Category: Essays

Edwards v. M’Connel[i] is cited by a Tennessee state law treatise on res judicata, the legal principle stating that a prior court’s decision is conclusive on another if it was “between the same parties or their privies.”[ii] Edwards’ importance to legal studies and slavery studies is far-reaching. Edwards is an example of how judges reinforced slavery by presenting their decisions as if they were based on impartial legal principles. At best, judges were using legal formalism to prop up the system of slavery. At worst, they were ignoring reason and evidence to perpetuate slavery. When looking at the Edwards decision, one of two possibilities must be true: the judge ignored evidence proving a young teenager’s freedom, or he was so formalistic about the procedural requirements of the case that he enslaved a free person.

In Edwards, the plaintiff and slave owner, Edwards, brought suit to regain possession of Seac, a teenager he claimed to own. Seac’s defense was that he was free, so he could not belong to Edwards. Seac’s mother, Clarissa, had previously won a case for her freedom against Edwards. The lower court instructed the jury that “Clarissa’s freedom was conclusive evidence to prove that her child, born after the period of her freedom commenced, was free . . . .” The jury found for Seac and pronounced him free. Edwards appealed, arguing that Clarissa’s case was not conclusive on Seac’s claim because Seac was not privy to Clarissa’s claim.

On appeal, Justice Overton[iii] relied on the intersection of res judicata[iv] and slavery laws to create a rule: if a child was born after his or her mother became free, then the child would be privy to the mother’s case finding her free. The mother’s freedom would be conclusive evidence that the child was born free. If Seac was born after Clarissa became free, then Seac would be privy to Clarissa’s case. Clarissa’s case would be conclusive on Seac’s case, and the lower court’s jury instructions would have been correct. Overton found that Clarissa’s case did not indicate when she became free, so it could not be proven that Seac was born after Clarissa gained freedom. Therefore, Seac was not privy to Clarissa’s case, and her case was not conclusive on his claim to freedom. Because of this, Overton reversed the lower court’s finding of Seac’s freedom.

The gaping flaw in Overton’s opinion is that Clarissa’s case did provide proof that she was free prior to Seac’s birth. In Clarissa’s case, she alleged that she was born free. If the court did not find her to be free from birth, she alleged another claim for her freedom. She argued that if she were ever a slave, then she would have been emancipated when the French issued a decree in 1794. The decree freed all slaves on the Island of Guadalupe, where she was living at the time.[v] It is not clear which argument was relied on by the lower court in Clarissa’s case, but it is clear that the court relied on one of these two propositions to find her free. Thus, the court found that Clarissa was either free from birth or from her emancipation in 1794. Seac was born in 1796, so he was born free regardless of which proposition was relied upon in Clarissa’s case. It seems Overton ignored this evidence. He stated that Clarissa’s record did not indicate the date she became free. Overton used a discussion of privity of parties and the role of the judge and the jury to avoid what the evidence revealed: that Seac was free.[vi]

It is possible that Overton was not simply ignoring the evidence presented. He might have been asserting that there was a procedural error in the way Clarissa’s case was decided or relied upon by Seac. The procedural error was preventing Clarissa’s case from indicating a time of freedom and supporting Seac’s defense. Perhaps, Seac’s attorney did not properly plead Clarissa’s case was conclusive on Seac’s case. Another possibility is that the court in Clarissa’s case did not clearly pronounce the time of her freedom. Overton noted that for a mother’s case to be conclusive, it must have been relied upon in the pleadings. Overton discussed a hypothetical to further elucidate his point. He explained that if Seac had been born after the suit brought by Clarissa, then he could have relied on the principle of estoppel and been considered privy to Clarissa’s case. It is possible that this was Overton’s poorly developed way of communicating that there was a procedural error preventing Seac from relying on Clarissa’s case.

If a procedural error was the crux of Overton’s reasoning, then Edwards is an example of the extreme injustice legal formalism can produce. Overton would have been relying on the lower court’s error in drafting the opinion in Clarissa’s case or Seac’s attorney’s mistake in the pleadings to sidestep justice and enslave a free teenager. Seac’s attorney’s mistake or the lower court’s mistake would have potentially enslaved[vii] a person despite overwhelming evidence of their freedom.

Overton’s decision hinged on the reasoning that Clarissa’s record did not show when she became free. This omission meant that there was no privity between Seac and Clarissa. Such reasoning is confusing because the evidence did indicate a time of freedom for Clarissa. It also proved that Seac was born after Clarissa became free. Yet, Overton refused to acknowledge this in his opinion. While there are many questions left open, Edwards provides legal scholars with a stark picture of how legal analysis and purportedly unbiased reasoning can be used to produce unjust outcomes. Overton was either hiding behind a complicated legal requirement that was, in fact, met, or he was strictly adhering to legal formalism and procedural requirements to circumvent justice. Either way, Seac suffered tremendously.

 

[i] Edwards v. M’Connel, 3 Tenn. 304 (1813).

[ii] 22 Tenn. Juris. Res Judicata § 11 (2017).

[iii] Overton was the Tennessee Supreme Court Justice who wrote this opinion. It should be noted that I am distantly related to Overton.

[iv] The legal principle of res judicata might not have been fully developed at this time. More research would be necessary to determine where the principle was in its development in 1813.

[v] Clarissa offered several pieces of evidence that she was living in Guadalupe at the time of the decree. She presented her fluency in French, her seamstress skills, and letters written by her husband from twenty years past. This was a considerable amount of evidence for a time when there were no utility bills to prove your residence. Yet, the court dismissed this evidence by saying, “But there was no proof that Clarissa was ever on the Island, except what might be inferred from . . .” the above evidence presented. It is unclear from the opinion if Overton was questioning Clarissa’s freedom, but the above excerpt makes it seem possible.

[vi] If Overton reversed the lower court due to a lack of evidence of Clarissa’s time of freedom, then this case is important to slavery studies for an additional reason. It is verification of how difficult it was to prove you were a free person of color in Tennessee in the early 1800s. The presumption of enslavement was so strong against anyone who appeared to the court more black than white that even reason, evidence, and a prior court’s findings were not enough to overcome it. Seac had an overwhelming amount of proof for the time. He provided a writing where Edwards released Seac because he was free. He also presented a 1794 French decree declaring all slaves on the Island of Guadalupe free. He successfully proved his age of sixteen making his birthdate in 1796. Finally, he provided the record from Clarissa’s case finding her free. Seac relied on Clarissa’s case to prove that he had lived in Guadalupe and that he was born to a free woman.

[vii] Seac’s case might not have been completely lost. Overton reversed the case based on an error in the jury instructions. It is possible that the case was retried with jury instructions of which the Tennessee Supreme Court would approve. However, even if Seac received a new trial, he would have faced more challenges like paying an attorney and convincing a new jury.

Use of condos for hosting Airbnbs has become increasingly popular, not only in places like the Bay Area and Southern California, but also in Midwestern cities like Cincinnati, Ohio. As of October 2017, the Cincinnati Business Journal estimates that there are at least 580 active Airbnb hosts in the metro area.[i] Several of the most popular units are located in Over-the-Rhine (OTR). In little over a decade, OTR has transformed from a neighborhood described by Politico as one of the most dangerous in the country, to a cultural hub, where one can find top dining and shopping.[ii] However, there are not any hotels in OTR for potential visitors. This has created demand for Airbnbs, and it has piqued the interest of owners and buyers of condominium units in OTR. However, neither Ohio law nor the Cincinnati Municipal Code have addressed Airbnbs. Many of the Airbnbs in OTR are condos or townhomes, and therefore are subject to homeowners’ associations, which restrict the leasing of units. As a result, there is currently ambiguity surrounding the legality of Airbnbs in Cincinnati, particularly when the unit is a condo.

The chief legal concern is that “hosting” an Airbnb establishes a landlord-tenant relationship, resulting in short-term leases. Under the Ohio Revised Code and Cincinnati Municipal Code, Airbnbs do not establish a landlord-tenant relationship; thus, accordingly, the use of a unit as an Airbnb would not result in the formation of a lease. However, Airbnbs do not fit neatly into either the Ohio or Cincinnati Codes, nor is there any jurisprudence focusing on Airbnbs, or similar services, in Ohio. This ambiguity could result in future regulatory and licensing issues for Airbnb hosts.

Developers have treated Airbnbs like they are leases that establish landlord-tenant relationships. The principal concern over the use of condos as Airbnbs or other short-term rentals is that a landlord-tenant relationship forms. Formation of a landlord-tenant relationship creates issues in obtaining financing from lenders and allows for potentially abusive leases. First, lenders are unwilling to provide financing for sales in buildings that are considered at-risk, which results when at least 25% of the units are leased. If Airbnbs are considered leases that create a landlord-tenant relationship, then future buyers in the development will be unable to obtain financing if more than 25% of the units are leased because the building will be considered at-risk. Second, condominium ownership documents typically contain provisions that prohibit leasing units for terms of less than six months in order to prevent predatory, month-to-month leases. If Airbnbs create a landlord-tenant relationship, in order to allow units to be rented as Airbnbs, these provisions must be eliminated. This would effectively open the door to predatory leases in OTR that urban redevelopers, like the Cincinnati City Center Development Corporation (3CDC), have battled extremely hard to eradicate. Moreover, as has been the case in California, hosts must go through formal, lengthy eviction procedures to remove Airbnb guests that refuse to leave at the conclusion of their scheduled stay. As a result, developers and condominium associations have sought to eliminate use of units as Airbnbs and other short-term rentals.

Airbnbs do not establish a landlord-tenant relationship in Ohio. Ohio Revised Code § 5321.01(a) provides that a “tenant” is “a person entitled under a rental to the use and occupancy of residential premises to the exclusion of others,” but Ohio Revised Code § 5321.01(c)(3) excludes “[t]ourist homes, hotels, motels, [ ] and other similar facilities where circumstances indicate a transient occupancy” from inclusion as residential premises. Airbnbs can be classified as either tourist homes or as a facility where circumstances indicate transient occupancy. The Code does not define “tourist home,” meaning its plain meaning definition is applied. Webster’s New World College Dictionary, 4th Edition, defines tourist home as “a private home in which bedrooms are rented to tourists or travelers.” Clearly, such a classification applies to Airbnbs where a room in a condo is rented to a traveler, but it is unclear if this comprises whole unit Airbnb rentals. The Code also does not define “transient occupancy,” meaning the plain meaning definition should be applied. Merriam-Webster defines “transient” as “passing through or by a place with only a brief stay,” and defines “occupancy” as “the fact or condition of holding, possessing, or residing in or on something.” Taken together, the plain meaning of “transient occupancy” is residence for a short period with no limitation on the type of residence being occupied. This clearly applies to short-term Airbnb rentals, both those of a single room or an entire unit, meaning that even full unit Airbnbs do not, for the purposes of the Ohio statutory law, establish a landlord-tenant relationship.

