72 Fed. Reg. 400, 402
(Jan. 4, 2007).
161
See 17 C.F.R. § 275.206(4)-8 (covering not only advisor misrepresentations
and deceptive omissions, but also “any act, practice, or course of business that is
fraudulent, deceptive, or manipulative with respect to any investor or prospective
investor in the pooled investment vehicle”); see also Fraud & Accredited Investor
Proposals, 72 Fed. Reg. at 403.
162
Under the anti-fraud provisions, all untrue information that is
disseminated to an investor is subject to prosecution, even if the advisor was unaware
of the inaccuracy. This is a negligence standard under which advisor intent is
irrelevant. See Fraud & Accredited Investor Proposals, 72 Fed. Reg. at 403.
163
Scienter is required for a violation of Rule 10b-5, the SEC’s regulation
banning insider trading. See 17 C.F.R. § 240.10b-5 (2007). Scienter is defined in the
10b-5 context by the Supreme Court as requiring an “intent to deceive, manipulate or
defraud.” Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 n.7 (1976). Rule 10b-5 has
such widespread implications and has such notoriety that there are even websites
dedicated to the rule. See The 10b-5 Daily Home Page, http://www.the10b-5daily.com
(last visited Mar. 30, 2008).
164
See Fraud & Accredited Investor Proposals, 72 Fed. Reg. at 403; see also
WILLIAM T. ALLEN ET AL., COMMENTARIES AND CASES ON THE LAW OF BUSINESS
ORGANIZATIONS 690 (2d ed. 2007).
158
2008]
THE HEDGE FUND HOLDUP
1533
current formulation of the rule, the SEC need only show that
there was some untrue statement in the offering documents;
something as trivial as mislabeling an advisor’s address would
be actionable under the current setup of the rule.165 Accordingly, the SEC has shown it intends to break into the relative
free reign of hedge funds, creating an intentionally overbroad
rule.
The SEC has exaggerated the claim that concerns for
fraud necessitate new regulations. More importantly, the rules
that the SEC has created to deal with the fraud are either
ineffective in the case of the Hedge Fund Rule, or are so
overbroad as to find many hedge fund advisors, even those that
are merely negligent, in the SEC’s regulatory crosshairs.
C.
Institutional Investors: The Institution Protects Itself
When releasing the Hedge Fund Rule, the SEC stated
that its greatest motivation was the fear that small investors
would open themselves up to the large risks that hedge funds
take by way of the small investors investing indirectly in hedge
funds. Specifically, the SEC pointed to two different ways that
small investors were indirectly becoming hedge fund investors.
First, the SEC in the Hedge Fund Rule attached the greatest
significance to the growing number of pension funds,166 endowments, and charities that invest in hedge funds like never
before.167 Fearing massive losses to pension funds as a result of
losses in hedge funds, the SEC was concerned that pension
beneficiaries would lose their entitlements.168 Second, a phenomenon known as “funds of hedge funds,” which are funds that
invest in multiple hedge funds to reduce risk,169 was becoming
165
See Fraud & Accredited Investor Proposals, 72 Fed. Reg. at 402-03.
See Hedge Fund Rule Release, 69 Fed. Reg. 72,054, 72,057-58 (Dec. 10,
2004). Pension funds are retirement vehicles in which employers contribute to a fund
to benefit employee retirement. There are many variations of pension plans, some are
fully funded by the employer while others also allow employees to decide to contribute
a percentage of their paycheck. Citibank.com, Investment Center Glossary: Defined
Contribution Plans, http://www.citibank.com/bahrain/gcb/invest/glossary.htm (last
visited Mar. 20, 2008). Many Americans rely on their pension plans to supplement
their social security retirement benefits.
167
See Hedge Fund Rule Release, 69 Fed. Reg. at 72,057-58.
168
Id.
169
JOSEPH G. NICHOLAS, HEDGE FUND OF FUNDS INVESTING 6 (2004). “Funds
of funds” are an important part of the hedge fund industry. As of 2004, funds of
funds represented one third of all of the assets invested in hedge funds. Id. at 3-4. As
of April 2007, fund of funds controlled $684 billion in assets worldwide. Hedge Funds
Record Inflows of USD 60 Billion in Q1 2007, Nearly 300 Per Cent Gain over Q4
166
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the investment choice for many small investors.170 Each of these
investment vehicles will be examined for both its validity as a
threat to small investors and whether the regulations offered
by the SEC effectively protect small investors.
The SEC cited the investment of small investors in
pension funds as a basis for the Hedge Fund Rule, but this
overlooks the fact that pension funds are inherently protected
by the pension fund managers. In the Hedge Fund Rule, the
SEC stated that the rise in the number of pension funds that
were investing in hedge funds was perhaps the most significant
reason to create more reporting requirements for hedge
funds.171 Pension fund managers who invest in hedge funds,
however, are likely to invest in conservative hedge funds,
aware of their responsibilities to investors. This is supported by
practices taken by hedge funds that seek to attract pension
funds. Those hedge funds that seek pension funds as investors
have taken steps to register themselves voluntarily and have
put more internal compliance controls into place in order to
attract pension fund managers.172 This is due to the nature
of pension funds, a historically risk-averse segment of the
market.173 Even assuming that pension funds significantly
increase their risk by investing in hedge funds, pension fund
managers are hired by investors to manage those risks and to
formulate plans that balance overall investment risks.174 The
argument that pension fund managers are sophisticated and
that accordingly their investors do not need protection is hardly
2006, HEDGEWEEK, Apr. 23, 2007, available at http://www.hedgeweek.com/articles/
detail.jsp?content_id=95061 (last visited Apr. 18, 2008).
170
See Hedge Fund Rule Release, 69 Fed. Reg. at 72,057.
171
See id. at 72,057-58 (“Finally, and perhaps most significantly, in the last
few years, a growing number of public and private pension funds, as well as
universities, endowments, foundations, and other charitable organizations, have begun
to invest in hedge funds or have increased their allocations to hedge funds.”).
172
See Wang Fangquing, Regulators and Investors a One-Two Compliance
Punch, FIN. TIMES, Jan. 23, 2007.
173
See Riva D. Atlas & Mary Williams Walsh, Pension Officers Putting
Billions into Hedge Funds, N.Y. TIMES, Nov. 27, 2005. It is important to remember that
not all hedge funds are alike. Although many hedge funds take large risks, the SEC
has categorized all hedge funds as high risk, ignoring funds that adhere to the
“hedging” principle of lowering investor risk.
174
Russel Read, chief investment officer of the California Public Employees
Retirement System, a pension fund that holds $225 billion in retirement assets,
decided not to invest in hedge funds because he felt that the enormous fees that they
charged did not justify returns that he felt he could mimic. David Clarke, Hedge Funds
Charge Too Much for Returns, Calpers Says (Update 1), BLOOMBERG.COM, Feb. 9, 2007.
2008]
THE HEDGE FUND HOLDUP
1535
a novel one.175 It bears repeating, however, because the SEC’s
failure to account for the choices made by professional pension
fund managers is further evidence that the SEC is intent on
regulating even where regulation is unnecessary.
Even if a pension fund investing in hedge funds poses a
risk to beneficiaries, the Hedge Fund Rule would have failed to
remedy the problem of beneficiaries losing benefits due to a
hedge fund collapse. Although hedge fund fraud could cause
the collapse of a fund,176 much of the purported risk to hedge
fund investors comes from the trading strategy and positions
that hedge funds take. The SEC would not have had any
knowledge of or control over these areas.177 The Hedge Fund
Rule governed only the reporting of practices that hedge funds
employ with regard to their books and investors, not the
positions that hedge funds take.178 The Hedge Fund Rule,
therefore, would not have corrected the problem that the SEC
claimed existed.
Furthermore, the SEC was inconsistent when it later
discounted the threat to pension funds that hedge funds pose in
its discussion in the Accredited Investor Proposal release.179 In
the Accredited Investor Proposal, the SEC stated that pension
funds that invest in hedge funds are protected by their pension
managers.180 According to the SEC, pension fund investors do
not need protection.181 Did the risk to pension fund investors
evaporate in the six months between the vacating of the Hedge
175
See Jacob Preiserowicz, The New Regulatory Regime for Hedge Funds: Has
the SEC Gone Down the Wrong Path?, 11 FORDHAM J. CORP. & FIN. L. 807, 840-41
(2006) (noting the position of the SEC’s commissioners opposing the Hedge Fund Rule).
176
Hedge Fund Founder Admits Guilt in Fraud, N.Y. TIMES, Dec. 15, 2006
(discussing the collapse of the Bayou hedge fund due to fraud on the part of its founder
and two other top officers).
177
Hedge Fund Rule Release, 69 Fed. Reg. at 72,060 n.68 (“Nor does the Act
restrict the ability of advisers to engage in short-selling. Moreover, nothing in the Act
or our rules requires any investment adviser to disclose its securities positions. Indeed,
we recently declined requests to require advisers to publicly disclose how they voted
client proxies out of a concern that they would thereby divulge client securities
positions.”); see also supra notes 139-143 and accompanying text.
178
Hedge Fund Rule Release, 69 Fed. Reg. at 72,060.
179
See Fraud & Accredited Investor Proposals, 72 Fed. Reg. 400, 404 (Jan. 4,
2007).
180
Id. (“We note that natural persons may have indirect exposure to private
pools as a result of their participation in pension plans and investment in certain
pooled investment vehicles that invest in private pools. Such plans and vehicles are
generally administered by entities of plan fiduciaries and registered investment
professionals. This protection is not present in the case of natural persons who seek to
invest in 3(c)(1) Pools outside of the structure of such pension plans and pooled
investment vehicles.”).
181
Id.
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Fund Rule by the D.C. Circuit and the Accredited Investor
Proposal? The SEC has once again been inconsistent in its
treatment of the problems it claims exist.
In addition to the concern about pension fund investors,
fear that investors would have more opportunity to invest
through funds of hedge funds led the SEC to implement the
Hedge Fund Rule. “Funds of funds,” as they are commonly
known, are companies that invest in a diversified range of
hedge funds. Their main benefit to investors is the opportunity
to diversify risk by having the fund itself invest in several
different hedge funds.182 The SEC pointed to the growing
number of funds of funds that small investors are investing
in.183 In reality, funds of funds have generally been intent on
attracting institutional clients, rather than small investors.184
In fact, institutional investors make up a consistently high
percentage of funds of funds’ assets.185 Even if funds of funds
were attracting “small investors,” this is a phenomenon that
the SEC should be encouraging, not attempting to prevent.
Funds of funds are run by professional investment managers
who choose to invest in hedge funds.186 This professional
management is very beneficial to a small investor, allowing
the investor to diversify risk among hedge funds.187 Although
the SEC has made it seem that hedge funds themselves bear
incredible risks, many funds of funds, especially the smaller
ones, have styled themselves toward the institutional investor
who is looking to minimize risk.188 This concern of the SEC
seems to be based on an almost irrational fear: stop small
investors from getting involved in hedge funds even if they use
a vehicle that is created to limit risk.
182
NICHOLAS, supra note 169, at 4.
See Hedge Fund Rule Release, 69 Fed. Reg. at 72,057 n.35.
184
Christine Williamson, Hedge Funds of Funds: Institutions Lead the Way,
PENSION & INV., Sept. 17, 2007, available at http://www.pionline.com/apps/pbcs.dll/
article?AID=/20070917/PRINTSUB/70914002.
185
Id.
186
NICHOLAS, supra note 169, at 64.
187
Id. (“The low investment size, professional portfolio management, and
investment diversification afforded by funds of funds are benefits superior to what a
small or medium-sized investor could achieve on its own.”).
188
Williamson, supra note 184.
183
2008]
D.
THE HEDGE FUND HOLDUP
1537
The Hedge Fund Rule and the Recent Rules: Two Faces,
One Agency
There are inconsistencies between the Hedge Fund Rule
and the Accredited Investor Proposal that the SEC has
promulgated. This further illustrates that the SEC is so intent
on creating more regulation for the hedge fund industry that
it has contradicted itself. In the Accredited Investor Proposal,
the SEC sought to change the level of required capital to
become an “accredited investor.”189 In the Hedge Fund Rule
release, which took place prior to the Accredited Investor
Proposal, the SEC downplayed the effectiveness of changing
the accredited investor standard. The SEC believed that
raising the accredited investor standard would not prevent
small investors investing in hedge funds because they could
still invest indirectly in hedge funds through pension funds.190
Yet once the Hedge Fund Rule was struck down, the SEC
introduced this precise change merely six months later.191 This
inconsistency of approach is evidence of the SEC’s blatant
attempt to further regulate the hedge fund industry, even if
it has to contradict itself.
In addition to the inconsistency between the rules, the
SEC’s Accredited Investor Proposal is arbitrary and targets the
hedge fund industry while exempting other investment options.
In the December 2006 release, the SEC juxtaposed the
percentage of all investors able to invest in hedge funds under
the old accredited investor standard against the percentage of
investors who would be eligible under the Accredited Investor
Proposal.192 The SEC’s Office of Economic Analysis estimated
that in 1982 when the accredited investor standard was put
189
Fraud & Accredited Investor Proposals, 72 Fed. Reg. 400, 400 (Jan. 4,
2007).
190
Hedge Fund Rule Release, 69 Fed. Reg. 72,054, 72,064 (Dec. 10, 2004)
(“Raising the accredited investor standards would not address the broader concerns,
discussed above, of the indirect exposure to hedge funds by an increasingly large
number of persons who are beneficiaries of pension plans . . . .”).
191
See Fraud & Accredited Investor Proposals, 72 Fed. Reg. 400 (Jan. 4,
2007).
192
See id. at 72 Fed. Reg. at 406. In August 2007, the SEC released a revision
to its original proposal in which it left the accredited investor standard at the original
levels, with the caveat that the rates would be raised in 2012 to reflect inflation since
1982, the year that the original levels were established. See August 2007 Revision, 72
Fed. Reg. 45,116, 45,123-26 (Aug. 10, 2007). Regardless of this revision, the argument
here is centered on the actions that the SEC is taking and its ultimate goals. This goes
beyond the pure percentages and requirement level, but focuses on a pattern that the
SEC has taken since the introduction of the Hedge Fund Rule.
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into place, 1.87% of the U.S. population qualified as accredited
investors able to invest in hedge funds.193 As of 2003, 8.47%
were eligible—a significant rise, due in part to general inflation
and also to the increase in real estate values over that period.194
This means that an investor who had property that increased
in value over the years would become eligible for accreditation,
even if the investor’s income level remained the same. Under
the December 2006 proposed levels, only 1.3% of the population, less than the original 1982 level, would be eligible to
become an accredited investor.195
The SEC offered justification for establishing an alltime low percentage of the population eligible to invest in
hedge funds because of the “increasing complexity of financial
products, in general, and hedge funds, in particular, over the
last decade.”196 There are two flaws with this rationale. First,
the SEC did not explain how it arrived at 1.3% of the
population as its target.197 If the SEC was looking to create an
all-time low, it could have picked 1.5% or 1%, both of which are
below the 1982 level. This is another instance where the SEC is
arbitrarily regulating the hedge fund industry and is clearly
ignoring the parting shot of the D.C. Circuit’s repudiation of
the Hedge Fund Rule: “This is an arbitrary rule.”198 Second, the
SEC is looking at only the hedge fund side of the equation.
Even given the increased complexity of hedge funds, the SEC
ignored the substantial increase in accessibility of investment
information since 1982. For example, the Internet offers a
plethora of investment information that was unavailable to the
average American twenty-six years ago.199 By taking into
account only the increased sophistication of hedge funds and
ignoring increased investor sophistication, the SEC has
engaged in faulty reasoning.
In addition to the SEC arbitrarily picking a restriction
for the number of investors, it arbitrarily ensnares only hedge
funds in its new proposal, while excluding other types of funds
193
See Fraud & Accredited Investor Proposals, 72 Fed. Reg. at 406.
Id.
195
Id.
196
Id.
197
See id.
198
Goldstein v. SEC, 451 F.3d 873, 884 (D.C. Cir. 2006).
199
Although many websites are unreliable or inaccurate, investors can choose
from many reputable investment sites that provide a host of information about every
investment concept. See, e.g., Forbes Home Page, http://www.forbes.com (last visited
Mar. 24, 2008); CNBC Home Page, http://www.cnbc.com (last visited Mar. 24, 2008).
194
2008]
THE HEDGE FUND HOLDUP
1539
from the Accredited Investor Proposal. Although the SEC made
it clear that it wanted to protect investors, it did not require
investors in venture capital funds to meet the increased
accredited investor standard in the December 2006 proposal.200
The rationalization for the exception was that the SEC
“recognize[s] the benefit that venture capital funds play in the
capital formation of small businesses.”201 The rationale for this
exception was questioned by Paul Atkins, an SEC commissioner.202 Atkins pointed out that the risks that venture funds
take are similar to those taken by hedge funds, and voiced his
incredulity as to why the SEC would purposefully exclude
venture funds while targeting hedge funds.203 When evaluating
risk to small investors it is important to note that venture
capital funds take enormous risks, and many of them have
closed in recent years due to heavy losses.204 If the SEC has a
legitimate interest in protecting small investors, then it follows
that the same protection provided for hedge fund investors
should be extended to those who invest in venture capital
funds. Furthermore, hedge funds also provide benefits to the
national economy, as has been touted by the former chairman
of the Federal Reserve, Alan Greenspan.205 Greenspan made
the point that hedge funds that take large positions in the
equity markets eliminate inefficiencies by “aligning markets
and providing liquidity to markets.”206 Creating exceptions that
favor venture capital funds, which arguably share the same
200
Paul S. Atkins, SEC Commissioner, Remarks Before the Federal Reserve
Bank of Chicago Seventh Annual Private Equity Conference (Aug. 2, 2007). Venture
capital funds provide capital to small businesses and often help manage the business.
See Fraud & Accredited Investor Proposals, 72 Fed. Reg. at 407-08.
201
Id. at 408 (“In proposing to exclude the offer and sale of securities issued
by venture capital funds from the application of the proposed definition, therefore, we
recognize the benefit that venture capital funds play in the capital formation of small
businesses.”).
202
Atkins, supra note 200 (“Oddly, the changes in accreditation would not
apply to venture capital funds. Is there a principled reason for treating venture capital
funds differently than other private investment vehicles?”).
203
Id.
204
Miguel Helft, A Kink in Venture Capital’s Gold Chain, N.Y. TIMES,
Oct. 7, 2006. The SEC also suffers from short-term memory loss when it comes to the
impact that venture capital funds can play in the national economy. The “Internet
bubble” of the late 1990s that led to the crash of the financial markets in 2001
was partially a result of venture capital funds’ incessant drive to launch more and
more Internet businesses. See Peter Elstrom, The Great Internet Money Game, BUS.
WEEK, Apr. 16, 2001, available at http://www.businessweek.com/magazine/content/
01_16/b3728602.htm.
205
Ron Oral, Greenspan Dislikes SEC Hedge Fund Rules, N.Y. L.J., July 22,
2004, at 5.
206
Id.
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qualities as those of hedge funds, is further evidence of the
SEC’s interest in targeting the hedge fund industry with
increased regulation.
The SEC has created inconsistent regulations that are
either unnecessary or represent a misguided attempt to
address a poorly defined problem. The SEC never translated
the increased size of the hedge fund industry into an
identifiable problem. Even assuming that the increased size
leads to an increased risk, the SEC has failed to create rules
that would reduce the risk. As for hedge fund fraud, very few of
the known cases of fraudulent activity in the industry would
have been prevented by the Hedge Fund Rule.207 Finally, the
SEC downplayed the effectiveness of the change in the accredited investor standard, yet made it a proposal once the Hedge
Fund Rule was vacated.208 The SEC has apparently adopted a
mission to regulate the hedge fund industry regardless of the
necessity for or effectiveness of its rulemaking.
V.
NEW REGULATION: IS IT REALLY NECESSARY OR ARE
SMALL INVESTORS PROTECTED?
The SEC has made it a top priority to protect small
investors from losing their investment in hedge funds.
Protecting small investors from directly investing in hedge
funds has been the cornerstone of the recent regulatory push
by the agency.209 This has been the rallying cry for the SEC,
207
Atkins, supra note 152.
Hedge Fund Rule Release, 69 Fed. Reg. 72,054, 72,064 (Dec. 10, 2004).
209
Id. at 72,057 (“[Of] significant concern is the growing exposure of smaller
investors, pensioners, and other market participants, directly or indirectly, to hedge
funds. Hedge fund investors are no longer limited to the very wealthy.”); Fraud &
Accredited Investor Proposals, 72 Fed. Reg. 400, 400 (Jan. 4, 2007) (“We are concerned
that the definition of ‘accredited investor’ . . . may not provide sufficient protection for
investors.”).
The current credit crisis and economic downturn has greatly affected even
the most “traditional” and stalwart of investment banks and funds. See Julie Creswell,
A Nervous Wall St. Seems Unsure What’s Next, N.Y. TIMES, Mar. 31, 2008, at C1.
Specifically, the collapse of Bear Stearns in March 2008 has caused considerable alarm
in the investment community. Id. It is interesting to note that although many investors
were wiped out on their investment in Bear Stearns, some hedge funds made huge
profits. Gregory Zuckerman et al., Stocks Tumble Again, But Some Traders Win Big,
WALL ST. J., Mar. 20, 2008, at C1. Hedge funds sold short stock of Bear Stearns in the
weeks leading up to the collapse. Id. Hedge funds were not alone, as a quarter of the
total shares of Bear Stearns were sold short when the investment bank collapsed,
thereby giving great returns to those that had bet against Bear Stearns. Id. This is just
a small example of how hedge funds have made money by taking non-traditional and
contrarian positions in the financial markets. Although there were obviously large
risks in taking the position, those that invest in hedge funds often look to the fund as a
208
2008]
THE HEDGE FUND HOLDUP
1541
and is what apparently will continue to push the SEC to create
more regulations. In the Accredited Investor Proposal, the SEC
sought to protect small investors by excluding those it deemed
too “small” to absorb a major loss in a hedge fund.210 The issue
that will continue to be a dominant theme in the coming years
is whether small investors are in need of the protection that
the SEC has continued to offer. The practices that hedge funds
employ when investors invest in a fund, in addition to certain
requirements that hedge funds are forced to take under
Regulation D, are arguably sufficient to protect small investors,
making both the current proposals, as well as further
regulation, unnecessary.
The SEC has claimed that small investors need more
protection against the risk of investing in hedge funds because
small investors “may find it difficult to appreciate the unique
risks of these pools.”211 Hedge funds must conform to a variety
of Congressional Acts, including the Securities Act of 1933,
which by its terms would require hedge funds to register and
disclose.212 While Regulation D was set up as a safe harbor to
allow private funds to avoid this regulation, it does not allow it
free of charge. Investment companies that use Regulation D to
avoid registration and reporting, as most hedge funds do, are
forbidden from using advertisements, solicitations or online
information to attract investors.213 Accordingly, Regulation D,
together with the other legal structures unique to hedge funds,
protects the small investor from “accidentally” investing in a
vehicle that he thinks is safe and carries the same level of risk
as any other investment option. The small investor is protected, therefore, from unknowingly investing in hedge funds
because of the many red flags that are put up as warnings.
The advertisement prohibitions, as well as the other
unique hedge fund practices, can best be understood when
compared to the investment procedures that mutual funds
employ. Mutual funds are very similar to hedge funds. Mutual
way to balance out the risks of investing in more traditional investment vehicles. See
supra notes 21-25 and accompanying text.
210
See Fraud & Accredited Investor Proposals, 72 Fed. Reg. at 412-13.
211
See id. at 404. Under the Securities Act, offerors of securities must provide
the SEC with certain disclosures. SEC, supra note 32. The specific disclosure
requirements include a description of the properties and business owned by the issuer,
a description of the security being sold, information about the issuer’s management,
and the issuer’s financial statements. Id.
212
STAFF REPORT, supra note 20, at 13.
213
See 17 C.F.R. § 230.502(c)(1)-(2) (2008).
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funds invest in many different types of investments, including
stocks and bonds, just as hedge funds do. Mutual funds are
highly regulated and are limited in the risks that they can take
and must report a tremendous amount of information to their
investors and to the SEC.214 Hedge funds, on the other hand,
have few requirements. In order to illustrate the protection
afforded to small investors by hedge funds, it is valuable to
compare the way that a small investor invests in hedge funds
compared to mutual funds. The difference between the methods
of investing is what raises the red flags for potential hedge
fund investors. The differences put the investor on notice that
this is not a lower-risk and more regulated mutual fund, but is
a higher-risk investment vehicle.
Mutual funds are inherently different than hedge funds,
both in the reporting requirements and the rules governing
their investment options. A mutual fund is a company that
invests in stocks, bonds, and other types of securities with
monies invested in it by investors.215 Mutual fund companies
offer many different types of funds as options for investment,
each with a specific target.216 The entire fund is its portfolio and
investors buy shares in the combined portfolio where each
share is the investor’s ownership portion of the fund.217 Mutual
funds have three main identifying features. First, shares of
mutual funds are bought and sold back to the fund itself and
are not traded on a secondary market exchange.218 Second,
mutual funds continuously create new shares of the fund as
monies are received, thereby increasing the total assets of the
fund.219 This allows easy access for new investors to invest in a
mutual fund at any point in time.220 Third, mutual funds and
214
Shauna Croome-Carther, Watch Out for the Mutual Fund Metamorphosis,
INVESTOPEDIA.COM,
http://www.investopedia.com/articles/mutualfund/03/040203.asp
(last visited Mar. 30, 2008).
215
SEC, Invest Wisely: An Introduction to Mutual Funds, http://www.sec.gov/
investor/pubs/inwsmf.htm (last visited Mar. 25, 2008).
216
For a list of the many different mutual funds that Fidelity alone offers, see
Fidelity.com, Four and Five Star Fidelity Funds, http://personal.fidelity.com/products/
funds/framesets/four_and_five_frame.shtml (last visited Mar. 30, 2008). Funds range
from those that focus on certain sectors such as international investments or real
estate to index funds that encompass the market more broadly. Id.
217
SEC, supra note 215.
218
Id. Although there might not be a secondary market for the shares, shares
of the fund can be easily redeemed and are priced at the funds’ “per share net asset
value (NAV) plus any shareholder fees that the fund imposes at the time of purchase
(such as sales loads).” Id.
219
Id.
220
Id.
2008]
THE HEDGE FUND HOLDUP
1543
their investment advisors must register with the SEC, and
provide disclosure statements.221 The SEC, therefore, has a
strong presence in the mutual fund world by forcing advisors to
report details of the funds’ holdings and by governing their
structure. These characteristics, including increased liquidity,
the ease of purchasing and redeeming shares, the ability to
invest in a fund mid-cycle, and the added protection of SEC
oversight, are what give mutual fund investments their allure.
It is therefore not surprising that mutual funds have
become extremely popular. Part of this popularity can be
attributed to the increased knowledge investors have about
the funds and the ease of purchasing shares. Mutual funds
advertise constantly and through every available medium.222
The Internet has opened up a new arena in which funds can
target the average consumer.223 In addition to more streamlined
advertising, it is relatively simple to invest online in a mutual
fund. This ease is similar to that typically associated with
stocks. Mutual fund companies invite investors to open an
account online and invest in a variety of their products, all
with easy-to-read screens and simple instructions.224 For
example, by clicking on one of the many mutual funds found on
the website of Vanguard Investments, a popular mutual fund
and retirement investment company, one can easily access the
fund’s investment information and a link to “buy this fund.”225
221
INVESTMENT COMPANY INSTITUTE, supra note 84, app. A.
Drive on a popular highway and you will almost undoubtedly see a
billboard for a mutual fund company. See Aaron Baar, Schwab’s ‘Talk to Chuck’
Plays Chicago, ADWEEK.COM, Apr. 8, 2005, http://www.adweek.com/aw/esearch/article_
display.jsp?vnu_content_id=1000874489. Open a magazine or turn on the television
and there will likely be at least one ad touting the virtues of some mutual fund.
223
For example, at Vanguard.com, when potential investors enter the website,
they are greeted with a full advertisement spread. See Vanguard Investments Home
Page, www.vanguard.com (last visited Apr. 6, 2008).
224
Vanguard Investments, https://personal.vanguard.com/us/home (last visited
Apr. 6, 2008).
225
See, e.g., Vanguard Capital Value Fund Overview, https://personal
.vanguard.com/us/funds/snapshot?FundId=0328&FundIntExt=INT (last visited Mar.
