Washington Law Review

Current Issue

Volume 93, Number 1 (1) - October 2018

Title Author Citation

Taxing Selling Partners


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Taxing Selling Partners

March 31, 2019 | 94 Wash. L. Rev. 1

Abstract: When a partner sells a partnership interest, the resulting gain or loss is treated as
capital gain or loss, except to the extent that the partnership holds certain items whose sale
would result in gain or loss that was not capital. Seemingly, the purpose of this regime is to
prevent taxpayers from obtaining more favorable treatment by selling an interest in a
partnership than what would result if the partnership were to sell its underlying assets. But
given this legislative aim, the existing tax provisions produce results for taxpayers that are both
unduly favorable (in that sale of a partnership interest sometimes receives more beneficial
treatment than sale of underlying assets) and unduly unfavorable (in that, in other instances,
sale of a partnership interest triggers a less beneficial outcome than the sale of underlying
assets).

The design of the partnership tax rules also necessitates piecemeal reform as taxpayers
discover new opportunities to benefit from unduly favorable results produced by the
partnership tax regime. Most recently, in December 2017, Congress adopted legislative reform
to address one such instance involving the sale of a partnership interest by a non-U.S. person.

In addition, the method used by the partnership tax rules requires Congress to update the
statute governing sale of a partnership interest to take into account potential ripple effects of
unrelated legislative changes. As a result, the design is error prone because, inevitably,
Congress overlooks and fails to address these potential ripple effects. Changes enacted by
Congress in December 2017 provide at least one example of this phenomenon. In particular,
Congress enacted a new restriction on the deductibility of losses incurred in a trade or business.
However, Congress did not provide for a corresponding modification to the tax provisions
governing sale of an interest in a partnership—creating the potential for another way in which
the existing statutory design is unduly favorable.

Some of the problems identified by this Article existed long before the adoption of
significant tax legislation in December 2017; one of the problems was partially (but
incompletely) addressed by that legislation and one of the problems was created by that
legislation. To address each of the failings that it identifies, this Article proposes equating the
tax treatment of the sale of a partnership interest with the tax treatment of the sale of underlying
assets in all cases.

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Emily Cauble 94 Wash. L. Rev. 1

Crashworthy Code


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Crashworthy Code

March 31, 2019 | 94 Wash. L. Rev. 39

Abstract: Code crashes. Yet for decades, software failures have escaped scrutiny for tort liability. Those halcyon days are numbered: self-driving cars, delivery drones, networked medical devices, and other cyber-physical systems have rekindled interest in understanding how tort law will apply when software errors lead to loss of life or limb.

Even after all this time, however, no consensus has emerged. Many feel strongly that victims should not bear financial responsibility for decisions that are entirely automated, while others fear that cyber-physical manufacturers must be shielded from crushing legal costs if we want such companies to exist at all. Some insist the existing liability regime needs no modernist cure, and that the answer for all new technologies is patience.

This Article observes that no consensus is imminent as long as liability is pegged to a standard of “crashproof” code. The added prospect of cyber-physical injury has not changed the underlying complexities of software development. Imposing damages based on failure to prevent code crashes will not improve software quality, but will impede the rollout of cyber-physical systems.

This Article offers two lessons from the “crashworthy” doctrine, a novel tort theory pioneered in the late 1960s in response to a rising epidemic of automobile accidents, which held automakers accountable for unsafe designs that injured occupants during car crashes. The first is that tort liability can be metered on the basis of mitigation, not just prevention. When code crashes are statistically inevitable, cyber-physical manufacturers may be held to have a duty to provide for safer code crashes, rather than no code crashes at all. Second, the crashworthy framework teaches courts to segment their evaluation of code, and make narrower findings of liability based solely on whether cyber-physical manufacturers have incorporated adequate software fault tolerance into their designs.

Requiring all code to be perfect is impossible, but expecting code to be crashworthy is reasonable.