Airbnbs and other short-term rentals do not establish a landlord-tenant relationship under the Cincinnati Municipal Code either. § 871-3(e) of the Municipal Code defines a “tenant” as “an occupant of a rental unit other than an owner or operator.” § 871-3(b) defines “rental unit” as “the whole or part of a building including common areas used by a person for living dining, cooking, sleeping, and sanitation purposes owned or controlled by another, under an agreement for the periodic payment of rent.” (emphasis added). Based on these definitions, establishment of a landlord-tenant relationship requires periodic payment of rent. There are not periodic payments when units are rented through Airbnb because Airbnb requires full payment prior to the guest’s stay. Because there are not periodic payments, the statutory definition of “tenant” is not met, meaning Airbnb rentals do not establish a landlord-tenant relationship under the Cincinnati Municipal Code.

Beyond not establishing a landlord-tenant relationship, the status of Airbnbs under the Cincinnati Municipal Code is unclear. Typically, Airbnbs do not meet the statutory definition of Hotels, Bed and Breakfast Homes, Bed and Breakfast Inns, or Rooming Houses. Unless a host rents at least six units in the same building, the statutory definition of a Hotel, under Municipal Code § 1401-01-H5, is not satisfied. For those larger hosts that do satisfy the definition, they need to charge and pay the Transient Occupancy Tax, under § 312 of the Municipal Code, or risk 10% late fee or 25% penalty for failure to pay as a result of fraud.

For Airbnbs hosts that rent out a room or rooms in a unit, while occupying the remainder of the unit themselves, Bed and Breakfast Home may be applicable.  Municipal Code § 1401-01-B3 of the Municipal Code requires that: 1) the host occupies the unit; 2) there are fewer than three guest rooms; 3) breakfast accommodations are provided; 4) the stay is for no more than four consecutive weeks; and 5) kitchen facilities are not provided for guests. Owner-occupied Airbnbs may fall under this definition, if they provide breakfast to their guests and do not provide guests with access to a kitchen. If a host meets the requirements of a Bed and Breakfast Home, then the host must obtain a license from the city, under § 855-5, which provides that if a host operates without a license, a fine of $500 per day of operation without a license is levied.

Airbnbs that rent multiple rooms in the same unit may be Rooming Houses. § 855-1-R1 of the Municipal Code requires that a Rooming House offer for rent occupancy for at least three roomers or at least three rooms for rent. However, it excludes “dwelling units” and any dwelling in which one or two rooms are rented out by the occupants of the units. § 1401-06-D16 defines dwelling unit as “one or more rooms with a single kitchen designed for occupancy by one family for living and sleeping purposes.” The exclusion of dwelling units seems to exclude Airbnbs that offer an entire unit for rent, even if it sleeps three or more, because such a unit is a dwelling unit. The second exclusion prohibits circumstances where the host occupies the unit and then rents out one or two rooms, which seems to exclude host-occupied Airbnbs. Seemingly, the only Airbnbs that would qualify as Rooming Houses are non-host occupied units, which separately rent out at least three rooms with multiple kitchens within the unit to different guests simultaneously. Those units that do qualify must also obtain a license from the city pursuant to § 855-5.

Airbnbs that the host does not simultaneously occupy may be Bed and Breakfast Inns. A Bed and Breakfast Inn, pursuant to § 1401­-01-B4 of the Municipal Code, provides: 1) lodging accommodation; 2) meal accommodations; 3) to no more than five guest rooms; 4) for no more than four weeks of consecutive stay; and 5) does not provide kitchen facilities to guests. There is no lower limit on the number of guest rooms provided, so the rental of an entire single unit is acceptable. But, it seems unlikely that few, if any Airbnbs, will satisfy the other requirements because this requires the host of the Airbnb to prepare food in the unit, while simultaneously not providing kitchen facilities. For any unit, that does satisfy the requirements, licensing with the city pursuant to § 855-5 is required.

The vast majority of Airbnbs, particularly those in OTR, do not fit any of the categories in the Municipal Code. This lack of legislation or regulation means that Airbnb hosts do not need to pay the Municipal Occupancy Tax required of hotels, obtain a license under § 855-5 or be subject to the substantial penalties for failure to pay the Occupancy Tax. However, the lack of a clear category for Airbnbs presents potential issues in terms of zoning, business regulation and taxation. Bed and Breakfasts, both Inns and Homes, are permitted to operate in Commercial Districts and in Residential Multi-Family Districts, the most common types of zoning in OTR. Without regulation, it is unclear how Airbnbs will be treated due to the absence of a definite legal category.

Airbnbs do not create a landlord-tenant relationship under the laws of Ohio or the Cincinnati Municipal Code. Therefore, current language in condo ownership documents as to limitations on leasing do not affect the use of units as Airbnbs, which means that permitting or prohibiting them in developments will likely depend on express provisions in ownership documents. Outside of standard critiques leveled against Airbnbs as reasons for their prohibition in developments, Airbnbs do not have a clear legal status under the Cincinnati Municipal Code. Such legal ambiguity could result in future liability to hosts.

[i] Hannah McCartney, These are Cincinnati’s most-wished-for Airbnb rentals, Cin. Bus. Courier (Oct. 26, 2017, 12:00 PM), https://www.bizjournals.com/cincinnati/news/2017/10/26/these-are-cincinnatis-most-wished-for-airbnb.html (last visited  Feb. 15, 2018).

[ii] Colin Woodward, How Cincinnati Salvaged the Nation’s Most Dangerous Neighborhood, Politico (June 16, 2016), https://www.politico.com/magazine/story/2016/06/what-works-cincinnati-ohio-over-the-rhine-crime-neighborhood-turnaround-city-urban-revitalization-213969 (last visited February 15, 2018).

Despite 94% of American consumers who say that they believe doing business within their local communities is important, 2017 ended with a staggering number of over 6,700 brick and mortar stores closing.^[i] Famous brands such as Walgreens, Nike, and Footlocker have decided to eliminate physical locations and shift their sales to the online market. With online retailers such as Amazon providing e-commerce platforms for low cost products to be delivered—sometimes within a day—undifferentiated retail will not survive.^[ii] The Trump Administration’s new tax plan has touted positive responses from businesses vowing to bring back their branches from abroad. However, while it may bring back businesses that require physical locations, the reality is that the economy is heading towards a service-based, technology-driven economy.

Shift from Local to Global

Many local business owners are seeing a shift in the needs of customers who visit their brick-and-mortar locations. Generally, customers go into those stores to utilize the owner’s expertise, learn, and ask questions before making their purchases online. David Moore, owner of a brick-and-mortar store and online blog called PawsStop.com, sells specialty dog food. Having experienced the competition of online retailers first hand, he firmly believes that “[I]f you don’t deliver service and expertise, then your customers are going to buy from the low bidder.”^[iii] Ultimately, store owners will need to look to other methods to convince customers to purchase locally at a higher price or risk having to move out.

The evolution of the more sophisticated consumer looking for lower cost alternatives presents a revolution of opportunities and has created a hybrid model of retailers. While a record number of retailers have decided to downsize or altogether cease their physical locations, other retailers have successfully managed to sell both online and in brick-and-mortar stores. Warby Parker is an e-commerce company that has stepped into the traditional retail arena. Warby Parker is an eyewear brand that provides consumers with the convenience of online shopping while offering in-store pick-up or returns. Shopping centers are also changing their strategy to add a social and entertainment value rather than just being a center to purchase clothing or other retail items. Landlords are looking to redevelop large spaces that have been vacated into smaller shops, restaurants, entertainment, and other alternatives, such as indoor golf. “People go out because they want experiences, and restaurants and entertainment deliver that. So that has become the real focus for new development,” says Steven K. Graul, CCIM, president and principal broker at Innovative Concept Associates, a restaurant real estate advisory firm based in Reston, Va.^[iv] While the concept of shopping malls is rapidly declining, new trends are filling in for the empty spaces driven heavily by a tech-conscious society.

Opportunity With Market Restructuring

Although some businesses are being driven out, there are new opportunities being created in new markets with the ongoing explosion of technology advancements. Entrepreneurial activity is at an all-time high. Clocking into the traditional workplace is easily replaced with advancements in technology that support a flexible work environment. “Supported by ubiquitous cloud services, accessible, low-cost open source software, big data analytics capability, and professionals hungry for new opportunities beyond the 9-to-5 corporate walls.”^[v] Technology based startups are on the rise and have grown 47% in the last decade.^[vi] While fears that our economy may suffer due to traditional and small businesses being forced out by faster, better, and more efficient technology, there may be room for growth through the implementation of technology instead. While the media focuses heavily on technology giants such as Google, Apple, and Microsoft, the reality is that startups are contributing to a large majority of jobs,[vii] whereas Fortune 500 companies employ only about 17% of the total workforce. In fact, technology and innovation-driven startups are proof that there is room for new entrants, and these ventures offer “better paying, longer lasting jobs than any other startups.”^[ix]  Ultimately,  these startups are successful because they provide a service or product for a population that is interested in technology. The U.S. is a “DIY economy,” and these startups are successful because they supply services that are high in demand. The population has access to information at their fingertips and is interested in partaking in the new way things can be done in turn driving this increased demand.

Apple just announced that it is on the search for a second campus as part of their five-year and $30 billion U.S. investment plan.^[x] Shortly after President Trump’s tax plan was signed into law, Apple announced their tax payment to be $38 billion on overseas cash. The successful tech company, among several others, has decided to bring its business back to the U.S. after growing pressure for previously outsourcing work abroad. Under the new spending plan, Apple will be hiring 20,000 employees and will spend over $350 million over the next five years. Despite being known for their gadgets, Apple is making an effort to push their subscription services, rather than just products. Moving away from the concept of selling a product and closer towards giving customers an experience to be a part of the new tech movement, sales of computers are now a secondary focus.