24, 2008). This is similar to the process of purchasing stocks over the Internet through
online brokerage houses like E-trade Financial and Charles Schwab. See E-trade
Financial, www.etrade.com (last visited Mar. 24, 2008); Charles Schwab, http://
charlesschwab.com (last visited Mar. 24, 2008). Part of the popularity of online trading
stemmed from the so called “day trade craze” of the late 1990’s through 2000. Day
trading became popular through a combination of a stock market boom in the late
1990s and the Internet’s increased accessibility to trade stocks. Day trading became
part of the popular culture and spawned legendary ad campaigns, including one
about a tow truck driver who owns his own island and drives a truck “for fun.”
Patrick McGeehan, Morgan Stanley Dean Witter Drops a Familiar Image to Take
Aim at Electronic Brokerage Firms, N.Y. TIMES, Aug. 28, 2000.
222
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Hedge funds, and the rules that bind them, are a stark
contrast to mutual funds. The small investor is put on notice
many times before investing in a hedge fund that all funds are
not alike. Hedge funds do not allow the ease of entry that
characterizes mutual funds, nor do they offer instant liquidity
or redemption benefits.226 Hedge funds neither advertise nor
interact with the public the way that mutual funds do. Even
the casual investor cannot mistake a hedge fund for a mutual
fund, and therefore knows that this is not a typical investment.
To become an investor in a hedge fund there are certain
requirements. Hedge funds are set up with two companies: one
company manages the fund and runs the other company, which
holds the assets.227 There are three documents that an investor
must be given before joining a hedge fund: a risk disclosure
statement, a subscription agreement, and an operating agreement.228 The purpose of the risk disclosure agreement is to
warn the investor about every conceivable risk that could
befall the fund.229 This document also lists the risks that are
associated with the specific fund, in addition to the risks
associated with all hedge funds.230 The subscription agreement
requires the investor to list the amount of money he is
investing in the fund, as well as a collection of personal
information including investment history.231 One of the most
important functions of the agreement is to certify that the
investor is an “accredited investor” and is therefore authorized
to invest in the fund.232 An investor must declare that he is in
compliance with both the income and net worth rules, as laid
226
SEC, Hedging Your Bets: A Heads Up On Hedge Funds and Funds of
Hedge Funds, http://www.sec.gov/answers/hedge.htm (last visited Mar. 24, 2008)
(“Hedge funds typically limit opportunities to redeem, or cash in, your shares (e.g., to
four times a year), and often impose a ‘lock-up’ period of one year or more, during
which you cannot cash in your shares.”). Id.
227
See DANIEL A. STRACHMAN, THE FUNDAMENTALS OF HEDGE FUND
MANAGEMENT 39 (2007).
228
See STUART A. MCCRARY, HOW TO CREATE AND MANAGE A HEDGE FUND 105
(2002); STRACHMAN, supra note 227, at 41.
229
See MCCRARY, supra note 228, at 105.
230
Id. at 105-06. The primary purpose of the hedge fund manager’s listing
every possible risk is to insure against any potential litigious fallout as a result of a
fund collapse. In fact, it is in the best interest of the manager to disclose all of the dire
risks to investors, if only to further protect the manager. This disclosure may, however,
be a double-edged sword: listing every remote risk may cause investors to ignore all of
the risks due to “risk overload.” Still, disclosure puts investors on notice that a hedge
fund has certain risks that are not found in mutual funds, where a separate risk
disclosure is not a part of the investment procedure.
231
STRACHMAN, supra note 227, at 41.
232
See MCCRARY, supra note 228, at 106.
2008]
THE HEDGE FUND HOLDUP
1545
out by the accredited investor standard, and has sufficient
investment knowledge and sophistication to invest in a fund.233
The third document is the operating agreement where the
investor agrees to have his money managed by the advisor.234
Part of the agreement is the assent to the lock-up period that
the hedge fund requires, during which time an investor’s
money cannot be withdrawn.235 The liquidity that is common to
stocks and mutual funds is all but absent from hedge funds.
Hedge fund investors typically face a lock-up period of at least
a year from the time they make the investment.236
These requirements as a whole create a different
investing environment for hedge funds than for mutual funds.
The risk disclosure is given instead of a prospectus237 to the
potential investor, thereby making the investor aware, not only
of the investment style of the fund, but of the very real potential for loss. Furthermore, the investor must give a multitude of
information and sign a document certifying himself as an
accredited investor, one who understands the nature and risks
involved. Finally, the investor must sign a document agreeing
to have his money managed and to have it locked up for a
specific period of time, only to be made available for a specific
day after which it gets locked up again. All of these steps to
become a hedge fund investor put the investor on notice that he
is investing in a different and higher risk vehicle.
In addition to the internal procedures required to
become an investor, Regulation D prohibits hedge funds from
soliciting or advertising to the general public. If a hedge fund
wants to avoid registration with the SEC under the Securities
Act, it must comply with Regulation D and refrain from
advertising to the public.238 The effect of this ban is that the
average investor is often unable to identify individual hedge
fund companies, and cannot determine how to invest in the
233
Id.
See STRACHMAN, supra note 227, at 41.
235
See MCCRARY, supra note 228, at 44.
236
SEC, supra note 226.
237
A prospectus is a legal document offered to investors that detail the facts
about the investment that are needed to make an informed decision. Investopedia.com,
Prospectus, http://www.investopedia.com/terms/p/prospectus.asp (last visited Mar. 24,
2008). In the case of a mutual fund, the prospectus “contains details on its objectives,
investment strategies, risks, performance, distribution policy, fees and expenses, and
fund management.” Id.
238
See 17 C.F.R. § 230.502(c)(1)-(2) (2008).
234
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[Vol. 73:4
fund.239 This is in sharp contrast to how mutual funds target
investors with “one-click buying.” Accordingly, the protection of
small investors with the Regulation D provisions, coupled with
the legal and practical structures that hedge funds employ, has
the effect of preventing the casual investor from investing in
hedge funds without understanding, or at least realizing the
potential risks that are involved.
As a result of this combination, small investors are
adequately protected from investing in hedge funds. If a small
investor chooses to invest in hedge funds directly, the investor
must seek out a hedge fund due to Regulation D’s ban on
advertisement of any kind. Once a small investor finds a fund
to invest in, the investor is warned many times throughout
the process that becoming an investor in a hedge fund is unlike
investing in traditionally safer, less risky mutual funds. This
knowledge is the protection that investors need to prevent
them from “accidentally” investing in a high risk vehicle. The
decision to invest, however, remains theirs alone.
VI.
CONCLUSION
Underpinning every instance of SEC rule-making is the
presumption that there is an identifiable problem whose
solution lies in more regulation. This Note has shown, however,
that in the case of hedge funds the SEC has rushed to address
a problem that has not been fully substantiated, and further
it has proposed a solution that fails to solve the purported
problem. In addition, the arbitrary and inconsistent manner in
which the SEC has formulated the proposals demonstrates a
singular motive to regulate, regardless of the wisdom of its
approach. This singular focus has largely been premised on the
need to protect small investors from investing in hedge funds.
The agency argues that small investors should be protected
from hedge funds because of the high risks that hedge funds
take—risks that a small investor is presumed to be too small to
bear. Small investors, however, are adequately protected. The
239
It is difficult to find information on the Internet for Grosvenor Capital
Management, one of the world’s largest funds of funds, having almost $20 billion in
assets. Press Release, Hedge Fund Intelligence, Funds of Funds Industry Sees Stellar
Growth in 2006 (Feb. 12, 2007), available at http://www.hedgefundintelligence.com/
images/590/investhedgebilliondollarrelease.pdf. Its home page contains a logo, a
company address, and an e-mail link for employment interest. Grosvenor Capital
Management, http://www.grosvenorcapitalmanagement.com (last visited Mar. 24,
2008). The site does not even mention what the company does. Id.
2008]
THE HEDGE FUND HOLDUP
1547
average investor would have great difficulty in finding a hedge
fund due to the advertisement prohibition of Regulation D.240
Even once a hedge fund is found, the process of becoming a
hedge fund investor puts the investor on notice that it is not a
typical investment and is likely to involve higher risks.
Investors must sign an agreement asserting that they meet the
accredited investor standard in addition to a risk disclosure
document outlining the many risks associated with the fund.
Also, investors must agree to lock up their investment for a
specified period of time. All of these requirements are generally
absent from other similar investments, including mutual funds,
and they have the effect of warning the investor of the risks
associated with hedge funds. Once an investor knows of the
risks, it is then his decision whether to take on those risks.
Beginning with the Hedge Fund Rule, the SEC has
made clear that it wants to regulate hedge funds. Releasing
proposed regulations only months after the Hedge Fund Rule
was invalidated by Goldstein is firm evidence that the SEC is
intent on regulating the industry. The regulation trend is likely
to continue, spurred by the SEC’s success in passing its antifraud rules. With a national recession looming in 2008, the
SEC is likely to use any hedge fund that collapses as evidence
of the risks involved in investing in hedge funds as well as the
need for more regulation. Prior to the bout of regulations
beginning in 2004,241 the SEC was satisfied in its role as a
hedge fund spectator. Now it seems that the SEC will not stop
until it is holding the hedge fund playbook.
Joseph Lanzkron†
240
See 17 C.F.R. § 230.502(c)(1)-(2).
This was the year the SEC released the Hedge Fund Rule. Hedge Fund
Rule Release, 69 Fed. Reg. 72,054 (Dec. 10, 2004).
†
J.D. Candidate, Brooklyn Law School, 2009; B.S., Finance, Touro College.
Thanks to the editors and staff of the Brooklyn Law Review for all their efforts,
particularly to Susan Greene, Jessica Weitzman, Jason Zakai, and Bradley Benedict
for their insights and suggestions. Special thanks to my parents, my parents-in-law,
and my wife Shifra for their limitless encouragement and support.
241
Shuffling to Justice
WHY CHILDREN SHOULD NOT
BE SHACKLED IN COURT
I.
INTRODUCTION
Her hands were secured tightly with metal handcuffs,
and foot cuffs were clasped around her ankles.1 A leather belt
was wrapped around her waist. This belt held metal rings that
were linked to the handcuffs by a chain.2 This “restraint belt”
prevented her from raising her hands above waist level.3 As her
ankles were held closely together by the footcuffs, she had to
shuffle in order to walk.4 Led by Office of Children’s and Family
Services (“OCFS”) staff, she was made to shuffle through a
waiting room filled with people, with the clanking of her metal
chains heard by all.5 She is Jenny P., a fifteen-year-old girl
who was adjudicated a delinquent in Kings County Family
Court in Brooklyn.6 She was required to live and receive
rehabilitative services at the Auburn Residential Center, a
non-secure facility operated by OCFS.7 At Auburn, Jenny P.
participated in field trips, she was on the Honor Roll, and she
completed anger management and drug prevention programs.8
She had never exhibited violent behavior during her trips to
1
This anecdote is taken from First Amended Complaint at 15, Jenny P. v.
Johnson, No. 37784/2005 (N.Y. Sup. Ct. Feb. 15, 2006) [hereinafter Complaint, Jenny
P.], available at http://www.njdc.info/2006resourceguide/start.swf (follow “Advocacy in
Juvenile Court” hyperlink; then follow “First Amended Complaint in Jenny P. v.
Johnson” hyperlink under “B. Shackling”); Memorandum of Law in Support of
Plaintiff’s Motion for Preliminary Injunctive Relief and Temporary Restraining Order
at 13-16, No. 37784/2005 [hereinafter TRO Motion, Jenny P.], available at
http://www.njdc.info/2006resourceguide/start.swf (follow “Advocacy in Juvenile Court”
hyperlink; then follow “Brief in Support of Plaintiffs’ Motion” hyperlink under “B.
Shackling”).
2
Complaint, Jenny P., supra note 1, at 5-6.
3
Id. at 6.
4
See id. at 15.
5
Id.
6
Id. at 7; TRO Motion, Jenny P., supra note 1, at 11.
7
TRO Motion, Jenny P., supra note 1, at 11.
8
Id. at 11-12.
1549
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[Vol. 73:4
court.9 Furthermore, the court did not determine that the
restraints were necessary to prevent her from attempting to
hurt someone or escaping the courtroom.10 In fact, no one had
ever inquired as to Jenny P.’s mood or feelings each time she
was brought to court and made to wait in a secure holding
room while in shackles, or when she was brought in front of the
judge wearing full restraints.11
Jenny P.’s experience is not uncommon. In fact, until
2005 when the Legal Aid Society brought a class action lawsuit
challenging the blanket OCFS policy of shackling children,
each child who was in OCFS custody was shackled for the
duration of the time they were in court.12 One child was made
to wait for nearly eight hours while fully shackled in a waiting
room.13 Moreover, they were required to appear in front of the
judge in footcuffs and a restraint belt, without any individualized determination of need.14 The practice of shackling
children who are in the juvenile justice system is not isolated to
New York. Indeed, at least twenty-eight states have courts that
require juveniles to appear in shackles during juvenile court
proceedings.15 Active litigation is challenging this practice in
New York and Florida.16 However, in some courtrooms around
the country, defenders’ motions for children to appear at
proceedings free from restraints are routinely denied in the
name of courtroom security.17 Judges in Florida recently denied
such motions, explaining that they were not convinced by
evidence showing that shackling may cause psychological
damage and noting the importance of maintaining courtroom
security.18 Thus, although some counties have been successful
9
Id. at 17.
Id. at 1.
11
Id. at 12-16.
12
Id. at 1.
13
Id. at 9.
14
Id. at 1, 5.
15
Martha T. Moore, Should Kids Go to Court in Chains?, USA TODAY.COM,
June 18, 2007, available at http://www.usatoday.com/news/nation/2007-06-17shackles_N.htm.
16
John F. v. Carrion, No. 07/407117 (NY. Sup. Ct. Dec. 12 2007) (on file with
author) (The Jenny P. action was withdrawn and re-filed with the new named plaintiff
John F.); infra notes 129-132 and accompanying text.
17
See infra Part IV.A-B (discussing the extent of shackling practice and
response of courts in select counties).
18
Kathleen Chapman, Judges Refuse to Unshackle Juveniles, PALM BEACH
POST, Feb. 2, 2007, available at http://www.pdmiami.com/Palm_Beach_Post-Judges_
refuse_to_unshackle_juveniles.pdf. In denying motions submitted by the Palm Beach
County Office of the Public Defender to allow juveniles to appear in court free from
10
2008]
SHUFFLING TO JUSTICE
1551
in challenging the routine use of shackles on juveniles, many
children continue to be shackled each time they appear in
juvenile court. The juvenile justice system has its historical
roots in providing treatment instead of punishment.19 Shackling thwarts the very purpose of this system by treating
children like criminals.
The Supreme Court has explicitly stated that blanket
policies that require all criminal defendants to appear in court
while shackled are impermissible.20 However, the Court is
silent on the applicability of this rule to juvenile court
proceedings. Because there is no clear jurisprudence on when
shackles may be used during juvenile court proceedings, state
policies vary widely.21 While a handful of courts have held that
juveniles may not be shackled without some showing of need,
many others have failed to apply any standard.22 Therefore,
thousands of children are required to endure the humiliation
and physical pain of shackling even though they show no
threat of danger or risk of flight.
In this Note, I argue that routine and indiscriminate
use of shackles on juveniles is contrary to the objectives of
the juvenile justice system. The juvenile justice system was
premised on the notion that juveniles need treatment and
rehabilitation, and they should not be treated punitively like
adults.23 Further, I argue that when children are required to
appear in court in shackles for no justification, their sense of
restraints, the panel of four judges concluded that “the public defender did not present
satisfying evidence that the restraints can cause psychological damage and failed to
consider court security.”
19
See infra Part III (discussing the purpose of the juvenile justice system).
20
Deck v. Missouri, 544 U.S. 622, 628-29 (2005).
21
See infra Part IV.A.
22
There have been numerous successful challenges to the routine and
indiscriminate use of shackles on juveniles in state courts. See Tiffany A. v. Superior
Court of L.A. County, 59 Cal. Rptr. 3d 363, 373 (Ct. App. 2007) (stating that courts may
not apply a blanket shackling policy without individualized determination of need);
In re Staley, 352 N.E.2d 3, 6 (Ill. App. Ct. 1976) (finding error where a child was
shackled without sufficient reason, such as to prevent escape or to ensure courtroom
safety), aff’d, 364 N.E.2d 72 (Ill. 1977); State v. Merrell, 12 P.3d 556, 558 (Or. Ct. App.
2000) (stating in a case involving a juvenile that a defendant may only be shackled
when the court has determined that he poses a “serious risk of committing dangerous
or disruptive behavior, or . . . a serious risk of escape”); State ex rel. Juvenile Dep’t of
Multnomah County v. Millican, 906 P.2d 857, 860-61 (Or. Ct. App. 1995) (finding that
shackling a juvenile during a bench trial constituted constitutional error but that such
error was harmless because there was no showing that the restraint was prejudicial).
But see infra Part IV.A for examples of courts that have not applied the general rule
from Deck to the shackling of juveniles.
23
See infra Part III.A.
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BROOKLYN LAW REVIEW
[Vol. 73:4
fairness and justice is disrupted. The judicial system has an
opportunity to educate children about justice and equality, but
the routine use of shackles reinforces the notion that our
justice system is unfair and inequitable. Further, it teaches
children that they are not valued and respected.
In Part II, I describe the legal standard for shackling in
criminal court, including the Supreme Court decision Deck v.
Missouri and the evolution of federal law applicable to
shackling adult criminal defendants in court. Then, in Part III,
I discuss the objectives of the juvenile court system, focusing on
the system’s origins in treatment and rehabilitation rather
than punishment. Part III concludes that a bargain was struck
between the juvenile courts and children in the system to
provide fewer procedural protections in exchange for a more
rehabilitative and less punitive system. This bargain, I will
argue, is repudiated through the practice of shackling children
in court.
In Part IV, I examine the extent to which courts require
children to appear in shackles, the harms shackling causes to
children, and the misguided justifications that are offered for
requiring children to appear shackled in court. Finally, in
Part V, I begin with an overview of the scant case law
regarding shackling children in juvenile court. Then, I argue
that the recent California Court of Appeal case Tiffany A. v.
Superior Court sets forth a model analysis against routine
shackling that recasts the demand to end indiscriminate
shackling in terms of the distinct characteristics and needs of
juveniles in the juvenile system. Instead of relying solely on the
framework provided in Deck, juvenile courts should emphasize
that shackling is distinctly harmful when applied to children
because of the rehabilitative focus of the juvenile courts. I
conclude by offering another reason to end the practice of
routinely shackling children in court: when shackling juvenile
defendants is limited to those rare situations when there is an
individualized need, young people learn the values of a fair and
just criminal justice system.
II.
SHACKLING AND THE LEGAL STANDARD IN CRIMINAL
COURT
The first court to speak on the issue of using shackles on
a criminal defendant was the California Supreme Court in
2008]
SHUFFLING TO JUSTICE
1553
1871.24 In People v. Harrington, the defendants had been
convicted of robbery, and throughout their trial they had
appeared in “irons.”25 The California Supreme Court denied the
defendants’ request that they be tried without the shackles.26
On appeal, the defendants argued that their common law
rights were violated when they were tried while shackled.27 The
California Supreme Court held that requiring the defendants
to be tried in shackles without justification violated their
rights.28 Furthermore, the court expressed some of the key
concerns that the United States Supreme Court later relied
upon when it ruled against the indiscriminate use of visible
shackles on a defendant at trial and sentencing.29 These
concerns were that shackles have a prejudicial effect and
disrupt a defendant’s ability to adequately participate in his
defense.30 While the Harrington court set down a clear rule on
the use of shackles, most other courts remained silent on the
issue until the twentieth century.31
Today, the right of the accused to appear at trial free
from the visible restraint of shackles has been upheld by
numerous courts as a matter of state or federal law.32 The
24
People v. Harrington, 42 Cal. 165 (1871).
Id. at 166.
26
Id.
27
Id.
28
Id. at 168-69 (ruling on common law grounds, but noting that state
constitutional rights might be implicated).
29
Compare id. at 168 with Deck v. Missouri, 544 U.S. 622, 630-31 (2005);
Holbrook v. Flynn, 475 U.S. 560, 568 (1986); Illinois v. Allen, 397 U.S. 337, 344 (1970).
30
The Harrington Court stated:
25
[A]ny order or action of the Court which, without evident necessity, imposes
physical burdens, pains and restraints upon a prisoner during the progress of
his trial, inevitably tends to confuse and embarrass his mental faculties, and
thereby materially to abridge and prejudicially affect his constitutional rights
of defense; and especially would such physical bonds and restraints in like
manner materially impair and prejudicially affect his statutory privilege of
becoming a competent witness and testifying in his own behalf.
42 Cal. at 168.
31
Deck, 544 U.S. at 641-42 (Thomas, J., dissenting) (“In 35 States, no
recorded state-court decision on the issue appears until the 20th century. Of those 35
States, 21 States have no recorded decision on the question until the 1950’s or later.
The 14 state (including then-territorial) courts that addressed the matter before the
20th century only began to do so in the 1870’s.”).
32
See generally Sheldon R. Shapiro, Annotation, Propriety and Prejudicial
Effect of Gagging, Shackling, or Otherwise Physically Restraining Accused During
Course of State Criminal Trial, 90 A.L.R. 3D 17 (1979) (discussing several state cases
recognizing as a general rule an accused’s right to appear at trial free of shackles). For
a list of lower court decisions upholding the right of defendants to appear free from
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primary concern expressed regarding shackling at the guilt
phase of a criminal trial is potential for prejudicing the jury.33
Courts also note the impact shackling has on the accused’s
ability to participate in his own defense and to communicate
with his attorney, as well as the effect shackles have on the
dignity and decorum of the courtroom.34 The Supreme Court’s
jurisprudence on shackling has evolved through three main
cases: Illinois v. Allen, Holbrook v. Flynn, and Deck v.
Missouri.35
A.
Illinois v. Allen (1970)
In Illinois v. Allen, the Supreme Court held that the use
of shackles, binds, or gags on a defendant who is unwilling to
behave appropriately at trial may be necessary, but that these
techniques may only be used as a last resort.36 In Allen, the
defendant was convicted of armed robbery when he stole $200
at gunpoint from a bartender.37 At trial, Allen demanded that
he act as his own attorney, and the trial judge allowed him to
represent himself until he began to act in a hostile and defiant
manner.38 During voir dire Allen repeatedly ignored the judge’s
warnings that he must behave while in court. After Allen
refused to cooperate, made statements threatening the judge’s
life, and insisted that “there would be no trial,” the trial judge
removed Allen for part of the proceedings.39 Allen was allowed
to return to the proceedings after he agreed to behave properly,
visible restraint, but allowing the right to be overcome by essential state interests such
as courtroom security or escape prevention, see Deck, 544 U.S. at 628-29.
33
Deck, 544 U.S. at 630 (detailing the prejudicial effect of visible shackles).
“Visible shackling undermines the presumption of innocence and the related fairness of
the factfinding process.” Id.
34
See Shapiro, supra note 32, at 17.
35
See generally Deck, 544 U.S. 622 (holding that the prohibition on visible
restraints without a showing of an essential state interest applies with equal force to
the penalty phase of a capital trial as it does to the guilt phase); Holbrook v. Flynn, 475
U.S. 560 (1986) (holding that the presence of security guards was not so prejudicial as
to deny the defendant’s right to a fair trial); Illinois v. Allen, 397 U.S. 337 (1970)
(finding that shackles should only be used as a last resort).
36
Allen, 397 U.S. at 343-44.
37
Id. at 338-39.
38
Id. at 339-41.
39
Id. at 340. During one of Allen’s outbursts, he stated, “When I go out for
lunchtime, you’re [the judge] going to be a corpse here.” Id. (quoting United States ex
rel. Allen v. Illinois, 413 F.2d 232, 233 (7th Cir.1969), rev’d on other grounds, Illinois v.
Allen, 397 U.S. 337 (1970)).
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but he made another outburst and was again removed from the
courtroom.40
In reviewing the case, the Supreme Court attempted to
strike a balance between upholding a defendant’s constitutional rights and maintaining safety and the appropriate
administration of criminal proceedings. The Court set forth
three constitutionally permissible ways for a trial judge to
handle a defiant defendant: “(1) bind and gag him, thereby
keeping him present; (2) cite him for contempt; [and] (3) take
him out of the courtroom until he promises to conduct himself
properly.”41 While the Court acknowledged that circumstances
may exist that permit the use of shackles or physical restraints
on a defendant, it took pains to emphasize that the use of
shackles should be severely limited, declaring that shackles
and gags should only be used as a “last resort.”42 The Court
further noted that the “sight of shackles and gags”43 might
impact the jury’s feelings about the defendant, may impair the
defendant’s ability to communicate with his attorney, and is
generally an “affront to the very dignity and decorum of
judicial proceedings that the judge is seeking to uphold.”44
Thus, Allen stands for the proposition that requiring a
defendant to appear in court in visible physical restraints is an
offense to a fair and impartial criminal justice system, and
must only be used as an absolute last resort.
B.
Holbrook v. Flynn (1986)
Sixteen years later, the United States Supreme Court
considered the presence of uniformed guards at a defendant’s
trial in comparison to visible shackles. In Holbrook v. Flynn,
40
Id. at 340-41. Shortly after the trial judge warned Allen that if he
continued to make outbursts he would be removed from the courtroom, Allen
announced, “There is going to be no proceeding. I’m going to start talking and I’m going
to keep on talking all through the trial. There’s not going to be no trial like this. I want
my sister and friends here in court to testify for me.” Allen, 413 F.2d, at 234.
41
Id. at 343-44.
42
Id. at 344. The Court stated, “But even to contemplate such a technique [to
bind and gag], much less see it, arouses a feeling that no person should be tried while
shackled and gagged except as a last resort.” Id.
43
Id.
44
Id.; see also Estelle v. Williams, 425 U.S. 501, 505-06 (1976) (finding that
requiring a criminal defendant to wear prison clothing during his trial violated his
Fourteenth Amendment right to equal protection under the law). The Court noted that
“no essential state policy” is furthered by this requirement. Estelle, 425 U.S. at 505.
The Court nonetheless upheld the conviction because the defendant failed to make an
objection to the trial court. Id. at 512-13.
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the Supreme Court held that the defendant’s constitutional
right to a fair trial was not violated when, during the trial, four
uniformed state troopers in addition to the regular courtroom
security officers sat in the front row of the courtroom.45 The
Court distinguished this case from Estelle v. Williams46 and
Allen, concluding that physical restraints and prison clothing
are significantly different from the sight of uniformed police
officers at a trial.47 The Court maintained that “shackling and
prison clothes are unmistakable indications of the need to
separate a defendant from the community at large.”48 In
contrast, the Court stated that “the presence of guards at a
defendant’s trial need not be interpreted as a sign that he is
particularly dangerous or culpable.”49 Furthermore, the Court
compared the sight of uniformed security within a courtroom to
visible shackles and concluded that uniformed security was not
so “inherently prejudicial” to the defendant that it must comply
with the legal standard for shackling and therefore be “justified
by an essential state interest specific to each trial.”50 Thus, the
Court suggested a hierarchy where shackling stood above other
potential marks of criminality as particularly suggestive and
insidious.
C.
Deck v. Missouri (2005)
Most recently, the Supreme Court rejected the use of
visible shackles on an adult defendant during the sentencing
phase of a criminal trial. In 1998, Carmen Deck was convicted
of the robbery and murder of an elderly couple in their home.51
Throughout Deck’s sentencing proceedings, he was shackled
with leg irons, handcuffs, and a belly chain.52 Deck’s attorney
objected to the use of shackles several times during the
45
Holbrook v. Flynn, 475 U.S. 560, 571-72 (1986).
425 U.S. 501 (1976).
47
Holbrook, 475 U.S. at 569.
48
Id.
49
Id.
50
Id. at 568-69. The Court concluded that even if prejudice could be found in
allowing the uniformed security force to remain at the trial, the prejudice could be
outweighed by the “State’s legitimate interest in maintaining custody during the
proceedings . . . .” Id. at 571-72. Cf. Estelle, 425 U.S. at 505-06 (concluding that
requiring a defendant to wear prison clothing during trial does not promote any
legitimate state interest).
51
Deck v. Missouri, 544 U.S. 622, 624-25 (2005).
52
Id. at 625.
