Fairness, efficiency, and insider trading: Deconstructing the coin of the realm in the information age

Northwestern University Law Review

Volumn 95, Issue 2, 2001, Pages 443-502

  Krawiec, Kimberly D ^a  

^a NONE

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EID: 0041866760     PISSN: 00293571     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (371)

1. Visiting Professor, UCLA School of Law; Associate Professor, University of Oregon School of Law. Although this paper has benefited from the comments of many readers, I am particularly indebted to Professor Keith Aoki for his helpful insights on the unique complexities of information. Portions of this Article were presented at the First Annual Covell Conference on Corporate Governance at UCLA School of Law and the Sixteenth Annual Sokol Colloquium on Private International Law at the University of Virginia School of Law, and I am grateful to the participants at those events for their comments and questions. Finally, I am grateful to Professors Stephen M. Bainbridge, G. Mitu Gulati, Peter H. Huang, Thomas Wuil Joo, William A. Klein, Richard W. Painter, and James B. Speta and to Dean David Van Zandt for helpful comments and suggestions on earlier drafts of this Article.
2. SEC v. Materia, 745 F.2d 197, 198 (2d Cir. 1984).
3. I use the phrase "insider trading" to refer to all trading (whether in stocks or other commodities) while in possession of material nonpublic information, regardless of whether the trader is an actual corporate insider and regardless of whether the conduct is illegal. This definition is analogous to the economic, as opposed to the legal, definition of insider trading, which considers insider trading to involve "trading by parties who are better informed than their trading partners." Dennis W. Carlton & Daniel R. Fischel, The Regulation of Insider Trading, 35 STAN. L. REV. 857, 860 (1983). The economic definition of insider trading, in other words, "includes all trades where information is asymmetric." Id.
4. See, e.g., LEO KATZ, ILL GOTTEN GAINS: EVASION, BLACKMAIL, FRAUD AND KINDRED PUZZLES OF THE LAW 172 (1996) (arguing that it is not the actual purchasers or sellers of securities who are injured by insider trading, but those who would have purchased or sold securities if the insider had not done so); Stephen Bainbridge, The Insider Trading Prohibition: A Legal and Economic Enigma, 38 U. FLA. L. REV. 35, 50-62 (1986) (arguing that insider trading may injure the issuing firm and its shareholders, but questioning whether contemporaneous marketplace traders are injured); Nicholas L. Georgakopoulos, Insider Trading as a Transactional Cost: A Market Microstructure Justification and Optimization of Insider Trading Regulation, 26 CONN. L. REV. 1 (1993) (arguing that insider trading increases bid-ask spreads for securities, resulting in less market liquidity).
5. See, e.g., LEO KATZ, ILL GOTTEN GAINS: EVASION, BLACKMAIL, FRAUD AND KINDRED PUZZLES OF THE LAW 172 (1996) (arguing that it is not the actual purchasers or sellers of securities who are injured by insider trading, but those who would have purchased or sold securities if the insider had not done so); Stephen Bainbridge, The Insider Trading Prohibition: A Legal and Economic Enigma, 38 U. FLA. L. REV. 35, 50-62 (1986) (arguing that insider trading may injure the issuing firm and its shareholders, but questioning whether contemporaneous marketplace traders are injured); Nicholas L. Georgakopoulos, Insider Trading as a Transactional Cost: A Market Microstructure Justification and Optimization of Insider Trading Regulation, 26 CONN. L. REV. 1 (1993) (arguing that insider trading increases bid-ask spreads for securities, resulting in less market liquidity).
6. See, e.g., LEO KATZ, ILL GOTTEN GAINS: EVASION, BLACKMAIL, FRAUD AND KINDRED PUZZLES OF THE LAW 172 (1996) (arguing that it is not the actual purchasers or sellers of securities who are injured by insider trading, but those who would have purchased or sold securities if the insider had not done so); Stephen Bainbridge, The Insider Trading Prohibition: A Legal and Economic Enigma, 38 U. FLA. L. REV. 35, 50-62 (1986) (arguing that insider trading may injure the issuing firm and its shareholders, but questioning whether contemporaneous marketplace traders are injured); Nicholas L. Georgakopoulos, Insider Trading as a Transactional Cost: A Market Microstructure Justification and Optimization of Insider Trading Regulation, 26 CONN. L. REV. 1 (1993) (arguing that insider trading increases bid-ask spreads for securities, resulting in less market liquidity).