Impacts of the Most Connected Generation

South Korea has been ranked first at having the most technologically savvy generation.[xi] 99% of the population uses broadband connections with a small digital divide.^[xii] South Korea is working on deploying 5G technology ahead of the 2018 Olympics and expanding their “Internet of Things,” the concept of expanding the use of technology across a variety of sectors. In many ways, South Korea is a peek into the future of what other nations will look like when they catch up technologically. South Korea offers entirely online grocery stores, mainly online intermediaries, and an aggressive individualized marketing technique for their demographics making shopping easier.[xiii] South Korea continues to see huge growth across all of commerce and ranks only behind the U.K. on the Digital Consumer Index, which measures the interplay of digital connectivity and digital commerce potential.^[xiv] More importantly, we should explore the positive benefits this new generation will have because of wide access to technology.

Developing Technology Benefits

Apple recently released wireless headphones reducing the time wasted due to constantly untangling wires. Technological advancements, such as the newest gadgets or accessories like these new headphones, are oftentimes viewed as a non-necessity. However, the continued innovation of technology has a wider impact globally than the ability to buy expensive accessories. Technology is a never-ending resource that can be used for the education of populations that may not have the monetary resources to access a school, physical books, or a teacher. The internet gives us an opportunity to educate ourselves from the comfort of where we are in the world. CoderDojo, a nonprofit organization started in 2011, runs a free coding club and regular coding sessions across the world.[xv] The sessions are all run by volunteers wanting to give young people the opportunity to learn how to code. This is just one example of the impact technology has on the world.

Healthcare is another area that has the biggest potential for technology to be of benefit to help diagnose and treat illnesses and injuries. The use of computers in healthcare in the 1950s led to the invention of the first CT scanner. Biomedical engineers alongside with doctors have significantly improved the mobility and creation of prosthetic limbs for patients who previously had difficulty using the uncomfortable and largely inconvenient prosthetics. These are just a few of the ways that technology impacts everyone.

The creation of technology can spark the innovation of a program or gadget that can change the entire way the world functions, such as the invention of the iPhone. While the widespread impact can greatly disrupt the current economic market, as we are seeing with the decline of shopping centers, this is the price we have always paid for progress in our inventions. The workforce has shifted with the ebbs and flows of economic demands towards different industries. While the future and direction of technology is extremely unpredictable, the direction of global participation and the desire for inclusion in the next “big thing” will be a key feature in how we progress going forward.

^[i] Keshia Hannam, A Record Amount of brick and mortar Stores Will Close in 2017, Fortune Magazine (Oct. 26, 2017), http://fortune.com/2017/10/26/a-record-amount-of-brick-and-mortar-stores-will-close-in-2017/.

^[ii] Id.

^[iii] Id.

^[iv] Beth Mattson-Teig, Glimmers of Hope In the throes of an evolution, retail is forging new paths., Commercial Investment Real Estate (May, Jun. 2017), https://www.ccim.com/cire-magazine/articles/2017/05/glimmers–of-hope/?gmSsoPc=1.

^[v] Joe McKendrick, Technology Is Driving Entrepreneurial Growth, And We’re Not Just Talking About Silicon Valley, Forbes.com (Nov. 28, 2017, 11:43AM), https://www.forbes.com/sites/joemckendrick/2017/11/28/technology-is-driving-entrepreneurial-growth-and-were-not-just-talking-about-silicon-valley/#784825d27cd0.

^[vi] Id.

[vii] Id.

^[viii] Id.

^[ix] Id.

^[x] Stephen Nellis, Apple plans new U.S. campus, to pay $38 billion in foreign cash taxes, Yahoo.com (Jan. 17, 2018, 12:16PM), https://finance.yahoo.com/news/apple-pay-38-billion-repatriation-181530477.html.

[xi] Gabriel Dominguez & Srinivas Mazumdaru, Why innovation is king in South Korea, DW.com (Oct. 2, 2016), http://www.dw.com/en/why-innovation-is-king-in-south-korea/a-19038625. “[T]he 2016 Bloomberg Innovation Index ranked the country as having the world’s most innovative economy, ahead of Germany, Sweden, Japan and Switzerland.” Id.  

^[xii] Michelle Evans, Meet The World’s Most Connected Population And Future Home For Digital Commerce Growth, Forbes.com (Dec. 14, 2016, 12:01PM), https://www.forbes.com/sites/michelleevans1/2016/12/14/meet-the-worlds-most-connected-population-and-future-home-for-digital-commerce-growth/#7258c82bcef1.

[xiii] Id.

^[xiv] Id.

[xv] CoderDojo.com (last visited February 15, 2018).

The peer-to-peer ridesharing industry has been booming since Uber first went live in San Francisco in 2010. Presently, Uber has spread to more than 700 cities worldwide,[i] and is estimated to have more than two million active drivers.[ii] The ease and popularity of Uber’s services have inspired a remarkable amount of competition: in the United States, companies like Lyft, Wingz, Summon, and Via have entered the peer-to-peer ridesharing market; internationally, Didi Chuxing, Haxi, Grab, and Taxify have been competing with Uber.

From the start, Uber has been fighting an uphill battle. Traditional cab drivers have staged numerous protests around the world, arguing that Uber was engaging in unfair competition by bypassing local licensing and safety laws, and offering cheaper services to customers by providing fewer employee benefits to its drivers compared to traditional cab drivers.[iii] More recently, in January 2017, Uber faced public backlash for turning off surge pricing during the New York taxi strike in response to Trump’s executive order banning refugees from entering the United States.[iv]

But not all of the problems Uber must deal with are coming from external sources. Indeed, one of the newest issues facing Uber comes from its own drivers, many of whom are upset that the company classifies them as independent contractors instead of employees.[v] Uber drivers want the employee classification for a number of reasons. Such a status would entitle them to numerous benefits, ranging from pension, unemployment compensation, vacation time, minimum wage, health insurance, and overtime pay.[vi] In addition, the employee status would improve their collective bargaining power,[vii] and shift liability for any negligent acts occurring during and within the scope of their employment to Uber.[viii]

Users of Uber’s ridesharing app may not think that drivers have any basis in claiming an employee status: Uber drivers use their own cars rather than vehicles supplied by the company; they choose their own hours and how long they work each day; they can quit whenever they want to; and many hold other jobs simultaneously. Furthermore, Uber’s contracts refer to their drivers as “partners” rather than employees, and call the company a “platform” rather than a transportation company.[ix]

Under common law, however, it is not the company’s contracts or the public’s perceptions that determine whether a worker is classified as an employee or an independent contractor. Instead, the common law control test would find that Uber drivers are “employees” if Uber has the power and right to control what the drivers do, and how they do their job.[x]

In addition to the common law control test, courts often consider a variety of factors when determining whether a worker has earned an “employee” status. While the precise test and factors vary depending on the jurisdiction, in California, where Uber originated, courts look at the following eight factors:

• whether the worker performing services is engaged in a distinct occupation or business;
• whether the work is usually done under the direction of the employer without supervision;
• the skill required in the particular occupation;
• whether the employer or the worker supplies the instrumentalities, tools, and the place of work for the worker;
• the length of time for which the services are to be performed;
• the method of payment;
• whether or not the work is a part of the regular business of the employer; and
• whether or not the parties believe they are creating an employer-employee relationship.[xi]

At first glance, Uber’s drivers appear to be independent contractors. They are afforded incredible flexibility and autonomy in terms of when they work, how long to work, and when they can take breaks. They drive their own cars and pay for their own gas. They can keep additional jobs, or even work for competing ridesharing companies simultaneously. Furthermore, the drivers are paid by the customers, not by Uber. Indeed, Uber’s only role is to collect the payments from the customers and distribute the payments to the drivers after taking its cut.

A closer examination, however, reveals that Uber does have some meaningful control over several aspects of their drivers’ jobs. First, although drivers are allowed to use their own cars, Uber has strict requirements on the types of cars that can be used in conjunction with its service.[xii] Second, while the drivers are paid by customers, the fares are set by Uber. Additionally, drivers are required to maintain an average rating above a certain minimum, to accept rides that are assigned to them, and to drive their customers according to the route displayed on the app. As of February 2018, Uber drivers in the United States are also required to take a 6-hour break for every 12 hours of driving, so as to prevent fatigue and drowsiness.[xiii] Finally, Uber advises drivers about how best to interact with their customers and provides suggestive “tips” for drivers who are caught deviating from its guidelines.[xiv] Drivers who repeatedly violate Uber’s rules have their employment terminated.[xv]

So far, courts are divided on the employee or independent contractor issue. In 2015, the Northern District of California held that Uber drivers are, in fact, employees under California law,[xvi] and in 2017, an administrative law judge from the Department of Labor came to the same conclusion.[xvii] On the other hand, in Florida, a state judge held that Uber drivers are not employees eligible for unemployment benefits.[xviii]

The implications of the worker classification issue are far-reaching. For Uber, the conclusion that its drivers are employees would mean that Uber would have to start withholding federal taxes, and would be personally liable for failing to remit the money to the government.[xix] Uber would also have to provide employee benefits according to the prescriptions of various federal and state labor laws. As an employer, Uber would also be liable for their drivers’ negligent acts under vicarious liability. All of these changes will be costly for Uber: it was estimated in 2015 that it would cost Uber $209 million to reclassify 45,000 drivers in California alone.[xx]

Uber drivers themselves may have reason to resist the shift from independent contractors to employees. While they may enjoy greater benefits as employees, they would lose a significant amount of the flexibility and autonomy that classification as an independent contractor grants. As well, if Uber decides that the drivers are sufficiently compensated through benefits, then the company may assign drivers a smaller share of customer payments. Furthermore, because Uber will be liable for the drivers’ negligence, the company might impose stricter hiring guidelines and a more rigorous screening procedure, effectively increasing the barrier to entry for new drivers.

For consumers, this shift could mean higher fares, resulting either from a decreased pool of active drivers, or from a new need to offset the costs of company-provided employee benefits. On the bright side, Uber’s stricter hiring and driver guidelines may result in superior service, and increased safety.

Ultimately, the lawsuits involving Uber and its drivers are sure to affect other ridesharing companies. If more and more jurisdictions conclude that Uber drivers are employees, and not independent contractors, it may become an industry default to classify ridesharing drivers as employees. And if newer or smaller companies cannot maintain or attain profitability after this shift, we might expect that a handful of big companies will come to dominate the market.

The ride-share economy was revolutionary in that it eliminated many barriers to entry, increased competition, reduced prices for consumers, and allocated assets more efficiently to those in need.[xxi] While the growing number of driver lawsuits against Uber and similar ridesharing companies risk reducing these public benefits, the lawsuits also reflect the struggle of the working class in fighting for what they believe are welfare protections guaranteed to them by law.

