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Abstract:
The most surprising thing about the spectacular collapse of Enron may be that this kind of colossal public audit failure did not happen sooner. The kind of ploys that Enron executives seem to have been involved in are not new: indeed, versions of them formed part of the original impetus for the U.S. securities laws. The public company disclosure and audit procedures created by the securities laws established a watchdog in the form of accounting firms to certify the books and financial statements of public companies to curb just these kinds of abuses. Accordingly, the accounting firms are supposed to be "independent" of the audit client and act on behalf of shareholders and the public, not the audit client's management. The problem is that, however well this system worked at its inception, it is fundamentally flawed now such that as a practical matter it is impossible for auditors to be "independent" of their audit clients.

The current audit system sets up a fundamental tension for the auditor because the parties to whom he technically owes allegiance are not the party who hires him and pays for his services. Accordingly, auditors' objectivity and independence are potentially compromised simply by accepting the audit engagement: accountants, like other service providers, rely on repeat business from their customers and they may well consider the prospects of being retained for next year's audit even as they perform this year's audit. The provision of non-audit services by auditors to their audit clients has exacerbated this fundamental tension, but I argue that a changing business environment and culture for accountants - based on the commodification of professional services generally - has taken what may have been a manageable problem and rendered it unworkable as a practical matter. Thus, even a full prohibition on non-audit services will not remedy the current issues underlying the debate over auditor independence.

This paper is primarily intended to be a resource for those interested in auditor independence issues by analyzing the development of the accounting and audit profession, the background of the Securities Laws, the current state of private and public regulation of accountants who provide statutory audits, the dramatic changes in the business environment for professional services over the past few decades, and throughout it all, the evolution of the concept of "independence." Its secondary purpose is to suggest some alternative frameworks for performance and regulation of the statutory audit which map onto the important background political spectrum of ideologies ranging from a free market deregulation approach to a protective government agency regulation model.

Enron,Aauditor independence, Accountants, Accounting, Audits, Auditor, Non-audit services, Securities regulation, Gatekeepers, Reputational intermediaries, Professional services, Commodification

Abstract:
The independence of auditors from the publicly traded clients whose books they inspect is one of the most vexing problems in the financial world today. The effects of corporate fraud unchecked by the audit process are felt far outside Wall Street in the form of devastated retirement plans and lost jobs. Numerous attempts to fix this problem have failed. This article analyzes the history of auditing to argue that the imposition of a mandatory audit system through the federal securities laws created the problem of auditor independence. The laws' drafters erred in emulating select portions of the British Companies Acts, which was itself a comprehensive set of provisions for corporate and securities laws. Accountants advocated for the system as a way to elevate their profession to the status of other learned professions such as law or medicine. But in seeking this prestigious government franchise, the profession got more than it bargained for. It traded a lucrative premium service for a commodified cost of doing business, even while incurring an impossible obligation to an unspecified "investing public." At the same time, this investing public neither hires, fires, nor controls the auditors. Instead, the audit relationship is managed by the company being audited. The resultant conflict of interest has proven to be insurmountable even after multiple reform efforts. The author argues that the problem will only be resolved by returning to its origins in the 1930s federal securities laws and restructuring the role and relationships involved in public company audits. The article also gives extensive detail about the legal and business environment for public accountants and auditors before passage of the 1930s securities laws. This environment has been inadequately documented in the current legal scholarship. Thus, the article provides a valuable historical resource for those interested in reform of the audit system.

Auditor independence, Accountants, Accounting, Audits, Arthur Andersen, Corporate Governance, Enron, Non-audit services, Securities regulation, Gatekeepers, Reputational intermediaries, Professional services, Commodification, Worldcom

Abstract:
Since the events of 9/11, much attention has been given to biometrics - automated human identification techniques based on digital measurements of physiological or behavioral characteristics such as faces, fingerprints, hands, irises, or retinas. The hope is to use biometrics to strengthen our identification procedures in passports, visas, and drivers licenses, or perhaps even to institute a "national ID card" or an "air travel card". But biometric technologies differ widely, and some are better suited for a certain task than others.

Face recognition systems being installed in airports have received the most publicity recently, but other biometrics systems have been in place before 9/11. Biometrics systems are currently used in the public sector for driver licenses, state benefits programs, prisons, and the military. In the private sector they have been installed in ATMs, day care centers, offices, and universities.

The paper describes the main types of biometric systems and their applications while discussing strengths and weaknesses of each. It argues that a clear understanding of these strengths and weaknesses is crucial to decisions whether and where to deploy a biometric system. The paper also reviews new anti-terrorism laws which specifically address biometrics such as USA PATRIOT. Policy considerations are explored regarding the technological limits of biometrics, human field use problems associated with biometrics, unsupported public expectations regarding the efficacy of biometrics, and whether an approach based solely on technology will really solve the problems we face both before and after 9/11. Finally, a different perspective is set out on the current debates over biometrics and ID card systems by focusing on both the most effective use of biometric technologies as well as a need to consider community oriented principles to temper the existing dominant libertarian rhetoric regarding a necessary trade off between security and freedom.