7. See, e.g., Allison Grey Anderson, Fraud, Fiduciaries and Insider Trading, 10 HOFSTRA L. REV. 341, 375 (1982) (arguing that the insider trading prohibition should be limited to corporate insiders and market professionals); Stephen M. Bainbridge, Insider Trading Regulation: The Path Dependent Choice Between Property Rights and Securities Fraud, 52 SMU L. Rev. 1589 (1999) (advocating a property rights-based approach to insider trading regulation); Victor Brudney, Insiders, Outsiders, and Informational Advantages Under the Federal Securities Laws, 93 HARV. L. REV. 322 (1979) (arguing that federal securities laws should prohibit trading on informational advantages that cannot be lawfully eroded); Donna M. Nagy, Reframing the Misappropriation Theory of Insider Trading Liability: A Post-O'Hagan Suggestion, 59 OHIO ST. L.J. 1223 (1998) (arguing that the Supreme Court has adopted an unnecessarily restrictive view of illegal insider trading and advocating a broader "fraud on investors" theory of insider trading liability); Larry E. Ribstein, Federalism and Insider Trading, 6 SUP. CT. ECON. REV. 123, 124-25 (1998) (arguing that insider trading should be governed by state laws that protect property rights in valuable information).
8. See, e.g., Allison Grey Anderson, Fraud, Fiduciaries and Insider Trading, 10 HOFSTRA L. REV. 341, 375 (1982) (arguing that the insider trading prohibition should be limited to corporate insiders and market professionals); Stephen M. Bainbridge, Insider Trading Regulation: The Path Dependent Choice Between Property Rights and Securities Fraud, 52 SMU L. Rev. 1589 (1999) (advocating a property rights-based approach to insider trading regulation); Victor Brudney, Insiders, Outsiders, and Informational Advantages Under the Federal Securities Laws, 93 HARV. L. REV. 322 (1979) (arguing that federal securities laws should prohibit trading on informational advantages that cannot be lawfully eroded); Donna M. Nagy, Reframing the Misappropriation Theory of Insider Trading Liability: A Post-O'Hagan Suggestion, 59 OHIO ST. L.J. 1223 (1998) (arguing that the Supreme Court has adopted an unnecessarily restrictive view of illegal insider trading and advocating a broader "fraud on investors" theory of insider trading liability); Larry E. Ribstein, Federalism and Insider Trading, 6 SUP. CT. ECON. REV. 123, 124-25 (1998) (arguing that insider trading should be governed by state laws that protect property rights in valuable information).
9. See, e.g., Allison Grey Anderson, Fraud, Fiduciaries and Insider Trading, 10 HOFSTRA L. REV. 341, 375 (1982) (arguing that the insider trading prohibition should be limited to corporate insiders and market professionals); Stephen M. Bainbridge, Insider Trading Regulation: The Path Dependent Choice Between Property Rights and Securities Fraud, 52 SMU L. Rev. 1589 (1999) (advocating a property rights-based approach to insider trading regulation); Victor Brudney, Insiders, Outsiders, and Informational Advantages Under the Federal Securities Laws, 93 HARV. L. REV. 322 (1979) (arguing that federal securities laws should prohibit trading on informational advantages that cannot be lawfully eroded); Donna M. Nagy, Reframing the Misappropriation Theory of Insider Trading Liability: A Post-O'Hagan Suggestion, 59 OHIO ST. L.J. 1223 (1998) (arguing that the Supreme Court has adopted an unnecessarily restrictive view of illegal insider trading and advocating a broader "fraud on investors" theory of insider trading liability); Larry E. Ribstein, Federalism and Insider Trading, 6 SUP. CT. ECON. REV. 123, 124-25 (1998) (arguing that insider trading should be governed by state laws that protect property rights in valuable information).