[i] Uber, https://www.uber.com/cities/ (last visited Feb. 23, 2018).

[ii] Garrett Camp, Uber’s Path Forward, Medium (June 20, 2017), https://medium.com/@gc/ubers-path-forward-b59ec9bd4ef6.

[iii] Bogota Taxi Drivers Block Streets in Uber Protest, BBC News (Oct. 24, 2017), http://www.bbc.com/news/world-latin-america-41731109.

[iv] Matthew Lynley, Uber Apologizes for “Confusion” at JFK during Immigration Protest, TechCrunch (Jan. 29, 2017), https://techcrunch.com/2017/01/29/uber-apologizes-for-confusion-at-jfk-during-immigration-protest/.

[v] Kim Hjelmgaard, British Panel Rules Uber Drivers Are Employees, Not Contractors, USA Today (Nov. 10, 2017, 9:49 AM), https://www.usatoday.com/story/news/world/2017/11/10/british-panels-rules-uber-drivers-employees-not-contractors/851388001/.

[vi] For example, the Fair Labor Standards Act of 1938 requires employers to pay employees at least the federal minimum wage and overtime pay at 1.5 times the regular rate. 29 U.S.C. §§ 206, 207. The shared responsibility portion of the Affordable Care Act requires businesses with 50 or more employees to offer health insurance to their employees or pay a penalty. 26 U.S.C. § 4980H.

[vii] The National Labor Relations Act of 1935 gives employees the right to form unions and bargain collectively with their employers. 29 U.S.C. § 157.

[viii] Restatement (Third) of Agency § 2.04 (Am. Law Inst. 2006) (“An employer is subject to liability for torts committed by employees while acting within the scope of their employment.”).

[ix] Omri Ben-Shahar, Are Uber Drivers Employees? The Answer Will Shape the Sharing Economy, Forbes (Nov. 15, 2017, 11:24 AM), https://www.forbes.com/sites/omribenshahar/2017/11/15/are-uber-drivers-employees-the-answer-will-shape-the-sharing-economy/#43f7d6aa5e55.

[x] S.G. Borello & Sons, Inc. v. Dep’t of Indus. Relations, 48 Cal. 3d 341, 350 (Cal. 1989) (“[T]he principal test of an employment relationship is whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.”) (internal quotations omitted).

[xi] Id. at 350–51.

[xii] Uber, https://help.uber.com/h/2ddf30ca-64bd-4143-9ef2-e3bc6b929948 (last visited Feb. 23, 2018).

[xiii] Darrell Etherington, Uber to Require a 6-Hour Break for Every 12 Hours of Driving in the U.S., TechCrunch (Feb. 12, 2018), https://techcrunch.com/2018/02/12/uber-to-require-a-6-hour-break-for-every-12-hours-of-driving-in-the-u-s/.

[xiv] Ben-Shahar, supra note ix.

[xv] Id.

[xvi] O’Connor v. Uber Techs., 82 F. Supp. 3d 1133, 1135 (N.D. Cal. 2015).

[xvii] See Dana Rubinstein, State Labor Judge Finds Uber an ‘Employer’, Politico (June 13, 2017, 5:18 PM), https://www.politico.com/states/new-york/albany/story/2017/06/13/state-labor-court-finds-uber-an-employer-112733.

[xviii] See generally McGillis v. Dep’t of Econ. Opportunity, 210 So. 3d 220 (Fla. Dist. Ct. App. 2017).

[xix] IRS, https://www.irs.gov/compliance/criminal-investigation/employer-and-employee-responsibilities-employment-tax-enforcement (last visited Feb. 23, 2018).

[xx] Megan Rose Dickey, Judge Rules Grubhub Properly Classified Delivery Driver as Independent Contractor, TechCrunch (Feb. 8, 2018), https://techcrunch.com/2018/02/08/grubhub-v-lawson-ruling/.

[xxi] Ben-Shahar, supra note ix.

Title VII of the Civil Rights Act of 1964 makes it illegal for employers to discriminate against their employees “because of . . . sex.”[i] In the half-century since the passage of Title VII, the definition of “sex” discrimination has broadened significantly. Originally, under the Act, “sex” referred just to biological sex.[ii] Eventually, this was expanded to include discrimination based on sex stereotyping and, more recently, gender identity.[iii] Despite dynamic changes in the area, federal courts have been reluctant to embrace a definition of “sex” under Title VII that encompasses sexual orientation. This may be about to change.

In a recent article, Professor William N. Eskridge, Jr. points to several social developments supporting the contention that Title VII should cover sexual orientation discrimination.[iv] First, he points to fundamental changes in how society views the LGBTQ community, including the value we place on gay individuals in the workforce.[v] In the 1960s, such individuals were labeled “mentally ill, psychopathic, and predatory,” and, for this reason, many people believed they should be excluded from the workplace. This, of course, is no longer the prevailing view.[vi] Second, Professor Eskridge notes that numerous, fundamental legal changes have occurred in the last few decades, effectively enhancing many of the constitutional protections afforded to gay individuals.[vii] These developments, Professor Eskridge contends, have strengthened the argument for treating sexual orientation discrimination as a subset of discrimination “because of . . . sex.”[viii]

In Hively v. Ivy Tech Community College, the Seventh Circuit, sitting en banc, became the first federal court to hold that sexual orientation discrimination constituted discrimination “because of . . . sex,” as defined in Title VII.[ix] Writing for the majority, Chief Judge Diane Wood presented two lines of argument in support of the court’s decision. First, she viewed the plaintiff’s sexual orientation as a form of gender non-conformity, a claim generally understood as cognizable under Title VII via a sex stereotyping theory. Chief Judge Wood explained that “a policy that discriminates on the basis of sexual orientation . . . is based on assumptions about the proper behavior for someone of a given sex.”[x] Thus, if the plaintiff had been male, she would not have been fired for acting as she had in the case.[xi]

Chief Judge Wood also based the court’s holding on what she labeled an “associational theory.”[xii] Citing Loving v. Virginia,[xiii] she stated that “[i]t is now accepted that a person who is discriminated against because of the protected characteristic of one with whom she associates is actually being disadvantaged because of her own traits.”[xiv] She reasoned, “[i]f we were to change the sex of one partner in a lesbian relationship, the outcome would be different.”[xv] Thus, “[t]his reveals that the discrimination rests on distinctions drawn according to sex.”[xvi] Ultimately, the court concluded that “[it] would require considerable calisthenics to remove the ‘sex’ from ‘sexual orientation.’”[xvii]

In a compelling concurrence, Judge Richard Posner made the case for “judicial interpretive updating,” which would allow the court to give fresh meaning to statutory statements so as to “[infuse them] with vitality and significance today.”[xviii] In support of his argument for a more active judicial role, Judge Posner cited changes in social understanding and acceptance of homosexuality as encouraging the adoption of “an interpretation that cannot be imputed to the framers of the statute but that we are entitled to adopt in light of (to quote Holmes) ‘what this country has become.’”[xix]

On February 26, 2018, the Second Circuit entered the fray, joining the Seventh Circuit and holding in Zarda v. Altitude Express that discrimination on the basis of sexual orientation is discrimination “because of . . . sex” under Title VII.[xx] Relying in part on the Hively opinion, Chief Judge Robert Katzmann concluded that “sexual orientation discrimination is properly understood as ‘a subset of actions taken on the basis of sex,’” and, thus, within the scope of Title VII protection.[xxi]

Despite the bold interpretations adopted by the Seventh and Second Circuit, it may be some time before other federal courts or the Supreme Court take notice. Just a month before the Hively decision, the Eleventh Circuit dismissed a similar claim of sexual orientation discrimination under Title VII, and the Supreme Court subsequently denied certiorari.[xxii]

Certainly, this will not be the last word from the Supreme Court on the issue. Given the significant social changes around recognition of LGBQ individuals in our communities, and Title VII’s expansive purpose as a “broad rule of workplace equality,”[xxiii] the time is indeed ripe for a new conception of what it means to discriminate “because of . . . sex.” As the Supreme Court noted in Oncale v. Sundower Offshore Services, Congress may not have considered sexual orientation discrimination when it enacted Title VII;[xxiv] however, the statute’s protections are not limited to “the principal evil[s] Congress was concerned with when” it was enacted, but also to “reasonably comparable evils . . . of any kind that meet the statutory requirements.” We may remain hopeful that, as the Lambda Legal Employment Fairness Project’s director, Gregory R. Nevins, asserted in response to the Supreme Court’s denial of certiorari in Evans v. Georgia Regional Hospital, “this was not a ‘no,’ but a ‘not yet.’”[xxv]

[i] Civil Rights Act of 1964, 42 U.S.C. §§ 2000e-2(a)-(d) (2012).

[ii] Ulane v. Eastern Airlines Inc., 742 F.2d 1081, 1085 (7th Cir. 1984) (limiting Title VII to “discriminat[ion] against women because they are women and against men because they are men”).

[iii] Price Waterhouse v. Hopkins, 490 U.S. 228, 258 (1989) (expanding the scope of actionable claims under Title VII to include discrimination based on non-conformance with gender stereotypes, thus encompassing a view of “sex” which includes “gender”); Schroer v. Billington, 577 F. Supp. 2d 293, 306 (D.D.C. 2008) (holding discrimination against employee because she planned undergo sex reassignment surgery was “literally discrimination ‘because of . . . sex’” under Title VII) (emphasis added).

[iv] William N. Eskridge, Jr., Title VII’s Statutory History and the Sex Discrimination Argument for LGBT Workplace Protections, 127 Yale L.J. 322, 322-23 (2017).

[v] Id.

[vi] Id. at 322.

[vii] Id. See also Lawrence v. Texas, 539 U.S. 558 (2003) (invalidating sodomy laws as unconstitutional); Obergefell v. Hodges, 135 S. Ct. 2584 (2015) (upholding fundamental constitutional right to same-sex marriage).

[viii] Eskridge, supra note iv, at 322.

[ix] See generally 853 F.3d 339 (7th Cir. 2017).

[x] Id. at 346.

[xi] Id.

[xii] Id. at 347.

[xiii] See generally 388 U.S. 1 (1967).

[xiv] Hively, 853 F.3d at 347.

[xv] Id. at 349.

[xvi] Id.

[xvii] Id. at 350.

[xviii] Id. at 353.

[xix] Id. at 355 (emphasis in original).

[xx] Zarda v. Altitude Express, No. 15‐3775, slip op. at 10 (2d Cir. Feb. 26, 2018).