46
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SHUFFLING TO JUSTICE
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proceedings, but his motions were repeatedly overruled.53 Deck
remained shackled throughout the sentencing proceedings and
was condemned to death.54 Deck appealed his sentence on the
grounds that his shackling violated Missouri law as well as the
U.S. Constitution.55 The Missouri Supreme Court affirmed
Deck’s sentence, concluding that first, the record did not reflect
that the jury saw or was aware of the shackles; second, Deck
did not argue that the shackles prevented him from
communicating with his attorney; and lastly, because Deck was
a repeat offender, there was evidence that he was a flight risk.56
On appeal, the United States Supreme Court stated
that the law had prohibited visible shackles during the guilt
phase of a criminal trial for many years.57 In Deck, the Court
extended this rule and held that this prohibition against
shackles at a criminal trial included the sentencing phases of a
defendant in a capital case.58 Accordingly, a state may only
shackle a criminal defendant when there is an “essential state
interest.”59 The majority opinion in Deck relied on prior case
law to set forth three guiding principles regarding the use
of shackles on criminal defendants.60 First, visible shackles
are “inherently prejudicial;”61 second, shackles may disrupt a
53
Id. The majority noted that the defendant’s attorney objected prior to,
during, and after jury voir dire, arguing that the jury was prejudiced by seeing the
defendant in shackles. Id. The sentencing court disagreed, noting that by keeping the
defendant in shackles the jury was relieved of any fear. Id.
54
Id. (citing State v. Deck, 136 S.W.3d 481, 485 (Mo. 2004) (en banc), rev’d on
other grounds, Deck v. Missouri, 544 U.S. 622 (2005)). Deck remained in shackles
throughout his trial, though the shackles were not visible to the jury. Id. at 624. He
was convicted and sentenced to death. However, at the conclusion of the trial, the
Missouri Supreme Court, upholding the conviction, set aside the sentence, thus leading
to the new sentencing proceeding. Deck v. State, 68 S.W.3d 418, 432 (Mo. 2002) (en
banc), aff’d, 136 S.W.3d 481 (Mo. 2004), rev’d, Deck v. Missouri, 544 U.S. 622 (2005).
55
Deck, 544 U.S. at 625.
56
State v. Deck, 136 S.W.3d at 485-86.
57
Deck, 544 U.S. at 626.
58
Id. at 633. But see Brandon Dickerson, Casenote, Bidding Farewell to the
Ball and Chain: The United States Supreme Court Unconvincingly Prohibits Shackling
in the Penalty Phase in Deck v. Missouri, 39 CREIGHTON L. REV. 741, 743 (2006)
(arguing that the rule against visible shackling should not apply with equal force to the
sentencing phase and that the holding in Deck was based on “unconvincing reasoning
and unpersuasive dicta”).
59
Deck, 544 U.S. at 628 (citing “physical security, escape prevention, or
courtroom decorum” as examples of such essential interests).
60
The Court in Deck outlined the holdings in Holbrook, Allen, and Estelle
prior to setting forth the general rule that the Fifth and Fourteenth Amendments
prohibit the use of visible shackles “absent a trial court determination . . . that they are
justified by a state interest specific to a particular trial.” Id. at 627-29.
61
Id. at 628 (citing Holbrook v. Flynn, 475 U.S. 560, 568 (1986)).
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defendant’s ability to communicate with his counsel; and lastly,
shackles undermine the appearance of dignity in the courtroom
and jeopardize the tenet of innocent until proven guilty.62
The Supreme Court reflected on both legal history and
the practice of the majority of lower courts to support its
reasoning for prohibiting the use of visible shackles during the
sentencing phase of a defendant’s trial absent an essential
state interest. As the majority in Deck opined, the general
prohibition against visible shackles at trial is rooted in the
English common law rules.63 During the eighteenth century,
William Blackstone wrote that “the defendant must be brought
to the bar without irons, or any manner of shackles or bonds;
unless there be evident danger of an escape.”64 The Court
acknowledged that most trial courts have treaded close to this
standard. Moreover, the Court maintained that while lower
courts have differed on the procedures used to govern the
standard for shackling, they have adhered to the rule that,
barring a particular reason, the routine use of visible shackles
on defendants is unauthorized.65 Additionally, the Deck court
reasoned that this standard was embedded in the U.S.
Constitution’s Fifth and Fourteenth Amendment guarantees of
due process.66
In sum, the Supreme Court has been entirely clear
that blanket policies requiring shackles on all defendants
are impermissible. Furthermore, the Court has expressed
unquestionable concern that visible shackles are prejudicial
and should only be used as a last resort. Moreover, the Court
recognized the significant impact shackles may have on the
62
Id. at 631; see also Holbrook, 475 U.S. at 569; Illinois v. Allen, 397 U.S.
337, 344; People v. Harrington, 42 Cal. 165, 168 (1871).
63
Deck, 544 U.S. at 626.
64
Id. (quoting 4 W. BLACKSTONE, COMMENTARIES ON THE LAWS OF ENGLAND
317 (1769)). However, the Court acknowledged that the primary reason the common
law rule against shackles existed was to prevent physical harm to the defendant, and
in modern times physical harm is no longer a major concern. Id. at 630. Justice
Thomas’ dissent emphasizes this distinction between the justifications for the common
law rule and the modern principle on shackling to argue that the modern rule has no
resemblance to the original concerns about shackling. Id. at 635-40 (Thomas, J.,
dissenting). Furthermore, Thomas argues that the modern restraints are not physically
harmful and do not interfere with a defendant’s ability to defend himself at trial, the
paramount concerns during the common law days. Id. at 640. Therefore, Thomas
argues that the Court errs in equating modern day restraints with those used at the
time of common law and sets forth a standard that has no historical basis. Id. at 64041. This Note argues that physical harm is still a concern with shackling children. See
infra Part IV.C.
65
Deck, 544 U.S. at 628.
66
Id. at 627.
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SHUFFLING TO JUSTICE
1559
dignity of the courtroom and the ability of the defendant to
communicate with counsel. Finally, in Deck, the Court took
notice that the lower courts have treated the case law from
Holbrook and Allen as declaring a constitutional standard
prohibiting the use of visible shackles unless there is an
apparent risk of danger or flight.67 For a variety of reasons,
which will be discussed in this Note, these standards are not
currently fully applied in juvenile cases.
III.
OBJECTIVES OF THE JUVENILE JUSTICE SYSTEM
The juvenile justice system is premised upon the notion
of treatment and rehabilitation instead of punishment, with an
emphasis on individualized evaluations.68 While a shift over the
past two decades toward a focus on accountability has
permeated the juvenile court system, the underlying purpose of
rehabilitation has never completely disappeared.
A.
History of the Juvenile Court
A review of the history of the juvenile court is necessary
for understanding the principles that guided the juvenile
justice system. Further, the historical background reinforces
how shackling children in court undermines the goals of the
juvenile justice system. The first juvenile court was established
in Cook County, Illinois in 1899 in response to growing
concerns that children who violated the law were being treated
far too punitively.69 Social reformers believed children should
not be put through the criminal justice system in the same
fashion as adults.70 Moreover, the reformers did not believe
67
Id. at 629 (finding lower courts “have disagreed about the specific procedural steps a trial court must take prior to shackling, about the amount and type of
evidence needed to justify restraints, and about what forms of prejudice might warrant
a new trial, but they have not questioned the basic principle. They have emphasized
the importance of preserving trial court discretion . . . but they have applied the limits
on that discretion described in Holbrook, Allen, and the early English cases”).
68
See generally OFFICE OF JUVENILE JUSTICE AND DELINQUENCY
PREVENTION, JUVENILE DELINQUENCY GUIDELINES: IMPROVING COURT PRACTICE IN
JUVENILE DELINQUENCY CASES 12 (2005) (explaining the history of the juvenile justice
system and the focus on rehabilitation and individualized justice); Julian W. Mack, The
Juvenile Court, 23 HARV. L. REV. 104, 107 (1909).
69
IRA SCHWARTZ, (IN)JUSTICE FOR JUVENILES: RETHINKING THE BEST
INTERESTS OF THE CHILD 150-51 (1989).
70
Id. at 150. The whole notion of setting up a separate court for juveniles is
akin to accepting the proposition that children are developmentally different from
adults and therefore have different needs. The differences between children and adults
continue to be the subject of research. See AMNESTY INTERNATIONAL & HUMAN RIGHTS
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children should have to face punishment and jail as a response
to their transgressions from the law.71 Instead, they decided to
create a special court for children based on a “rehabilitative
ideal.”72 As a result, the Illinois court focused on treatment and
rehabilitation of youths, promoting the best interests of the
child.73 Therefore, the judge explored children’s social and
emotional needs and attempted to provide services that would
help “save” the child.74 In exchange, due process considerations
and traditional adversarial proceedings were bypassed.75
In the two decades following the Illinois court, almost
all states created special courts for children.76 The parens
patriae77 concept provided the legal foundation for the juvenile
court system. Accordingly, the judge sat as a father figure and
provided guidance to the wayward youth. Thus, these courts
WATCH, THE REST OF THEIR LIVES: LIFE WITHOUT PAROLE FOR CHILD OFFENDERS IN
THE UNITED STATES 45-51 (2005) (discussing in detail the cognitive and psychosocial
differences between adults and children, including research on differences in brain
development suggesting that adolescents have a less-developed sense of impulse
control). Recently, the U.S. Supreme Court ruled that the imposition of capital
punishment on individuals under age eighteen was prohibited by the Eighth and
Fourteenth Amendments. Roper v. Simmons, 543 U.S. 551, 578 (2005). In so doing, the
Court recognized that children are developmentally and emotionally different from
adults, less responsible for their actions, and more capable of change. See id. at 569-70.
71
The Progressives were a group of reformers who tackled concerns such as
women’s suffrage and child labor, along with the issue of juvenile offenders. See
SCHWARTZ, supra note 69, at 150. Their reforms came as a result of social problems
they saw as reflecting the changes from the Industrial Revolution. See id. The thought
behind the transformation in the juvenile court system was that juvenile offenders
should be treated like abused and neglected children and the state should serve to
protect these children. Mack, supra note 68, at 107.
72
SCHWARTZ, supra note 69, at 150.
73
Id. at 150-51. For a more detailed discussion of the history of the early
juvenile courts, see generally David S. Tanenhaus, The Evolution of Juvenile Courts in
the Early Twentieth Century: Beyond the Myth of Immaculate Construction, in A
CENTURY OF JUVENILE JUSTICE 42, 42-73 (Margaret K. Rosenheim et al. eds., 2002).
74
Mack, supra note 68, at 108-10 (noting that numerous states followed the
Illinois example to establish new juvenile court laws); see also ANTHONY M. PLATT, THE
CHILD SAVERS: THE INVENTION OF DELINQUENCY 3-4 (1969). In contrast to this new
juvenile system, the adult criminal system was adversarial in nature. The adult system
focused on punishment and jail as a response to crime. Notions of treatment and
rehabilitation were not recognized in the adult system. See SCHWARTZ, supra note 69,
at 150.
75
See Laurence Steinberg & Robert G. Schwartz, Developmental Psychology,
in YOUTH ON TRIAL: A DEVELOPMENTAL PERSPECTIVE ON JUVENILE JUSTICE 9, 11
(Thomas Grisso & Robert G. Schwartz eds., 2000); Mack, supra note 68, at 109-10.
76
SCHWARTZ, supra note 69, at 151 (citing W. WADLINGTON ET AL., CASES AND
MATERIALS ON CHILDREN IN THE LEGAL SYSTEM 198 (1983)).
77
In re Gault, 387 U.S. 1, 16 (1966). In Gault, Justice Fortas noted that
parens patriae is a Latin phrase “taken from chancery practice, where . . . it was used
to describe the power of the state to act in loco parentis for the purpose of protecting
the property interests and the person of the child. But there is no trace of the doctrine
in the history of criminal jurisprudence.” Id.
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espoused the principle that children, regardless of their status
as dependent, neglected, or delinquent most importantly
needed “state supervision in the manner of a wise and devoted
parent.”78 Additionally, the reformers and these special courts
for children pioneered the notion of “individualized justice,”
where courts focused on each child’s characteristics, background, and needs, and determined an appropriate treatment
plan to heal the child and enable him to participate in society.79
The system was intended to be informal.80 By crafting a system
that viewed children’s transgressions as something to be
treated as opposed to something worthy of punishment, there
was a justification in denying children the due process rights
and procedural safeguards that were the hallmark of the adult
criminal court system.81
Beginning in 1966, after nearly sixty years, the U.S.
Supreme Court had the opportunity to review this system, and
over the next five years, it handed down several decisions that
forever changed the landscape of juvenile justice in America.
Questioning the “naïve arrogance of the rehabilitative ideal,”82
the Court declared that “juveniles are entitled to a broad range
of procedural protections previously denied them.”83 Thus, the
initial phase of the juvenile court and its protectionist, “childsaving” mentality came to a close. However, in the decades
following the Supreme Court’s decision to provide juveniles
with certain procedural safeguards, the values propounded by
the social reformers continued to inform the emerging juvenile
justice system.84
78
ELLEN RYERSON, THE BEST LAID PLANS: AMERICA’S JUVENILE COURT
EXPERIMENT 42 (1978).
79
OFFICE OF JUVENILE JUSTICE AND DELINQUENCY PREVENTION, JUVENILE
DELINQUENCY GUIDELINES: IMPROVING COURT PRACTICE IN JUVENILE DELINQUENCY
CASES 12 (2005).
80
See SCHWARTZ, supra note 69, at 151; see also, Barry C. Feld,
Criminalizing the Juvenile Court: A Research Agenda for the 1990’s, in JUVENILE
JUSTICE AND PUBLIC POLICY 59, 60-61 (Ira M. Schwartz ed., 1992).
81
SCHWARTZ, supra note 69, at 151. Schwartz comments:
The creators of the juvenile court envisioned that this special court for
children would be less like a court and more like a social welfare agency.
Children who were brought to the attention of the juvenile court were to be
helped rather than punished . . . . In exchange for this informality, they were
denied the rights and procedural safeguards accorded to adults.
Id.
82
FRANKLIN E. ZIMRING, AMERICAN JUVENILE JUSTICE 33 (2005).
SCHWARTZ, supra note 69, at 151.
84
See infra Part III.B. The Supreme Court in Gault emphasized that there
need not be a conflict between providing due process rights and the vision of a
83
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The Emergence of Due Process Rights
By granting certain due process rights to juveniles, the
Supreme Court sought to ensure that this population was
treated fairly in the juvenile court system.85 Despite the
benevolent goals of the social reformers, the informal juvenile
court system was not working.86 The Supreme Court first
confronted the problems of the juvenile court system in Kent v.
United States.87 Kent was the first of four landmark juvenile
justice cases that permanently altered the way juveniles were
treated in the legal system.88 In Kent, the Court addressed the
issue of waiver of jurisdiction89 from juvenile to adult court.90
The Court held that waiver of jurisdiction was a “critically
important action determining vitally important statutory
rights of the juvenile” and therefore required a statement of
rehabilitative court system for juveniles. 387 U.S. 1, 27 (1967). But see Feld, supra note
80, at 62. Feld points out that despite the intervention of the U.S. Supreme Court,
legislative and judicial reforms have largely left juveniles with little of the protections
the social reformers had in mind. See id.
85
See, e.g., Kent v. United States, 383 U.S. 541, 553-54 (1966) (holding that
transfer proceedings must comport with basic standards of due process and fair
treatment, while acknowledging the therapeutic nature of the juvenile court). But see
SCHWARTZ, supra note 69, at 159 (“The informality and confidentiality of juvenile court
proceedings and the broad discretion given to judges and other professionals working
in the court contributed to widespread abuses . . . . The situation is tantamount to
sacrificing the civil liberties of children in exchange for ‘good intentions.’”).
86
McKeiver v. Pennsylvania, 403 U.S. 528, 543-44 (1971) (“[T]he fond and
idealistic hopes of the juvenile court proponents and early reformers of three
generations ago have not been realized.”).
87
See Kent, 383 U.S. at 541.
88
The four landmark cases are McKeiver, 403 U.S. 528, In re Winship, 397
U.S. 358 (1970), In re Gault, 387 U.S. 1, and Kent, 383 U.S. 541.
89
Waiver of jurisdiction refers to the process by which a juvenile court may
decline to maintain jurisdiction of a juvenile court case and then transfer the case to
adult court. See Campaign for Youth Justice, Fact Sheet: Trying Youth as Adults, at 2,
http://www.campaignforyouthjustice.org/fact_sheets.html (last visited Apr. 10, 2008).
States’ waiver policies and proceedings vary. Id. at 2-3.
90
Kent involved the prosecution of a 16 year old for housebreaking, robbery
and rape. Kent, 383 U.S. at 543-44. The U.S. District Court for the District of Columbia
convicted Kent of housebreaking and robbery. Id. at 550. Kent appealed, and the
judgment was affirmed by the U.S. Court of Appeals for the District of Columbia
Circuit. See Kent v. United States, 343 F.2d 247, 261 (1964), rev’d, 383 U.S. 541 (1966).
At trial, Kent’s attorney filed a motion for a hearing on the issue of waiver of Juvenile
Court jurisdiction along with an affidavit from a psychiatrist that recommended Kent
receive psychiatric treatment due to “severe psychopathology.” Kent, 383 U.S. at 545.
Kent’s attorney also filed a motion with the Juvenile Court to gain access to his client’s
social service filed arguing that access to the file was “essential to his providing
petitioner with effective assistance of counsel.” Id. at 546. The Juvenile Court judge did
not rule on the motions and declined to hold a hearing on waiver. Id. Instead he
ordered Kent to be tried in adult court stating that “after ‘full investigation, I do hereby
waive’ jurisdiction of petitioner . . . .” Id.
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reasons or considerations before a judge’s waiver of juvenile
jurisdiction.91 Additionally, the Court held that a juvenile is
entitled to counsel during the waiver proceeding and that
counsel must have a meaningful opportunity to participate in
the proceedings.92 While the Court’s holding in Kent emphasized the need for procedural safeguards in waiver proceedings,
the Court continued to acknowledge the therapeutic nature of
juvenile court. As the Court explained:
The Juvenile Court is theoretically engaged in determining the
needs of the child and of society rather than adjudicating criminal
conduct. The objectives are to provide measures of guidance and
rehabilitation for the child and protection for society, not to fix
criminal responsibility, guilt and punishment. The State is parens
patriae rather than prosecuting attorney and judge. But the
admonition to function in a “parental” relationship is not an
invitation to procedural arbitrariness.93
Thus, the Court expressed concern that juvenile proceedings,
while purporting to care for and attend to children’s needs,
actually do more harm than good. Justice Fortas ominously
predicted, “there may be grounds for concern that the child
receives the worst of both worlds: that he gets neither the
protections accorded to adults nor the solicitous care and
regenerative treatment postulated for children.”94
The holding in Kent paved the way for the 1967 decision
In re Gault, the seminal case in juvenile jurisprudence, which
held that due process protections must be extended to juvenile
91
Kent, 383 U.S. at 556. The Court noted that while the statement need not
be “formal” or include “conventional findings of fact,” it must show that the statutory
requirement of a “full investigation” was met and “must set forth the basis for the order
with sufficient specificity to permit meaningful review.” Id. at 561.
92
Id. at 561. A meaningful opportunity to participate in the proceeding
requires, for example, that counsel has access to the child’s social records. Id.
93
Id. at 554-55. But, in the opinion, Justice Fortas also insisted that the
holding did not require that the “hearing to be held must conform with all of the
requirements of a criminal trial or even of the usual administrative hearing.” Id. at
562.
94
Id. at 556. See generally Joel F. Handler, The Juvenile Court and the
Adversary System: Problems of Function and Form, 1965 WIS. L. REV. 7 (1965)
(critiquing the goals of both the original reformers, who sought to eliminate the
adversary system, and the current reformers, who argue for more procedural
protections and propose a system that introduces procedures at the administrative
level with the opportunity for judicial oversight); David R. Barrett, William J. T.
Brown, & John M. Cramer, Note, Juvenile Delinquents: The Police, State Courts, and
Individualized Justice, 79 HARV. L. REV. 775 (1966) (noting the criticism of the juvenile
courts and the concern that children may be “relinquish[ing] too many . . . rights in
exchange for an unfulfilled promise of treatment rather than punishment”).
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delinquency proceedings.95 These protections included the
rights to formal notice, appointed counsel, confrontation,
and cross-examination as well as the privilege against selfincrimination.96 In Gault, the Court drew a sharp distinction
between providing children with “careful, compassionate,
and individualized treatment,” and relaxed procedures that
deprive juveniles of key fundamental rights.97 Indeed the
Court declared, “[U]nbridled discretion, however benevolently
motivated, is frequently a poor substitute for principle and
procedure.”98
Although Gault signified a shift in the approach of the
juvenile court system by providing youth with key procedural
safeguards, Gault did not, nevertheless, reject the rehabilitative model that provided the legal underpinnings of the
juvenile court.99 Gault did not suggest that the rehabilitative
model was inappropriate; rather, it contended that the system
had gone awry.100 The oft-cited quote from Justice Fortas
emphasizes this point. He famously remarked, “[T]he condition
of being a boy does not justify a kangaroo court.”101 Indeed, the
Gault Court insisted, “the observance of due process standards,
intelligently and not ruthlessly administered, will not compel
the States to abandon or displace any of the substantive
benefits for the juvenile process.”102
Three years later, the Court held that every element of
a juvenile delinquency case must be proven beyond a reasonable doubt in In re Winship.103 However, a year later the Court
stopped short of guaranteeing juveniles the full protections
95
In re Gault, 387 U.S. 1, 1 (1967). Gault involved a fifteen-year-old boy
accused of making a lewd phone call to his neighbor. Id. at 4.
96
Id. at 33-34, 41, 55-57.
97
Id. at 18-19.
98
Id. at 18.
99
Id. at 21-22. But see ZIMRING, supra note 82, at 40-41 (offering an opposing
view that Gault and Winship reflect a departure from traditional juvenile court
jurisprudence). Zimring argues that if the purpose of the juvenile court is to intervene
for the child’s best interests, then the procedural safeguards introduced in Gault and
Winship pose a barrier to such aggressive intervention. Id. Furthermore, he argues
that providing procedural safeguards reflects a “diversionary justification” of the court,
in which the primary goal is diverting juveniles from the harsh results of the adult
criminal system. Id. at 35.
100
See In re Gault, 387 U.S. at 21-22.
101
Id. at 28.
102
Id. at 21.
103
397 U.S. 358, 367 (1970) (emphasizing again that “the observance of the
standard of proof beyond a reasonable doubt ‘will not compel the States to abandon or
displace any of the substantive benefits of the juvenile process’” (citing In re Gault, 387
U.S. at 21)).
2008]
SHUFFLING TO JUSTICE
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afforded adults when it held in McKeiver v. Pennsylvania that
there is no constitutional right to a jury in juvenile court
proceedings.104 Returning to the rehabilitative and therapeutic underpinnings of the juvenile court system, the Court
concluded that a jury trial, “if required as a matter of
constitutional precept, will remake the juvenile proceedings
into a fully adversary process and will put an effective end to
what has been the idealistic prospect of an intimate, informal
protective proceeding.”105
By the early 1970s, the Court made a subtle return to
the original basis of the juvenile court system: to support,
protect, and foster rehabilitation in youth charged with
violating the law.106 The Court acknowledged the importance of
striking a “judicious balance” between providing procedural
safeguards in the juvenile court system and ensuring that the
system remains informal and focuses on rehabilitation rather
than punishment.107 In sum, the Court attempted to make a
bargain with children: courts would forego a fully adversarial
system complete with the full panoply of due process rights
afforded to defendants in the adult system, while in exchange
children would experience a court system that focused on their
unique backgrounds and needs. Moreover, the system would
continue to reject punishment in exchange for rehabilitative
services that assisted juveniles in restoring their lives.108
104
McKeiver v. Pennsylvania, 403 U.S. 528, 545 (1971).
Id. The Court emphasized that the “fond and idealistic hopes of the
juvenile court proponents and early reformers . . . have not been realized.” Id. at 54344. However, the Court blamed the failures of the system on “[t]he community’s
unwillingness to provide people and facilities and to be concerned, the insufficiency of
time devoted, the scarcity of professional help, the inadequacy of dispositional
alternatives, and our general lack of knowledge . . . .” Id. at 544.
106
Many critics of McKeiver argue that although the court stated that denying
juveniles the constitutional right to a jury trial was because the system should be
informal since the purpose was to “help” children, in reality the system was already
turning punitive and denying juveniles the right to a jury trial only served to penalize
them. See Barry C. Feld, The Constitutional Tension Between Apprendi and McKeiver:
Sentence Enhancements Based on Delinquency Convictions and the Quality of Justice in
Juvenile Courts, 38 WAKE FOREST L. REV. 1111, 1144-45, 1154 (2003). Furthermore,
much of the criticism of McKeiver hinges on the fact that juveniles do not have a right
to a jury trial, but through state and federal law, their juvenile adjudications may be
used against them for the purposes of a sentencing enhancement in adult criminal
court. See, e.g., id. at 1155 n.144 (citing numerous articles that are critical of
McKeiver).
107
McKeiver, 403 U.S. at 545 (citing Commonwealth v. Johnson, 234 A.2d 9,
15 (Pa. Super. Ct. 1967)).
108
One author has used the analogy that a “deal” was struck between juvenile
defendants and the State to provide juveniles with rehabilitation in exchange for
sacrificing certain due process rights. Douglas M. Schneider, But I was Just a Kid!:
105
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SHACKLING AND THE REPUDIATION OF A BARGAIN
[Vol. 73:4
The routine and indiscriminate use of shackles on
juveniles violates the bargain courts struck with children in the
juvenile justice system—that in exchange for fewer procedural
protections, juveniles would be offered treatment and rehabilitative services.109 Therefore, the primary objective of the
juvenile justice system is to rehabilitate youth. However,
shackles run directly contrary to this goal. Shackles affect a
juvenile’s sense of right and wrong; cause physical and
psychological harm, stigma, and embarrassment; foster a sense
of distrust for the justice system; and teach children that
Does Using Juvenile Adjudications to Enhance Adult Sentences Run Afoul of Apprendi
v. New Jersey?, 26 CARDOZO L. REV. 837, 840 (2005); see also Commonwealth v. Fisher,
62 A. 198, 200 (Pa. 1905) (holding that in order to “save a child from becoming a
criminal” the Legislature may bring the child to court “without any process at all, for
the purpose of subjecting it to the state’s guardianship and protection”). One of the
hallmarks of the juvenile court system is the flexible array of services available to
family court judges when adjudicating delinquent juveniles. Instead of only probation
or incarceration, which are so often the only choices in adult court, juvenile court
judges may choose from a variety of community based and alternative to incarceration
programs, along with residential treatment programs and secure detention facilities.
See MICHAEL A. CORRIERO, JUDGING CHILDREN AS CHILDREN: A PROPOSAL FOR A
JUVENILE JUSTICE SYSTEM 132-35 (2006). Unfortunately, many scholars conclude that
despite intervention from the U.S. Supreme Court, the modern juvenile justice system
was and continues to be a failure. See, e.g., Feld, supra note 80, at 75-76 (discussing the
deplorable conditions of juvenile confinement historically and today as an example of
the juvenile court’s illusory commitment to rehabilitation).
109
Shackling is not the only practice that reflects a repudiation of the bargain
with juveniles to provide a less punitive system in exchange for depriving them of the
full panoply of due process rights. Indeed, beginning in the 1990s, there was a major
shift in the juvenile justice system toward a more punitive system. Referring to the
“criminalizing of the juvenile court,” Barry Feld argues that four key developments led
to a tightening of the juvenile justice system and an emphasis on punishment and just
deserts. Feld, supra note 80, at 62. Those developments were the “removal of status
offenders [from juvenile jurisdiction], waiver of serious offenders to the adult system,
increased punitiveness, and procedural formality.” Id. Other indications that the
juvenile justice system became more punitive are legislative initiatives in the 1990s
implemented to criminalize youth and their offenses, the increase in juvenile
placement to residential facilities, and the increase in the number of delinquency cases
that were transferred to criminal courts. David R. Katner, The Mental Health
Paradigm and the MacArthur Study: Emerging Issues Challenging the Competence of
Juveniles in Delinquency Systems, 32 AM. J.L. & MED. 503, 504 (2006); see also
ZIMRING, supra note 82, at 44-47; Sara Sun Beale, Still Tough on Crime? Prospects for
Restorative Justice in the United States, 2003 UTAH L. REV. 413, 415-18 (2003); Randall
T. Salekin et al., Juvenile Transfer to Adult Courts: A Look at the Prototypes for
Dangerousness, Sophistication-Maturity, and Amenability to Treatment Through a
Legal Lens, 8 PSYCHOL. PUB. POL’Y & L. 373, 373-74 (2002); Schneider, supra note 108,
at 840 (arguing that the use of a juvenile adjudication as a prior offense for purposes of
a sentencing enhancement under the Armed Career Criminal Act violates the “deal”
that was struck between juveniles and the State to provide juveniles with
rehabilitation in exchange for certain procedural rights).