10. See, e.g., Allison Grey Anderson, Fraud, Fiduciaries and Insider Trading, 10 HOFSTRA L. REV. 341, 375 (1982) (arguing that the insider trading prohibition should be limited to corporate insiders and market professionals); Stephen M. Bainbridge, Insider Trading Regulation: The Path Dependent Choice Between Property Rights and Securities Fraud, 52 SMU L. Rev. 1589 (1999) (advocating a property rights-based approach to insider trading regulation); Victor Brudney, Insiders, Outsiders, and Informational Advantages Under the Federal Securities Laws, 93 HARV. L. REV. 322 (1979) (arguing that federal securities laws should prohibit trading on informational advantages that cannot be lawfully eroded); Donna M. Nagy, Reframing the Misappropriation Theory of Insider Trading Liability: A Post-O'Hagan Suggestion, 59 OHIO ST. L.J. 1223 (1998) (arguing that the Supreme Court has adopted an unnecessarily restrictive view of illegal insider trading and advocating a broader "fraud on investors" theory of insider trading liability); Larry E. Ribstein, Federalism and Insider Trading, 6 SUP. CT. ECON. REV. 123, 124-25 (1998) (arguing that insider trading should be governed by state laws that protect property rights in valuable information).
11. See, e.g., Allison Grey Anderson, Fraud, Fiduciaries and Insider Trading, 10 HOFSTRA L. REV. 341, 375 (1982) (arguing that the insider trading prohibition should be limited to corporate insiders and market professionals); Stephen M. Bainbridge, Insider Trading Regulation: The Path Dependent Choice Between Property Rights and Securities Fraud, 52 SMU L. Rev. 1589 (1999) (advocating a property rights-based approach to insider trading regulation); Victor Brudney, Insiders, Outsiders, and Informational Advantages Under the Federal Securities Laws, 93 HARV. L. REV. 322 (1979) (arguing that federal securities laws should prohibit trading on informational advantages that cannot be lawfully eroded); Donna M. Nagy, Reframing the Misappropriation Theory of Insider Trading Liability: A Post-O'Hagan Suggestion, 59 OHIO ST. L.J. 1223 (1998) (arguing that the Supreme Court has adopted an unnecessarily restrictive view of illegal insider trading and advocating a broader "fraud on investors" theory of insider trading liability); Larry E. Ribstein, Federalism and Insider Trading, 6 SUP. CT. ECON. REV. 123, 124-25 (1998) (arguing that insider trading should be governed by state laws that protect property rights in valuable information).
12. See, e.g., Ronald J. Gilson & Reinier H. Kraakman, The Mechanisms of Market Efficiency, 70 VA. L. REV. 549, 630-32 (1984) (arguing that insider trading transmits information to the marketplace in an inefficient manner and is thus unlikely to increase informational efficiency substantially unless insiders are required to disclose their trades); Edmund W. Kitch, The Law and Economics of Rights in Valuable Information, 9 J. LEGAL STUD. 683, 719 (1980) (arguing that the Securities and Exchange Commission's bar against insider trading has made the stock market less efficient); Henry G. Manne, Insider Trading and the Law Professors, 23 VAND. L. REV. 547, 565-76 (1970) (arguing that insider trading leads to more accurate stock prices by conveying information to the marketplace).
13. See, e.g., Ronald J. Gilson & Reinier H. Kraakman, The Mechanisms of Market Efficiency, 70 VA. L. REV. 549, 630-32 (1984) (arguing that insider trading transmits information to the marketplace in an inefficient manner and is thus unlikely to increase informational efficiency substantially unless insiders are required to disclose their trades); Edmund W. Kitch, The Law and Economics of Rights in Valuable Information, 9 J. LEGAL STUD. 683, 719 (1980) (arguing that the Securities and Exchange Commission's bar against insider trading has made the stock market less efficient); Henry G. Manne, Insider Trading and the Law Professors, 23 VAND. L. REV. 547, 565-76 (1970) (arguing that insider trading leads to more accurate stock prices by conveying information to the marketplace).
14. See, e.g., Ronald J. Gilson & Reinier H. Kraakman, The Mechanisms of Market Efficiency, 70 VA. L. REV. 549, 630-32 (1984) (arguing that insider trading transmits information to the marketplace in an inefficient manner and is thus unlikely to increase informational efficiency substantially unless insiders are required to disclose their trades); Edmund W. Kitch, The Law and Economics of Rights in Valuable Information, 9 J. LEGAL STUD. 683, 719 (1980) (arguing that the Securities and Exchange Commission's bar against insider trading has made the stock market less efficient); Henry G. Manne, Insider Trading and the Law Professors, 23 VAND. L. REV. 547, 565-76 (1970) (arguing that insider trading leads to more accurate stock prices by conveying information to the marketplace).