Biometrics, identification, national ID card, passports, visas, anti-terrorism, privacy, anonymity

Abstract:
As recent scandals have demonstrated, ensuring the independence of auditors from the publicly traded clients whose books they inspect is one of the most vexing problems in the financial world today. Arguably, the imposition of a mandatory audit system through the 1930s federal securities laws created the modern problem of auditor independence. Since then, numerous attempts to fix the problem have failed. The core issue is that the statutory audit is simply a commodified cost of doing business for issuers that imposes an impossible obligation to serve an unspecified "investing public" on the auditors. Yet, this investing public neither hires, fires, nor controls the auditors. Instead, the audit relationship is managed by the board of the company being audited. The resultant conflict of interest has proven to be insurmountable even after multiple reform efforts. The conceptual solution is to both "decommodify" the audit and place control of it squarely in the hands of shareholders. To achieve this, the author proposes a tripartite remedy: first, the SEC should retire its "statutory audit" rules under the 1934 Securities Exchange Act (while retaining the public offering audit requirements of the 1933 Securities Act) in favor of market-driven private audits; second, state corporations law or federal securities law should be altered to give an express audit right to shareholders that they would exclusively control, with expenses reimbursed by the company; and third, the licensing and regulation of CPAs must be strengthened and either harmonized or unified.

audits, auditors, auditor independence, Sarbanes-Oxley, accounting, shareholder rights, statutory audit, securities law, corporations law

Abstract:
The Supreme Court's recent decision in MedImmune v. Genentech left patent owners who license out their patents in exchange for royalty streams in a bad spot. It is an especially dire spot for patent owners such as universities who incur substantial opportunity costs when they grant an exclusive license to a licensee who pays relatively little up front, in exchange for paying a potentially sizable royalty stream if or when products based on the patents are successfully commercialized and sold in the marketplace. Because the MedImmune decision allows such licensees to bring declaratory judgment actions to invalidate the patent or establish the licensee's products as non-infringing with no particular trigger and without repudiating the licensee (and thus avoiding the possibility of a patent owner suit for infringement), it is expected that licensees will take a license just to buy time to develop a product with relative freedom to operate and then attempt to invalidate the patent once a product looks like it will become profitable and royalties would have to be paid. While some have suggested that the solution to this is simply for patent owners to demand full payment of the net present value of the royalty stream up front, this will simply not be possible for many start up and mid sized companies who license technologies from universities and other routine licensors. The author instead proposes a method for licensors to take some combination of stock and stock options in the licensee - that essentially the licensee can "afford" to pay in the near term even while short on cash and revenues - while still allowing the licensor to participate in the potential upside of a successful commercialization effort of the licensor's patents by the licensee, but in a manner that is fully accrued to the licensor upon the execution of the license.

licensing, MedImmune, Genentech, running royalties, tech transfer, patents, universities, start-ups, spin-offs

Abstract:
While much of the commentary on obstacles to stem cell research focuses on patents, material transfer agreements (MTAs) governed by state contract and property law present equal if not greater challenges to researchers. This Article argues that the life sciences in general, and the stem cell field in particular, are increasingly employing a lease-license model - similar to that used by the software industry - such that end users only license and/or lease both patent rights and the biological materials themselves. The absence of a sale allows owners of patents and physical biological materials to impose greater restrictions on end users than the owners could impose in the context of even a conditioned sale. At the same time, owners can often weave together their intellectual property rights and physical property rights in contracts such as MTAs to allow each type of property right to reinforce the other. However, the control afforded by such a model can be used for both positive as well as negative purposes. The Article uses the case of the control of stem cell patents and stem cell lines by Wisconsin Alumni Research Foundation (WARF) and its affiliate, the WiCell Research Institute, to illuminate this new trend in the life sciences. While the current stem cell research landscape is dominated by WARF's position, the Article offers ways that the California Institute for Regenerative Medicine (CIRM) and other public entities may use de facto research use exemptions to patent infringement to evade some of the reach of WARF's patents. The Article concludes by recommending that CIRM, and other stem cell research facilitators, initiate a comprehensive title chain plan that would govern biological materials from their original collection from donors through the materials' transfer first to non-commercial research entities and ultimately to commercialization firms. In this way, CIRM could play a role in encouraging positive uses of the lease-license model that could reduce the confusion and conflict currently surrounding the ownership, control, and use of biological materials in the life sciences.

material transfer agreements, MTA, patents, life sciences, stem cells, biological materials, tissue donors, licensing, leasing, commercialization, technology distribution, property, intellectual property

Abstract:
The 2004 election year provided many focus points for those interested in stem cell research and its potential outcomes. California's Proposition 71, in particular, has arguably led the way to a new era of state and local public funding of stem cell research. This article does not address the conventional ethics debates over stem cell research, but rather argues that an even more contentious battle over ownership of the revolutionary medical breakthroughs that may emerge from this research is looming on the horizon. The more we achieve the vaunted promises of stem cell research, the more a crisis will be precipitated over the ownership of its results. Further, because the research will most likely proceed under some combination of federal, state, local, non-profit and private for-profit funding, the ownership rights will be anything but clear. At the same time, the public's claim to reasonable access to any crucial life-saving medical breakthroughs that do arise from stem cell research may well force federal, state or local officials to override the usual political opposition in the U.S. to compulsory licenses.