2008]
SHUFFLING TO JUSTICE
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they will be treated like criminals.110 In this section, I begin
with a discussion of the extent to which courts require children
to appear in shackles. Next, I will address the justifications
offered for shackling and explain why these justifications
neither represent essential interests significant enough to
merit shackling juveniles nor outweigh the detrimental effects
shackling has on juveniles. Then, I will examine the physical
and psychological harms shackles cause to children. Finally, I
will briefly examine the right to treatment afforded to children
in rehabilitative facilities, why this right should apply with
equal force when children are going through juvenile court
proceedings, and how shackling children violates this right to
treatment.
A.
Shackling: Extent of the Practice
While litigation on shackling is sparse, reports from
local courtrooms around the country indicate that shackling is
a pervasive practice in juvenile court proceedings.111 In twenty
eight states, some juvenile courts routinely require juveniles to
remain in shackles throughout their court proceedings.112
Anecdotal evidence from juvenile defenders around the country
provides examples of the routine use of shackles on juveniles. A
survey of defender offices in Florida revealed that in some
counties, the practice of requiring children to wear shackles
during juvenile court proceedings has persisted for over twenty
years. While in other counties the practice is relatively new,
and courts have implemented the system of shackling children
over the past five years.113 Additionally, the Director of Juvenile
110
See infra Part IV.C.
Through the assistance of Bob Boruchowitz, Visiting Clinical Professor of
Law at Seattle University Law School, I submitted a brief survey with seven questions
on shackling practices to the American Council of Chief Defenders ListServe. The
seven questions asked were (1) Does the courtroom where you practice shackle
juveniles? (2) What, if any, criteria are used to determine whether a juvenile should be
shackled? (3) Does your courtroom use “restraint boxes” or “restraint belts” on
juveniles? (4) Do any of the state run programs (detention/treatment) require juveniles
remain in shackles while they are waiting for their court appearances? (5) If yes, are
the shackles removed once the juvenile is in front of the judge? (6) What, if any, types
of arguments have you made in opposition to the use of shackles on juveniles you
represented in court? (7) What has the court ruled? Finally, we also asked respondents
to share any copies of pleadings and of the court’s rulings. The survey produced a small
number of responses, not sufficient to draw systemic conclusions, but consistent with
observations reflected in news articles and cases discussed in this Note.
112
Moore, supra note 15, at 1A.
113
Carlos Martinez, Why Are Children in Florida Treated as Enemy Combatants? CORNERSTONE, May-Aug. 2007, at 10-11, available at http://www.pdmiami.com/
111
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Delinquency Defense in Hartford, Connecticut reported that all
children in juvenile court proceedings are shackled and there is
no individualized determination of danger or risk of flight.114
Instead, the Connecticut courts allowed the judicial marshals,
who provide courtroom security, to make determinations about
safety risk and whether shackles were necessary.115 Furthermore, all juveniles coming from outside programs run by the
Connecticut Department of Children and Families (“DCF”) are
required to wear restraint belts, even those who are in secure
holding rooms.116
The policy reported in Louisville, Kentucky juvenile
courts is similar to Hartford’s.117 The Chief Public Defender for
Louisville-Jefferson County noted that all juvenile court
defendants are required to be in handcuffs at all times while in
the courtroom.118 There is no individualized determination of
danger or risk of flight.119 Furthermore, defenders’ motions to
oppose shackling are frequently denied on the grounds that the
sheriff’s department is in charge of courtroom security, and the
department sets the policy about shackling or otherwise
restraining juvenile defendants.120
In other state counties, it is common practice to shackle
all juveniles who are “in custody,” which includes children
detained in a local facility and children in the custody of the
state juvenile prison.121 In these counties, the shackles are not
NLADACornerstoneMartinezArticleMay-Aug2007.pdf) (citing Miami-Dade County
Public Defenders Office survey of public defender offices throughout Florida).
114
E-mail from Christine Rapillo, Director of Juvenile Delinquency Defense at
the Office of the Chief Public Defender in Hartford, Connecticut, to Bob Boruchowitz,
Visiting Clinical Professor of Law at Seattle University Law School (Oct. 29, 2007, 7:46
a.m.) (on file with author).
115
Id. Rapillo noted that last year a policy was issued requiring an
individualized determination of danger by a judge before a child could be shackled in
court. Id. However, she reported that this practice has stopped in favor of leaving the
decision up to the Judicial Marshalls. Id.
116
Id. A restraint belt is made out of leather and has metal rings at the front.
The strap goes around a child’s waist and the rings are connected to the handcuffs by a
chain, thus having the effect of limiting a child’s range of movement. Complaint, Jenny
P., supra note 1, ¶ 20.
117
E-mail from Daniel T. Goyette, Louisville Metro Public Defender to Bob
Boruchowitz, Visiting Clinical Professor of Law at Seattle University Law School (Oct.
29, 2007, 7:47 a.m.) (on file with author).
118
Id.
119
Id.
120
Id.
121
E-mail from Christina Phillis, Juvenile Division Manager of the Maricopa
County Defenders Office to James Haas, Maricopa County Public Defender (Oct. 28,
2007, 5:49 a.m.) (on file with author) [hereinafter Phillis e-mail]; e-mail from Kay
Locke, Managing Attorney of the Juvenile Division of the Montgomery County Ohio
2008]
SHUFFLING TO JUSTICE
1569
removed when the children are in the courtroom and before
the judge.122 Again, public defenders note that the decision to
leave the shackles on during court proceedings is largely based
on recommendations from law enforcement, as opposed to
individualized determinations by the judge.123 Moreover, when
attorneys oppose the use of shackles, the courts rarely grant
the motions on the grounds that there is no issue of prejudicing
the trier of fact since there are no jury trials in these
proceedings.124
In contrast, some localities have been successful in
arguing against the routine and indiscriminate use of shackles
on juveniles. For example, in Cumberland County, Pennsylvania, juveniles are not shackled unless they are “deemed to be
a serious threat to the public.”125 If they are deemed to be a
serious threat, the Probation Officer must seek the judge’s
approval to shackle the juvenile.126 Juvenile defender Ron Turo
explained “Since he instituted this policy approximately two
years ago, we [the county] have only two to three shacklings
out of hundreds of detained children.”127
Florida has conducted the most recent public campaign
against shackling juveniles.128 Over the past year, public
Public Defender’s Office, to Bob Boruchowitz, Visiting Clinical Professor of Law at
Seattle University Law School (Oct. 29, 2007, 11:14 a.m.) (on file with author)
[hereinafter Locke e-mail]. Phillis and Locke both reported this practice in their
juvenile courts. Phillis noted that juveniles in residential treatment, as opposed to
detention or jail, are not required to wear shackles when they appear in court. Phillis
e-mail, supra.
122
Kay Locke of Montgomery County, Ohio indicated that shackles remain on
during hearings unless the judge, in his discretion, agrees to remove them. Locke
e-mail, supra note 121. However, it is unpredictable whether or not judges will agree to
have shackles removed and the decision to remove shackles is not based on any
particular criteria. Id.
123
Id. (indicating that judges have stated that the practice of routine
shackling “originates from the Sheriff’s Department”). Locke further notes a pendulum
swing effect where judges may order shackles removed once children are in the
courtroom, but once there is an incident of running or violence by a child, every child is
shackled for the next few months. Id. Then shackles may be removed until the next
“incident.” Id.
124
Phillis e-mail, supra note 121. Phillis noted that “[o]n rare occasion[s] a
judge may grant an oral motion to remove the shackles and handcuffs of the very
young.” Id.
125
E-mail from Ron Turo, Juvenile Defender in Cumberland County
Pennsylvania to Bob Boruchowitz, Visiting Clinical Professor of Law at Seattle
University Law School (Oct. 29, 2007, 9:44 a.m.) (on file with author).
126
Id.
127
Id.
128
The Public Defender’s Office in the Eleventh Judicial Circuit of Florida has
explicitly argued that the indiscriminate use of shackles is “inconsistent with the
rehabilitative purpose of the juvenile justice system.” Memorandum from Marie
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defenders in Miami have been fighting the blanket policy of
shackling all juveniles throughout their entire court proceedings.129 The attorneys initially attempted to work with
court administrators to end the practice.130 However, once the
talks proved unsuccessful, they filed over one hundred motions
in the Miami juvenile courts requesting that their clients be
allowed to appear in court without shackles.131 Ultimately, the
judges began hearing and granting the individual motions.132
Additionally, in New York, the Legal Aid Society
brought a lawsuit against the Office of Children and Family
Services (“OCFS”) to challenge its policy of shackling all
juveniles in its custody and requiring them to remain in
shackles while they await their court appearance and when in
front of the judge.133 This challenge was successful in that the
New York Supreme Court granted a temporary restraining
order requiring that John F. appear in court without shackles
on December 13, 2007 or any other date on which he was to
appear in court, unless there was an individualized assessment
demonstrating that he posed a “serious evident danger to
himself and others.”134 In addition, the court signed a
stipulation and order between the Legal Aid Society and OCFS
Osborne, Chief, Juvenile Div., Pub. Defender’s Office, Eleventh Judicial Circuit of
Florida, Memorandum to Honorable Lester Langer (May 17, 2006), available at
http://www.pdmiami.com/unchainthechildren/Appendix_B_Memo_to_Hon_Judge_Langer
_re_Shackling.pdf.
129
Martinez, supra note 113, at 10; see also Bennett H. Brummer et al.,
Public Defender’s Office, Sample Motion for Child to Appear Free from Degrading
and Unlawful Restraints, 10-16, 2006, available at http://www.pdmiami.com/
unchainthechildren/Motion_for_Child_to_Appear_Free_from_Degrading_and_Unlawful
_Restraints.pdf (arguing that shackling is harmful to children and is contrary to the
principles of Florida’s juvenile justice system).
130
Id.
131
Id.
132
See Jon Burstein, Detained Children Will Not Be Shackled in Courtrooms, Judges Rule, S. FLA. SUN-SENTINEL, Sept. 26, 2006, available at http://
www.pdmiami.com/Detained_juveniles_will_not_be_shackled.htm. Courts in Broward
County also ordered judges to discontinue blanket shackling policies. Nikki Waller,
Shackling of Kids Curtailed in Broward Courtrooms, MIAMI HERALD, Sept. 25,
2006, available at http://www.pdmiami.com/Herald-Shackling_of_kids_curtailed_in_
Broward.htm. But see Kathleen Chapman, Judges Refuse to Unshackle Juveniles, PALM
BEACH POST, Feb. 2, 2007, available at http://www.pdmiami.com/Palm_Beach_PostJudges_refuse_to_unshackle_juveniles.pdf (reporting on Palm Beach County juvenile
judges’ refusal to remove shackles from juveniles in their courtrooms).
133
John F. v. Carrion, No. 07/407117 (N.Y. Sup. Ct. Dec. 12, 2007). The Legal
Aid Society is currently “engaged in expedited settlement talks” with OCFS. Telephone
interview with Nancy Rosenbloom, Director of Special Litigation and Law Reform Unit,
Legal Aid Society, New York City (Apr. 28, 2007).
134
Order to Show Cause for Preliminary Injunction and Temporary Restraining Order at 2, John F., No. 07/407117.
2008]
SHUFFLING TO JUSTICE
1571
whereby OCFS agreed to apply any final judgment on this
matter to all similarly situated defendants.135
Thus, while there have been successful challenges to the
practice of routinely shackling juveniles in court, many
jurisdictions continue to apply blanket policies without any
showing of need. This system is in direct conflict with the
constitutional rule established in Deck v. Missouri136 and is also
undermined by the existing case law on shackling children in
juvenile court.137 The blanket policies are further discredited by
the fact that the justifications offered for shackling juveniles do
not rise to the level of an essential state interest and ignore the
policy and purpose behind the juvenile justice system.
B.
Justifications Offered for Shackling Juveniles
There are three main justifications that are routinely
offered for the indiscriminate use of shackles on juveniles:
(1) the need for courtroom security and the dearth of court
resources to maintain security; (2) the lack of concern for
prejudice because of the absence of jury trials; and (3) the
potential for shackling to serve as a deterrent to future
criminal conduct by detained youth.138 These justifications fail
to demonstrate the “essential state interest” requirement
established in Holbrook v. Flynn and reiterated in Deck.139
Further, none of these stated justifications outweighs the
detrimental physical and psychological harm shackling causes
to juveniles.
Some courts have suggested that security in the courtroom and courthouse should be considered when determining
whether shackles are appropriate.140 One court gave deference
135
Stipulation and Order at 2, John F., No. 07/407117.
See supra Part II.C.
137
See infra Part V.
138
See In re Staley, 352 N.E.2d. 3, 6 (Ill. App. Ct. 1976) (discussing jury
prejudice), aff’d 364 N.E.2d 72 (1977); State v. Merrell, 12 P.3d 556, 559-60 (Or. Ct.
App. 2000) (discussing lack of court resources); State ex rel. Juvenile Dep’t of
Multnomah County v. Millican, 906 P.2d 857, 860-61 (Or. Ct. App. 1995) (discussing
jury prejudice); State v. E.J.Y., 55 P.3d 673, 679 (Wash. Ct. App. 2002) (discussing jury
prejudice); Martinez, supra note 113, at 11 (discussing courtroom security).
139
See supra Part II.B-C.
140
Martinez, supra note 113, at 11-12; see also Deck v. Missouri, 544 U.S. 622,
624 (2005) (recognizing that the need to maintain order and security may suffice as an
“essential state interest” to justify the use of visible shackles). However, in Deck, the
Court was talking about maintaining courtroom security “specific to the defendant on
trial” as opposed to a general desire to maintain security. Id.; see In re R.W.S. 728
N.W.2d 326, 331 (N.D. 2007) (holding that the trial judge failed to properly exercise his
136
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to the bailiff’s position regarding the positive impact shackling
had on courtroom security and decorum, instead of making an
individualized determination for the child.141 Other arguments
focused on the notion that children are impulsive and difficult
to control, and therefore shackling is necessary to minimize
fights and maintain security.142
In contrast, in Tiffany A. v. Superior Court of Los
Angeles County,143 the California Courts of Appeal expressly
stated that the “source of the ‘need,’” to justify the use of
shackles must come from a record of violence or threat of
violence by the accused.144 There, the prosecution and the
sheriff’s department’s main reasons for asserting that every
juvenile needed to be shackled were the absence of sufficient
security personnel and the design of the Lancaster courthouse.145 However, the California Courts of Appeal concluded
that a lack of courtroom personnel is not a sufficient justification for requiring a juvenile to appear in shackles during
his or her proceedings.146 This justification for courtroom
security fails to acknowledge less restrictive means other than
shackling that could achieve the same goal of security.
discretion when a juvenile requested that his shackles be removed during an
adjudicatory hearing). In In re R.W.S., the North Dakota Supreme Court found that a
trial judge may not rely on conclusory statements made by law enforcement regarding
a serious risk of dangerous behavior as a substitute for an individual analysis. Id.
However, the court also explained that the security situation at the courtroom and
courthouse is just one of the factors that a juvenile court should consider when
determining whether or not to require the juvenile to appear in shackles. Id. Similarly,
in In re Staley, the Illinois Court of Appeals also indicated that courtroom security
could be one factor justifying the use of shackles. 352 N.E.2d. at 6. In this case, fifteenyear-old Staley was alleged to have committed aggravated battery for his involvement
in a fight that occurred between another youth and staff members at a detention home.
Id. at 5. Staley challenged his delinquency adjudication on the grounds that he was
denied a fair hearing because he had been required to appear in handcuffs throughout
his hearing. Id.
141
S.Y. v. McMillan, 563 So. 2d 807, 808-09 (Fl. Dist. Ct. App. 1990).
142
Martinez, supra note 113, at 11. The Florida attorneys successfully
litigated the issue, and currently over 95% of the juveniles represented in Miami
appear without shackles in front of all four juvenile court judges. Id. at 10. Since the
first motion filed over 3000 children have appeared in court and there have been no
incidents of violence or escape attempts. Id.
143
59 Cal. Rptr. 3d 363 (Cal. Ct. App. 2007). Here, Tiffany A. got involved in
the California Juvenile Court system for allegedly unlawfully taking a vehicle that did
not belong to her. Throughout the course of the case, Tiffany A. objected to the
requirement that she appear in court in shackles. Id. at 366.
144
Id. at 372 (emphasis in original) (citing People v. Cox, 809 P.2d 351 (Cal.
1991) (reaffirming People v. Duran, 545 P.2d 1322 (Cal. 1976)).
145
Id. at 374.
146
Id. at 372 (“We note that no California State court case has enforced the
use of physical restraints based solely on the defendants’ status in custody, the lack of
courtroom security personnel or the inadequacy of the court facilities.”).
2008]
SHUFFLING TO JUSTICE
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Specifically, in Holbrook v. Flynn, the Supreme Court put
forward the option of additional armed security guards as a
less prejudicial alternative to shackling a defendant in order to
ensure security.147 Moreover, the absence of sufficient resources
to address the courtroom security concerns is not an
appropriate reason to require all children to appear shackled in
court and does not satisfy the “essential state interest”
requirement established in Holbrook and reiterated in Deck.148
Another justification for blanket shackling policies is
that juvenile proceedings do not involve a jury, so there is no
concern that shackles will create prejudice in the fact-finder.
The theory espoused by courts, prosecutors, and courtroom
personnel is that because juveniles do not have the right to a
jury trial, there is a diminished concern that shackles will
serve to prejudice the fact-finder.149 However, since judges in
juvenile court proceedings serve as the triers of fact, they will,
arguably, be susceptible to prejudice, as are juries. Accordingly,
in Tiffany A. the California Courts of Appeal held that the
concern of prejudice is applicable even where there is no jury
presence.150 The court distinguished on numerous grounds
United States v. Howard,151 a Ninth Circuit decision upholding
a district court policy to shackle all in-custody defendants
147
See supra Part II.B.
See supra Part II.C.
149
See, e.g., In re Staley, 352 N.E.2d 3, 7-8 (Ill. App. Ct. 1976) (Stengel, J.,
dissenting); State ex rel. Juvenile Dep’t of Multnomah County v. Millican, 906 P.2d
857, 860-61 (Or. Ct. App. 1995) (finding that the shackling of the defendant was
harmless error as there was no indication “that trial court’s credibility determinations
were impermissibly skewed” by the presence of shackles); State v. E.J.Y., 55 P.3d 673,
679 (Wash. Ct. App. 2002) (finding that the shackling of the defendant was harmless
error in a bench trial in part because there was no risk of prejudice from viewing
restraints by a jury).
150
Tiffany A., 59 Cal. Rptr. 3d at 370-72. The court relied on both People v.
Fierro, 821 P.2d 1302 (Cal. 1991), and Solomon v. Superior Court, 177 Cal. Rptr. 1 (Cal.
Ct. App. 1981), in holding that shackling is prejudicial even during a proceeding
without a jury. Id. at 371. In both Fierro and Solomon, the courts considered the use of
physical restraints on adult defendants during preliminary hearings where no jury was
present. Fierro, 821 P.2d at 1321; Solomon, 177 Cal. Rptr. At 1-2. In both cases the
courts held that the principles from People v. Duran, 545 P.2d 1322, 1327 (Cal. 1976),
holding that shackling a criminal defendant prejudicially affects the defendant’s
constitutional right to be presumed innocent, applied to proceedings without a jury.
Fierro, 821 P.2d at 1322; Solomon, 177 Cal. Rptr. at 3. But see United States v.
Howard, 480 F.3d 1005, 1013-14 (9th Cir. 2007) (holding that use of shackles on
criminal defendants during pretrial hearings where no jury is present is permissible
because there is no concern of prejudice when the defendant only appears in front of a
judge); United States v. Zuber, 118 F.3d 101, 104 (2d Cir. 1997) (same).
151
480 F.3d 1005 (9th Cir. 2007).
148
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during their first appearances in front of a federal magistrate.152
Most relevant to the jury prejudice issue, the court in Tiffany
A. noted that Howard considered only individuals shackled for
their first appearances.
In contrast, Tiffany A. considered the use of shackles on
juveniles at every appearance in the Lancaster juvenile
delinquency court.153 Juvenile judges sit as triers of fact,
making crucial determinations regarding a juvenile’s future.
Among other consequences, juveniles can spend multiple years
in detention facilities as the result of a juvenile adjudication.
The nature of this proceeding is clearly distinguishable from a
first appearance or arraignment in front of a magistrate judge,
and therefore concerns about prejudice are certainly applicable,
thus affecting the policy on shackling children in juvenile court.
A final justification for routine shackling of juveniles is
that shackling may serve as a deterrent for detained children.
The theory is that upon viewing each other in shackles and
handcuffs, children will no longer want to commit crimes so
they can avoid being treated like they were in court.154 This
argument strongly suggests that shackling is a deterrent
because of its shame, humiliation, and punitive effects.155
Juvenile defenders and scholars note that there is no evidence
to suggest that shackling juveniles is an effective deterrent to
juvenile crime.156 Moreover, such motives for shackling are in
stark opposition to the goals of the juvenile justice system.157 To
require shackling as a form of punishment in the hopes of
deterring children from violating the law is unconscionable in
light of the historical mission of the juvenile court system to
provide treatment for juvenile offenders.
152
Id. at 1013-14.
Tiffany A., 59 Cal. Rptr. 3d at 375; see also Millican, 906 P.2d at 861
(DeMuniz, J., dissenting) (“[U]nnecessarily shackling children in a delinquency hearing
is presumptively prejudicial . . . .”).
154
Martinez, supra note 113, at 11.
155
Indeed, punishment has no place in the adult criminal system prior to the
determination of guilt. The American judicial system is predicated on a presumption of
innocence. In Deck v. Missouri, the Supreme Court noted that the use of visible
shackles undermines this central tenet of our justice system. 544 U.S. 622, 631 (2005).
156
See, e.g., Martinez, supra note 113, at 11.
157
See supra Part III (discussing the purpose of the juvenile justice system to
treat and rehabilitate juveniles). Furthermore, the Supreme Court has recognized that
deterrence may not have the same effect on juveniles as it has on adults. See Roper v.
Simmons, 543 U.S. 551, 571 (2005) (“[T]he absence of evidence of deterrent effect is of
special concern because the same characteristics that render juveniles less culpable
than adults suggest as well that juveniles will be less susceptible to deterrence.”).
153
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Routine shackling goes against the Supreme Court’s
holding in Deck that such blanket policies deny individual
defendants of a fair trial.158 Further, the justifications offered in
support of routinely shackling children in court fall short of
meeting an “essential state interest.”159 Despite the absence of a
jury, the judge may still be susceptible to prejudice from
stigma-laden shackles. Further, in McKeiver, juveniles were
denied the right to a jury trial under the premise that the
juvenile court system would be rehabilitative and less formal
and adversarial.160 To now justify a punitive measure such
as shackling because there is no concern for jury prejudice
belies the reasoning behind McKeiver and unfairly uses this
procedural denial against children.
C.
How Shackling Harms Children
It seems axiomatic that the use of shackles does not
serve a treatment or rehabilitative purpose.161 In fact, it is
generally accepted that shackling children causes both physical
and psychological harm.162 However, there is a general silence
about the practice of routinely shackling children throughout
their juvenile court appearances in both case law and scholarly
work.163 Therefore the research discussed in this section
about the negative effects of shackling children comes from
professionals who study the use of restraints on children in
juvenile justice facilities and psychiatric treatment centers.
While the Supreme Court in Deck acknowledged that
the issue of physical harm with shackles may no longer be a
relevant concern for adults,164 the potential for physical harm is
still a pressing concern with respect to children. Shackling can
cause physical harm: children who have been required to wear
shackles complain of bruising, cuts, and pain around their
158
Deck, 544 U.S. at 624.
Id. at 628-29.
160
McKeiver v. Pennsylvania, 403 U.S. 528, 545-46 (1971).
161
See supra Part IV.B (discussing the justifications for shackling juveniles).
162
See infra Part IV.C.
163
See infra Part V.A (discussing case law acknowledging the negative effects
of shackling on juveniles); John William Tobin, Time to Remove the Shackles: The
Legality of Restraints on Children Deprived of Their Liberty Under International Law,
9 INT’L J. OF CHILD. RTS. 213, 213, 221 (2001) (arguing that the use of shackles on
children is “barbaric” and deprives them of due process rights, and specifically that
children should only appear in court in restraints in “exceptional circumstances”).
164
See supra Part II.C.
159
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wrists and ankles.165 Moreover, because young people are going
through a critical time in their physical development, experts
caution that personnel must take caution to avoid damaging
children’s growth plates.166 But, even if a gentler type of shackle
could be developed that could lessen the pain and the potential
for physical damage, there are other compelling reasons to
severely limit the use of shackles on children, namely, the
traumatic and psychological impact it has on young people.
Indeed, it is generally accepted by medical and mental
health professionals that shackling and physical restraints
should only be used on juveniles as a last resort.167 The
American Psychiatric Association advises that even when
restraints are needed to protect a child, staff should continue to
work with the young person to assess the underlying issues
resulting in the poor behavior.168 Further, children in the
juvenile justice system have a high prevalence of psychiatric
disorders.169 In particular, girls have extraordinarily high
incidents of having experienced physical and sexual abuse.170
Accordingly, experts suggest that the use of restraints may
be “retraumatizing” for young people who have experienced
violence or trauma in their lives or are going through stressful
experiences.171 Moreover, the National Center for Mental
165
See Complaint, Jenny P., supra note 1, at 15, 20.
NATIONAL ASSOCIATION OF STATE MENTAL HEALTH PROGRAM DIRECTORS
MEDICAL DIRECTORS COUNCIL, REDUCING THE USE OF SECLUSION AND RESTRAINT
PART II 8 (2001), available at http://www.nasmhpd.org/general_files/publications/
med_directors_pubs/Seclusion_Restraint_2.pdf; see also Brummer et al., supra note
129, app. F ¶ 12 (Aug. 28, 2006) (affidavit describing physical harm that shackling causes children), available at http://www.pdmiami.com/unchainthechildren/
AppendixFDrGwen%20Wurm.pdf.
167
See, e.g., id.; AMERICAN PSYCHIATRIC ASSOCIATION, THE USE OF RESTRAINT
AND SECLUSION IN CORRECTIONAL MENTAL HEALTH CARE 4 (2006), available at
http://archive.psych.org/edu/other_res/lib_archives/archives/200605.pdf.; Howard Bath,
The Physical Restraint of Children: Is It Therapeutic?, 64 AM. J. ORTHOPSYCHIATRY 40,
41, 48 (1994); see also HUMAN RIGHTS WATCH & AMERICAN CIVIL LIBERTIES UNION,
CUSTODY AND CONTROL: CONDITIONS OF CONFINEMENT IN NEW YORK’S JUVENILE
PRISONS FOR GIRLS 45-46 (2006) [hereinafter CUSTODY AND CONTROL], available at
http://hrw.org/reports/2006/us0906/.
168
AMERICAN PSYCHIATRIC ASSOCIATION, supra note 167, at 4 (“[R]estraint for
protective reasons . . . does not take the place of efforts to understand and address the
causes of the aberrant behavior. In most uses of . . . restraint, the staff should have
considered or tried less restrictive means of control . . . .”).
169
LINDA A. TEPLIN ET AL., UNITED STATES DEPARTMENT OF JUSTICE, OFFICE
OF JUVENILE JUSTICE AND DELINQUENCY PREVENTION, PSYCHIATRIC DISORDERS OF
YOUTH IN DETENTION 2 (2006), http://www.ncjrs.gov/pdffiles1/ojjdp/210331.pdf.
170
CUSTODY AND CONTROL, supra note 167, at 4-5.
171
Julian D. Ford et al., Trauma and Youth in the Juvenile Justice System:
Critical Issues and New Directions, NATIONAL CENTER FOR MENTAL HEALTH AND
JUVENILE JUSTICE RESEARCH AND PROGRAM BRIEF, June 2007, at 1, 3; see also
166
2008]
SHUFFLING TO JUSTICE
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Health and Juvenile Justice (“NCMHJJ”) cautions that
“traumatic stress symptoms may worsen as a result of juvenile
justice system involvement.”172 The NCMHJJ further notes that
“[c]ourt hearings, detention, and incarceration are inherently
stressful, and stressful experiences that are not traumatic per
se can exacerbate trauma symptoms.”173 Thus, children in the
juvenile justice system are particularly vulnerable. The
imposition of shackles on a young person may exacerbate
feelings of isolation and hopelessness, thereby frustrating the
purpose of the juvenile justice system.