15. See, e.g., Saikrishna Prakash, Our Dysfunctional Insider Trading Regime, 99 COLUM. L. REV. 1491, 1493 (1999) (referring to the U.S. insider trading regime as "astonishingly dysfunctional"); Bainbridge, supra note 4, at 68 ("Despite a lengthy and active debate, the insider trading prohibition remains both a legal and economic enigma."); James Boyle, A Theory of Law and Information: Copyright, Spleens, Blackmail, and Insider Trading, 80 CAL. L. REV. 1413, 1429 (1992) ("All scholars seem to agree that, despite widespread popular support for sanctions against insider trading, the reasons for such sanctions are hard to identify."); James D. Cox, Insider Trading and Contracting: A Critical Response to the "Chicago School," 1986 DUKE L.J. 628, 634 ("The fact that such an aggressive level of regulation exists without a coherent, let alone articulated, philosophy of regulation is one of the most unsettling aspects of the federal securities laws."); Jill E. Fisch, Start Making Sense: An Analysis and Proposal for Insider Trading Regulation, 26 GA. L. REV. 179, 179 (1991) ("When Charles Dickens wrote 'the law is a[n] ass,' he might well have been describing the law governing insider trading.").
16. See, e.g., Saikrishna Prakash, Our Dysfunctional Insider Trading Regime, 99 COLUM. L. REV. 1491, 1493 (1999) (referring to the U.S. insider trading regime as "astonishingly dysfunctional"); Bainbridge, supra note 4, at 68 ("Despite a lengthy and active debate, the insider trading prohibition remains both a legal and economic enigma."); James Boyle, A Theory of Law and Information: Copyright, Spleens, Blackmail, and Insider Trading, 80 CAL. L. REV. 1413, 1429 (1992) ("All scholars seem to agree that, despite widespread popular support for sanctions against insider trading, the reasons for such sanctions are hard to identify."); James D. Cox, Insider Trading and Contracting: A Critical Response to the "Chicago School," 1986 DUKE L.J. 628, 634 ("The fact that such an aggressive level of regulation exists without a coherent, let alone articulated, philosophy of regulation is one of the most unsettling aspects of the federal securities laws."); Jill E. Fisch, Start Making Sense: An Analysis and Proposal for Insider Trading Regulation, 26 GA. L. REV. 179, 179 (1991) ("When Charles Dickens wrote 'the law is a[n] ass,' he might well have been describing the law governing insider trading.").
17. See, e.g., Saikrishna Prakash, Our Dysfunctional Insider Trading Regime, 99 COLUM. L. REV. 1491, 1493 (1999) (referring to the U.S. insider trading regime as "astonishingly dysfunctional"); Bainbridge, supra note 4, at 68 ("Despite a lengthy and active debate, the insider trading prohibition remains both a legal and economic enigma."); James Boyle, A Theory of Law and Information: Copyright, Spleens, Blackmail, and Insider Trading, 80 CAL. L. REV. 1413, 1429 (1992) ("All scholars seem to agree that, despite widespread popular support for sanctions against insider trading, the reasons for such sanctions are hard to identify."); James D. Cox, Insider Trading and Contracting: A Critical Response to the "Chicago School," 1986 DUKE L.J. 628, 634 ("The fact that such an aggressive level of regulation exists without a coherent, let alone articulated, philosophy of regulation is one of the most unsettling aspects of the federal securities laws."); Jill E. Fisch, Start Making Sense: An Analysis and Proposal for Insider Trading Regulation, 26 GA. L. REV. 179, 179 (1991) ("When Charles Dickens wrote 'the law is a[n] ass,' he might well have been describing the law governing insider trading.").