The article proposes that state and local funding structures be set up to include variants of the federal Bayh-Dole IP rights allocation system for federally funded inventions, with explicit inter-governmental coordinating mechanisms. In addition, it suggests that de facto compulsory license powers already available to federal and state governments be exercised in very limited circumstances. Because these powers are in the form of governmental immunities they avoid one of the most contentious aspects of conventional compulsory license systems - the involuntary licensing of IP from its private owner to a competitor who can then use it in competition with that owner. The article concludes that the accepted standard for one of these powers - a government use license may be taken only to satisfy a need of "vital importance" to the government - is exactly the right test and should be adopted as the measure of when the extraordinary step of a compulsory license for government provision of a stem cell therapy should be taken.

Stem cells, science research, research funding, technology investment, intellectual property, IP

Abstract:
This Chapter considers the range of research use exceptions in use around the world in major technology oriented countries. While most of the countries considered have fairly robust R&D and regulatory review research use exceptions, the U.S. has no commercial R&D exception, an extremely limited de jure common law exception for dilettante experiments, and yet arguably the broadest regulatory review exception. At the same time, researchers employed by the federal or state governments, or funded by the federal government, can in many cases enjoy the protection of certain de facto research use exceptions. While some of these have analogues elsewhere - e.g., the 1498 government use clause and the Crown Right in the U.K. - these de facto exceptions may have more potential in the U.S. because of the extraordinary amount of research still conducted by or on behalf of the government. Further, it is not actually clear whether stronger or weaker research use exceptions are better for spurring innovation. The Chapter outlines the policy considerations raised by research use exceptions by focusing on whether the exceptions fairly enable research or instead provide a means for imitators to engage in unfair competition with patent owners and their assignees/licensees.

patents, research exceptions, Hatch-Waxman, Bayh-Dole, Bolar Exemptions

Abstract:
Over the past few years, Congress, the Supreme Court, academics, and the public in the United States have become increasingly concerned with the scope of patentable subject matter. Various critiques based on notions of patent thickets, anti-commons, and upstream patents in particular argue that research is being hindered by excessive patenting of scientific and technological innovation. While empirical evidence supporting these claims is scant - indeed some recent research rebuts the claims - the concern that too much scientific innovation is being patented still resonates across society. This paper argues that a re-examination of the scope of the Progress (or IP) Clause in the U.S. Constitution with the aid of research and insights from the interdisciplinary field of history and philosophy of science opens the door for a new approach to patentable subject matter.

patents, IP, patentable subject matter, progress clause, IP clause, history of science

Abstract:
While the broad outline of the rationale for the U.S. Bayh-Dole Act is generally well known, the details of the Act's predecessors are shrouded in myth. Policy debates over both these early systems and Bayh Dole are of great import to policymakers in India as they contemplate similar legislation. The author argues that the more nuanced ownership policy of the Kennedy Administration in the 1960s may be more appropriate than the bright line ownership policy embedded in Bayh Dole.

Bayh-Dole, tech transfer, government funded research, patents, IP, India, U.S.

Abstract:
The traditional law school appellate case method is not well-suited to teaching students either the substance and process of counseling entrepreneurial clients or helping such clients create IP strategies that effectively advance their business vision. This Article describes the author's creation of new courses and clinics to advance teaching IP in the emerging field of entrepreneurship and innovation law.

IP, patents, copyright, trademark, trade secrets, entrepreneurship, legal counseling, transactional law, business law, curriculum reform, clinics, Carnegie Report, capstone courses, negotiation, drafting

Abstract:
Intellectual property (IP) systems grant exclusive rights to individuals for their creations. Yet inventors and authors may not be able to commercialize their creations by themselves. Firms may not be in a position to commercialize every invention their employees create. And many creations arise in collaborative environments in which multiple creators work across multiple organizations. IP transactions enable the orderly transfer of rights to make commercialization possible. This Chapter considers both the fundamental issues that appear in all IP transactions as well as special issues arising in complex transactions such as joint ventures. Further, despite concerns over patent thickets and "anti-commons", IP transactions abound. Many technology firms find themselves in a web of “in-licenses” (importing IP rights from others) and “out-licenses” (exporting IP rights to others). A central theme of this Chapter is that the heart of the commercialization enterprise is the value chain - the steps required to take creative inspiration from a good idea to a finished product available in the market. As value chains have grown longer and more complex, creative IP transactional attorneys and their clients have forged new forms of IP transactions. Entrepreneurial firms have created IP exchanges and markets in which speculators or aggregators buy up IP to enforce or resell. Overall, the Chapter argues that IP and private ordering are essential to continued development of globalized value chains that deliver desirable and affordable products to consumers. Rather than being impediments to innovation as some commentators have alleged, or simply a means for incentivizing the different players to perform their roles in the value chain, IP rights are, in fact, the mechanism by which the orderly transfer of information and proprietary rights occur.

IP, intellectual property, licensing, tech transfer, commercialization, joint ventures, strategic alliances, globalization, value chains, open innovation