[xxi] Id. at 20 (quoting Hively v. Ivy Tech. Cmty. Coll., 853 F.3d 339, 343 (7th Cir. 2017)).

[xxii] Evans v. Ga. Reg’l Hosp., 850 F.3d 1248 (11^th Cir.), cert denied, 138 S.Ct. 557 (2017).

[xxiii] Harris v. Forklift Sys., 510 U.S. 17, 22 (1993).

[xxiv] Oncale v. Sundowner Offshore Servs., Inc., 523 U.S. 75, 79-80 (1998).

[xxv] Adam Liptak, Supreme Court Won’t Hear Case on Bias Against Gay Workers, N.Y. Times (Dec. 11, 2017), https://www.nytimes.com/2017/12/11/us/politics/supreme-court-gay-workers-bias-case.html.

Article II, Section 2 of the United States Constitution confers upon the president the “power to grant reprieves and pardons for offenses against the United States, except in cases of impeachment.”^[i] The pardon power is broad, allowing the president to “release[ ] the offender from any punishment for her crime.”^[ii] It “vitiates moral guilt for the offense, so that in the eyes of the law [the accused] is as innocent as if she had never been charged or convicted.”^[iii] This absolute power is not subject to the limitations of a traditional checks-and-balances system.^[iv] A president cannot be limited in his or her ability to pardon by the judicial process or by congressional decree.^[v] This raises an important issue: who is holding the president accountable?

To address this issue of accountability, we must first understand the pardon procedure. The Department of Justice outlines the procedure on its website.^[vi] This procedure demonstrates the breadth of the president’s power and emphasizes how the decision to pardon is unilaterally vested in the office of the president alone.^[vii]

An individual may submit a petition for pardon to the Department of Justice through the Office of the Pardon Attorney.^[viii] After submitting a petition, there is a waiting period,^[ix] although the Department of Justice or the president may waive this period.^[x] The petitioner should disclose information relating to his conviction and explain his reasoning for seeking pardon. The process also asks the petitioner to submit letters of recommendation.^[xi] Upon submission of these materials, the petitioner endures the waiting process.

This pardon process is not appealable.^[xii] Once the president has made a decision, it is final.^[xiii] This procedure is not constitutionally mandated. It may be waived at any time subject to the discretion of the president.^[xiv] Thus, while the pardon power can filter through the Office of the Pardon Attorney and the Department of Justice, complete deference is given to president.^[xv]

At first glance, there appears to be no way to inject accountability into the pardon process without subjecting the power to limitations not prescribed by the Constitution. However, the Department of Justice, by way of the Office of the Pardoning Attorney, can chose to implement meaningful checks on the pardon power which would enable the American people to hold the president accountable.

The Department of Justice can implement a system similar to the Notice and Comment requirement as outlined under the Administrative Procedure Act (APA).^[xvi] The APA authorizes federal agencies to promulgate rules.^[xvii] The federal agency is then required “to provide public notice and an opportunity for comment on any proposed rule.”^[xviii] While this process is lengthy, it gives the public an opportunity to comment on a proposed rule, and gives the agency an opportunity to respond to comments. The notice and comment requirement facilitates a dialogue between interested citizens and the federal government.

The Department of Justice could arrange a similar system to grant citizens a specific forum to voice their concerns regarding forthcoming pardons. This would be an easy solution to implement because the Executive branch and administrative agencies already know how to administer notice and comment periods. Citizen concerns regarding a pending pardon could be compiled and summarized for the president. Therefore, the president would have to hear the voices of the people, even if the president is not required to respond. This process would not be a material limitation on the pardon power, but it would facilitate a dialogue between the president and the people before a pardon is granted.

The implications of this potential process would bring us closer to a solution for the problem of accountability. While this process does not have a direct response mechanism, Americans would indirectly hold the president accountable for controversial pardons. As a result of the proposed notice and comment requirement, the president would be made aware of the sentiment surrounding a potential pardon. Thus, if the president grants a controversial pardon during his first term in office against the wishes of the American people, then the president may face the consequences of this decision when campaigning for a second term.^[xix]

Even if the president grants a pardon and is not seeking re-election, the president’s political party could be faced with the ramifications of a controversial pardons. The American people could choose to withhold votes from the president’s party, signaling their disapproval of the pardon decision.

Both of these mechanisms of accountability encourage the president to take into account citizen opinions prior to granting a pardon. In the first instance, the president risks facing voter backlash for a controversial pardon in an upcoming election. In the second instance, members of the president’s political party potentially face similar ramifications in an election year. Both circumstances could prevent the president from granting a contentious pardon.^[xx] The president may be encouraged to take into consideration the opinions of vocal, concerned constituents. The alternative may cost him and his party a second term.

This is but one solution to impose checks-and-balances on the pardon power. Given all of the pomp surrounding the pardoning of a turkey every Thanksgiving, the American people deserve equal, if not more consideration, when their president pardons an accused criminal.

New uses for drugs that are already on the market could help treat hundreds of diseases and thousands of people; however, the current system of push-and-pull incentives in the modern American pharmaceutical regulatory system is not adequately inducing the expensive research needed to market these old drugs for new uses.[i]

One commentator, Ben Roin, elegantly distills the issue down to a “price discrimination problem.”[ii] “The inability to price drugs by indication necessarily diminishes any incentive to develop new indications because firms cannot charge the profit-maximizing price for each different use.”[iii] Roin, therefore, suggests arming pharma companies with the ability to better enforce their new use patents by expanding the “prior authorization” model to cover all patented indications, “thereby providing a financial incentive to develop those new uses.”[iv] Roin’s prior authorization model is appealing because it’s pragmatic. Instead of rewriting the Patent Act or making the government a pharma company, Roin suggests introducing price discrimination largely without disrupting the current structure of the market. Roin would mandate honest and diligent reporting from doctors, grant pharma companies access to those records, and adopt a fully electronic medical records platform – all seemingly reasonable propositions.

In focusing on the enforcement of new use patents, Roin perhaps misses the forest through the trees. Instead of asking whether doctors should accurately report the indication associated with a prescription, perhaps a better question is why can the doctor prescribe an approved drug for an unapproved use in the first place? After all, 16-year-olds are not allowed to fly Boeing 777’s merely because they have a driver’s license – and while permanent markers might be good tools for writing on packages, they will certainly ruin a whiteboard. However, unapproved uses of approved drugs – otherwise known as “off-label” uses – are common in the United States and around the world. In fact, some states are even considering rolling back restrictions that prohibit pharma companies from promoting off-label use.[v] Alarmingly, the FDA does not regulate or approve these alternative, off-label uses. In some instances, errors have harmed thousands of people. As Roin states, “each of the different indications for drugs is essentially a distinct product.”[vi] So, why are they not treated as such?

1. Proposal: Ban off-label use

While Roin suggests requiring “pharmacists to dispense drugs with the appropriate label for their prescribed indication if that indication is covered by a regulatory exclusivity period,” he does not go far enough.[vii] The U.S. should ban off-label use, require FDA approval for every indication of a drug, and use the new drug approval pathway to approve new uses. A three-year period of full market exclusivity for the newly approved indication would replace the current three-year data exclusivity period for new uses that require clinical trials. To meet the increased demand for clinical trials, generic firms and government agencies could conduct clinical trials for off-patent drugs. Then, they could either retain the market exclusivity or relinquish exclusivity and donate it to the public domain. Finally, encompassing Roin’s suggestion, a total ban of off-label use would prohibit pharmacists from automatically substituting generic versions of off-patent drugs for the market exclusivity period.

2. A system that bans off-label use could still achieve the benefits of the current off-label use system

First, it is important to note that there are several benefits associated with off-label use, the most compelling of which revolves around access to treatment in times of desperation. There might not be any approved drugs to treat a patient’s medical condition, or all approved treatments might have failed for a certain patient. Other times, approval of a drug might only apply to certain demographics. If a patient is part of one of the populations that were absent from the clinical trials, such as children or the elderly, their use of the drug would technically be off-label. Finally, doctors might substitute medications from the same classfor one another, even though the clinical trials associated with a certain drug did not specifically address the patient’s specific condition – such as substituting one chemotherapy drug for another.[viii] Off-label use of approved drugs in these contexts might be a patient’s only option for treatment in a time of desperate need. However, a system that requires FDA approval for alternative uses could potentially achieve the same benefits.

The U.S. could ban off-label use and still achieve the benefits illustrated above by instituting a robust clinical trial system. If there are no approved drugs to treat a patient’s disease, or all approved drugs have failed them, the doctor could direct the patient to a clinical trial exploring yet-unapproved uses of an approved drug. The same goes for populations that were not the focus of the original clinical trials. Moreover, a clinical trial exploring whether a drug in the same classcan be used to treat a different form of a disease would, in theory, cost much less since a bulk of the data would likely overlap.

Permissive off-label use has undoubtedly helped millions of people over the years. But the question remains: does off-label use hurt more people than it helps? Or, said another way, could even more people benefit from a healthcare system that requires FDA approval for alternative uses of known drugs, perhaps solving the problem of new uses?

3. Mandatory FDA approval could remedy the costs associated with off-label use and provide additional benefits

Off-label use creates a perverted incentive scheme that ultimately hurts patients. If doctors are willing to prescribe for off-label indications, pharma companies actually have an incentive not to conduct clinical trials. In fact, “the more physicians are willing to prescribe a drug off-label . . . the less the patentee has to gain from a positive outcome in the trials, and the more it has to lose by risking a negative outcome that would jeopardize the drug’s existing sales.”[ix] The worst-case scenario involves off-label use of a drug that turns out to exacerbate the very condition it was believed to help. This problem is made worse given the false sense of security an “FDA approved” drug may foster. Patients might assume that because the FDA approved a drug it’s “safe and effective” for them to take. However, “safe” merely means the benefits outweigh the risks for the approved indication, which might be a very different calculation depending on whether a terminally-ill patient is trying to extend their life an additional two months or whether a patient is simply looking for a preventative measure. Likewise, “effective” just means effective for that indication. Finally, the current system eliminates incentives to investigate additional uses for off-patent drugs because generics can enter the market, piggy back off the pioneer’s investment, and then take advantage of automatic substitution at the pharmacy.