18. See, e.g., Saikrishna Prakash, Our Dysfunctional Insider Trading Regime, 99 COLUM. L. REV. 1491, 1493 (1999) (referring to the U.S. insider trading regime as "astonishingly dysfunctional"); Bainbridge, supra note 4, at 68 ("Despite a lengthy and active debate, the insider trading prohibition remains both a legal and economic enigma."); James Boyle, A Theory of Law and Information: Copyright, Spleens, Blackmail, and Insider Trading, 80 CAL. L. REV. 1413, 1429 (1992) ("All scholars seem to agree that, despite widespread popular support for sanctions against insider trading, the reasons for such sanctions are hard to identify."); James D. Cox, Insider Trading and Contracting: A Critical Response to the "Chicago School," 1986 DUKE L.J. 628, 634 ("The fact that such an aggressive level of regulation exists without a coherent, let alone articulated, philosophy of regulation is one of the most unsettling aspects of the federal securities laws."); Jill E. Fisch, Start Making Sense: An Analysis and Proposal for Insider Trading Regulation, 26 GA. L. REV. 179, 179 (1991) ("When Charles Dickens wrote 'the law is a[n] ass,' he might well have been describing the law governing insider trading.").
19. See STEPHEN M. BAINBRIDGE, INSIDER TRADING 4 (1999) (stating that "insider trading . . . remains one of the most controversial aspects of securities law"); Cox, supra note 7, at 628 ("American jurisprudence abhors insider trading with a fervor reserved for those who scoff at motherhood, apple pie, and baseball. The commonly stated reasons for this reaction to insider trading are many and unpersuasive. The case law barely suggests why insider trading is harmful."); Gary Lawson, The Ethics of Insider Trading, 11 HARV. J.L. & PUB. POL'Y 727, 727 (1988) ("Legal and moral condemnation is heaped upon insider trading with uncommon hostility. . . .").
20. See STEPHEN M. BAINBRIDGE, INSIDER TRADING 4 (1999) (stating that "insider trading . . . remains one of the most controversial aspects of securities law"); Cox, supra note 7, at 628 ("American jurisprudence abhors insider trading with a fervor reserved for those who scoff at motherhood, apple pie, and baseball. The commonly stated reasons for this reaction to insider trading are many and unpersuasive. The case law barely suggests why insider trading is harmful."); Gary Lawson, The Ethics of Insider Trading, 11 HARV. J.L. & PUB. POL'Y 727, 727 (1988) ("Legal and moral condemnation is heaped upon insider trading with uncommon hostility. . . .").
21. See, e.g., HENRY G. MANNE, INSIDER TRADING AND THE STOCK MARKET (1966) [hereinafter, MANNE, INSIDER TRADING]; David D. Haddock & Jonathan R. Macey, A Coasian Model of Insider Trading, 80 NW. U. L. REV. 1449, 1457-58 (1987) [hereinafter Haddock & Macey, Coasian Model]; David D. Haddock & Jonathan R. Macey, Regulation on Demand: A Private Interest Model, with an Application to Insider Trading, 30 J.L. & ECON. 311 (1987) [hereinafter Haddock & Macey, Regulation on Demand]; Jonathan R. Macey, From Fairness to Contract: The New Direction of the Rules Against Insider Trading, 13 HOFSTRA L. REV. 9 (1984) [hereinafter Macey, From Fairness to Contract]; Henry G. Manne, In Defense of Insider Trading, 44 HARV. BUS. REV. Nov.-Dec. 1966, at 113; Manne, supra note 6.
22. See, e.g., HENRY G. MANNE, INSIDER TRADING AND THE STOCK MARKET (1966) [hereinafter, MANNE, INSIDER TRADING]; David D. Haddock & Jonathan R. Macey, A Coasian Model of Insider Trading, 80 NW. U. L. REV. 1449, 1457-58 (1987) [hereinafter Haddock & Macey, Coasian Model]; David D. Haddock & Jonathan R. Macey, Regulation on Demand: A Private Interest Model, with an Application to Insider Trading, 30 J.L. & ECON. 311 (1987) [hereinafter Haddock & Macey, Regulation on Demand]; Jonathan R. Macey, From Fairness to Contract: The New Direction of the Rules Against Insider Trading, 13 HOFSTRA L. REV. 9 (1984) [hereinafter Macey, From Fairness to Contract]; Henry G. Manne, In Defense of Insider Trading, 44 HARV. BUS. REV. Nov.-Dec. 1966, at 113; Manne, supra note 6.
