University of Toronto Law School Faculty Blog

Copthorne Holdings and the Future of the GAAR: January 6, 2012

On December 16, 2011, the Supreme Court of Canada released its much-anticipated decision in Copthorne Holdings Ltd. v. Canada, in which the Court considered the General Anti-Avoidance Rule (GAAR) for the fourth time.

In contrast to its previous GAAR decision in Lipson, the Court arrived at a unanimous decision in Copthorne, applying the GAAR to a number of transactions designed to preserve paid-up capital and redeem shares on a tax-free basis. In order to review the decision and its implications, the University of British Columbia’s National Centre for Business Law and the University of Toronto Faculty of Law are co-sponsoring a symposium on Copthorne Holdings Ltd. and the Future of the GAAR, which will be held at the University of Toronto Faculty of Law on the afternoon of Friday, January 6, 2012. 

Confirmed speakers include Ben Alarie (U of T Law), Hon. Donald G.H. Bowman (FMC Law and former Chief Justice of the Tax Court of Canada), Mark Brender (Osler), Robert Couzin (Couzin Taylor), David Duff (UBC Law), Tim Edgar (Osgoode Hall Law School), Phil Jolie (Canada Revenue Agency), and Deen Olsen (Department of Justice). Space is quite limited. Please go to http://www.copthorne.ca for registration information.

Katz: The First Sale Doctrine - What Antitrust Law Can (and Cannot) Teach

I have posted a new paper on SSRN.  The paper is based on a presentation that I gave at the Exhaustion and First Sale in IP Conference held at Santa Clara Law School last November.  Here’s the abstract:

The first sale doctrine (or exhaustion) limits the exclusive rights that survive the initial authorized sale of an item protected by such rights.  The first sale doctrine has always been under pressure by owners of intellectual property rights, and courts have never been able to precisely outline its contours, or fully articulate its rationale. Recently, and somewhat counter-intuitively, insights borrowed from modern antitrust law and economics are invoked to provide a seemingly robust theoretical foundation for undermining exhaustion rules or narrowing their scope, and thereby strengthen IP owners’ control over downstream distribution and use of the goods they produce.

This article shows why this trend is misguided and agues that it should be resisted, not because the insights from modern antitrust are irrelevant, quite the contrary.  Indeed, the insights from modern antirust law and economics can help underpin some of the first sale doctrine’s missing theoretical foundations and help drawing its proper contours.  However, as this article demonstrates, the insights from modern antitrust do not support the case against the first sale doctrine.  When taken seriously, these insights ultimately support its continued vitality.

The paper can be downloaded here: http://ssrn.com/abstract=1845842.  Comments are welcome.

 

Prof. Ben Alarie on Appointing New Judges to the Supreme Court of Canada

Justices Binnie and Charron announced on Friday, May 13, 2011 that they would be retiring from the Supreme Court of Canada. In order to better understand the likely effects of this on the implicit policy preferences of the members of the Court, I analyzed all the judgments of the Supreme Court of Canada under Chief Justice McLachlin from 2000 SCC 1 to 2011 SCC 20 using the method of Martin and Quinn (2002) that Andrew Green and I have used extensively in earlier work (see here, here, and here).

The updated estimates of the position of the justices in a linear policy space is illustrated below. With the exception of Justices Fish (more liberal) and Deschamps, Rothstein, and Cromwell (more conservative), the justices are tightly bunched in the middle. The current estimates suggest that Justice Abella is the median justice given the current composition of the Court, with an ideal point of -0.05.

 

If Prime Minister Harper chooses to replace Justices Charron (ideal point of -0.21) and Binnie (ideal point of 0.36) with justices that are more or less consistent with his previous two appointees, Justices Rothstein (ideal point of -0.51) and Cromwell (ideal point of -0.39), then it is likely that the new median justice on the Court will be Justice Cromwell. This suggests that the median of the Court will shift from -0.05 (with Justice Abella as median) in this linear policy space to -0.39 (with Justice Cromwell). 

To those who express worry about the (probably overstated) prospect of the radical politicization of the Court, this analysis should be comforting, both for demonstrating the clustering of the current justices and also for showing that justices appointed by both Liberal and Conservative Prime Ministers are arrayed across the linear policy space. Moreover, it is worth observing that approximately 75% of the appeals decided by the Court under Chief Justice McLachlin have been decided unanimously, demonstrating the collegiality of decision-making at the Supreme Court of Canada. Besides, the policy preferences of justices shift from term to term and are difficult to predict, as Andrew Green and I have shown recently in an article published in the Osgoode Hall Law Journal, Policy Preference Change and Appointments to the Supreme Court of Canada.

 

Prof. Ben Alarie on Optimal Panel Size at the Supreme Court of Canada

I have posted a new draft of a paper addressing the optimal size of a panel to hear appeals. It is entitled, "On Optimal Panel Size, with Evidence from the Supreme Court of Canada." It is coauthored work with my colleagues Andrew Green and Ed Iacobucci. Here is the abstract:

The US Supreme Court typically sits en banc. Historically, the House of Lords in the UK sat in panels of five. Its new successor, the UK Supreme Court, now sits in panels of five, seven or nine justices. A similar practice has long been in place at the Supreme Court of Canada, which routinely sits in panels of .five, seven, or nine justices. We develop a formal model of the optimal choice of panel size. The model suggests that in the presence of scarce judicial resources, panel sizes can be deliberately adjusted to improve allocational e.fficiency. Using data from appeals heard by the Supreme Court of Canada from 1984-2005, we uncover evidence that the Court may be using varied panel sizes in a manner consistent with the predictions of our model.