Banning off-label use would remedy these problems. Without the ability to expand an approved drug’s market through off-label sales, pharma companies would actually have an incentive to invest in new clinical trials. Researchers would study the new indications in controlled environments with patients receiving scheduled observation, thereby protecting against the worst-case scenarios where doctors prescribe drugs off-label to the detriment of patients. Furthermore, the public would have a higher, or at least more appropriate, level of trust in the FDA since every drug would be “safe and effective” for each indication. Finally, as patents and regulatory exclusivity periods expire for pioneer drugs, companies could extend their monopoly by gaining approval for new indications. While generics could enter the market for the old indication, as they do today, doctors and pharmacists would be banned from substituting the generic for a protected indication until the exclusivity period ran out. This added economic incentive would go a long way towards solving the problem of new uses.

In addition to remedying many of the concerns wrapped up in the current system, a ban on off-label use would provide additional benefits. First and foremost, the pharma industry could finally take advantage of price discrimination, allowing drug prices to reflect the therapeutic benefits for each indication. Not only would this eliminate fears of investing in new uses, as discussed above, but indication-specific pricing would enable wider access to treatment.

Currently, insurance companies can deny coverage of off-label uses, but it would be very difficult for insurers to deny coverage of FDA approved drugs for FDA approved indications – particularly at therapeutically fair prices. Finally, since no indication could be sold without FDA approval, banning off-label use would eliminate the incentive for companies to patent new uses but not conduct clinical trials – a problem that Roin’s model does not remedy.[x]

4. Challenges associated with banning off-label use

Of course, banning off-label use would present new challenges for the healthcare industry. Most notably, lack of access to off-label drug treatments would put further separation between patients with no other approved medical options and breakthrough scientific discoveries. But, this assumes that the “new discovery” is both medically valid and the patient’s doctor is well-informed enough to know about the off-label use. A system that requires clinical trials for new uses, however, would ensure the treatment is valid and well-known. Although it might take a couple years to gain approval, it’s arguably better (or at least not any worse) than thousands of doctors prescribing an off-label use that is completely ineffective, or even harmful, without any follow-up studies.

Another challenge would be the enormous increase in the need for clinical trials. Clinical trials are very expensive, and a system that bans off-label use might collapse if patients who want to volunteer for a new use clinical trial can’t because of limited resources. Perhaps if the regulatory exclusivity period was tied to the cost of each clinical trial more firms would be attracted to invest. Similarly, generics might be expected to step up and conduct their own clinical trials since the generic firm would receive the regulatory exclusivity for that indication, even against the pioneer. While currently a duopoly is the best market exclusivity a generic can enjoy, perhaps the promise of a complete monopoly would provide incentives for generic companies to fill the added need. Finally, government agencies could conduct clinical trials for indications that have high social value but low commercial value.

Even ignoring that long-term benefits of forcing clinical trials – thereby ensuring treatments are “safe and effective” – would likely balance out the loss of immediate access to off-label use options, the enormous benefits of discovering new uses would vastly outweigh the costs.

5. Conclusion

The model for bringing new drugs to market has enjoyed remarkable success by utilizing patent protection and regulatory exclusivity. The chain of investment from government agencies to universities to pharma companies continues to produce new, “safe and effective” drugs that society would likely not have otherwise. But, today the incentive to invest in new usesis lacking. One reason there is a lack of further investment and development is because U.S. law somewhat surprisingly allows doctors to prescribe off-label uses which are not FDA approved or regulated. By banning off-label use, establishing price discrimination in the market, and ensuring greater levels of safety for patients, the U.S. might finally solve the problem of new uses.

[i]See generally Benjamin N. Roin, Solving the Problem of New Uses (October 1, 2013), https://ssrn.com/abstract=2337821.

[ii]Id. at 16. Ben Roin is a leading scholar in patent law and biopharmaceutical innovation policy. He earned his JD from Harvard Law School in 2005 and is currently an Assistant Professor of Technological Innovation, Entrepreneurship, and Strategic Management at the MIT Sloan School of Management.

[iii]Id. at 60.

[iv]Id. at 62-3.

[v]See Starlee Coleman, Arizona Becomes First State to Allow Pharmaceutical Companies to Legally Communicate Off-Label Treatment Uses to Medical Professionals, Goldwater Inst., March 23, 2017, https://goldwaterinstitute.org/article/arizona-becomes-first-state-to-allow-pharmaceutical-companies-legally-communicate-off-label-treatment/.

[vi]Roin, supra note i, at 59.

[vii]Id. at 76

[viii]See Understanding Unapproved Use of Approved Drugs “Off Label”, U.S. Food & Drug Admin. (Feb. 5, 2018), https://www.fda.gov/ForPatients/Other/OffLabel/ucm20041767.htm.

[ix]Roin, supra note i, at 72.

[x]See id.

Introduction

     In 2013, the Southern District of California adopted a rule requiring all criminal defendants to appear in full restraints—hands cuffed and connected to a waist chain, feet shackled and chained together—for most non-jury proceedings.¹ There were a few exceptions, including appearances at sentencing. And a defendant could ask the district court to have the shackles removed. Four defendants, represented by federal public defenders, challenged the shackling rule, contending that it violated their due process rights. After the district court rejected these objections, the defendants sought immediate appellate review. The Ninth Circuit, sitting en banc, held that the shackling rule violated due process. In United States v. Sanchez-Gomez, the Supreme Court will decide whether the Ninth Circuit had jurisdiction to reach that holding.²

     As the Court and the parties have approached it, Sanchez-Gomez is a hard case that raises difficult and unresolved questions about the meaning and application of two major aspects of federal appellate jurisdiction: the collateral-order doctrine and appellate mandamus. But it should be an easy case. Sanchez-Gomez is a “one-shot” interlocutory appeal—once decided, it will not necessarily produce any future interlocutory appeals. It thus presents few of the costs normally associated with early appeals. And there are substantial benefits to allowing immediate review of the shackling rule, which might otherwise evade appellate scrutiny.

     Sanchez-Gomez is thus a case in which the current system of federal appellate jurisdiction gets in the way of reaching a practically sound result. In this brief essay, I begin with an explanation of why Sanchez-Gomez, as the Court and parties have approached it, is a hard case, and I then explain why it should be an easy one. I end with both a solution for Sanchez-Gomez itself—recognizing the one-shot nature of the appeal—and a suggestion for a rule of procedure governing discretionary appeals of any district court decision, which might avoid turning easy cases like Sanchez-Gomez into hard ones.

     One final note before proceeding. Appellate jurisdiction is not the only issue at play in Sanchez-Gomez. There is also a question about whether the case is moot, as all of the defendants’ charges have been resolved via pleas or dismissal as well as the question of whether the shackling rule is constitutional. The Supreme Court has granted certiorari on only the appellate jurisdiction and mootness issues. In this essay, I limit myself to appellate jurisdiction and do not address mootness or the underlying merits of the shackling rule.³

I. Why Sanchez-Gomez is a Hard Case

     First, some background.⁴ Most appeals in federal court must wait until the end of district court proceedings, when all issues have been decided and all that remains is enforcing the judgment.⁵ This general rule comes from 28 U.S.C. § 1291’s grant of appellate jurisdiction over only “final decisions” of the district courts, and it is commonly called the “final-judgment rule.”

     The final-judgment rule strikes the general balance between the interests that underlie the timing of appeals: efficiency, error correction, and development of the law. Delaying appeals has several benefits. For example, consolidating all issues in a case into a single appeal reduces appellate caseloads, requiring only a single panel of appellate judges to learn the case once, and allowing the panel to resolve all issues in a single opinion. Litigants are also saved the expense, inconvenience, and delay—as well as potential harassment by better-resourced litigants—of multiple appeals. And interlocutory appeals that might eventually become unnecessary—say, because the aggrieved party ultimately prevailed at trial—are avoided.

     But the final-judgment rule also has costs. Appellate decisions can correct errors and develop unclear areas of the law. Cases that end in settlement—a common outcome in federal court—do not produce appealable decisions, leaving errors or issues unexamined. In some cases, appellate intervention might also speed along district court proceedings or cut short what would later be deemed unnecessary litigation. And the delay between an erroneous district court decision and vindication on appeal can cause substantial, sometimes irreparable, harms.

     The final-judgment rule strikes a balance between these interests, reflecting the conclusion that the benefits of delaying appeals generally outweigh the costs. But it strikes that balance only generally. In some cases, the costs of an immediate appeal will be particularly low, or the benefits of an immediate appeal will be particularly high (or both). So the final-judgment rule has exceptions. In fact, it has many exceptions. Some come from statutes, some come from rules of procedure, and still others come from judicial interpretations of § 1291.⁶

     The decisions at issue in Sanchez-Gomez did not end proceedings in the district court. They addressed only the constitutionality of the shackling rule, leaving other issues—including the merits of the criminal charges—for later resolution. For the Ninth Circuit to have jurisdiction to review the shackling rule, one of the exceptions to the final-judgment rule must apply. The defendants have invoked two: the collateral-order doctrine and appellate mandamus.

     Neither avenue to appellate review is an easy one. The appellate-jurisdiction literature regularly bemoans the complex, unpredictable, and fluid nature of the existing system of federal appellate jurisdiction. There’s no need to repeat those criticisms here. All that’s necessary is a glance into the questions that Sanchez-Gomez raises.

     Let’s start with the collateral-order doctrine. That doctrine is a judicial gloss on § 1291’s grant of jurisdiction over “final decisions”. For a decision to be “final”, and thus appealable under the collateral-order doctrine, four requirements must be satisfied: (1) the district court must have conclusively resolved the issue; (2) the appealed issue must be completely separate from the merits; (3) the district court’s decision must be effectively unreviewable in an appeal from a final judgment; and (4) the issue must be sufficiently important to merit a deviation from the normal rule of delayed appeals.⁷

     In Sanchez-Gomez, everyone appears to agree that the first and second requirements are satisfied. The district court conclusively rejected the constitutional challenge to the shackling rule, which had nothing to do with the underlying criminal charges. But the parties dispute the third and fourth requirements—whether the district court’s decisions are both effectively unreviewable and important.

     At first blush, those final two requirements might seem to be easily satisfied in this case. After all, review of the shackling rule after conviction and sentencing doesn’t seem terribly effective for defendants that had to appear throughout their proceedings in shackles; the court of appeals cannot go back in time and un-shackle them. And the issue is likely to evade appellate review. Most criminal cases end in pleas, which are unlikely to allow review of the shackling rule. Even if the issue did make it to an appeal—say, in an appeal after conviction and sentencing, or in an appeal from a conditional guilty plea that reserved the option of appealing a suppression motion—there’s no guaranty that a court of appeals would actually review it. Shackling at non-jury proceedings is unlikely to affect a conviction or sentence, rendering any error harmless. That harmlessness would allow a court of appeals to avoid addressing the issue.