Given the awareness about the negative impacts of
shackling, the Council of Juvenile Correctional Administrators
(“CJCA”) adheres to specific guidelines for determining when
the use of physical restraints on juvenile offenders is appropriate.174 These guidelines emphasize the limited situations
when physical restraints might be appropriate, the types of
personnel who should apply restraints on children, the
duration for which restraints should be used, and appropriate
follow-up care.175 Further, these statements suggest that the
Brummer et al., supra note 129, app. D ¶ 18 (Aug. 23, 2006) (affidavit discussing
traumatic impact of shackling on children who have been abused), available at
http://www.pdmiami.com/unchainthechildren/AppendixDBeyer.pdf.
172
Id. at 3.
173
Id.
174
The CJCA is a national not-for-profit organization whose mission, in part,
is to “improve local juvenile correctional services, programs, and practices.”
http://cjca.net/AboutUs.aspx?~SUQ9ZjRhMjhmMDUtNTM2OS00OGMzLTlhNDAtZTE
zOTNkYjQ1MzVk. See Council of Juvenile Correctional Administrators, Position Paper
on Physical and Mechanical Interventions with Juvenile Offenders (2003), available at
http://cjca.net/photos/content/documents/Interventions.pdf.
175
The five CJCA guidelines are:
1. Use of physical interventions or restraints is a last resort and should
always follow the prudent preventative use of screening, classification and
programmatic interventions;
2. Physical intervention and/or restraints should only be deployed when deescalation of the crisis has failed and the need to protect staff, other youths or
the jurisdiction’s property is necessary;
3. At such time that those preventive measures fail, physical interventions
and restraints should only be done by trained individuals and only used
defensively and in a manner that provides maximum safety for the staff and
youths;
4. Use of physical or other intrusive intervention methods should only
continue as long as the youth presents a danger to self, other or property;
5. Medical, mental health and /or administrative case reviews of
interventions deployed should be apart of the quality assurance process and
required.
Id.
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use of physical restraints and shackles on children is not to be
taken lightly. Restraints are dangerous and may have serious
traumatic effects on a child. Therefore, they should not be used
routinely and indiscriminately as a stopgap measure to ensure
safety in an aging courtroom or to prevent the potential for
unruly behavior where no indication of the potential for such
behavior is present.
Beyond the physical and psychological trauma caused
by shackles, requiring juveniles to appear in court with visible
shackles is an affront to their moral identity and sense of self.
Children and adolescents are in a particularly fragile state of
development.176 Many young people struggle with their selfimage and feelings of insecurity. Exacerbating these feelings of
uncertainty, visible shackles cause embarrassment and
shame.177 Moreover, they brand juveniles as violent and
dangerous criminals. These negative messages are not only
hurtful; they contravene the values the juvenile justice system
is supposed to present.
Finally, the American Bar Association (“ABA”) publication on juvenile justice standards does not discuss the use of
visible shackles on juveniles in court, and instead focuses on
how juvenile detention facilities should be designed in order
to foster rehabilitation.178 This logical disconnect between
treatment outside of the system and shackling in court is
176
See generally ERIK H. ERIKSON, IDENTITY: YOUTH AND CRISIS (1968)
(describing the stages of identity development that adolescents experience). Recently,
the U.S. Supreme Court ruled that the imposition of capital punishment on individuals
under age eighteen was prohibited by the Eighth and Fourteenth Amendments. Roper
v. Simmons, 543 U.S. 551, 578 (2005). In so doing, the Court recognized that children
are developmentally and emotionally different from adults, less responsible for their
actions and more capable of change. Id. at 569-70. The Court noted that there are three
main differences between juveniles under 18 and adults. Id. at 569. First, juveniles are
less mature and have an “underdeveloped sense of responsibility,” id. (quoting Johnson
v. Texas, 509 U.S. 350, 367 (1993)); second, juveniles are “more vulnerable or
susceptible to negative influences and outside pressures, including peer pressure,” id.
(citing Eddings v. Oklahoma, 455 U.S. 104, 115 (1982)); and, third, the “character of a
juvenile is not as well formed as that of an adult. The personality traits of juveniles are
more transitory, less fixed,” id. at 570.
177
See, e.g., Complaint, Jenny P., supra note 1, at 10, 18.
178
See generally INSTITUTE OF JUDICIAL ADMINISTRATION & AMERICAN BAR
ASSOCIATION, JUVENILE JUSTICE STANDARDS, ANNOTATED: A BALANCED APPROACH
(Robert E. Shepherd, Jr., ed., 1996) [hereinafter STANDARDS]. In a section entitled
“Corrections,” the Standards briefly mention “restraints” when addressing residential
programs. Id. at 52. Section 7.8 addresses limitations on restraints and weapons. Id.
“Given the small size of programs, it should not be necessary to use mechanical
restraints within the facility. The program director may authorize the use of
mechanical restraints during transportation only.” Andrew Rutherford & Fred Cohen,
Standards Relating to Corrections Administration, in STANDARDS, supra, at 29, 52.
2008]
SHUFFLING TO JUSTICE
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another type of psychological effect of shackling on children. It
is confusing and illogical to treat children punitively when they
are going through courtroom proceedings and then establish
firm guidelines to ensure a therapeutic environment once the
youngsters are adjudicated.
The ABA standards spend considerable time detailing
the architectural and interior design of juvenile facilities
and the types of values the designs should promote.179 The
standards discuss a range of facilities from secure corrections
and detention facilities, to group home and residential treatment centers.180 In general, the Standards guide facilities to
promote “normalization.”181 They emphasize that while children
are going through the juvenile court system, juvenile facilities
do not need to reinforce a notion of criminality. Further, even
regarding secure detention facilities, the Standards implore
that these facilities should “provide a pleasant environment.”182
Thus, the ABA recommends that the juvenile justice system
resemble a treatment setting, as opposed to a prison. The
atmosphere should be calming and “normalizing” rather than
promote a feeling of deviance or isolation in the children.
Requiring children to routinely appear shackled in court makes
no sense given these standards.
The general silence on the issue of shackling children in
court does not suggest that the practice is inconsequential.
Rather, it demonstrates that most professionals are focused
on the post-adjudicative or disposition183 phase of a child’s
experience in juvenile court. Perhaps the emphasis has been on
this phase because judges and scholars are trying to ensure
179
See Allen M. Greenberger, Standards Relating to Architecture of Facilities,
in STANDARDS, supra note 178, at 19, 21.
180
Id. at 20.
181
Id. at 21. “Normalization” is defined as “[e]nabling juveniles within the
juvenile justice system to project an image that does not mark them as deviant.” Id.
at 19.
182
Id. at 27. A secure detention facility is designed to house accused juveniles
and to prevent them from leaving at will. Id. at 25. Each state has different policies on
when a child will be required to reside in a secure detention facility. As opposed to
secure detention, many juveniles remain in the community in their homes and are
expected to report to court with a parent or guardian for each appearance. Those
juveniles who are dangerous, do not comply with court orders, or are at risk of flight,
may be required by the judge to stay in a detention facility during the adjudication
process.
183
In juvenile court the terms “adjudication” and “disposition” are substituted
for “conviction” and “sentence.” This shift in language underscores the intended
differences between juvenile court and the adult system. Children in the juvenile court
system are not actually being convicted of a crime or sentenced to punishment.
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that the time children spend in treatment facilities or detention
centers does, in fact, result in treatment and, moreover, does
not actually cause harm.184 However, it is fundamentally
inconsistent to treat children punitively when they are going
through the adjudication process and then provide treatment
and rehabilitation once they leave the courtroom. It makes
little sense to leave children physically and psychologically
bruised during their courtroom appearances and then deliver
them to an array of social services design to “rehabilitate”
them. If the juvenile justice system is premised on providing
treatment services for children, that treatment must begin
when children enter the courthouse.185 The justifications of
courtroom security and lack of prejudicial effect pale in
comparison to the compelling research regarding the deleterious effects of shackling on children. Moreover, the ABA
Standards, which provide that juvenile justice facilities should
further a sense of normalization as opposed to deviance,
further bolster the argument that shackling children in court
contravenes the goals of the juvenile justice system.
D.
Children and the Right to Treatment
Courts have recognized that once adjudicated as delinquent, juveniles have a constitutional “right to treatment,”
which includes the right to freedom from unreasonable bodily
restraint.186 However, the routine and indiscriminate use of
184
A thorough examination of conditions of confinement in youth facilities is
beyond the scope of this Note. See generally CUSTODY AND CONTROL, supra note 167
(discussing the conditions in two New York State institutions where female juvenile
delinquents are confined).
185
On the other hand, it can also be argued that indiscriminate shackling
violates a juvenile’s due process rights. Although the juvenile justice system is
supposed to be therapeutic, the Supreme Court provided juveniles with certain due
process rights to ensure that they were not taken advantage of by the system and still
had the opportunity for a fair trial. See supra Part III.B. The Supreme Court has
established that indiscriminate use of visible shackles violates a defendant’s right to a
fair trial and numerous juvenile courts have followed suit, applying the standard to the
juvenile court system. See supra Part II and infra Part V.
186
See Alexander S. v. Boyd, 876 F. Supp. 773, 797-98 (D.S.C. 1995) (citing
Youngberg v. Romeo, 457 U.S. 307 (1982)). The right to treatment developed in the
context of individuals who have been involuntarily committed for mental health
treatment, but courts apply this right with full force to delinquent juveniles. See
Santana v. Collazo, 714 F.2d 1172, 1177, 1179 (1st Cir. 1983) (holding that juveniles do
not have a constitutional right to “rehabilitative training” but relying on Youngberg to
find that juveniles do “have a due process interest in freedom from unnecessary bodily
restraint which entitles them to closer scrutiny of their conditions of confinement than
that accorded convicted criminals”); see also Jackson v. Johnson, 118 F. Supp 2d 278,
2008]
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shackles on children demonstrates that young people do not
enjoy a right to treatment during their court proceedings. The
legal right to treatment serves as another reason why the
practice of shackling children in court is fundamentally
inconsistent with the goals of the juvenile justice system.
Since juveniles, even when adjudicated as delinquents,
are not really convicted of crimes, once a young person is
adjudicated delinquent and sent to a facility, “restrictions on [a
juvenile’s] liberty . . . must be reasonably related to some
legitimate government objective—of rehabilitation, safety or
internal order and security.”187 This means that a juvenile may
not be placed in confinement or subjected to mechanical
restraints of any form without a determination that these
restrictions serve the rehabilitative needs of the child.
Moreover, even when a restriction of liberty is based on “safety
or internal order and security,” it cannot be an arbitrary or
indiscriminate practice.188 Rather, facility officials must
demonstrate that they have tried less restrictive means, and
have no alternative but to employ restraints.189
For example, Pena v. New York State Division for Youth,
the first New York case to address the issue of shackling
juveniles in treatment facilities, established the standard in
New York that unless absolutely necessary, shackling is
antithetical to the goals and objectives of the juvenile justice
system.190 In that case, the Southern District of New York
explicitly stated that the physical restraints were “highly antitherapeutic.”191 Moreover, the court recalled that when the
289 (N.D.N.Y. 2000), aff’d in part, 13 Fed. Appx. 51 (2d Cir. 2001); B.H. v. Johnson, 715
F. Supp. 1387, 1394 (N.D. Ill. 1989).
187
Collazo, 714 F.2d at 1180.
188
Id.
189
See id. at 1181.
190
Pena v. N.Y. State Division for Youth, 419 F. Supp. 203, 211 (S.D.N.Y.
1976). This case involved the use of shackles on children placed at Goshen, a
residential facility for boys adjudicated as delinquents. See id. at 204. The court held
that the New York State Division for Youth may not use shackles or restraints without
an individualized determination of danger. Id. at 211. This rule is codified in the new
York Code, which states “Physical restraints . . . shall be used only in cases where a
child is uncontrollable and constitutes a serious and evident danger to himself or
others.” 9 N.Y.C.R.R. § 168.3(a).
191
Pena, 419 F. Supp. at 211. The court did not fully prohibit the use of
shackles, but made clear that shackles should only be used when necessary and that
there must always be an individualized determination of need. The court was
specifically referring to the facility practice of binding boys’ hands and feet with
handcuffs and plastic straps and then leaving them on the floor for hours at a time.
Moreover boys were also bound to furniture. While the use of restraints and shackles in
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United States Supreme Court decided to deprive juveniles of
the full panoply of procedural rights, they “made it clear that
the constitutional justification for this procedural deprivation
is the parens patriae underpinning of the juvenile justice
system and its absolute proscription against punishment and
retribution as permissible objectives.”192 Accordingly, juveniles
have a right to rehabilitative treatment that is violated when
the juvenile justice system employs methods that are antitherapeutic and punitive.193
Unfortunately, the legal analysis underpinning a child’s
right to treatment once she has been adjudicated delinquent
has not translated into a similar right during courtroom
proceedings. Clearly, the indiscriminate use of shackles on
children while they appear in court is anti-therapeutic. The
right to treatment should be enjoyed when children enter the
court system, and the same standard that prohibits arbitrary
use of restraints on children in treatment settings should
govern the use of shackles in court. Beyond this basic
inconsistency, when juveniles wait for hours in shackles for
their court appearances with no determination having been
made that the child is violent or dangerous, they may become
confused. Children may understand that their out-of-control
behavior in a facility has a consequence and may result in
the use of restraints. However, in court, if without acting
inappropriately they are still restrained, children will not
understand why they are being punished.
Thus, some courts have established that the use of
shackling violates the goals of the juvenile justice system, or at
the very least is intrusive of juveniles’ liberty, and should
confinement is beyond the scope of this Note, Pena is still illustrative of an early court
acknowledging that use of shackles can be “anti-therapeutic” and punitive. Id.
192
Pena, 419 F. Supp. at 206.
193
Id. (citing numerous cases for the proposition that juveniles have right to
rehabilitative treatment). See, e.g., Morales v. Turman, 364 F. Supp. 166, 175 (E.D.
Tex. 1973); Martarella v. Kelley, 349 F. Supp. 575, 600 (S.D.N.Y. 1972); Inmates of
Boys Training School v. Affleck, 346 F. Supp. 1354, 1364-65 (D.R.I. 1972); Nelson v.
Heyne, 355 F. Supp. 451, 459 (N.D. Ind. 1972). The court reasoned that that the right
to treatment proscribes any detention of youth in a juvenile justice system that does
not provide for rehabilitative treatment. In concluding that the use of shackles and
restraints in the manner prescribed in this case was anti-therapeutic and punitive,
the court held that the practice violated the youths’ due process rights under the
Fourteenth Amendment. Pena, 419 F. Supp. at 207. This Note argues that similar to
detention, the repeated use of shackling juveniles during court proceedings is also antitherapeutic and violates children’s rights to rehabilitation and treatment- the primary
objective of the juvenile justice system.
2008]
SHUFFLING TO JUSTICE
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therefore not be imposed arbitrarily.194 Given this acknowledgment, combined with research demonstrating the harmful
effects of shackling on juveniles and the lack of sufficient
justifications to outweigh these harmful effects, the current
widespread practice of shackling children in court makes a
mockery of the goals of the juvenile justice system.
V.
TOWARD A LEGAL ANALYSIS OF SHACKLING JUVENILES
THAT REFLECTS THE PURPOSE OF THE JUVENILE
COURT SYSTEM
Shackling is a harmful practice that undermines the
goals of the juvenile justice system and causes serious harm to
children. This premise is not controversial among juvenile
justice scholars and practitioners, yet the practice persists.195
Evidence demonstrates that shackling juveniles causes both
physical and psychological damage and that children in the
juvenile justice system are particularly vulnerable.196 It is
axiomatic that children are developmentally different from
adults. Yet, juvenile courts often limit their analysis of
shackling to the framework used in non-juvenile proceedings.
That is, shackles are prejudicial when they are visible to juries,
and since there are no juries in juvenile court, there is no
prejudicial effect.197 However, courts should focus on the unique
impact shackling has on children and how it controverts the
purposes of the juvenile justice system.
194
Tiffany A. v. Superior Court, 59 Cal. Rptr. 3d 363, 375 (Cal. App. 2007)
(holding that shackling without an individualized determination of need conflicts with
the rehabilitative goals of the juvenile court system); State v. Merrell, 12 P.3d 556, 558
(Or. Ct. App. 2000) (holding that the use of shackles must be justified by a
determination that the defendant poses an immediate risk of danger or potential for
escape); In re Staley, 352 N.E.2d 3, 6 (Ill. App. Ct. 1976) (requiring the state to show a
“good reason” in order to justify use of shackles), aff’d, 364 N.E.2d 72.
195
See supra Part IV.A.
196
See supra Part IV.C.
197
See Deck v. Missouri, 544 U.S. 622, 626, 632 (2005) (holding visible
shackles are prejudicial to criminal defendants and thus are prohibited during the
capital sentencing phase as well as the guilt phase absent an essential state purpose).
As discussed in Part II, supra, the U.S. Supreme Court has cited two other primary
concerns regarding visible shackles: impairing communication between the defendant
and his attorney, and degrading the dignity and decorum of the courtroom. While the
few juvenile courts that have addressed the issue of visible shackles have acknowledged these other two arguments, the absence of jury prejudice has led some judges to
conclude that any error was harmless. See, e.g., State ex rel. Juvenile Dep’t of
Multonomah County v. Millican, 906 P.2d 857, 860-61 (Or. App. 1995); State v. E.J.Y.,
55 P.3d 673, 679 (Wash. App. 2002).
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The Legal Standard for Juveniles
Most of the case law on the use of shackles in courts
involves the adult criminal justice system as opposed to the
juvenile court system.198 Some states, however, have addressed
the routine use of shackles on youth in juvenile court
proceedings.199 The states that have addressed the issue of
shackles in juvenile court proceedings primarily echo the
general principle that has been applied in the adult court
system: shackles should not be required unless there is an
individualized determination of need.200 The opinions indicate
that while juvenile court proceedings may not have the same
concern regarding the prejudicial effect of shackles in front of a
jury, other concerns emphasized in Deck are still relevant.201
These courts relied on the same reasoning as the United States
Supreme Court in Deck—that shackles affect the ability to be
present and participate in one’s defense, are an affront to
human dignity and to the dignity of the courtroom, and impair
one’s ability to communicate with counsel.202 However, in
198
See, e.g., Shapiro, supra note 32, at 17 (discussing several state cases
recognizing as a general rule an accused’s right to appear at trial free of shackles).
199
California, Oregon, Illinois, Washing, North Dakota, and Florida have case
law on the issue of shackling juveniles during juvenile court proceedings. See, e.g.,
Tiffany A. v. Superior Court of L.A. County, 59 Cal. Rptr. 3d 363 (Ct. App. 2007); S.Y.
v. McMillan, 563 So. 2d 807 (Fla. Dist. Ct. App. 1990); In re Staley, 352 N.E.2d 3 (Ill.
App. Ct. 1976), aff’d, 364 N.E.2d 72 (1977); In re R.W.S., 728 N.W.2d 326 (N.D. 2007);
State ex rel. Juvenile Dep’t of Multnomah County v. Millican, 906 P.2d 857 (Or. Ct.
App. 1995); State v. E.J.Y., 55 P.3d 673 (Wash. Ct. App. 2002). There is more case law
on the use of physical restraints during confinement either in a juvenile detention
facility or residential treatment center. See, e.g., Pena, 419 F. Supp. at 207; Martarella,
349 F. Supp. at 583.
200
Courts vary on what factors should be considered for determining need. See
Tiffany A. v. Superior Court of L.A., 59 Cal. Rptr. 3d 363, 373 (Cal. Ct. App. 2007); In
re Deshaun M., 56 Cal. Rptr. 3d 627, 630 (Cal. Ct. App. 2007) (finding that a lesser
showing of need is required for shackling a juvenile during a jurisdictional hearing in a
juvenile delinquency proceeding compared to a jury trial). In Tiffany A., the court found
that two main principles from Deshaun M. should be considered when determining if
shackling juveniles is necessary: (1) the type of proceeding determines the showing
required to justify shackling (e.g., a jury trial requires a greater showing than a bench
trial) and (2) the reason for the need of shackling must be a record of violence or a
threat of violence by the accused. Tiffany A., 59 Cal. Rptr. 3d at 372. The court
expressly stated that lack of courtroom personnel is not a sufficient reason for a
showing of need. Id. at 373. But see In re R.W.S., 728 N.W.2d 326, 331 (N.D. 2007)
(finding that the security situation of the courtroom and courthouse is one of the
factors to consider).
201
See, e.g., Tiffany A., 59 Cal. Rptr. 3d at 366; Staley, 352 N.E.2d. at 5;
Millican, 906 P.2d at 860.
202
Deck v. Missouri, 544 U.S. 622, 624 (2005); Tiffany A., 59 Cal. Rptr.3d at
366; Deshaun M., 56 Cal. Rptr. 3d at 629-30; Staley, 352 N.E.2d at 5-6; R.W.S., 728
N.W.2d at 330; Millican, 906 P.2d at 860.
2008]
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addition, many courts then assert that since juveniles do not
have a right to a jury trial, there is no possibility for jury
prejudice. Thus, the analysis results in the conclusion that that
failure to make an individualized determination of need is
harmless error.203
Although there may be a diminished concern for prejudice in juvenile court, there are other concerns, primarily
the conflict with the goals of the juvenile justice system. The
absence of a strong concern for jury prejudice should not leave
the door open for courts to justify shackling children when it
is well-documented that the practice is physically and psychologically damaging to children.
The opinion in Tiffany A. v. Superior Court of Los
Angeles County is a model for a legal analysis of shackling
juveniles that reflects both the distinct needs of children and
the objectives of the juvenile justice system.204 In that case, the
California Superior Court held that shackling without an
individualized determination of need was unlawful not only
because it violated the principles from Deck, but also because
the use of shackles was contrary to the principles of the
juvenile justice system.205 The court noted that “[t]he objectives
of the juvenile justice system differ from those of the adult . . .
system, and thus justify a less punitive approach to those who
stand accused . . . before the court.”206 Therefore, while some
courts have concluded that adult defendants do not have the
right to appear unshackled when there is no jury present,
Tiffany A. stands for the proposition that there are other
considerations besides the prejudicial effect of shackles that
demand restricting its use.207 Indeed the court emphatically
stated:
203
204
See supra note 149 and accompanying text.
See Tiffany A. v. Superior Court of L.A. County, 59 Cal. Rptr. 3d 363 (Ct.
App. 2007).
205
Id. at 374-75.
Id. The court distinguished Howard on a number of different grounds.
First they noted that an individualized security assessment may not have been possible
for each defendant prior to his or her initial appearance, second Howard only concerns
first appearances where as the instant case concerned the use of shackles at each
appearance, and third Howard involved proceedings with multiple defendants. Id. at
374.
207
The Second and Ninth Circuit Courts of Appeals have both held that
visible shackles worn in front of a magistrate judge, who will not make the ultimate
determination of the defendant’s guilt, do not offend the principles from Deck. See
United States v. Howard, 480 F.3d 1005, 1013-14 (9th Cir. 2007); United States v.
Zuber, 118 F.3d 101, 104 (2d Cir. 1997). The court in Tiffany A. distinguished Howard,
in which the Ninth Circuit held that a district-wide policy to shackle all adult in206
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[T]he rationale of the California cases—that the Constitution does
not require juveniles to have the full complement of rights afforded
adult defendants because to do so would introduce a tone of
criminality into juvenile proceedings—would not be served by
requiring all juveniles, irrespective of the charges against them, or
their conduct in custody, to wear shackles during all court
proceedings.208
Similarly, in Juvenile Department of Multnomah County
v. Millican, the Oregon Supreme Court concluded that the
adult standards for shackling must apply to juveniles.209
However, they held that the error in this case was harmless
because there was no evidence of prejudice or indication that
the shackles “adversely affected the child’s decision to testify,”
noting that he did so “without any suggestion of discomfort or
reluctance.”210 In dissent, Judge De Muniz argued that the error
was not harmless. He focused his argument on the distinct
characteristics of juveniles. In addition to the factors from
State v. Kessler,211 the prevailing case in Oregon on standards
for applying shackles on adult criminal defendants, he
suggested the court should consider the “potentially prejudicial
effect on a child’s ability to testify, because shackling is likely
to be more psychologically jarring for children than adults.”212
Dissenting Judge De Muniz properly noted that
shackles may “undermine a child’s confidence in telling his side
of the story, which would adversely affect the credibility
determination of even the most experienced juvenile judge.”213
Moreover, he asserted that shackling children without a record
of individualized need “not only violates the protections
afforded adults, it also thwarts the historical purpose of
Oregon’s juvenile justice system.”214 This type of analysis
recasts the issue into one about the distinct nature of juveniles
and recalls the premise of the juvenile justice system. In order
for the insidious practice of shackling juveniles to end, courts
must see beyond the rule set forth in Deck and challenge the
custody defendants for their first appearances before the federal magistrate did not
violate constitutional rights. Tiffany A., 59 Cal. Rptr. 3d at 374-75.
208
Tiffany A., 59 Cal. Rptr.3d at 375.
209
State ex rel. Juvenile Dept. of Multnomah County v. Millican, 906 P.2d
857, 860 (Or. Ct. App. 1995).
210
Id. at 861.
211
645 P.2d 1070 (Or. Ct. App. 1982).
212
Millican, 906 P.2d at 861.
213
Id. at 861.
214
Id. at 862.
2008]
SHUFFLING TO JUSTICE
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practice on the grounds that it violates the principles of the
juvenile justice system.
B.
The Court as a “Locus for Education”
If the obvious harms that result from shackling children
are not enough, there is another reason to end this insidious
practice. Time spent within the juvenile court system should be
an opportunity for children to learn powerful lessons about
fairness, equality, and justice—three pillars of our democracy.
Historically, the court was seen as a place for ongoing
education of the child.215 As one scholar remarked, the juvenile
court was “a locus for education and an instrument of social
instruction in the path to citizenship . . . . The school and court
are bound in an intricate public mission: to teach, to care for, to
sanction the young.”216 Children are in an ongoing process of
learning, and much of what they learn is by example.217
Furthermore, research suggests that when children believe a
law is legitimate they are more likely to comply with it.218
Courtroom policies that require the routine use of shackles on
juveniles are arbitrary and reinforce in children the notion that
our justice system is unfair and inequitable.
Shackles are a mark of guilt and are utterly dehumanizing. Indeed, shackles conjure the image of a caged animal. If
we want to teach children and youth to respect people, to make
215
Bernardine Dohrn, The School, the Child, and the Court, in A CENTURY OF
JUVENILE JUSTICE 267, 267-69 (Margaret K. Rosenheim et al. eds., 2002). Dohrn notes
that the school and the court were historically intertwined. Id. at 267. The first
juvenile court coincided with social movements around public education for children.
Id. Although not directly relevant to the arguments in this Note, the U.S. Supreme
Court’s analysis of children’s free speech rights in school in the landmark case Tinker
v. Des Moines School District serves as an analogy for understanding the argument
against blanket shackling policies. In Tinker, the Court held that children had freespeech rights in school that were not necessarily subsidiary to the authority of school
officials. 393, U.S. 503, 508 (1968). The Court emphatically stated that the mere
“undifferentiated fear or apprehension of disturbance is not enough to overcome the
right to freedom of expression.” Id. Similarly, “mere undifferentiated fear” should not
be sufficient to justify the wholesale shackling of children in the juvenile court system.
216
Id. at 268-69. A detailed discussion of the interplay between the school and
the court is beyond the scope of this Note. However, the author points out that the
pedagogical stance of the early juvenile court often preached racial superiority and a
rigid formulation of appropriate behavior and cultural norms. Id. at 304. This Note
draws on the analogy between schools and courts only to argue that courts can be seen
as an outlet for teaching democratic ideals. And, to the extent that the court may serve
this purpose, shackling stands in contrast to such values.
217
See ZIMRING, supra note 82, at 17.
218
Jeffrey Fagan & Tom R. Tyler, Legal Socialization of Children and
Adolescents, SOCIAL JUSTICE RESEARCH, Sept. 2005, at 217, 236.