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Bryan H. Choi 94 Wash. L. Rev. 39

Patent Law and the Emigration of Innovation

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Patent Law and the Emigration of Innovation

March 31, 2019 | 94 Wash. L. Rev. 119

Abstract: Legislators and industry leaders claim that patent strength in the United States has declined, causing firms to innovate in foreign countries. Because, however, patent law is bound by strict territorial limitations, one cannot strengthen patent protection by innovating abroad; as a result, scholarship has largely dismissed the theory that foreign patents have any effect on where firms invent. In essence, then, there is a debate pitting industry leaders against scholarship about whether firms can use offshore innovation to secure stronger patent rights, influencing the rate of innovation.

To resolve this puzzle, we offer a novel theory of patent rights—which we empirically test—to dispel the positions taken by both scholarship and industry leaders. Given that technology is generally developed in one country, the innovation process exposes the typical inventor to infringement claims only in that jurisdiction. In turn, we demonstrate that inventors have powerful, counterintuitive incentives to develop technology where patent rights are weaker and enforcement is cheaper. Specifically, it typically costs more to defend a patent infringement claim in the United States than to lose one in another country (the cost to litigate a patent in the United States averages about $3.5 million and royalty awards have surpassed $2.5 billion). Our findings suggest that industry advocates and patent scholars overestimate how much innovation strong patent protection generates while underestimating the deterrent effect of these high costs of patent enforcement. This empirical research contributes to the theoretical understanding of patent rights by shedding new light on this important, yet largely dismissed, dimension of where innovation takes place.

We received invaluable support from international research organizations and patent attorneys working for top-tier law firms. Notably, the Global IP Project, a multinational research group spearheaded by Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, the leading global intellectual property law firm, and Darts-ip, an international organization dedicated to the study of global IP litigation, provided proprietary data. This enabled us to explore whether firms optimize value by placing research and innovation in countries with “better” patent laws. To verify our models, we interviewed notable patent attorneys practicing in the United States, Europe, and Asia.

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Gregory Day & Steven Udick 94 Wash. L. Rev. 119

An Empirical Study of Fast-Food Franchsing Contracts: Towards a New "Intermediary" Theory of Joint Employment


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An Empirical Study of Fast-Food Franchsing Contracts: Towards a New "Intermediary" Theory of Joint Employment

March 31, 2019 | 94 Wash. L. Rev. 171

Abstract: The “Fight for Fifteen and a Union” movement among fast-food workers and their allies has raised awareness about wage inequality in the United States. Rather than negotiating for better wages and working conditions with economically weak restaurant-level franchisees, the movement aims to affect the practices of what they view as the all-powerful brands—the franchisors. Few would dispute the notion that the franchisor brands, not their franchisees, set industry-wide standards and, thus, have the ability to offset rising wage inequality and improve working conditions. And yet, the movement has raised controversial law and policy questions about the legal responsibilities of these fast-food Goliaths under current labor and employment laws. Should fast-food brands, as franchisors, be legally responsible as “employers” for the wage-and-hour violations suffered by the individuals who serve us fast food in their franchised stores, pursuant to the Fair Labor Standards Act (FLSA)? Do they have a legal obligation, under the National Labor Relations Act (NLRA), to bargain with the labor unions representing fast-food workers in their franchised stores? This Article addresses these timely questions with original empirical research of forty-four contracts between top fifty fast-food franchisors and their franchisees in 2016. The contractual analysis reveals a new theory of joint employment via franchisor influence over franchisees’ managers. Unlike prior foci on franchisor-franchisee relations, and franchisor-crew member relations, this Article brings a new party to light: franchisees’ supervisorial managers. Jurisprudential analogy to the agricultural context, and case law regarding farm labor contractors as grower intermediaries, supports this proposed analytical lens. In sum, the theory developed from this rare dataset postulates why some of the Goliaths of fast food may indeed be “employers” with legal obligations to the workers in their franchised restaurants. Thus, courts, administrative agencies and legislators should be mindful of franchisor influence through intermediaries, as well as the complex relationships embedded in the franchise system that make disaggregating direct from indirect forms of influence difficult to impossible.