     There also seem to be some important interests at stake. The shackling rule implicates defendants’ liberty interests and their interests in being treated as individuals instead of as part of a general group of “dangerous” defendants. It might even interfere with their ability to assist their counsel, as the shackling itself might hinder defendants from getting their counsel’s attention or writing notes to counsel. The rule also implicates the safety of district court proceedings. The Southern District of California purportedly adopted the rule because it was concerned that the lack of background information on some defendants made individualized determinations of dangerousness too difficult.⁸ Rather than risk violence at the hands of some defendants, the district decided to shackle them all.

     The thing is, the Supreme Court often treats the collateral-order doctrine as far narrower than its stated requirements might make it seem. After all, all sorts of district court decisions can be only imperfectly remedied in an appeal after a final judgment. Lots of district court decisions evade appellate review. And many district court decisions implicate important interests. Were it enough for a decision to be effectively unreviewable and important in some sense, oodles of district court decisions would be immediately appealable collateral orders. But that can’t be the case; otherwise the exception would swallow the rule. Indeed, the Supreme Court rarely mentions the collateral-order doctrine without also mentioning its narrow scope.⁹

     Something more is required for an order to be immediately appealable under the collateral-order doctrine. Often that something amounts to a judgment call about whether the interests at stake are sufficiently important, and whether delayed appellate review would be sufficiently ineffective, to justify an immediate appeal.¹⁰ That’s not always a simple question. In making similar calls in the past, the Supreme Court has drawn some fine lines. It has held, for example, that criminal defendants can immediately appeal the denial of claims that the district court has set bail excessively high.¹¹ They cannot, however, appeal the denial of a motion to dismiss on prosecutorial-vindictiveness grounds.¹² Defendants can immediately appeal denials of a speech-and-debate-clause defense and denials of a claim that a prosecution violates the prohibition on double jeopardy,¹³ but they cannot appeal the denial of a motion to dismiss on speedy-trial grounds.¹⁴ And although orders requiring that defendants be involuntarily medicated so as to render them competent to stand trial can be immediately appealed, orders disqualifying defense counsel cannot.¹⁵

     Review via mandamus poses its own difficulties. Technically, mandamus is not an appeal. It’s an independent proceeding in the court of appeals, begun with a petition for a writ ordering the district court to take (or cease taking) some particular action. For a writ of mandamus to be proper, three requirements must be met: (1) the petitioner must have no other adequate means for relief; (2) the petitioner’s entitlement to relief must be clear and indisputable; and (3) the court of appeals, in its discretion, must deem the writ appropriate.¹⁶

     It’s not clear that the circumstances in Sanchez-Gomez satisfy any of these requirements. The dispute about whether the defendants have other adequate means for relief largely mirrors the dispute over the collateral-order requirement that the decision be effectively unreviewable. One additional wrinkle comes from the United States’ suggestion that the detainees could challenge the shackling rule via a class action against the Marshals Service under Ex parte Young. The alternative of a civil suit has not played a role in the collateral-order context, but its possibility raises questions about the appropriateness of mandamus. The likelihood of a civil suit challenging the shackling rule is also questionable, as the federal public defenders currently representing the defendants in Sanchez-Gomez probably could not represent them (or any other defendants) in a class action.

     The second requirement—that the right to the writ be clear and indisputable—is more unique to the mandamus issue. And no one is quite sure what that requirement means.¹⁷ At first glance, it seems to be something akin to plain error—that is, the district court’s error must be obvious. The rationale for such a strict requirement would be that mandamus is not a substitute for appeal, but is instead an extraordinary and rare remedy for instances when district courts have gone completely out of bounds. Indeed, at oral argument, Justice Kagan suggested that mandamus was usually reserved for correcting obvious errors, not for resolving important issues.¹⁸

     But that’s not entirely true. The Supreme Court has approved the use of mandamus to decide difficult issues that had no clear answer. In Schlagenhauf v. Holder, the Court affirmed the issuance of a writ of mandamus to decide an issue of first impression.¹⁹ And in Mallard v. U.S. District Court, it endorsed the use of the writ to decide an issue on which the courts of appeals had split.²⁰ These and other instances demonstrate the “advisory” or “supervisory” use of mandamus, which is fairly well established in the courts of appeals.²¹

     That being said, it’s not clear that the current Supreme Court is ready to openly embrace the advisory and supervisory uses of mandamus. Just as the Court regularly describes the collateral-order doctrine as a narrow avenue for appeals, it also emphasizes the extraordinary nature of mandamus review.²²

II. Why Sanchez-Gomez Should Be Easy

     Thus, as the Court and the parties have approached the case, Sanchez-Gomez poses some difficult questions about the meaning and application of the collateral-order doctrine and appellate mandamus. These questions are not un-answerable; indeed, they’re no more difficult than many of the other issues the Supreme Court regularly encounters.

     It’s just that these issues—again, as the Court and the parties have approached them—are much harder than they need to be. Sanchez-Gomez should be an easy case. It presents few of the costs normally associated with interlocutory appeals, as it poses no real risk of increasing appellate caseloads. The benefits of immediate review are also greater than normal, given the chance that the shackling rule might otherwise evade appellate review.

     As for costs, Sanchez-Gomez is relatively unique in its likely impact on appellate caseloads. Most disputes over appellate jurisdiction raise the specter of increased appellate caseloads, which courts of appeals are often eager to avoid. In many cases, allowing an immediate appeal would open the door for numerous subsequent litigants to appeal the same issue. Consider, for example, appeals from a denial of qualified immunity. Qualified immunity is a defense in civil rights actions that shields government officials from damages unless their actions violated clearly established law. In Mitchell v. Forsyth, the Supreme Court held that denials of qualified immunity are immediately appealable via the collateral-order doctrine.²³ Mitchell has led to thousands of subsequent appeals, as government officials seek immediate review of whether they—under the particular circumstances of their cases—are entitled to qualified immunity.

     To avoid this influx of appeals, the federal courts try to keep the avenues to immediate appellate review narrow and extraordinary. And for good reason. Increases in the number of actual appeals can be costly and burdensome for resource-strapped courts. So, too, are increases in attempts to immediately appeal district court decisions, even if those attempts are ultimately unsuccessful. The courts of appeals must expend effort beating back all of these attempted appeals. These efforts can be just as burdensome and costly as actual appeals, as the courts must consider and reject the proffered grounds for jurisdiction. Strict doctrines and requirements mitigate some of that burden by discouraging at least some litigants from trying for immediate review. When litigants do seek immediate review, the courts of appeals are well equipped to reject those attempts by pointing to these strict requirements.

     But not all interlocutory appeals necessarily open the door for subsequent appeals. Consider Cohen v. Beneficial Loan Corp., the case in which the Supreme Court created the collateral-order doctrine.²⁴ Cohen involved an Erie question: must a federal court apply a state law requiring the posting of a litigation bond? That question was relatively abstract, as the appellant was seeking a decision only on whether the bond requirement applied in federal court. There were no case-specific issues, such as the amount of the required bond. Nor was the anyone arguing that something unique about the case affected the applicability of the bond requirement. Once the Supreme Court decided the issue, it was settled once and for all. No other litigants would need to appeal the question of whether that particular bond requirement applied in federal court. There was no real risk of subsequent appeals raising the same issue. Cohen thus involved a relatively abstract issue of law that, once resolved, need not be addressed in subsequent appeals. It was a “one-shot” interlocutory appeal.

     Sanchez-Gomez is, too. The Ninth Circuit addressed only the constitutionality of the district-wide shackling rule. Once that issue is resolved, there will be no need for subsequent appeals of it. Importantly, immediate review of the constitutionality of the shackling rule need not open the door to immediate review of individual shackling determinations. Appeals from individual shackling determinations raise different considerations than an attack on the shackling rule itself. This isn’t to say that individual shackling determinations should not be appealable. It’s just that the appealability of those determinations is a different question, one that Sanchez-Gomez need not resolve.

     Allowing the appeal in Sanchez-Gomez thus does not pose a real risk of increased appellate caseloads. Other issues that often accompany immediate appeals—such as potential delay of district court proceedings and the possibility of duplicative appeals—are also relatively unlikely to arise due to the abstract nature of the question Sanchez-Gomez presents. And, as discussed above in relation to the collateral-order doctrine, there is a real risk that without immediate appeal the shackling rule will continue to evade appellate review. If there is to be any appellate review of the rule, it might need to be immediate.

     Framing Sanchez-Gomez in terms of the collateral-order doctrine or appellate mandamus thus turns an easy case into a hard one. It might be too late to treat Sanchez-Gomez like the easy case that it is. Absent a decision that radically changes the law of appellate jurisdiction, the Court is stuck with the current rules for the collateral-order doctrine and appellate mandamus. But the Court might make Sanchez-Gomez an easier case by acknowledging the one-shot nature of the case. In many circumstances, immediate appeals are more appropriate when they raise relatively abstract issues of law, the resolution of which would resolve the issue for all litigants and would not require any future appeals on case-specific applications of the law. Granted, recognition of one-shot interlocutory appeals via either the collateral-order doctrine or mandamus might invite litigants to appeal other serious, unsettled, and relatively abstract issues of law. But it would not drastically increase appellate caseloads by opening the door to an influx of case-specific appeals.

     There is support for this approach in both of the avenues for immediate appellate review discussed above. Cohen is one of the few collateral-order decisions that can be characterized as a one-shot interlocutory appeal. Most open the door to subsequent, case-specific appeals of the same issue. One-shots are more common in the mandamus context. In Thermtron Products, Inc. v. Hermansdorfer, for example, the Supreme Court held that mandamus was the proper vehicle to decide that a district court could not remand a removed case due to the district court’s crowded docket.²⁵ And in Mallard v. U.S. District Court, the Court held that mandamus was appropriate to determine that district courts could not force attorneys to represent indigent defendants in civil proceedings.²⁶ To be sure, not all mandamus cases are one-shots. Schagenhauf v. Holder, for example, first addressed the abstract issue of whether a district court could order the mental and physical examination of a defendant under Civil Rule 35 (it could), and then the case-specific question of whether an examination of a particular defendant was appropriate.²⁷ But mandamus has provided a valuable vehicle for one-shot appeals.