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independent choices instead of succumbing to peer-pressure,
and to think cautiously and astutely before they act, then the
court system should serve as a model for such values.219
Instead, by routinely shackling young people, without exercising any individual judgment, the court sends a contradictory
message to children and youth—one that suggests that
independent judgment is not in fact valued. Further, shackling
is a violent practice and gives the message that the court will
treat suspected violence with violence. This eye-for-an-eye type
of message does little to educate young people about respect
and trust. Moreover, it certainly does not leave children with
any reason to have faith in the system that is judging them.
Just as children’s rights do not stop at the school house door,
rights for young people do not stop at the courtroom door.220
Ending the practice of shackling does not have to result
in sacrificing important values, such as promoting safe courts
and communities, and ensuring young people are made aware
of the consequences of their actions. As former New York
Supreme Court Judge Michael Corriero221 has noted, “Focusing
on the best interests of the child . . . does not mean circumventing the best interests of society. The two interests are, for
the most part, coextensive. What’s good for the child in a
democratic society is good for society as a whole.”222 Society
benefits when we treat children fairly by limiting the use of
dehumanizing shackles to only those individuals that otherwise
absolutely cannot be controlled. All of the children who enter
the juvenile justice system will eventually return to society.
Society will benefit from children who come back to their
communities without the scars of shackling. The imprint left on
the mind when a young person who is required to appear in
court in shackles, in front of family and community members,
may leave us with a child who is forever scarred. It is time to
remove the chains and return to the rehabilitative goals of the
219
See ZIMRING, supra note 82, at 17-22 (arguing that modern adolescence is
akin to a “learner’s permit” whereby children are constantly learning behaviors and
much of what they learn is from following examples).
220
See Tinker v. Des Moines Sch. Dist., 393 U.S. 503-05 (1969). Rights for
juveniles do not stop at the courthouse door, except for those rights that are
inconsistent with the status of being a juvenile. See supra Part III.B.
221
Judge Corriero was the presiding judge of the Manhattan Criminal Court
Youth Part from 1992 to 2006. CORRIERO, supra note 108, at vii. He heard cases
involving 13, 14 and 15 year olds who were being tried as adults pursuant to New
York’s Juvenile Offender Law. Id. at 7.
222
Id. at 6.
2008]
SHUFFLING TO JUSTICE
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juvenile justice system. Then, perhaps, the courtroom may
return as a “locus for education.”223
CONCLUSION
Shackling is a physically and psychologically damaging
practice that contravenes the ultimate goal of the juvenile
justice system: to rehabilitate children. Criminal defendants in
the adult system enjoy the right to appear in court free from
visible shackles.224 Many juveniles, however, still suffer under
blanket policies requiring the routine use of shackles without
an individualized determination of need.225 When juvenile
courts require children to appear in court shackled, the
message young people learn is that they are violent, dangerous
criminals. This practice is inconsistent with juveniles’ right to
treatment and has the effect of actually harming children.
Jenny P. and the thousands of other children who go through
the juvenile justice system in America are in that system
because our society believes they should be given an opportunity to learn from their mistakes, change their behaviors,
and receive services to assist them in realizing their full
potential. Juvenile courts should end the routine practice of
shackling so they may pursue the goal of rehabilitating
children.
Anita Nabha†
223
See supra Part V.B.
See supra Part II.
225
See supra Part IV.A.
†
J.D. Candidate, Brooklyn Law School, 2009; M.S., Columbia University
School of Social Work, 2005; B.A., Amherst College, 2001. Many thanks to the staff and
Editorial Board of the Brooklyn Law Review for their comments and hard work editing
this Note. I would also like to thank my family for their unconditional love and
support, Professor Eve Cary for her guidance and insightful comments during the
writing process, and Professor Bob Burochowitz and the American Constitutional
Society Research Link Program for introducing me to this topic. Finally, to all those
advocates for children working to end the practice of shackling, I thank you for your
inspiration.
224
Point and Click to
Protect Public Health
TAKING CHARGE OF INFORMATION
DISSEMINATION OVER THE INTERNET
DURING A PUBLIC HEALTH EMERGENCY
INTRODUCTION
Modern information technology enables our nation to
respond to public health emergencies in unprecedented ways.1
Information dissemination is no longer limited to newspapers,
books, and word of mouth. Instead, the Internet has become an
overwhelmingly popular venue for the rapid spread of information and sharing of ideas.2 But while the Internet has
undoubtedly benefited society, it may hinder our nation’s
ability to respond effectively to public health emergencies.3
Individual users can obtain and share information about health
and news alerts quickly,4 but such online sources are not
1
The United States suffered from several public health emergencies in the
first half of the twentieth century, such as tuberculosis, yellow fever, and smallpox.
KENNETH R. WING ET AL., PUBLIC HEALTH LAW 10, 16 (2007); Wendy K. Mariner et al.,
Jacobson v. Massachusetts: It’s Not Your Great-Great-Grandfather’s Public Health
Law, 95 AM. J. PUB. HEALTH 581, 582 (2005). At the time, vaccines were largely
unavailable and hospitals were not the modern institutions we know today. Id. at 582.
As recently as the 1960s, public attention and response to health risks were often
delayed. For example, outcry against the use of DDT reached its peak only after
publication of a book: Rachel Carson’s Silent Spring. WING ET AL., supra, at 17. In the
new millennium, the Internet provides a speedy way to share information. MARK
SABLEMAN, MORE SPEECH, NOT LESS: COMMUNICATIONS LAW IN THE INFORMATION AGE
236 (1997) (“Computer linkups such as electronic mail and the Internet allow parties to
communicate easily and practically instantly with persons who are far away.”).
2
JOHN B. HORRIGAN, ONLINE NEWS 1, 10 (2006), http://www.pewinternet.org/
pdfs/PIP_News.and.Broadband.pdf (noting that thirty-five percent of adults who use
the Internet turn to websites, including blogs, for news each day).
3
Public health emergencies include “emergencies created by contagious
disease, whether through an act of bioterror or a widespread, naturally-occurring
epidemic.” WING ET AL., supra note 1, at 234. For an example of how modern
communication technology interferes with responses to public health emergencies, see
infra Part II.C.
4
See SUSANNAH FOX, ONLINE HEALTH SEARCH 2006 1, 9, http://
www.pewinternet.org/pdfs/PIP_Online_Health_2006.pdf (finding that eighty percent
of Americans used the Internet to find information about health issues and fifty-one
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always reliable.5 Information disseminated over the Internet is
not always accurate and sometimes creates panic or confusion
among lay citizens during public health emergencies.6 Chaos
and confusion among members of the general public can
impede the success of local and national response plans.
Commentators as well as state and federal agencies
have recognized that our nation’s public health laws are
outdated.7 However, recent efforts to modernize state and
federal emergency response plans have neglected to account for
the impact that the Internet may have during a public health
emergency.8 Specifically, communication over the Internet may
cause the public to receive conflicting information and lead to
panic. This Note will argue that current public health
emergency response plans should be amended both to address
the Internet’s role during a public health emergency and to
minimize the impact of individual Internet users’ influence on
the public’s perception of a public health emergency. Part I will
evaluate current state and federal emergency response plans
that include provisions for communicating health threats to the
general public. Part II will examine the nature and reliability
of information exchanged in the Internet community. Part II
will also explore instances when the Internet further weakened
already poor responses to public health emergencies. Finally,
Part III will suggest steps authorities should take through
percent of users wanted to share the information they obtained); HORRIGAN, supra note
2, at 8 (observing that less experienced users rely on information obtained by more
advanced users).
5
See infra Part II.B.
6
See infra Part II.C for a discussion of the Internet’s role immediately after
the 2001 anthrax attacks.
7
Matthew E. Brown, Reconsidering the Model State Emergency Health
Powers Act, 14 ANNALS HEALTH L. 95, 119 (2005) (“[T]he bulk of states’ public health
law is forty to one hundred years old and does not reflect modern legal norms or
contemporary mechanisms of disease prevision and control.”). One reason to dedicate
time to drafting a proper emergency response plan is that Congress, especially after
disasters such as hurricane Katrina in 2004, desires specific plans for how the
administration will respond to emergencies. Hillary R. Ahle, Anticipating Pandemic
Avian Influenza: Why the Federal and State Preparedness Plans Are for the Birds, 10
DEPAUL J. HEALTH CARE L. 213, 217 (2007); Gardiner Harris, Fear of Flu Outbreak
Rattles Washington, N.Y. TIMES, Oct. 5, 2005, at A23 (quoting Senator Tom Harkin’s
comment that Congress wanted “specific goals and procedures . . . to take to prepare for
this”). Another motivation behind revising public health emergency response plans is
to better prepare the nation for a bioterrorist attack, which could have a serious impact
on both public health and the economy. See Lawrence O. Gostin, When Terrorism
Threatens Health: How Far Are Limitations on Personal and Economic Liberties
Justified?, 55 FLA. L. REV. 1105, 1127-28 (2003) (contending that bioterrorism poses a
very real and significant threat to our nation).
8
See infra Part I.
2008]
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1593
legislation to improve the dissemination of accurate and trustworthy information over the Internet.
I.
CURRENT EMERGENCY RESPONSE PLANS
Congress and state legislatures have attempted to
improve plans that govern responses to public health emergencies in recent years. After the confusion that ensued from
the 2001 anthrax scare, the Centers for Disease Control
(“CDC”) quickly completed the Model State Emergency Health
Powers Act (“MSEHPA”).9 On the federal level, one of the
emergency response plans proposed shortly after the anthrax
incident was the Public Health Security and Bioterrorism
Preparedness and Response Act of 2002.10 While updated
legislation in this area is certainly needed, these plans fail to
consider that advanced information technology requires society
to adapt emergency response protocols to a new communication
era.
A.
State Level: Model State Emergency Health Powers Act
In October 2001, the CDC commissioned the Georgetown Center for Law and the Public’s Health to construct
a model act that would guide local health authorities in
formulating a plan for responding to public health emergencies.11 One impetus for revamping state response plans was a
9
Brown, supra note 7, at 96. For an account of the public response to the
anthrax attacks, see infra Part II.C.
10
Public Health Security and Bioterrorism Preparedness and Response Act
of 2002, Pub. L. No. 107-188, 116 Stat. 594 (2002); Ryan R. Kemper, Note, Responding
to Bioterrorism: An Analysis of Titles I and II of the Public Health Security and
Bioterrorism Preparedness and Response Act of 2002, 83 WASH. U. L.Q. 385, 404 (2005).
11
JAMES G. HODGE JR. & LAWRENCE O. GOSTIN, THE MODEL STATE
EMERGENCY HEALTH POWERS ACT—A BRIEF COMMENTARY 3, 7, 9 (Jan. 2002),
http://www.publichealthlaw.net/MSEHPA/Center%20MSEHPA%20Commentary.pdf.
As defined by the MSEHPA,
[a] “public health emergency” is an occurrence or imminent threat of an
illness or health condition that: (1) is believed to be caused by any of the
following: (i) bioterrorism; (ii) the appearance of a novel or previously
controlled or eradicated infectious agent or biological toxin; (iii) [a natural
disaster;] (iv) [a chemical attack or accidental release; or] (v) [a nuclear attack
or accident]; and (2) poses a high probability of any of the following harms: (i)
a large number of deaths in the affected population; (ii) a large number of
serious or long-term disabilities in the affected population; or (iii) widespread
exposure to an infectious or toxic agent that poses a significant risk of
substantial future harm to a large number of people in the affected
population.
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concern that public health emergency regulations infringed on
individuals’ freedoms, a concern that has blossomed over the
past century.12 Indeed, states have become more conscientious
in providing due process when engaging in activities of public
health management, such as surveillance, vaccination, and
quarantine.13
The other motivation behind the MSEHPA was the U.S.
response to the anthrax attacks. After the 2001 anthrax scare
demonstrated weaknesses in the country’s ability to respond to
a bioterrorist attack,14 the CDC became anxious to have the
model act completed.15 The Georgetown Center completed its
draft in December 2001.16 As of July 15, 2006, forty-four states
and the District of Columbia had introduced a version of the
MSEHPA.17
The MSEHPA’s drafters focused on granting authority
to local public health agencies that would help local authorities prevent, detect, manage, and control public health
MODEL STATE EMERGENCY HEALTH POWERS ACT § 104(m) (Ctr. for L. & the Pub.
Health at Georgetown and Johns Hopkins Univs., Draft, Dec. 21, 2001), available at
http://www.publichealthlaw.net/MSEHPA/MSEHPA2.pdf.
12
HODGE & GOSTIN, supra note 11, at 10 (“Existing public health laws may
pre-date vast changes in constitutional and statutory law that have altered social and
legal conceptions of individual rights. Contemporary standards of equal protection and
due process in constitutional law and of disability discrimination, privacy, and civil
rights in statutory law must be reflected in public health law.”); see also Mariner et al.,
supra note 1, at 581 (“Preserving the public’s health in the 21st century requires
preserving respect for personal liberty.”); Leah Z. Ziskin & Drew A. Harris, State
Health Policy for Terrorism Preparedness, 97 AM. J. PUB. HEALTH 1583, 1584 (2007)
(“States had concerns that their ability to respond effectively to public health
emergencies might be hampered because their older statutes did not reflect current
thinking about individual rights and privacy and were not applicable to modern
healthcare delivery systems.”).
13
Ziskin & Harris, supra note 12, at 1585. Federal and state statutes restrict
the amount of time individuals may be quarantined without a court order and provide
opportunities for quarantined individuals to have hearings. For example, New York
City grants individuals who are suspected of carrying a communicable disease the right
to a hearing and requires a court order authorizing detention for more than sixty days.
24 RCNY § 11.55(a), (f) (Supp. 2007); see also Mariner et al., supra note 1, at 586
(noting that segregating individuals suspected of being infected requires substantial
justification today).
14
See infra Part II.C for a description of the nation’s response to the 2001
anthrax incident.
15
Brown, supra note 7, at 96.
16
HODGE & GOSTIN, supra note 11, at 9.
17
See The Center for Law and the Public’s Health at Georgetown & Johns
Hopkins Universities, Model State Public Health Laws, http://www.publichealthlaw.net/
Resources/Modellaws.htm#MSEHPA (last visited Apr. 16, 2008).
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1595
emergencies.18 The MSEHPA aims to improve communication
during a public health emergency (1) between authorities so
that appropriate bodies are notified once a potential outbreak
has occurred and (2) between authorities and the public so that
the public understands how to protect itself and how local
agencies are handling the emergency.19 However, the MSEHPA
fails to provide a detailed communication plan. Specifically, the
provisions for sharing information about a public health
emergency fail to mention the Internet as a medium of
communication. Moreover, the model act’s article that dictates
how the authorities will notify the public of a public health
emergency lacks guidelines for responding to the counterproductive effects of rapidly spread rumors and false information,
which are likely to occur in an age of advanced communication
technology.20
The MSEHPA contains several provisions that set forth
specific instructions for communicating information about a
public health emergency,21 indicating that the drafters
recognized the importance of facilitating communication during
a public health emergency. For example, Article III includes
instructions pertaining to the nature of the information that
must be exchanged between authorities.22 In addition, the
MSEHPA provides that only necessary information must be
shared,23 suggesting that the drafters recognized an interest in
protecting information. Further evidence that the MSEHPA
drafters were concerned about the control of communication
18
MODEL STATE EMERGENCY HEALTH POWERS ACT pmbl., at 6 (Ctr. for L. &
the Pub. Health at Georgetown and Johns Hopkins Univs., Draft, Dec. 21, 2001),
available at http://www.publichealthlaw.net/MSEHPA/MSEHPA2.pdf.
19
Id. §§ 303, 701.
20
Id. art. VII.
21
Id. §§ 303, 401, 403(b).
22
Id. § 303(a), (b). The MSEHPA requires the public safety authority to
notify the public health authority when it receives information about an illness, health
condition, or suspicious event. Id. § 303(a). It requires the public health authority to
notify the public safety authority when it becomes aware of an illness or health
condition that may be related to bioterrorism. Id. § 303(b). As defined by the MSEHPA,
a “‘[p]ublic safety authority’ means . . . any local government agency that acts
principally to protect or preserve the public safety; or any person directly authorized to
act on behalf of the . . . local agency.” Id. § 104(n). As defined by the MSEHPA, a
“‘[p]ublic health authority’ is . . . any local government agency that acts principally to
protect or preserve the public’s health; or any person directly authorized to act on
behalf of the . . . local public health agency.” Id. § 104(l).
23
Id. § 303(c) (“Sharing of information on reportable illnesses, health
conditions, unusual clusters, or suspicious events between public health and safety
authorities shall be restricted to the information necessary for the treatment, control,
investigation, and prevention of a public health emergency.”).
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appears in Article IV, which grants the public health authority
the power to “[o]rganiz[e] public information activities” after
the declaration of a public health emergency.24 This fairly broad
grant of authority leaves substantial discretion to the public
health authority to determine how information will be shared
with the public. However, none of these provisions mention the
Internet or advise the public health authority to use modern
technology to assist in the response to a public health
emergency.
Article VII, which addresses communicating the nature
of emergencies to the public, would be the article most likely to
contain directions about communicating over the Internet.25
Article VII requires the public health authority to inform the
public that a public health emergency has been declared, how
individuals can protect themselves, and what steps authorities
are taking to address the situation.26 The article also provides
guidance for communicating with disabled individuals and nonEnglish-speaking members of the public,27 which suggests that
the drafters intended to provide for widespread and effective
communication. However, Article VII lacks specific guidelines
for controlling the dissemination of information to the public. It
fails to provide a specific method for informing the public of an
emergency and instead broadly directs authorities to use “all
available and reasonable means calculated to bring the
information promptly to the attention of the general public.”28
It also ignores the possibility that the public may hear about
the emergency declaration from another source prior to the
public health authority’s efforts to communicate information
about the emergency. This lack of control and specificity may
prove problematic when authorities are required to respond
rapidly and must decide what information to disclose, when to
disclose it, and to whom it should be disclosed.29
Although the MSEHPA lacks specific guidelines for
communicating to the public, the model act’s drafters
24
Id. § 403(b).
See id. art. VII.
26
Id. § 701. For a definition of “public health authority,” see supra note 22.
27
Id. § 701(b), (c).
28
Id. § 701(a).
29
Elisabeth Belmont et al., Emergency Preparedness, Response & Recovery
Checklist: Beyond the Emergency Management Plan, 37 J. HEALTH L. 503, 514 (2004)
(identifying such information as important for an emergency communication plan).
25
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acknowledged that the MSEHPA is not all-inclusive.30 Perhaps
in recognition of its limited coverage, the MSEHPA leaves room
for expanding the public health authority’s duties.31 For
example, the MSEHPA allows the governor to appoint a Public
Health Emergency Planning Commission,32 which would be
responsible for delivering to the governor a public emergency
response plan that may include guidelines for notifying the
public and “[o]ther measures necessary to carry out the
purposes of this Act.”33 The use of the words “other measures
necessary” suggests that the MSEHPA leaves room for further
regulation of communication to the public.
B.
Federal Level: Public Health Security and Bioterrorism
Preparedness Act of 2002
The federal government also recognized the need for a
revised national response plan after the 2001 anthrax attacks,
which left healthcare workers misinformed, members of the
public panicked, and everyone confused about the seriousness
of the outbreak.34 The nation’s shaky response moved Congress
to enact the Public Health Security and Bioterrorism Preparedness Act of 2002.35 The Act attempts to strengthen the
federal government’s response to a bioterrorist attack.36 It sets
“preparedness goals” that aim to assist state and local
governments in planning how to respond to an attack.37 In
30
For example, the MSEHPA omits certain areas of law, such as regulation
of health care. HODGE & GOSTIN, supra note 11, at 36.
31
MODEL STATE EMERGENCY HEALTH POWERS ACT § 202(a).
32
Id. § 201.
33
Id. § 202(a).
34
Caron Chess & Lee Clarke, Facilitation of Risk Communication During the
Anthrax Attacks of 2001: The Organizational Backstory, 97 AM. J. PUB. HEALTH 1578,
1578, 1580 (2007).
35
Kemper, supra note 10, at 403.
36
Some commentators claim that the threat of a bioterrorist attack has been
blown out of proportion and that we are wasting valuable resources trying to combat an
event that is unlikely to occur. George J. Annas, The Statute of Security: Human Rights
and Post-9/11 Epidemics, 38 J. HEALTH L. 319, 327-29 (2005). However, Japan, Iraq,
and the former Soviet Union have all had biological weapons programs, and Iran,
North Korea, and Syria are suspected of having such programs. Gostin, supra note 7,
at 1119. Additional reasons to develop response strategies in the event of a bioterrorist
attack include the fact that biological weapons are easy and relatively inexpensive to
develop, anthrax has been used against our nation in the past decade, and drills testing
our emergency procedures have demonstrated significant weaknesses in our nation’s
preparedness. Id. at 1112-13.
37
Kemper, supra note 10, at 404 (citing Public Health Security and
Bioterrorism Preparedness and Response Act of 2002, Pub. L. No. 107-188, § 101(b),
116 Stat. 594, 597 (2002)).
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addition, the Act establishes the office of Assistant Secretary
for Public Health and Emergency Preparedness under the
Department of Health and Human Services to control the
Department’s response mechanisms.38
The Act also contains a number of provisions that focus
on improving communications.39 For example, it grants the
Secretary of Health and Human Services the power to use
the Health Alert Network (“HAN”) as the main system of communication and surveillance40 and to establish an Emergency
Public Information and Communications Advisory Committee,
a body charged with recommending ways to communicate a
public health emergency to the public.41
The extent to which the Act provides specific guidelines
for communicating to the public during an emergency is limited
to designating the responsibility for developing a plan to the
Secretary and recommending the creation of a federal website
for bioterrorism.42 The purpose of the federal website would be
to inform the public and specific interest groups, such as
medical workers, about bioterrorism.43 The website would also
provide links to the websites of state and local authorities.44
However, the Act does not provide guidance for conveying the
authority or reliability of such a website,45 although such
information would assist Internet users in distinguishing the
official website from other websites that may simultaneously
38
Id. at 406.
Public Health Security and Bioterrorism Preparedness and Response Act
of 2002, Pub. L. No. 107-188, § 104 (b)-(d), 116 Stat. 594, 605-06 (2002).
40
Kemper, supra note 10, at 408. The HAN disseminates information
concerning disease data and surveillance, treatment suggestions, and health alerts via
high-speed Internet to state and local officials. Id. at 395-96. The HAN is concerned
with informing health departments and providers rather than the general public.
LINDA YOUNG LANDESMAN, PUBLIC HEALTH MANAGEMENT OF DISASTERS: THE
PRACTICE GUIDE 148 (2d ed. 2005).
41
Public Health Security and Bioterrorism Preparedness Act of 2002
§ 104(b)(3)(B), 116 Stat. at 605-06 (“The EPIC Advisory Committee shall make
recommendations to the Secretary and the working group under subsection (a) and
report on appropriate ways to communicate public health information regarding
bioterrorism and other public health emergencies to the public.”). The committee was
to terminate one year following enactment of the Bioterrorism Preparedness Act. Id.
§ 104(b)(3)(E), 116 Stat. at 606.
42
Id. § 104(c), (d), 116 Stat. at 606.
43
Id. § 104(b)(3), 116 Stat. at 606.
44
Id. § 104(d), 116 Stat. at 606.
45
Id. § 104(d), 116 Stat. at 606.
39
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THE INTERNET AND PUBLIC HEALTH EMERGENCIES
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provide information about a particular biological agent or about
the risks associated with a particular disease or vaccination.46
The MSEHPA and the Bioterrorism Preparedness Act
demonstrate that although lawmakers are contemplating
methods of communication during public health emergencies,
they have failed to acknowledge the Internet as an overwhelmingly popular channel of information. The Internet’s
prominent role in the sharing of information makes it
imperative for future legislation to account for the impact of
cyberspace communications.47
II.
INFORMATION DISSEMINATED VIA THE INTERNET
The Internet’s capacity for rapid communication enables
the public to become informed of an event much more quickly
than in the past. But speed alone is insufficient to improve
responses to emergencies in today’s Internet-dominated world.
The information conveyed about emergencies must also be
accurate so that the public can appropriately assess and
respond to the risks.48 If the information transmitted over the
Internet is not properly monitored, the Internet can augment
panic or cause confusion by disseminating inaccurate or
incomplete information to an overwhelmingly large audience.49
A.
Whose News Are Users Receiving?
A significant number of Americans now turn to the
Internet for their daily news.50 In particular, there is a surge in
Internet usage for news after major events.51 Many Internet
users choose to receive alerts from websites about breaking
46
See infra Part II.C, discussing false information found online about
anthrax treatment.
47
See infra Part II.
48
Cynthia P. Schneider & Michael D. McDonald, Part III: National
Challenges in Population Health: “The King of Terrors” Revisited: The Smallpox
Vaccination Campaign and its Lessons for Future Biopreparedness, 31 J. L. MED. &
ETHICS 580, 587 (2003).
49
See supra Part II.C.
50
HORRIGAN, supra note 2, at 1 (finding that “35% of adult internet users, or
about 50 million adults, check the news online on the typical day” and that “[a]fter
email and going online to conduct a search, news is the third most popular online
activity on the average day”). “For broadband internet users, online news is a more
regular part of the daily news diet than is the local paper; it is nearly as much of a
daily habit as is getting news from national TV newscasts and radio.” Id. at i.
51
Id. at 3 (“[M]ajor news events create spikes in online news consumption.”).
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news and headlines.52 At times, the Internet is the only way
that information about a particular event can be globally
transmitted,53 and it is often more accessible than many other
media sources.54
Compared to traditional news media forms such as
newspapers and television programs, the Internet allows
individual users to play a more significant role in how information is conveyed.55 Although reputable online news sources
dominate the sharing of information over the Internet,56
individual users, through alterable media outlets such as
message boards, also impact how information is selected and
relayed online.57 Unlike the telephone, which allows for quick
communication but is usually limited to one-on-one conversations between people who know each other, the Internet
allows a multitude of strangers to exchange information and
ideas concerning news.58 Communities in which users share
videos, opinions, and information through cyberspace have
grown overwhelmingly popular.59 Active Internet users often
52
Id. at 16 (finding that users who elect to receive news alerts from websites
want information about headlines or breaking news).
53
See, e.g., Seth Mydans, Monks’ Protest Is Challenging Burmese Junta, N.Y.
TIMES, Sept. 24, 2007, at A1 (describing how photographs, videos, and audio files of
protests were communicated over the Internet after Myanmar’s government prohibited
foreign journalists from entering the country).
54
For example, users can connect to the Internet through their cell phones.
David A. Kelly, Tools for Travelers, N.Y. TIMES, Sept. 17, 2007, at H2 (“Most
mobile phones offer Internet access and Web browsers.”); see also http://
www.getreadygear.com/pdfdocs/Telephone%20Tips%20to%20Support%20Your%20Eme
rgency%20Communications%20Plan.pdf (recommending the use of a wireless phone to
obtain weather information via the Internet during an emergency).
55
HORRIGAN, supra note 2, at 8.
56
Id. at iv (“46% of all internet users say they go to the website of a national
TV news organization such as CNN or MSNBC . . . .”).
57
Id. at 8-9; see also SABLEMAN, supra note 1, at 239 (“A message or bulletinboard posting can be updated or changed many times after its first publication and
hence be viewed by many different readers with many different contents.”).
58
HORRIGAN, supra note 2, at 8 (noting that some people rely on “elite
broadband users,” or “users with the closest relationship with the internet,” to obtain
information). These elite users influence the selection of information made available
online. Id. at 8-9.
59
Lev Grossman, Person of the Year: You, TIME, Dec. 25, 2006. In 2006, Time
magazine named its person of the year “You,” emphasizing the explosion of Internet
outlets such as YouTube, Facebook, and Wikipedia. Id. In addition, the blogging
phenomenon has grown exponentially and given voice to reviewers, commentators, and
skeptics who may otherwise have remained silent or lacked the publicity needed to
have any impact. (For a definition of “blog,” see infra note 61.) See, e.g., Neva Chonin,
LiveJournal Grew Out of One 18-year-old’s Frustration with Web Journaling, S.F.
CHRON., Sept. 27, 2005, at E1 (describing the “burgeoning universe known as the
blogosphere”); Greg Sandoval, Peas in a Podcast, MIAMI HERALD, July 19, 2005, at 8C
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THE INTERNET AND PUBLIC HEALTH EMERGENCIES
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become “opinion leaders,” serving as a source of news to other
people and shaping the market for information online.60 These
active news consumers occasionally obtain information from
non-traditional websites, such as blogs or listservs.61 In sum,
news disseminated over the Internet is subject to more
individualized control than news disseminated through other
channels. Such individualized control over information communicated to the public has the potential to cause chaos in the
aftermath of a public health emergency.62
Besides giving individuals greater influence on news
content, the Internet threatens stability during and after a
public health emergency by providing a virtually unlimited
landscape for individuals to express themselves.63 Many people
engage in political speech over the Internet to provoke public
response and communicate political views about particular
events.64 Since public cooperation is crucial to the success of a
(“The runaway popularity of blogging . . . has turned everyday people into online news
outlets.”).