Comments and suggestions are most welcome.

Prof. Ben Alarie: Price Discrimination in Income Taxation

I have posted a draft of a new working paper on SSRN. It is entitled, "Price Discrimination in Income Taxation: Defending Half-Hearted Anti-Avoidance" and is available for download now. Here is the abstract:

Governments throughout the developed world worry incessantly about the implications of sophisticated tax planning for their tax revenues. And yet the same governments routinely stop short of doing all that they can legally do to combat tax avoidance. Why? One response is that a thick conception of the rule of law constrains governments to adopt only certain kinds of responses to tax avoidance. Another response is that inherent structural limitations in tax administrative capacity or features of the political economy environment constrain the available responses to a subset of those that are possible de jure. Even considered jointly, however, the rule of law and political economy explanations do not provide an adequate account of the observed behavior of governments in the context of anti-avoidance. The main inadequacy is that the accounts fail to provide an explanation of the circumstances that will give rise to aggressive measures countering tax avoidance. 

This paper introduces the “integrated price discrimination” account of income taxation. The integrated price discrimination account provides an original and superior explanation of lax anti-avoidance. An advantage of the integrated price discrimination account is that it better explains the observed practice of most developed countries. Another advantage of the price discrimination account is that it does not require that governments adopt this counter-intuitive approach consciously; it could simply be an unintentional byproduct of decisions taken for different reasons. Several policy implications of the intregrated price discrimination account are addressed.

Labor and the Future of the Egyptian Revolution

ForeignPolicy.com’s Middle East Channel published my latest thoughts on Egypt’s labor movement and its role in Egypt’s future democracy.  The essential argument is that if Egyptians want to establish a successful democracy, they must establish a social democracy along the lines of the Scandinavian countries.  After 20 years of structural adjustment in which the gains from liberalization of trade and privatization of state-owned enterprises were limited to a relatively narrow sector of the Egyptian elite and investments in public goods such as education and health steadily declined, democratic stability will require a strong commitment to redistributionist policies.  Recognition of the rights of independent labor unions in Egypt is an essential step toward achieving this necessary social transformation.

Prof. Anita Anand - "Why macro is prudent"

This commentary was first published in the Financial Post on September 23, 2009.

The G20 leaders meet today in Pittsburgh. While macroprudential regulation is likely to be on the agenda, countries continue to wrestle with how, if at all, this concept fits within existing legal frameworks and indeed whether new regulators or committees will be created in each country. But, taking a step back, what does "macroprudential regulation" mean? Should Canada proceed down this road? If so, how?

Macroprudential regulation focuses on the financial system as a whole, seeking to minimize system-wide distress in order to avoid reductions in aggregate output (GDP). This is unlike microprudential regulation which seeks to minimize distress in individual institutions in order to protect depositors. Macroprudential regulation focuses on common exposures across financial systems and institutions rather than the entity-specific focus of microprudential regulation.

Ed Morgan - "Taking a Buy Canadian route would be a legal sell-out"

This article was first published in the Globe and Mail on February 12, 2009.

In one of his more dramatic Question Period performances, the federal NDP Leader announced last week that the “United States has had a Buy American Act for 76 years,” and that “it's perfectly legal.” He then followed up: “Can the Prime Minister tell us what's wrong with a Buy Canadian policy as permitted under continental and global trade rules?”

The question was prompted by the new protectionist proviso attached to Congress's economic stimulus bill. It is, however, premised on a faulty foundation.

Alarie, Green, Iacobucci: Is Bigger Always Better? On Optimal Panel Size with Evidence from the Supreme Court of Canada

I have recently posted a new paper on SSRN entitled, Is Bigger Always Better? On Optimal Panel Size, with Evidence from the Supreme Court of Canada. It is work coauthored with Andrew Green and Ed Iacobucci.  In the paper we model how panel size should be determined by High Courts that provide for this kind of flexibility (and most do).  Our model supports the following predictions: (a) all else the same, more important appeals should be heard by larger panels; (b) all else the same, very easy and very difficult appeals should be heard by smaller panels; and (c) all else the same, appeals of intermediate difficulty should be heard by the largest panels.  We find that the predictions of our model are borne out by an analysis of the panel assignments at the Supreme Court of Canada from 1984-2005.

Ariel Katz: Substitution and Schumpeterian Effects Over the Lifecycle of Copyrighted Works

I have posted a new paper on SSRN.  The paper, titled Substitution and Schumpeterian Effects Over the Lifecycle of Copyrighted Works, develops the following two key insights. First, copyrighted works are affected by two types of competitive forces: substitutive competition and Schumpeterian competition. Second, the relevant magnitude of each of these competitive forces changes at various points over the lifecycle of copyrighted works. The earlier stages of a work's lifecycle are dominated by substitution effects, whereby many other works can function as very close substitutes. As the work develops to a full product, to which many other inputs have been added, it becomes less easily substitutable. This process intensifies as network effects of various kinds secure successful works' market position and render them less vulnerable to competition from close imitations. The competitive threat to which such works may be exposed becomes more Schumpeterian in nature: competition from other works which offer something new, and potentially preferable. Generally, copyright law unequivocally discourages merely substitutive competition, but is much less interested in discouraging Schumpeterian competition. This paper's time-based analysis provides both a justification to this distinction, as well as grounds to evaluating various existing rules and doctrines. It suggests that broader copyright protection (perhaps broader than the current) may be desirable at the early stages of works' lifecycle, whereas narrower protection (perhaps narrower than the current) may be justified as later stages.
The paper is freely available here; comments are welcome.