III. The Rulemaking Alternative

     Going forward, a better option for resolving issues of federal appellate jurisdiction might be rulemaking. In other work, I have advocated rules-based reform in this area.²⁸ Much of that reform would consist of categorical rules providing either mandatory or discretionary jurisdiction over particular kinds of district court decisions. These rules could bring some much-needed transparency and accessibility to an unnecessarily obscure area of law. Explicit exceptions might also bring some simplicity, clarity, and predictability to appellate jurisdiction. And reform need not consist entirely of categorical rules—it could also be supplemented with a catchall giving the courts of appeals discretion to review any district court decision.²⁹

     A discretionary catchall could avoid turning easy cases like Sanchez-Gomez into hard ones. Rather than try to fit a unique case into the framework of an existing exception to the final-judgment rule, courts could candidly address the costs and benefits of allowing an immediate appeal. The details of the discretionary catchall are unimportant at this point. It would be part of a wholesale reform, and its contours would depend in part on the other rules governing the timing of appeals. And there are real risks that a rule of discretion—whatever its form—would increase appellate caseloads.³⁰

     But this essay is not the appropriate place for a full-throated defense of discretion and flexibility in appellate jurisdiction. I’ll simply note that the current system is one that already includes discretionary appeals.³¹ Those appeals are just hidden behind doctrines like the collateral-order doctrine and appellate mandamus.

     Obscuring this discretion has some benefits. Because some litigants simply are not aware of the possibilities for immediate appeals—and thus never attempt them—it reduces appellate caseloads. Wrapping this discretion in vague, unhelpful, and occasionally fluid doctrinal requirements also discourages some attempts to appeal. But it’s odd policy to keep appellate caseloads manageable by keeping lawyers ignorant of opportunities to appeal and unnecessarily complicating matters of appellate jurisdiction.

     What’s important for now is to recognize that absent some candid and transparent discretion and flexibility, the current system of appellate jurisdiction will keep turning easy cases like Sanchez-Gomez into hard ones.

IV. Conclusion

     Sanchez-Gomez—as the Supreme Court and the parties have approached it—is a hard case that should be easy. The difficulty is an inevitable byproduct of our current system of federal appellate jurisdiction. To avoid turning easy issues of appellate jurisdiction into hard ones, that system must change. And rulemaking—including a rule for discretionary appeals—is probably the best way to achieve that change.

Endnotes

     Maximillian Schrems was a PhD student in Austria when he decided to participate in a study abroad program with Santa Clara University. While Schrems was at Santa Clara, Ed Palmari, Facebook’s privacy lawyer, spoke to his class. It was during this lecture that Schrems received the ammunition that he needed to challenge the legitimacy of EU–U.S. data transfers. Based on Palmari’s presentation, Schrems believed that Facebook lacked complicity of the EU’s privacy regulations. Upon his return to the EU, Schrems took what he learned from Palmari and embarked on litigation that has challenged the way the U.S. treats data privacy. Schrems’s actions have forced many companies to drastically amend their current business practices regarding U.S. data transfers from overseas locations. What started with a harmless study abroad presentation quickly spawned, arguably, the most influential privacy based litigation for US corporations.

I. The Directive: The Mechanism that Regulates for EU-US Data Transfers

     The U.S. and the EU view privacy differently: in the EU, there is a fundamental right to privacy; whereas, in the U.S., the right to privacy is far less structured.¹ The EU’s broad fundamental right to privacy also covers the privacy of personal data that companies collect. This is a common practice among many large tech corporations that collect and store personal user data in order to improve their platform. The EU Data Directive (Directive) is the specific mechanism meant to govern and protect such data.² The Directive has intentionally left the definition of “personal information” broad; thus, this mechanism is easily able to govern the user data collected by these large tech companies.

     The Directive is a European mechanism meant to govern European companies; however, many of the corporations collecting and storing user data are not actually located in the EU. Instead, many of these companies are based in the U.S. For this reason, the Directive seems to have a rather broad reach. Pursuant to Article 25 of the Directive, any company that transfers user data belonging to a European must ensure adequate safeguards for that data. This means any non-European based company in possession of such user data must treat that data as any European based company would. Given the aforementioned tensions between the EU and the U.S. regarding the general notion of privacy, the Directive’s high bar for protecting user data has proven difficult to reach for many U.S. based companies.³

     In 2000, the EU and U.S. attempted to remedy this tension through the Safe Harbor arrangement.⁴ Under this arrangement, U.S. privacy standards were deemed “adequate” pursuant to Article 25. Therefore, U.S. based companies could opt to follow the prescribed data protection principals when transferring data across borders. One important caveat is that these prescribed principals were merely voluntary, leaving each participant responsible for its own certification.⁵ Because it was left up to each individual corporation to implement and adhere to the privacy principals, there were strong doubts as to the level of protection that international user data actually received.

II. The Original Action: Schrems I and the Safe Harbor Arrangement

     In 2013, the U.S.’s treatment of personal data under the Safe Harbor arrangement was finally challenged. After completing his U.S. study abroad, Schrems returned to the EU and promptly filed a complaint with the Irish Data Protection Commission (DPC). Heavily based on Edward Snowden’s then-recent revelations concerning U.S. intelligence surveillance, Schrems alleged that his personal data, when transferred to the U.S., was not being properly safeguarded.⁶ More specifically, Schrems believed, based on Snowden’s allegations, that the U.S. failed to adhere to the Safe Harbor arrangement. Schrems argued that the U.S. was no longer “adequate,” a prerequisite any company had to meet in order to transfer data. If the U.S. was no longer “adequate” pursuant to Article 25, as Schrems alleged, then such cross-border data transfers between the EU and U.S. were violations of the Directive. Schrems used Facebook Ireland’s, a subsidiary of Facebook, Inc., data transfer from Ireland to servers in the U.S. to make this claim. According to Schrems’ argument, Facebook’s transfer of data to an “inadequate” country was a violation of Article 25, thus a violation of Schrems’ fundamental right to privacy.

     Although he initially faced some difficulties advancing his case, Schrems’ complaint, questioning the adequacy of the EU-U.S. Safe Harbor arrangement, eventually reached the Court of Justice of the European Union (CJEU). The CJEU found in favor of Schrems, holding that the Safe Harbor arrangement was invalid because it failed to provide adequate privacy protections.

     Under normal circumstances, only U.S. citizens can bring suit in the US. Although EU citizens could opt to appeal to the Federal Trade Commission (FTC), the FTC has no private right of action. Thus, any complaint to the FTC has the likelihood of being unsatisfactory. Also, the Safe Harbor arrangement prescribed principals that only apply to companies that transfer data across borders. However, these principals do not bind the U.S. government; therefore, if the U.S. government were to utilize some of the transferred data, there is no remedy for European citizens. The lack of remedies for EU citizens impacted the CJEU’s finding that the Safe Harbor arrangement was invalid.

     The CJEU’s holding in Schrems I greatly impacted U.S. companies because the mechanism that allowed for cross-border transfers, the Safe Harbor arrangement, was now gone. Post-Schrems I, the EU and the U.S. rushed to negotiate a quasi-solution for the problems. One temporary solution included the Privacy Shield.⁷ This Privacy Shield bears a strong resemblance to the Safe Harbor arrangement with the addition of a special ombudsman, which allows EU citizens to bring data privacy concerns. On the surface, the addition of this ombudsman seems promising; however, there is no requirement that the ombudsman report his findings. Therefore, just like the Safe Harbor Arrangement, the Privacy Shield’s ombudsman lacks accountability. In addition to the Privacy Shield, the U.S. passed the Judicial Redress Act. The Judicial Redress Act allows EU citizens to file suit in U.S. courts, subject to various exceptions. Although the above solutions provide some remedies, the lack of accountability and oversight mirrors the same problems present in the now-invalid Safe Harbor arrangement. Moving forward, there must be major amendments to U.S. policy before any form of privacy protection in the US meets the high EU standard.

III. The Maverick Continues: Schrems II and the Standard Contractual Clauses

     Immediately after the CJEU’s holding invalidating the Safe Harbor arrangement in Schrems I, Schrems filed another complaint alleging that Facebook’s standard contractual clauses (SCC) were invalid. These SCCs are common boiler-plate contract clauses that provide for EU-U.S. data transfers. Currently, this case is in front of the CJEU. At the lower level, the Irish High Court suggested that because these SCCs are mere contract clauses not conditioned upon any actual finding of adequate privacy protections, the transfers enacted pursuant to these SCCs do not, alone, constitute adequate protections.⁸ Furthermore, the Schrems I decision held that U.S. data privacy protections and remedies were inadequate. Therefore, because U.S. policy itself is inadequate, it is unlikely that SCCs can compensate for the existing inadequacies.⁹ However, the Irish High Court lacks the jurisdiction to decide on the adequacy of these SCCs. For this reason, the case was sent to the CJEU.

IV. Potential Schrems III: The Binding Corporate Rules

     In addition to the Safe Harbor and the SCCs, a Binding Corporate Rule (“BCR”) is a third way in which a company may be found adequate pursuant to Article 25.¹⁰ The BCR incorporates a much higher standard than what was provided for by the Safe Harbor arrangement and the SCCs. Before a company can be deemed adequate via the BCR, that company must demonstrate that they have put in place certain controls and mechanisms to safeguard personal data. Unlike the SCCs and Safe Harbor, this is a very strenuous process that requires actual accountability and oversight. Once approved, that company alone, not the country, may transfer data across borders.

     Given Schrems’ past actions, challenging both the Safe Harbor Agreement and the SCC provisions, perhaps we will have a Schrems III on the horizon. However, as noted above, BCRs are different from the Safe Harbor and the SCCs. It is foreseeable that the requirements, cost, and accountability may allow the BCRs to withstand the stringent EU standards for data protection.

Conclusion

     The CJEU’s invalidation of the Safe Harbor Agreement sent U.S. corporations into a frenzy. Although the EU and U.S. were quick to respond, the Privacy Shield and Judicial Redress Act are merely crutches to limp the dead law along until a better solution is proposed. Although we are still awaiting the CJEU’s decision in Schrems II, it seems likely the SCCs, just like the Safe Harbor Act, will be invalidated. If this is the case, then two of the main mechanisms used by many corporations to transfer data between the EU and U.S. are no longer available. This only leaves the BCR. Given Schrems’ previous action, Schrems III could be a future case that examines the adequacy of the BCR. However, given the oversight and accountability elements of the BCR, it may withstand the high standards of the CJEU. Given the total failure of the Safe Harbor Arrangement and the likely failure of the SCCs, it seems probable that the U.S. will need to strengthen its data privacy regime before companies can resume transferring personal data overseas.

Endnotes