60
HORRIGAN, supra note 2, at 8-9 (“[O]pinion leaders . . . [are] elite broadband users [who] are likely to be people others rely upon when gathering information
of various sorts.”).
61
Id. at iv, 13 (“Though the news sites of established media organizations
dominate among the broadband elite for daily news, it is notable that a sizeable share
of elite broadband users turn to non-traditional sites at about the same rate all
internet users did for general news in the internet’s prehistoric days.”).
A blog, or weblog, is “a Web site on which an individual or group of users
produces an ongoing narrative.” THE NEW OXFORD AMERICAN DICTIONARY 179, 1903
(2d ed. 2005). A listserv is “an electronic mailing list of people who wish to receive
specified information from the Internet.” Id. at 989.
62
Shifting focus from the group to the individual weakens society’s ability to
effectively respond to public health emergencies. Wendy E. Parmet, Unprepared: Why
Health Law Fails to Prepare Us for a Pandemic, 2 J. HEALTH & BIOMED. L. 157, 178
(2006) (demonstrating that in the context of the flu vaccine market, individuals make
decisions based upon their individual interests, which ultimately weakens society’s
ability to respond to surge demands in the event of an epidemic).
63
“[T]he Internet provides an easy and inexpensive way for a speaker to
reach a large audience, potentially of millions.” Am. Civil Liberties Union v. Reno, 929
F. Supp. 824, 843 (E.D. Pa. 1996). During the SARS outbreak, individuals used the
Internet and other modern channels of communication to spread news during a health
emergency. Kristen Farrell, The Big Mamas Are Watching: China’s Censorship of the
Internet and the Strain on Freedom of Expression, 15 MICH. ST. J. INT’L L. 577, 582
(2007). Chinese citizens’ command of the information fortunately aided rather than
impeded the response to the outbreak. Id. at 582, 595. But some individuals may refuse
to accept that an emergency exists or will argue against any compromise of individual
liberties. See, e.g., Gostin, supra note 7, at 1140 (“[T]he journals, newspapers, and
Internet are replete with claims that no legal authority should exist to vaccinate, treat,
and quarantine individuals or to abate nuisances, seize property, or take property for
public uses.”).
64
See, e.g., Zieper v. Metzinger, 474 F.3d 60, 63 (2d Cir. 2007) (plaintiff
posted a controversial video about a military takeover in New York City on a website);
Planned Parenthood of Columbia/Willamette, Inc. v. Am. Coalition of Life Activists,
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response to a public health emergency,65 officials must be aware
of individuals who may cast doubt on either the nature of the
threat or the government’s ability to effectively respond to the
situation. In the event such individuals interfere with communication of accurate information to the public, officials must
be prepared to correct any misleading information and clarify
the nature of the emergency.66
B.
Online Health Information: How Reliable Is It?
The Internet’s ability to allow people to share information has certainly benefited modern society by increasing
efficiency.67 But unclear or incorrect information can be dangerous because many users rely heavily on health information
they find online,68 despite the fact that such information is not
always accurate or up to date.69
The Internet makes an abundance of health information
freely available.70 A recent study revealed that most Internet
290 F.3d 1058, 1093 (9th Cir. 2002) (anti-abortion organization posted names and
addresses of abortion providers on a website intended to rally support for its cause);
Layshock v. Hermitage Sch. Dist., 496 F. Supp. 2d 587, 591 (W.D. Pa. 2007) (student
crafted an online parody profile of his school principal); Pilchesky v. Miller, No. 3-CV05-2074, 2006 WL 2884445 (M.D. Pa. Oct. 10, 2006) (website administrators managed
a message board where users were invited to comment on a local government
employee). There was even a website responding to the drafting of MSEHPA,
criticizing the model act for infringing upon individual liberties. Jason Mercier,
Emergency Health Powers Act Threatens Liberty, Jan. 2, 2002, http://www.effwa.org/
opeds/2002_01_02.php (referring to MSEHPA as “an unacceptable threat to freedom”).
65
See Gostin, supra note 7, at 1166 (discussing the importance of community
cooperation when working with the government to take protective actions).
66
See infra Part III.B.2.
67
See Amy Keane, Annotation, Validity of State Statutes and Administrative
Regulations Regulating Internet Communications Under Commerce Clause and First
Amendment of Federal Constitution, 98 A.L.R.5th 167, § 2(a) (2002) (noting that the
Internet connects individuals and provides methods “for free exchange of information
and ideas”).
68
FOX, supra note 4, at 13 (“Another factor in the eroding attention to
information quality indicators is the sense of confidence and efficacy prevalent among
most internet users.”). Most people using the Internet to find health information were
confident in the quality of the information they found. Id. at 13. But some
commentators would advise them to be more conscientious. See Sean B. Hoar, Trends
in Cybercrime: The Dark Side of the Internet, 20 CRIM. JUST. 4, 5 (2005) (“The growth of
the Internet has been accompanied by an increase in newly detected system
‘vulnerabilities’—insecure areas that may threaten the security of a computer
system.”).
69
See Tamar Lewin, Anthrax Drug Sold Online Leads to Suit, N.Y. TIMES,
Jan. 12, 2002, at A9; see also FOX, supra note 4, at 11-12.
70
See FOX, supra note 4, at 4 (finding that users turned to the Internet for
information on diverse health issues, including specific diseases, nutrition, and
environmental health hazards); see also Audiey C. Kao & Erica Ozanne Linden, Direct
to Consumer Advertising and the Internet: Informational Privacy, Product Liability and
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users in the United States have looked for health information
online, including information about diseases, vaccinations, and
environmental hazards.71 In addition, the information users
obtained online influenced the actions they took with regard
to their health.72 Although the information was sometimes
confusing or overwhelming,73 only one-third of users surveyed
who obtained health information online consulted a doctor
about the information they found.74 Perhaps most importantly,
the study showed that people who researched health issues
online were largely unconcerned about the quality and
accuracy of the information displayed on websites.75 Instead,
users displayed a deep confidence in what they read online.76
This confidence is not always warranted. Indeed, the
Internet’s popularity as a source of medical information has
raised concerns about consumers’ willingness to trust and act
upon health information made available online without
consulting healthcare professionals.77 These concerns are well
founded: one study found that about three million adults were
Organizational Responsibility, 46 ST. LOUIS U. L. J. 157, 157 (2002) (“Thousands of
health websites, patient support listserves and health-related advertisement banners
are readily accessible by Internet users . . . .”); Ross D. Silverman, Regulating Medical
Practice in the Cyber Age: Issues and Challenges for State Medical Boards, 26 AM. J. L.
& MED. 255, 259 (2000) (“[O]ne of the principal reasons people use the Internet is to
pursue health information.”). Resources such as MEDLINE, a database containing
references to health science journals, and forums where individuals suffering from
particular diseases communicate with one another are examples of online venues of
information. Id. at 259-60. One study reported that “e-caregivers,” individuals who rely
on information obtained via the Internet to help a loved one with a health problem,
rely on sources such as “communities of like-minded individuals . . . .” Mary Madden &
Susannah Fox, Finding Answers Online in Sickness and in Health, PEW INTERNET
& AM. LIFE PROJECT REPORT (2006), http://www.pewinternet.org/pdfs/PIP_Health_
Decisions_2006.pdf.
71
FOX, supra note 4, at i (“Eighty percent of American internet users, or
some 113 million adults, have searched for information on at least one of seventeen
health topics.”).
72
Id. at 8 (finding that fifty-three percent of users reported that the health
information that they obtained online had some impact on their actions, including an
impact on how such users treated an illness or condition, an impact on diet and
exercise, and an impact on the user’s decision to consult a doctor).
73
Id. at 9.
74
Id. at 6. This reliance on information obtained via the Internet has raised
some concerns in the healthcare community. Id. (“One of the concerns that the medical
community expresses about online health seekers is whether they are self-diagnosing
and self-medicating based on the material they find online and without consultation
with medical experts.”).
75
Id. at 11 (noting that very few health websites provide information about
the source and date of information displayed on their pages).
76
Id. at 13. Even if users were concerned about the date and source of
information, such details are not easily obtained. Id. at 11-12.
77
Id. at 6.
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harmed or knew someone who had been harmed due to
information obtained from the Internet.78 One example of how
the Internet provides a venue for inaccurate health information
is the availability of prescription drugs through websites that
do not adhere to licensure or prescription laws. Such websites
have caused concern about protecting the public against
unlicensed physicians who may not be qualified to diagnose
patients and prescribe medications for them.79 During the chaos
of a public health emergency, officials cannot afford to risk
further confusion caused by unreliable, unofficial websites that
the public visits.
C.
Panic Attack: The Need for Controlled Communication
The fact that the Internet has become a heavily
accessed source of information combined with the fact that its
content is not always reliable suggests that it has the potential
to negatively impact the response to a public health emergency,
particularly if inaccurate information leads to confusion and
panic. People undoubtedly panic during health emergencies
and such panic can inhibit an effective response.80 Some
78
Id. at 8.
Silverman, supra note 70, at 261-62, 266 (emphasizing the concern with
“many interactions which can be conducted on the Internet that are ‘totally distanceinsensitive’ and that raise both significant public protection concerns, and serious
questions about the ability of individual state medical boards to continue to fulfill their
police power responsibilities of protecting against unlicensed practitioners of dubious
quality”) (citing Jay H. Sanders, Future Trends: Telemedicine, 82 FED. BULL. 191, 191
(1995)). We have also seen the development of cybermedicine, which involves
physicians diagnosing patients over the Internet. Id. at 265.
Some online pharmacies took advantage of public fear and failed to follow
proper prescription procedures after the anthrax attacks in 2001. Lewin, supra note 69
(describing a suit that was brought once attorneys general realized the Internet was
plagued with hoaxes involving drugs and decontamination kits after the anthrax
attack). Florida and Washington State attorneys general pursued litigation against an
online pharmacy that prescribed ciproflaxin for the treatment of anthrax without
speaking with or examining patients and without informing Internet consumers about
the risks associated with taking the antibiotic. For example, taking ciproflaxin without
actual exposure to anthrax may render it ineffective in the future. Id. Washington
attorney general Christine Gregoire spoke of the need to prevent anyone from
“violat[ing] our laws and threaten[ing] people’s health in order to profit from the fear of
bioterrorism” (quoted in Lewin, supra note 69).
80
See Schneider & McDonald, supra note 48, at 587 (noting that being able to
quickly understand the risk involved in a particular incident “empowers [the public] to
make better decisions regarding . . . risks in crises, which in turn reduces anxiety, and
the economic drains of community bereavement, and infrastructure overload”); see also
Gostin, supra note 7, at 1167 (“A panicked public will require a much greater force of
peacekeepers—police or the National Guard, for instance—to maintain order. Building
the public’s trust through communicating correct and timely information is crucial to
successful management of any emergency.”).
79
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individuals become convinced that they have been exposed to a
disease even though their risk of exposure may be small.81 As
a result, hospitals experience a surge of patients, many of
whom have not been exposed to disease, and often reach their
capacities.82 On a community level, groups known as “worried
wells” form, composed of individuals who are not actual victims
of health-threatening conditions but who nevertheless become
fearful after an incident.83
The responses to the 2001 anthrax attack and the 2004
SARS epidemic illustrate how new technology that allows
information to spread quickly may contribute to public panic,
resource depletion, and inefficient emergency response. Our
nation’s reaction to the anthrax attacks is often cited as a
primary example of poor communication during a public health
emergency.84 Although word of the outbreak spread quickly,85
the public and media did not receive accurate information:
public health authorities were overwhelmed by phone calls
81
Schneider & McDonald, supra note 48, at 582.
Id. (noting that idiopathic symptoms caused people to flock to facilities in
“Dark Winter,” a simulation of a smallpox attack). Indeed, during the SARS outbreak,
health care providers worked in the background of “intense scrutiny of a frightened
media and populace.” Belmont et al., supra note 29, at 507.
83
LANDESMAN, supra note 40, at 233. These “secondary victims” change their
behavior because they are fearful, not necessarily because they have been exposed to
disease. Schneider & McDonald, supra note 48, at 586.
84
See, e.g., Ahle, supra note 7, at 225 (“The most important information to be
gleaned from the high-profile anthrax experience is the necessity of clear and effective
communication.”). There were twenty-two reported cases, ultimately resulting in five
deaths. Schneider & McDonald, supra note 48, at 587; see also Kemper, supra note 10,
at 388 (noting that the affected areas included five states and the District of Columbia).
Despite the small number of people actually infected, over 35,000 people received
antibiotic prescriptions. Schneider & McDonald, supra note 48, at 587. The “worried
well” ratio during the scare exceeded 30:1. LANDESMAN, supra note 40, at 243; see also
Maureen Lichtveld et al., Preparedness on the Frontline: What’s Law Got to Do with It?,
30 J. L. MED. & ETHICS (SPECIAL SUPP.) 184, 186 (2002) (noting that people in every
state feared exposure and requested either testing of themselves or of white powder);
Chess & Clarke, supra note 34, at 1578 (noting that “white powder scares” occurred
even in non-contaminated areas). The high rate of prescriptions could have been due to
the fact that, nationwide, forty-six percent of people held the incorrect belief that the
disease was contagious. Id. Anthrax is not known to be contagious. CDC, Anthrax:
What You Need to Know, http://www.bt.cdc.gov/agent/anthrax/pdf/needtoknow.pdf (last
visited Mar. 29, 2008). Nevertheless, concern was warranted because anthrax kills
eighty-five percent of the people it infects. HODGE & GOSTIN, supra note 11, at 8 tbl. 1
(citing Melissa Hendricks, Rx Against Terror, JOHNS HOPKINS MAG., Feb. 1999,
available at http://www.jhu.edu/~jhumag/0299web/germ2.html#germa).
85
News of the scare traveled rapidly, as is evident from the panic in New
Jersey, which was the state most affected by the attack. Ziskin & Harris, supra note
12, at 1583 (2007) (identifying New Jersey as “the epicenter of the anthrax outbreak of
2001”). In less than three weeks, more than seventy percent of New Jersey’s residents
feared they were in danger of anthrax exposure. Chess & Clarke, supra note 34, at
1578.
82
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from concerned residents,86 and members of the media
struggled to obtain information, often relying on unofficial
sources.87 The Internet added to the problem of a panicked and
misinformed public when, shortly after the outbreak, it was
infiltrated with advertisements for ciproflaxin, the antibiotic
used to treat anthrax.88 Some less reputable websites even
offered anthrax treatment in the form of a drug that was also
sold for weight control.89
The response to the SARS outbreak is an even more
troubling example of poor emergency response. Modern
technology likely contributed to what one public health official
identified as the biggest challenge during the SARS scare: the
fear and panic that spread after the outbreak.90 Response
management was particularly poor in China.91 The Chinese
government, concerned about instability, remained silent about
the outbreak.92 Consequently, government officials were forced
to rely on the Internet to obtain information.93 Many of the
updates about the incident were transmitted through chat
rooms.94 The lack of direct comment from the government
allowed false information to spread, resulting in chaotic
86
Chess & Clarke, supra note 34, at 1578. New Jersey’s Department of
Health and Senior Services received over 6000 phone calls from October 1, 2001 until
November 30, 2001, while the Center for Disease Control received over 8860 calls
during the scare. Id.
87
WING ET AL., supra note 1, at 717 (“Faced with either poor access to public
health officials or inadequate information, reporters scanned websites, downloaded
articles, and attempted to identify experts. Without information from the public health
authorities, one journalist noted that they had to assemble pieces of the anthrax puzzle
from a variety of what they hoped would be credible sources.” (quoting Elin Gursky et
al., Anthrax 2001: Observations on the Medical and Public Health Response, 1
BIOSECURITY & BIOTERRORISM 97 (2003))). The Government Accountability Office
reported that much of the panic and fear could have been diminished had the media
been better informed throughout the incident. Chess & Clarke, supra note 34, at 1579.
88
See supra note 79; see also Diana B. Henriques, Anthrax Drug Is Promoted
on Web Sites, N.Y. TIMES, Oct. 15, 2001, at C8; Lewin, supra note 69.
89
Henriques, supra note 88.
90
Annas, supra note 36, at 336 (citing Stephen Smith, US Allows for SARS
Quarantines; Health Officials Say None Are Planned Yet, BOSTON GLOBE, Apr. 5, 2003,
at A2). “SARS . . . appeared in a society equipped with instant global communication
that made management of people through information much more important than
management of people through police actions. With the Internet, information now
spreads like a virus, but much faster.” Id. at 331.
91
See Farrell, supra note 63, at 595-96.
92
Id. at 581.
93
Id. at 582.
94
Id.
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responses in some areas.95 In addition, poor communication
caused healthcare providers to be exposed to the disease.96
The reactions to the anthrax and SARS incidents
demonstrate that authorities must achieve an artful balance by
communicating clear and consistent information to the public
without overwhelming media channels with too much information and causing panic.97 It is clear after these incidents that
emergency response protocols must incorporate a plan for
assuring that the Internet will distribute accurate information
to citizens rather than add to confusion. This would increase
the likelihood that public health emergencies are properly
managed, especially since so many people rely on the Internet
for information about their health.98 By staying tuned to the
information shared over the Internet and responding to the
spread of false information, authorities can prevent individuals
and worried wells from augmenting the levels of confusion and
panic during public health emergencies.99
95
One rumor cautioned that Beijing would be placed under martial law and
led to a mass exodus of workers and other citizens. Annas, supra note 36, at 332-33. In
addition, healthcare providers lacked important information and were eventually
exposed to the disease. See Farrell, supra note 63, at 581-82.
While China set a negative example by failing to provide an authoritative
account of a health emergency, Canada might have been too thorough about
communicating during the SARS outbreak. Federal, provincial, and local governments
used both the Internet and a telephone hotline to communicate with the public. MARK
A. ROTHSTEIN ET AL., QUARANTINE AND ISOLATION: LESSONS LEARNED FROM SARS: A
REPORT TO THE CENTERS FOR DISEASE CONTROL AND PREVENTION 57 (2003), available
at http://louisville.edu/bioethics/public-health/SARS.pdf. But there were too many
voices speaking at once, which resulted in a lack of cohesive information. Id. Several
government officials commented on the nature of the outbreak, but they did not always
deliver consistent information. Id.
96
Healthcare providers lacked important information during the SARS
outbreak and were eventually exposed to the disease. See Farrell, supra note 63, at
581-82.
97
For example, emergency response models should incorporate the social
influence that “secondary victims” exert after an attack. Schneider & McDonald, supra
note 48, at 586.
98
See supra Part II.B; see also Gostin, supra note 7, at 1167.
99
Of course, confusion is a natural consequence of a public health emergency
and should be expected to impede communication to some extent. Chess & Clarke,
supra note 34, at 1578. George Annas acknowledges that we are living in a new
communication era and argues that the rapid spread of information using modern
technology is essential to combating fear that spreads through the public. Annas, supra
note 36, at 339 (“The rapid exchange of information, made possible by the Internet and
an interconnected group of laboratories around the world . . ., [was] critical to
combating fear with knowledge. Information really does travel faster than even a new
virus, and managing information is the most important task of modern public health
officials. People around the world, provided with truthful, reasonable information by
public health officials, who are interested in both their health and human rights, will
follow their advice.”). However, Annas does not suggest how to effectively communicate
coherent, cohesive information to the public. Unless authorities improve communi-
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GOING FORWARD: WHO, WHAT, AND HOW
New emergency response legislation should include
steps to prevent or respond to misinformation disseminated
over the Internet in order to ensure that public health
authorities are equipped to communicate with the general
public in the most efficient way possible. Legislators should
consider several issues in revising emergency response plans to
account for the Internet’s impact. First, they should clarify the
role of state and federal governments. Second, they should
decide on effective and appropriate content for the plans. Third,
they should be prepared to defend the regulation of information
dissemination against objections, such as claims that Internet
regulation infringes personal liberties, violates principles of
federalism, and conflicts with U.S. policy toward free speech
over the Internet.
A.
Who Imposes Regulations?
Legislation that aims to implement a successful
response plan should clarify the appropriate level of
government to take the lead in ensuring effective communication during public health emergencies. As a matter of
federalism, the power to protect public health and safety rests
within the states’ police power.100 Therefore, an updated plan
for responding to public health emergencies should be
incorporated into state legislation. However, there are benefits
to involving the federal government in the response plan,
including more unified protection of citizens101 and much
cation, our nation will likely repeat the chaotic responses that have occurred around
the world in recent years.
100
The police power refers to states’ authority to regulate matters occurring
within their borders. Jacobson v. Massachusetts, 197 U.S. 11, 25 (1905) (describing the
police power as “a power which the state did not surrender when becoming a member
of the Union under the Constitution” and which encompasses “all laws that relate to
matters completely within [a state’s] territory . . .”); WING ET AL., supra note 1, at 59
(finding that the Supreme Court’s opinion in Jacobson established that control over
public health is within a state’s police powers); Silverman, supra note 70, at 256
(“Under the police power, states have the authority to pass regulations to protect the
public health and safety of their citizens.”); Ziskin & Harris, supra note 12, at 1583
(noting that states have primary responsibility for ensuring the health and safety of
their citizens, while the federal government merely has influence through the
Commerce and General Welfare Clauses of the Constitution).
101
See Silverman, supra note 70, at 274 (“[T]he lack of uniformity in state
telemedicine and cybermedicine laws means that there will continue to be wide
variation in the level of protection available to citizens nationwide.”); see also Am. Civil
Liberties Union v. Johnson, 194 F.3d 1149, 1162 (10th Cir. 1999) (categorizing the
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needed support for states from the federal government.102 More
importantly, legislation that addresses the Internet poses a
particular challenge because the Internet falls within the realm
of interstate commerce,103 an area that the Constitution
delegates to the federal government.104 One possible solution to
allowing the states to exercise their police power while avoiding
encroachment on the federal government’s congressionally
delegated authority to regulate interstate commerce is a
compromise between state and federal authority. For instance,
Congress could pass legislation that grants states the authority
to regulate Internet activity during public health emergencies.
Congress could also commission the drafting of a model act,
much like the MSEHPA,105 to serve as a recommendation from
the federal government to the states as to how to incorporate
Internet communication into their emergency response
statutes.
In addition to clarifying which level of government
should exercise control during an incident, public health and
law enforcement authorities should consider involving regulatory agencies to assist with the response to a public health
emergency.106 The response plan should include a list of
agencies to which public health officials may turn during an
emergency. For example, the plan could incorporate state
authorities, such as state attorneys general and departments of
human services, to assist in the response.107 On the federal
level, the plan could enlist the Federal Emergency
Management Agency (“FEMA”) to assist with communication.
FEMA’s involvement would be appropriate since it retains
responsibility for the Emergency Alert System, a method of
communicating to the public via broadcast during an
Internet as an area of commerce that requires national regulation to avoid
inconsistencies among the states); Am. Library Ass’n v. Pataki, 969 F. Supp. 160, 169
(S.D.N.Y. 1997) (“[T]he Internet is one of those areas of commerce that must be marked
off as a national preserve to protect users from inconsistent legislation that . . . could
paralyze development of the Internet altogether.”); Ahle, supra note 7, at 228 (noting
that the federal government has claimed the right to use the Internet to establish a
national information database in connection to an influenza pandemic).
102
Gostin, supra note 7, at 1160-61 (“[T]he federal government must be
prepared to provide support for state and local governments that may be overwhelmed
by the sudden drastic increase in public health needs.”).
103
See infra Part III.C.2; see also Am. Library Ass’n, 969 F. Supp. at 173.
104
U.S. CONST. art. I, § 8, cl. 3. See infra Part III.C.2.
105
See supra Part I.A.
106
Silverman, supra note 70, at 262.
107
Ahle, supra note 7, at 230.
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emergency.108 Since information concerning drug treatment
may be among the misleading or confusing information
available over the Internet during a public health emergency,109
the Federal Trade Commission, which has the authority
to regulate drug marketing,110 could play a useful role in
Internet regulation during a public health crisis by promoting
awareness of proper treatments for health-threatening
conditions.
Perhaps the agency with the most appropriate experience and authority to regulate is the Federal Communications
Commission, which is responsible for regulating communications between states through various means, including wire,
cable, and telephone transmissions.111 The Joint Advisory
Commission (“JAC”), a subdivision of the FCC that assists with
emergency medical and public health care facility communications,112 may be able to assist with proper information
dissemination over the Internet.113
B.
Content of Regulations
1. Silence Is Far from Golden
After deciding the roles that state and federal governments will play, legislators must choose the substantive
content of the legislation. A good starting point is to learn from
past responses to public health emergencies. In particular,
China’s response to the 2004 SARS outbreak, characterized by
poor communication management, demonstrates methods that
108
LANDESMAN, supra note 40, at 140. The Emergency Alert System enables
the government to use broadcast stations and cable systems to communicate warnings
to the public and has become the country’s main warning system. Id. Other federal
agencies that are typically involved in responding to emergencies include the U.S.
Office of the Assistant Secretary for Public Health Emergency Preparedness, the CDC,
and the Agency for Toxic Substances and Disease Registry. Id. at 231.
109
See supra Part II.C (discussing anthrax drugs available online after the
2001 anthrax incident).
110
See JANINE S. HILLER & RONNIE COHEN, INTERNET LAW & POLICY 96
(2002).
111
Federal Communications Commission, About the FCC, www.fcc.gov/
aboutus.html (last visited Mar. 29, 2008).
112
Federal Communications Commission, Public Safety and Homeland
Security Bureau, Overview, http://www.fcc.gov/pshs/advisory/jac/ (last visited Mar. 29,
2008).
113
The JAC’s responsibilities would have to be expanded because they are
currently restricted to assisting communication among different healthcare facilities
and do not involve furthering communications between public health authorities and
the public. Id.
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public health authorities and agencies should avoid.114 The
Chinese government, fearing a threat to stability, remained
silent during the SARS outbreak and placed a ban on the
media, preventing news of the virus from reaching the public.115
As a result, physicians and government officials were
uninformed as they responded to the crisis.116 China’s method of
handling the SARS outbreak demonstrates that withholding
information from the public is potentially the worst decision a
government can make and that an informed public is a crucial
legislative goal for new emergency response legislation.117
China’s strict regulation of the Internet likely added to
the stifled communication during the SARS outbreak. China
regularly engages in a censorship of the Internet that raises
serious questions about the government overstepping its
boundaries.118 China has gone to extremes to exercise control
over the nature of the information that becomes available to
citizens through cyberspace.119 Internet providers must keep
records of website content and track subscribers.120 The
providers are subject to severe sanctions if they fail to comply
with such requirements.121 On the user side, Internet sub-
114
See supra Part II.C for an overview of China’s response to the SARS
outbreak; see also LANDESMAN, supra note 40, at 133 (“When planning for [a public
health] agency’s overall response, include communication as a section in the plan. This
component should describe how you will communicate messages about the emergency
and who will deliver the message.”).
115
See Farrell, supra note 63, at 582; see also supra Part II.C.
116
Farrell, supra note 63, at 582. Our nation saw a similar problem during
the anthrax outbreak: one report found that not all of the data from the outbreak areas
was shared with the relevant parties. Chess & Clarke, supra note 34, at 1579 (citing
NAT’L RESEARCH COUNCIL, REOPENING PUBLIC FACILITIES AFTER A BIOLOGICAL
ATTACK: A DECISION-MAKING FRAMEWORK (2005), available at http://books.nap.edu/
openbook.php?record_id=11324&page=6). Healthcare workers were distressed at
having to rely on the media for information during the anthrax attacks. Chess &
Clarke, supra note 34, at 1580 (“This trickle-down form of communication made it more
difficult to direct staff to exude ‘confidence and competence’ when dealing with
workers.”).
117
Annas, supra note 36, at 329 (arguing in favor of an informed public and
cautioning that, in the context of a terrorism event, terrorists want to keep potential
attacks secret, so “the best defense from a potential target is to make this information
public”). Legislation should direct authorities to relay important messages over the
Internet as quickly as possible. See LANDESMAN, supra note 40, at 135 (explaining that
officials occasionally report an event when it is too late); Belmont et al., supra note 29,
at 515.