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Kati L. Griffith 94 Wash. L. Rev. 171

Veil Piercing and the Untapped Power of State Courts


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Veil Piercing and the Untapped Power of State Courts

March 31, 2019 | 94 Wash. L. Rev. 217

Abstract: The U.S. Supreme Court in recent years has embraced an anti-majoritarian trend toward providing constitutional protections for the elite who own or control corporations. This trend is especially troubling as it threatens to undermine the balance found in state corporate law between private ordering for internal corporate matters and government regulation to police the negative externalities of the corporate form. The Court’s interventions also have the potential to leave vulnerable groups without the protection of religiously-neutral laws designed to prevent discrimination, protect workers, or provide essential services such as health care. While the U.S. Supreme Court has not yet explicitly preempted what has traditionally been the province of states, the Court has relied, both implicitly and explicitly, on its own controversial definitions of state law as the foundation on which to create speech rights for corporations and religious rights for corporate owners. Absent explicit federal preemption, states can and should fight back against this creeping federalization of state corporate law.

This Article provides a roadmap. It suggests modest changes to the veil piercing doctrine that can help to restore, at least in part, the balance of power between states and their corporate creations. A state court signaling to business owners even a potential for piercing, and thus the potential for unlimited personal liability, could discourage corporations doing business in the state from seeking religious exemptions to neutrally applicable laws. Most importantly, these changes do not threaten to undermine the corporate control mechanisms that have allowed for efficient private ordering within corporations, nor will they allow corporations to avoid these third-party protections by reincorporating in a different state. Forcing the federal courts to confront state assertions of their right to limit and define corporations will, at the very least, require the U.S. Supreme Court to be transparent about the extent to which it intends to federalize state corporate law, advancing rule of law values like certainty and predictability that are important to individuals and corporations alike.

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Catherine A. Hardee 94 Wash. L. Rev. 217

Who Decides Fair Use–Judge or Jury?

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Who Decides Fair Use–Judge or Jury?

March 31, 2019 | 94 Wash. L. Rev. 275

Abstract: For more than two-hundred years, the issue of fair use has been the province of the jury. That recently changed when the Federal Circuit Court of Appeals decided Oracle America, Inc. v. Google LLC. At issue was whether Google fairly used portions of Oracle’s computer software when Google created an operating system for smartphones. The jury found Google’s use to be fair, but the Federal Circuit reversed. Importantly, the Federal Circuit applied a de novo standard of review to reach its conclusion, departing from centuries of precedent.

Oracle raises a fundamental question in jurisprudence: Who should decide an issue–judge or jury? For the issue of fair use, the Seventh Amendment dictates that the jury should decide. The Seventh Amendment guarantees a right to a jury where an issue would have been heard by English common-law courts in 1791. Fair use is such an issue: early copyright cases make clear that juries decided fair-use issues at common law. Furthermore, the recent Supreme Court case of U.S. Bank National Ass’n v. Village at Lakeridge, LLC instructs appellate courts to employ a deferential standard in reviewing mixed questions of law and fact that resist factual generalizations. The question of fair use resists factual generalizations, turning on circumstances and factual nuances specific to each case. U.S. Bank thus suggests a deferential review. Importantly, this conclusion is consistent with the Supreme Court’s instruction in Harper & Row Publishers, Inc. v. Nation Enterprises, where the Court applied an independent review of a district court’s finding on fair use. The context of the Harper Court’s independent review was a bench trial, and at that time, courts treated the review of fair use at a bench trial differently from the review of fair use at a jury trial. Finally, juries are simply better positioned than judges to decide the sort of issues that arise in fair-use cases. Those issues call for subjective judgments that turn on cultural understandings and social norms, and the heterogeneous perspective of a jury is particularly valuable in making these judgments. Thus, the Federal Circuit in Oracle wrongly applied a de novo standard. The Constitution, precedent, and sound policy mandate deference to the jury.

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Ned Snow 94 Wash. L. Rev. 275

Access to Safety and Justice: Service of Process in Domestic Violence Cases


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Access to Safety and Justice: Service of Process in Domestic Violence Cases

March 31, 2019 | 94 Wash. L. Rev. 333

Abstract: Every day, in courthouses across America, numerous domestic violence protection order cases are dismissed for lack of personal service, even though law enforcement is tasked under federal law with effectuating service. Service of process presents substantial access to justice and access to safety issues for domestic violence survivors who seek legal protection, as nearly 40% of petitioners for civil protection orders are unable to achieve personal service on those against whom they seek protection. Research shows that the civil protection order remedy is the most effective legal means for intervening in and eliminating abuse, yet petitioners who fail to achieve personal service—whether because respondents evade service or are impossible to locate yet continue threats and abuse—are left without vitally needed protection. Procedural rules operate to inhibit the legal remedy’s effectiveness and create a two-stage dilemma by: (1) often requiring notice prior to the temporary protection order stage, which can create danger pre-hearing, and (2) requiring personal service for a full protection order when danger may still exist and the respondent may successfully evade service.

In stark contrast, other areas of the law—including antitrust, bankruptcy, domestic and international business, eviction, divorce, and termination of parental rights—readily permit alternative service methods. In seeking to understand the law’s differential treatment of domestic violence, this Article explores the historic origins of the heightened notice and service requirements for domestic violence remedies and the ongoing race, class, and gender implications, including as displayed by the #MeToo movement. In proposing expanded service methods that satisfy due process rights and address procedural justice, the Article examines both the respondent’s interests and the petitioner’s constitutionally protected right to a hearing on the merits, which is not normally acknowledged. States need not wait for tragedy before making the protection order remedy more accessible, as has been the pattern for several states that have adopted alternative service means for domestic violence remedies.

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Jane K. Stoever 94 Wash. L. Rev. 333

Striking a Balance: Privacy and National Security in Section 702 U.S. Person Queries


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Striking a Balance: Privacy and National Security in Section 702 U.S. Person Queries

March 31, 2019 | 94 Wash. L. Rev. 401

Abstract: The transformation of U.S. foreign intelligence in recent years has led to increasing privacy concerns. The Foreign Intelligence Surveillance Act of 1978 (FISA) traditionally regulated foreign intelligence surveillance by authorizing warrant-based searches of U.S. and non-U.S. persons. Individualized court orders under traditional FISA were intended to protect U.S. persons and limit the scope of intelligence collection. In a post-9/11 world, however, the intelligence community cited concerns regarding the speed and efficiency of collection under traditional methods. The intelligence and law enforcement communities recognized the “wall” preventing information sharing between the communities as a central failure leading to the 9/11 attacks. In response, the scope and authorizations of foreign intelligence collection were expanded with numerous statutory measures, culminating in the passage of Section 702. Under Section 702, only non-U.S. persons located abroad may be surveillance targets, but no warrant is required for the intelligence collection. Since its passage, the intelligence community and privacy advocates have intensely debated the implications of incidental collection of U.S. person communications, including the use of U.S. person queries. Despite the significant expansion of surveillance authorized in the shift from traditional FISA to Section 702, minimization and targeting procedures regulated by the new statute are designed to protect U.S. persons and balance national security and privacy interests.

This Comment addresses the uncomfortable question of whether the U.S. Constitution permits the minor intrusion of a few to protect national security and argues that Section 702 queries are searches under the Fourth Amendment that require a justification independent from the overall surveillance to be constitutional. Nonetheless, the Fourth Amendment protects against only unreasonable searches or seizures by the government, and U.S. person queries are reasonable searches characterized by critical foreign intelligence interests and robust safeguards that outweigh limited impacts on privacy. While the Fourth Amendment does require probable cause warrants for U.S. person queries conducted for criminal investigative purposes, such queries are rare. Striking the proper balance between privacy and security, particularly in the modern technological era, is a complex and challenging legal question. In this context, considerations must include policy and value-laden choices that weigh the statute’s own regulatory measures against the rights protected by the Fourth Amendment. Such an approach renders U.S. person queries reasonable Fourth Amendment searches, albeit subject to more stringent requirements than courts and the government have previously found.