118
See generally Farrell, supra note 63 (evaluating the impact of China’s
Internet regulations on freedom of expression).
119
Id. at 586-87.
120
Id. at 586.
121
Failure to comply could result in loss of business license and arrest. Id.
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scribers must register with their local police bureaus.122
Enforcers known as “cybercops” and “big mamas” patrol the
Internet looking for offenders, edit blogs, and delete chat room
dialogue.123 Such an extreme level of regulation is harmful to
society because it has the potential to create paranoia and selfcensorship for fear of government retaliation.124 Furthermore,
while China’s extreme restrictions on Internet content can be
detrimental in any context, they are especially harmful during
public health emergencies, when clear and efficient communication is essential.
2. The Right Way to Spread the Word
In addition to requiring open communication about
emergencies to the public so as to avoid China’s blunders
during the SARS outbreak,125 response plan legislation should
provide a means of protecting the information that is
exchanged among authorities and communicated to the public.
New regulations should prescribe ways to control information
disseminated via the Internet and should require health
authorities and agencies to maintain and regularly update
virus and firewall protections to keep information accurate and
secure.126 New legislation should also require officials to encrypt
the messages they send to one another to ensure that the
correct information is passed from high-level officials down to
the public.127
Aside from protecting information, the legislation
should include methods for efficiently communicating to the
public via the Internet during a public health emergency.
Specifically, the legislation should instruct public health
authorities to establish a mapping program that could be used
to notify the public about the geographic scope of an emergency
122
Id.
Id. at 587.
124
Id. at 592. Nevertheless, there are occasions, such as public health
emergencies, when some regulation and governmental interference are appropriate. Id.
at 596 (“[I]n times of health crises such as the SARS epidemic the government should
be afforded some amount of control—at least as is necessary to maintain public
order.”).
125
See supra Part II.C.
126
See LANDESMAN, supra note 40, at 143 (recommending that computers
used for communication about disaster-related activities be equipped with “sufficient
security,” including “firewall, password protection, [and] virus scanning”).
127
HILLER & COHEN, supra note 110, at 39 (“Encryption is the application of a
code to a communication in order to hide its message.”).
123
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and the availability of resources.128 To increase the chance that
the public is fully informed in advance of an attack, the
legislation should require state authorities to create and
advertise local websites that contain relevant and up-to-date
information, such as helpful contacts, evacuation procedures,
and developments in the emergency.129 It should also require
officials to regularly update any website used to communicate
information to the public during a public health emergency and
respond to public perception of an event through that
website.130
In addition to creating websites to communicate to the
public during a public health emergency, authorities must
be wary of unauthorized websites that convey inaccurate
information.131 One method of combating this problem is to
require websites to provide details about their information
sources and sponsors. For example, the Department of Health
and Human Services recently announced a plan to encourage
websites to provide details about website authority and
credibility, such as the sources of the information provided,
how the content is updated, the websites’ sponsors, and the
websites’ purposes.132 A revised response plan should require
official websites to display a certificate or seal indicating that
the information provided on the website is accurate, current,
and trustworthy.133
In addition to recommending the creation of official
websites to improve communication between public health
authorities and citizens, the legislation should advise officials
on how to use the media to improve, rather than distort,
128
LANDESMAN, supra note 40, at 109-10 (“Maps provide a common platform
for everyone to visualize needed information about the location of events, resources,
transportation, [and] emergency networks . . . .”).
129
Ahle, supra note 7, at 234 (reviewing the failed communications in the
aftermath of Hurricane Katrina); LANDESMAN, supra note 40, at 134 (“Web sites can be
used for communication to both the press and the public.”).
130
LANDESMAN, supra note 40, at 134.
131
Websites can re-establish themselves under different names, even after
being designated as illegitimate or non-trustworthy: for example, online pharmacies
cannot be prevented from re-opening under a new website name. Silverman, supra note
70, at 274.
132
FOX, supra note 4, at 12 (noting that the Department of Health and
Human Services sought to “increase the proportion of health-related websites that
disclose information that can be used to assess the quality of the site”).
133
Such a method has been used for designating particular online pharmacies
as safe and trustworthy. The National Association of Boards of Pharmacy relies on
such a seal, which online pharmacies earn if they “maintain all necessary state
pharmacy licenses, follow all appropriate pharmacy laws and regulations, and pass a
seventeen point test and a site inspection.” Silverman, supra note 70, at 271-72.
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communication.134 Considering that many people obtain
information either directly from the Internet or from active
Internet users and that the Internet provides so many venues
for sharing information, the Internet may be one of the best
ways to use media channels during a response to a public
health emergency.135 The new response plan should instruct
authorities to disseminate positive, factual, and clear messages
through Internet media channels.136 The legislation should also
require authorities to use the Internet to educate the public
about safety precautions.137 Active Internet users, known to
provide information to less-practiced users, would thus
potentially play a significant role in educating others about
emergencies over the Internet.138 An educated public could then
participate in response efforts and provide support for
healthcare workers and authorities.139 Finally, the legislation
should require authorities to test the effectiveness of Internet
communication during times of non-emergency by practicing
coordinated information releases.140
While establishing secure Internet sites would increase
the chance that the public receives accurate information during
emergencies,141 a more aggressive approach to controlling
information would be to intercept communications directly by
restricting certain activities occurring over the Internet. To
that end, the proposed legislation should grant public health
officials authority to demand that website administrators
correct any misleading or false information displayed on their
websites.
The Illinois Pandemic Influenza Preparedness and
Response Plan exemplifies a response plan that incorporates
the Internet, recognizes the possible role of agencies, and
134
See LANDESMAN, supra note 40, at 156. The media can help issue warnings
and Public Service Announcements instructing citizens how to protect themselves. Id.
at 250-51.
135
See supra Part II.A-B.
136
LANDESMAN, supra note 40, at 133-34.
137
Id.
138
See HORRIGAN, supra note 2, at 8 (establishing that people rely on active
Internet users for news). In fact, the “rumors” that were spread during the SARS
outbreak in China were accurate pieces of news. Farrell, supra note 63, at 582-83.
139
Ahle, supra note 7, at 243; see also Gostin, supra note 7, at 1167
(suggesting one way for community members to participate is to organize volunteers or
circulate messages).
140
Ahle, supra note 7, at 240 (advocating that a communications plan “be
tested and practiced prior to a pandemic to ensure that it is effective”).
141
LANDESMAN, supra note 40, at 134 (suggesting that websites be used to
deliver messages to the media and the public during emergencies).
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provides a clear communication strategy.142 The plan relies on
state and local websites to provide information to the public.143
It also enlists the help of several state agencies, including the
Illinois Department of Human Services and the Office of
the Attorney General.144 The plan’s communication strategy
involves educating the media and the public about risks and
responses during an emergency, conducting drills to assess
communications, and addressing the needs of specific populations, such as the disabled, that might have special needs for
obtaining information.145 Legislators should follow Illinois’s
example by enacting a comprehensive response plan that
utilizes modern communication systems and agency expertise.
C.
Responding to Objections
Legislation that aims to regulate information dissemination is sure to raise objections. Aggressive regulation of
Internet content is particularly controversial because it
implicates individual liberties, blurs the line between state
and federal authority, and challenges certain U.S. policy
objectives. Nevertheless, Internet regulation in the face of a
public health emergency can be defended against these
potential objections.
1. Constitutional Objections
If states or the federal government adopt regulations
that restrict information sharing over the Internet, a significant concern would be whether such regulations interfere with
individual liberties. Internet regulatory authority has been
granted to federal agencies such as the Federal Trade
Commission and the U.S. Department of Commerce Bureau of
Export Administration.146 Nevertheless, there is an ongoing
debate surrounding Internet regulation, weighing public safety
and security concerns against privacy, free trade, and free
speech interests.147 Arguments in favor of regulating the
Internet to protect individual interests, such as shielding
142
143
144
145
146
147
Ahle, supra note 7, at 229-30, 232.
Id. at 232. The plan also suggests running rumor control hotlines. Id.
Id. at 230.
Id. at 232.
Hiller & Cohen, supra note 110, at 26, 41, 96-98.
Id. at 25-26, 41-42, 95-98.
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minors from obscene materials and keeping personal
identification information secure, have been asserted against
arguments in favor of an unregulated Internet made by
industry and political groups.148
For the most part, the Internet enjoys the same strict
level of First Amendment protection given to newspapers,
magazines, and books.149 The Supreme Court has recognized
the value of protecting website content in the interest of free
expression.150 This recognition suggests that Internet regulation
implicates highly valued constitutional rights.151 If the proposed
legislation is challenged on First Amendment grounds, the
government should emphasize that individual rights are not
limitless.152 Under First Amendment law, freedom of speech is
limited by content because not all forms of speech are
protected.153 Political speech, or the expression of ideas, receives
the most protection, while commercial speech, such as advertising, receives less protection.154 Speech that endangers the
public is not protected by the First Amendment.155 Therefore,
speech over the Internet that creates chaos and confusion by
148
See id. at 25-26, 98.
KENNETH C. CREECH, ELECTRONIC MEDIA LAW AND REGULATION 56, 412
(5th ed., 2007) (“The Internet is treated more like the print media, with full First
Amendment protection, not like broadcast media with limited freedoms.”). Censoring
a news story is only permitted under rare circumstances. Marjorie A. Shields,
Annotation, First Amendment Protection Afforded to Web Site Operators, 30 A.L.R. 6th
299, § 2 (2008).
150
See Reno v. Am. Civil Liberties Union, 521 U.S. 844, 885 (1997) (rejecting
the argument that failure to regulate obscene materials over the Internet will drive
users away and stunt Internet growth); see also SABLEMAN, supra note 1, at 247 (noting
that the Supreme Court upheld the lower court’s decision finding the Communications
Decency Act unconstitutional in part because of how highly society values free
expression).
151
For example, in fighting cybercrime, two constitutional rights that are
implicated are the First Amendment freedom of speech and the Fourth Amendment
protection against search and seizure. HILLER & COHEN, supra note 110, at 166.
152
WING ET AL., supra note 1, at 664 (“Even speech, perhaps the most closely
protected constitutional right, can be subject to regulation or even prohibited
altogether if the government’s purpose is ‘compelling’ and the means for achieving that
purpose are ‘sufficiently tailored.’ ”).
153
HILLER & COHEN, supra note 110, at 50.
154
Id. Electronic speech, or speech that occurs on the Internet, includes the
display of words and images, website addresses, domain names, and software code. A
crucial difference between electronic speech and traditional speech is that millions of
users around the world have access to the former. Id. at 49. Regardless of this
distinction, any regulation affecting the expression of an opinion or idea is subject to
strict scrutiny and will often be found unconstitutional. Id. at 50.
155
Id. at 50 (offering the act of “shouting ‘Fire!’ in a crowded theater” as an
example of speech that “presents a clear and present danger”).
149
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misinforming the public during an emergency is not entitled to
First Amendment protection.
In response to this argument, Internet bloggers and
other free speech advocates may counter that their speech
expresses their views about the credibility of public health
threats or the effectiveness of the government’s response and is
thus entitled to the constitutional armor typically provided for
political speech.156 In addition, extreme proponents of this view
may emphasize the need to preserve individual freedoms even
if public health is compromised or negatively impacted, arguing
that to infringe such freedoms is almost never necessary or
worthwhile.157
The government should then counter that freedom of
speech, in addition to being limited by content when the speech
endangers the public, is limited by the balancing of individual
and public interests.158 Specifically, the government should
argue that it is entitled to regulate freedom of speech when
such regulation will serve a substantial state interest and such
regulation is no more restrictive than necessary to further that
interest.159 In other words, the individual right to free speech is
limited by state interests in protecting public health during an
emergency.
Individual liberties are often implicated in public health
160
law. The Supreme Court has consistently recognized that
156
See, e.g., Zieper v. Metzinger, 474 F.3d 60, 63 (2d Cir. 2007); Planned
Parenthood of Columbia/Willamette, Inc. v. Am. Coalition of Life Activists, 290 F.3d
1058, 1093 (9th Cir. 2002); see also HILLER & COHEN, supra note 110, at 50.
157
See Annas, supra note 36, at 321. Annas also cautions against treating
Americans as enemies rather than as people in need of protection: “Ignoring or
marginalizing human and constitutional rights, and treating Americans themselves as
suspects or actual enemies, is counterproductive and dangerous in itself . . . .” Id. Some
experts contend that the public has a right to know the details of a crisis regardless of
the potential panic that might ensue. Such experts claim that information should only
be withheld on specific grounds, such as in the event that an undercover official’s
identity would be revealed and such individual’s safety compromised. Josh Meyer,
Media Responsibility During a Terrorist Attack, 38 CASE W. RES. J. INT’L L. 581, 585-86
(2006-2007).
158
A regulation furthering substantial governmental interests can trump
protection of individual freedoms if limits placed on individual freedoms are no more
restricting than necessary. United States v. O’Brien, 391 U.S. 367, 377 (1968).
159
Id. (“[A] government regulation is sufficiently justified if it is within the
constitutional power of the Government; if it furthers an important or substantial
governmental interest; if the governmental interest is unrelated to the suppression of
free expression; and if the incidental restriction on alleged First Amendment freedoms
is no greater than is essential to the furtherance of that interest.”).
160
For example, the public health interest of protecting a population against
disease outbreak may outweigh an individual preference to not be vaccinated. See
Jacobson v. Massachusetts, 197 U.S. 11, 29 (1905); see also Roe v. Wade, 410 U.S. 113,
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individual rights are not absolute and must be weighed against
the need to protect the public.161 In Jacobson v. Massachusetts,
the Supreme Court explained that liberty may be limited for
the common good of public safety.162 Public health law has built
upon this compromise between individual interests and public
health,163 and the Supreme Court has continued to balance
individual interests and the common good in more recent cases.
For example, in Roe v. Wade the Court cited Jacobson for the
proposition that individual rights are limited by state interests
in protecting health.164
In the context of an emergency, it is sometimes
necessary to regulate speech that puts public safety at risk.165
Speech that contradicts authorities’ safety messages may
endanger public welfare by confusing the public or by rousing
public opposition to necessary, protective measures taken
during a public health emergency.166 Correcting false information and ensuring the dissemination of accurate information
by monitoring Internet content would further the state interest
of responding successfully to an emergency and keeping the
public safe.167 Ensuring that information on the Internet is
accurate may also improve agencies’ understanding of the crisis
and their communication with one another.168 It may help
150 (1973) (identifying the state’s interest in ensuring safety of the mother and
protecting the life of the fetus).
161
Jacobson, 197 U.S. at 29 (“[I]n every well-ordered society charged with the
duty of conserving the safety of its members the rights of the individual in respect of
his liberty may at times, under the pressure of great dangers, be subjected to . . .
restraint . . . as the safety of the general public may demand.”). For an example of a
state court following suit, see Hyatt v. Commonwealth, 72 S.W.3d 566, 574 (Ky. 2002)
(allowing publication of information on Internet sex offender registries for the purpose
of protecting the public and noting that “neither the federal nor the state constitution
prohibited the disclosure of such information when the public health or safety is
involved”). In 2000, the Kentucky General Assembly also extended its notification
requirement of sex offenders to include Internet sites that posted the photographs and
addresses of convicted sex offenders. See Hyatt, 72 S.W.3d at 570.
162
Jacobson, 197 U.S. at 29. In Jacobson, the Supreme Court upheld a statute
allowing the state board of health to require vaccination when the plaintiff failed to
establish that he was not fit for vaccination. Id. at 36-37.
163
WING ET AL., supra note 1, at 59.
164
Roe, 410 U.S. at 154-55.
165
See HILLER & COHEN, supra note 110, at 50; see also United States v.
Sutcliffe, 505 F.3d 944, 961 (9th Cir. 2007) (explaining that bodily threats defendant
made over the Internet were not protected by the First Amendment because they were
explicit and displayed defendant’s intent to harm others).
166
See, e.g., Zieper, 474 F.3d at 70 (granting qualified immunity to federal
agents who requested a website administrator to remove content that could cause a
riot).
167
See supra Part III.B.2.
168
See supra Part III.B.
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individuals understand how agencies are responding to the
emergency,169 which in turn would help establish trust in state
and federal government, a crucial factor to combating chaos
during an emergency.170 In the context of an infectious disease
outbreak, consistent information from all media sources would
educate citizens about what preventive steps to take, which
would consequently slow or even stop the spread of the
disease.171
In addition to highlighting limitations to freedom of
speech, the government could justify interference with information dissemination by arguing that while regulation of
content itself may be controversial, regulation of the way in
which it is delivered is permissible.172 Under the proposed
legislation, speech would only be curtailed within the context
of a public health emergency. Furthermore, unlike China’s
actions during the SARS outbreak, the regulations would not
completely silence websites or Internet factions.173 Instead,
interference would be minimal, with an aim to clarify or correct
false or misleading information concerning an emergency.174
Clarifying information over the Internet is much less
restrictive than banning websites from sharing information.175
169
MODEL STATE EMERGENCY HEALTH POWERS ACT § 701 (Ctr. for L. & the
Pub. Health at Georgetown and Johns Hopkins Univs., Draft, Dec. 21, 2001), available
at http://www.publichealthlaw.net/MSEHPA/MSEHPA2.pdf.; see also supra Part I.
170
Joseph Barbera et al., Large-Scale Quarantine Following Biological
Terrorism in the United States: Scientific Examination, Logistic and Legal Limits, and
Possible Consequences, 286 JAMA 2711, 2716 (2001) (“A well-informed public that
perceives health officials as knowledgeable and reliable is more likely to voluntarily
comply with actions recommended to diminish the spread of the disease. Effective
information dissemination would work to suppress rumors and anxiety and enlist
community support.”). Providing detailed guidance such as how to behave in the
aftermath of a public health emergency will ensure much-needed public confidence
during a time of heightened attention from the media. Id.
171
See, e.g., id. (seeking to “inform[] the public through multiple appropriate
channels of the nature of the infectious disease and the scope of the outbreak, provide[]
behavioral guidelines to help minimize spread of illness, and convey[] details about
how to get prompt access to effective treatment”).
172
See HILLER & COHEN, supra note 110, at 67.
173
See supra Parts II.C, III.B.1. See generally Farrell, supra note 63
(providing an overview of China’s response to the SARS outbreak and an in-depth
discussion of China’s Internet regulations).
174
See supra Part III.B.2.
175
In fact, states should encourage websites to share information about
emergencies within proper guidelines. After all, the media is frequently the best source
of information for the authorities working on the problem, and the Internet can be used
as yet another channel through which the media can disseminate information. See
supra Part III.B.2; see also Meyer, supra note 157, at 582-83.
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In addition to defending the legislation against First
Amendment challenges by arguing that public safety interests
outweigh individual interests in freedom of speech in the
context of a public health emergency, the government could
also use various political tools to ease concerns that the
legislation may infringe individual freedoms.176 For example,
the legislation could incorporate procedural due process
measures177 to gain the public’s trust by demonstrating the
government’s respect for individual rights.178 Specifically, if
states impose regulations that restrict websites’ content or
allow authorities to interfere with the content of such websites,
such regulations should also provide a process by which the
site administrator is notified of the purposes of imposed
restrictions. The regulations should provide an opportunity for
the site administrator and other interest groups to seek judicial
review of restrictions placed on the site. The legislation should
also place constraints on authorities to prevent overreaching
into the realm of individual liberties.179
2. Federalism Concerns
While states can regulate commerce occurring within
their own territories, they must refrain from interfering with
the federal government’s domain of interstate commerce.180 The
Dormant Commerce Clause bars states from regulating interstate commerce “even in the absence of preemptive federal
legislation under the commerce clause.”181 If state regulation of
the Internet significantly burdens interstate commerce, it
176
States should make use of “the democratic process, checks and balances,
clear criteria for decision-making, and judicial procedures designed to control the abuse
of power by governmental agencies.” Gostin, supra note 7, at 1161.
177
Procedural due process provides litigants with notice of the proceedings
and an opportunity to be heard. Murray’s Lessee v. Hoboken Land & Improvement Co.,
59 U.S. 272, 280 (1856) (explaining that due process includes “regular allegations,
opportunity to answer, and a trial according to some settled course of judicial
proceedings”); see also KATHLEEN M. SULLIVAN & GERALD GUNTHER, CONSTITUTIONAL
LAW 468 (15th ed. 2004) (“[C]oncepts of notice and hearing have been at the core of due
process from the beginning.”).
178
Gostin, supra note 7, at 1166.
179
Id. at 1165 (recommending that “clear criteria” be required for public
health agencies’ exercise of power).
180
United States v. Lopez, 514 U.S. 549, 558-59 (1995) (identifying three
categories that Congress can regulate when exercising its commerce power: the use of
channels of interstate commerce, the instrumentalities of interstate commerce, and
activities substantially related to interstate commerce); see also HILLER & COHEN,
supra note 110, at 12.
181
SULLIVAN & GUNTHER, supra note 177, at 111. See supra Part III.A.
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would likely be unconstitutional.182 Since almost any regulation
of the Internet would burden interstate commerce, the power to
write and enforce Internet regulations can be expected to lie
within the realm of the federal government’s exclusive jurisdiction.183 Consequently, parties to cases involving Internet
regulations often assert arguments that the Internet functions
as a tool for interstate commerce.184 Indeed, courts have found
that state laws regulating individuals’ communication over the
Internet violate the Commerce Clause of the Constitution
because they regulate citizens in several states.185 In American
Library Association v. Pataki, the Southern District Court of
New York expressed concern that allowing a New York law to
control certain Internet communication would unnecessarily
burden interstate commerce and would result in the state
controlling acts that were not occurring within its jurisdiction.186 The court opined that regulation of the Internet
should be delegated to federal control because state regulation
would subject users to inconsistent laws.187 Nevertheless, other
courts have upheld the constitutionality of state Internet
regulations, finding that the burdens they place on interstate
182
See PSINET, Inc. v. Chapman, 167 F. Supp. 2d 878, 880, 891 (W.D. Va.
2001) (statute regulating distribution of obscene materials to minors placed burden on
interstate commerce because website administrators could not “limit access to online
materials by geographic location”); Cyberspace Commc’ns, Inc. v. Engler, 142 F. Supp.
2d 827, 830-31 (E.D. Mich. 2001) (holding that a statute prohibiting dissemination of
obscene materials to minors exceeded the state’s authority because it attempted to
regulate commerce occurring beyond its borders); Am. Library Ass’n v. Pataki, 969 F.
Supp. 160, 169 (S.D.N.Y. 1997) (New York statute prohibiting Internet users from
sending explicit images to minors via e-mail unconstitutionally subjected citizens of
other states to New York law and placed a burden on interstate commerce that
outweighed the local interest in protecting minors).
183
See Am. Library Ass’n., 969 F. Supp. at 173 (“The inescapable conclusion is
that the Internet represents an instrument of interstate commerce, albeit an
innovative one; the novelty of the technology should not obscure the fact that
regulation of the Internet impels traditional Commerce Clause considerations.”). Given
that the Internet does not have any geographic boundaries, a user’s actions might
subject that individual to suit in other jurisdictions. See Sableman, supra note 1, at 240
(giving the example of an Internet advertiser, who may be subject to suit wherever the
Internet is available).
184
HILLER & COHEN, supra note 110, at 12. See Am. Library Ass’n., 969 F.
Supp. at 161 (plaintiff argued that a prohibition against distributing obscene materials
violated the Commerce Clause); Ferguson v. Friendfinders, Inc., 115 Cal. Rptr. 2d 258,
261 (Cal. Ct. App. 2002) (businesses accused of sending misleading, unsolicited e-mails
argued that state regulation of the Internet violated the Commerce Clause).
185
Am. Libraries Ass’n, 969 F. Supp. at 181 (advising that “[r]egulation [of the
Internet] by any single state can only result in chaos, because at least some states will
likely enact laws subjecting Internet users to conflicting obligations”).
186
Id. at 169.
187
Id. at 181.
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commerce are insignificant when viewed in light of the local
interests that such statutes serve.188 Therefore, if the legislation
is challenged on Dormant Commerce Clause grounds, the
government should argue that the burden placed on interstate
commerce is insignificant considering that the legislation
would only impose regulations in the context of a public health
emergency and for the purpose of protecting public welfare.
3. Policy Conflicts
Yet another objection to restricting Internet content is
that the United States has demonstrated an unwavering
commitment to the free flow of information over the Internet.189
Proposed legislation, such as the Global Internet Freedom
Act (“GIFA”)190 and the Global Online Freedom Act (“GOFA”),191
demonstrates our nation’s commitment to maintaining freedom
of speech over the Internet. The GIFA includes congressional
findings that protection of speech over the Internet is crucial to
combating repression and to preserving fundamental rights of
free societies.192 GOFA findings similarly associate speech over
the Internet with basic human rights.193 In fact, the United
States already limits interception of information communicated
over the Internet through legislation and law enforcement.194
On the other hand, the goals identified in the National
Strategy to Secure Cyberspace (“NSSC”) declare that measures
must be taken to increase the security of the information
188
See, e.g., People v. Hsu, 99 Cal. Rptr. 2d 184, 190-91 (Cal. Ct. App. 2000)
(holding that a statute furthering a state’s compelling interest in protecting minors
from obscene materials did not place a significant burden on interstate commerce and
noting that “[s]tatutes affecting public safety carry a strong presumption of validity”).
189
See, e.g., Shields, supra note 149, § 2 (“Freedom of speech and of the press
rests on the assumption that the widest possible dissemination of information from
diverse and antagonistic sources is essential to the welfare of the public.”).
190
Global Internet Freedom Act, H.R. 2216, 109th Cong. § 3 (2005), available
at http://www.govtrack.us/congress/billtext.xpd?bill=h109-2216.
191
Global Online Freedom Act of 2007, H.R. 275, 110th Cong. § 101, available
at http://www.govtrack.us/data/us/bills.text/110/h/h275.pdf.
192
Global Internet Freedom Act § 2.
193
Global Online Freedom Act of 2007 § 2 (acknowledging that free speech
over the Internet is protected in the Universal Declaration of Human Rights).
194
For example, the Electronic Communications Privacy Act limits the ability
to monitor or intercept communications using electronics and requires authorization
before anyone can intercept or access messages. HILLER & COHEN, supra note 110, at
95. In addition, law enforcement must obtain subpoenas or warrants in order to search
either stored or “real-time” electronic information. Id. at 167.
2008]
THE INTERNET AND PUBLIC HEALTH EMERGENCIES
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communicated over the Internet.195 This strategy suggests that
the United States is not completely averse to Internet
regulations that aim to improve public safety.196
CONCLUSION
Federal, state, and local public health statutes should
be revised to reflect the communication capabilities of modern
society. Unless legislation accounts for the impact of the
Internet in emergency response plans, efforts to properly
inform the public and lead an organized response to a public
health emergency will be incomplete and largely ineffective.
Emergency response statutes must provide public health
authorities with specific guidance for handling Internet
communication. In drafting or reforming emergency response
statutes, legislators should incorporate plans to combat the
Internet’s potential for spreading false or misleading information that interferes with communication to the public.
Regulations that acknowledge this threat and provide ways
to monitor misleading or incorrect online information will
help avoid confusion, control panic, and yield more efficient
responses to public health emergencies. Regulations that
establish specific means of communicating to the public and
plan for a way to keep information consistent, accurate,
reliable, and widely available over the Internet will lead to
greater success in responding to public health emergencies and
keeping the public safe.
Laurie N. Stempler†
195
THE NATIONAL STRATEGY TO SECURE CYBERSPACE x (Feb. 2003),
http://www.whitehouse.gov/pcipb/cyberspace_strategy.pdf (stating as one of the goals
for cybersecurity response to “[i]mprove and enhance public-private information
sharing involving cyber attacks, threats, and vulnerabilities”). The government has not
made much progress on the NSSC, and the need to ensure that communications over
the Internet are reliable remains. Hoar, supra note 68, at 6 (“Although the original
architecture of the Internet was appropriate for its initial purposes, it lacks the
necessary integrity for secure commerce and communication.”).
196
In fact, the United States would not be alone in embracing some form of
Internet regulation, for such regulation is widespread despite the fact that it involves
some curtailment of individual freedoms. See Farrell, supra note 63, at 577 (“Nearly
every single state, even those with an apparently strong commitment to democratic
principals and civil liberties, filters or censors access to Internet content in some way.”).
†
J.D. Candidate, Brooklyn Law School, 2009; B.A., Wellesley College, 2003.
The author thanks her family for providing unwavering support and encouragement.
The author also thanks Professor Karen Porter for her invaluable feedback and the
members of the Brooklyn Law Review for their time and tremendous effort.