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Brittany Adams 94 Wash. L. Rev. 401

Stealing Swagger: NFL End Zone Celebrations and Fortnite's Fortune


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Stealing Swagger: NFL End Zone Celebrations and Fortnite's Fortune

March 31, 2019 | 94 Wash. L. Rev. 453

Abstract: Football is a staple in many American households: each week, millions watch the game. Every year, National Football League athletes benefit by taking advantage of this passion, not only by earning millions of dollars in salary, but also by signing lucrative endorsement deals. While success on the field is a starting point, an athlete with a captivating personality stands to gain even more financially. A unique end zone celebration that captures fans’ hearts contributes to that personality and makes the player more marketable.

In 2017, after announcing plans to relax the rules against end zone celebrations, the National Football League saw a rise in such celebrations. That same year, a video game called Fortnite exploded onto the scene. Fans were particularly interested in the dances they could make their video game characters perform—dances originally created and performed by pop culture icons.

Because copyright law presumes authors need a financial incentive to create, copyright law protects expressive works, including choreography. However, recent guidance from the U.S. Copyright Office denies protection to end zone celebrations. This Comment largely concurs: Given copyright’s requirements, most celebrations are too simple and therefore will not, and should not, receive protection. Nevertheless, more complex celebrations are arguably copyrightable. If Fortnite has already copied the choreography of others and profited handsomely, there is no reason why end zone celebrations could not be its next target. The Copyright Office opened the door to this kind of commercial appropriation, and now it is time to shut it.

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Alex Avakiantz 94 Wash. L. Rev. 453

What Do You Know? Discovering Document Compilations in 39(B)(6) Depositions


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What Do You Know? Discovering Document Compilations in 39(B)(6) Depositions

March 31, 2019 | 94 Wash. L. Rev. 481

Abstract: The work product doctrine emerged as a judicially created, practical solution to resolve problems inherent in the Federal Rules of Civil Procedure (FRCP). While the FRCP famously sought to broaden discovery and increase parties’ access to information, the rules infamously failed to prevent attorneys from discovering each other’s work product. For policy reasons—primarily to keep some semblance of the adversarial system—the U.S. Supreme Court created work product qualified immunity to prevent attorneys from discovering their opponents’ work, mental impressions, and legal strategies.

At the end of the twentieth century, courts significantly extended the work product doctrine when they began to recognize document compilations—the groups of documents attorneys use to prepare their witnesses for depositions—as privileged work product. These courts found that attorneys’ document selection and organization processes necessarily reveal their mental impressions about cases and are therefore shielded by the work product doctrine. This relatively new work product designation has led to a flood of litigation and prevented deposing attorneys from successfully examining their witnesses. More specifically, deposing attorneys cannot effectively test witness memory or credibility when the attorney does not know which documents the witness reviewed.

Nowhere is this problem more apparent, or more problematic, than in the realm of 30(b)(6) depositions. FRCP 30(b)(6) governs the depositions of corporations. It requires corporations to choose a corporate designee who will bind the company as a whole through his or her testimony. Because corporate designees are frequently required to testify about vast amounts of information relating to the corporation, they almost always review document compilations to prepare for their depositions. In fact, their knowledge may be entirely secondhand, stemming completely from the documents reviewed rather than their own personal experiences. When parties shield these preparatory documents under the work product doctrine, they prevent the deposing attorney from learning the basis of the witness’s testimony. This puts the examiner at a unique disadvantage. This Comment addresses the issue of document compilations in the context of 30(b)(6) depositions. It argues that 30(b)(6) document compilations are not work product at all.

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Sara Leonetti 94 Wash. L. Rev. 481