23. See, e.g., HENRY G. MANNE, INSIDER TRADING AND THE STOCK MARKET (1966) [hereinafter, MANNE, INSIDER TRADING]; David D. Haddock & Jonathan R. Macey, A Coasian Model of Insider Trading, 80 NW. U. L. REV. 1449, 1457-58 (1987) [hereinafter Haddock & Macey, Coasian Model]; David D. Haddock & Jonathan R. Macey, Regulation on Demand: A Private Interest Model, with an Application to Insider Trading, 30 J.L. & ECON. 311 (1987) [hereinafter Haddock & Macey, Regulation on Demand]; Jonathan R. Macey, From Fairness to Contract: The New Direction of the Rules Against Insider Trading, 13 HOFSTRA L. REV. 9 (1984) [hereinafter Macey, From Fairness to Contract]; Henry G. Manne, In Defense of Insider Trading, 44 HARV. BUS. REV. Nov.-Dec. 1966, at 113; Manne, supra note 6.
24. See, e.g., HENRY G. MANNE, INSIDER TRADING AND THE STOCK MARKET (1966) [hereinafter, MANNE, INSIDER TRADING]; David D. Haddock & Jonathan R. Macey, A Coasian Model of Insider Trading, 80 NW. U. L. REV. 1449, 1457-58 (1987) [hereinafter Haddock & Macey, Coasian Model]; David D. Haddock & Jonathan R. Macey, Regulation on Demand: A Private Interest Model, with an Application to Insider Trading, 30 J.L. & ECON. 311 (1987) [hereinafter Haddock & Macey, Regulation on Demand]; Jonathan R. Macey, From Fairness to Contract: The New Direction of the Rules Against Insider Trading, 13 HOFSTRA L. REV. 9 (1984) [hereinafter Macey, From Fairness to Contract]; Henry G. Manne, In Defense of Insider Trading, 44 HARV. BUS. REV. Nov.-Dec. 1966, at 113; Manne, supra note 6.
25. See, e.g., HENRY G. MANNE, INSIDER TRADING AND THE STOCK MARKET (1966) [hereinafter, MANNE, INSIDER TRADING]; David D. Haddock & Jonathan R. Macey, A Coasian Model of Insider Trading, 80 NW. U. L. REV. 1449, 1457-58 (1987) [hereinafter Haddock & Macey, Coasian Model]; David D. Haddock & Jonathan R. Macey, Regulation on Demand: A Private Interest Model, with an Application to Insider Trading, 30 J.L. & ECON. 311 (1987) [hereinafter Haddock & Macey, Regulation on Demand]; Jonathan R. Macey, From Fairness to Contract: The New Direction of the Rules Against Insider Trading, 13 HOFSTRA L. REV. 9 (1984) [hereinafter Macey, From Fairness to Contract]; Henry G. Manne, In Defense of Insider Trading, 44 HARV. BUS. REV. Nov.-Dec. 1966, at 113; Manne, supra note 6.
26. See, e.g., HENRY G. MANNE, INSIDER TRADING AND THE STOCK MARKET (1966) [hereinafter, MANNE, INSIDER TRADING]; David D. Haddock & Jonathan R. Macey, A Coasian Model of Insider Trading, 80 NW. U. L. REV. 1449, 1457-58 (1987) [hereinafter Haddock & Macey, Coasian Model]; David D. Haddock & Jonathan R. Macey, Regulation on Demand: A Private Interest Model, with an Application to Insider Trading, 30 J.L. & ECON. 311 (1987) [hereinafter Haddock & Macey, Regulation on Demand]; Jonathan R. Macey, From Fairness to Contract: The New Direction of the Rules Against Insider Trading, 13 HOFSTRA L. REV. 9 (1984) [hereinafter Macey, From Fairness to Contract]; Henry G. Manne, In Defense of Insider Trading, 44 HARV. BUS. REV. Nov.-Dec. 1966, at 113; Manne, supra note 6.
27. See, e.g., HENRY G. MANNE, INSIDER TRADING AND THE STOCK MARKET (1966) [hereinafter, MANNE, INSIDER TRADING]; David D. Haddock & Jonathan R. Macey, A Coasian Model of Insider Trading, 80 NW. U. L. REV. 1449, 1457-58 (1987) [hereinafter Haddock & Macey, Coasian Model]; David D. Haddock & Jonathan R. Macey, Regulation on Demand: A Private Interest Model, with an Application to Insider Trading, 30 J.L. & ECON. 311 (1987) [hereinafter Haddock & Macey, Regulation on Demand]; Jonathan R. Macey, From Fairness to Contract: The New Direction of the Rules Against Insider Trading, 13 HOFSTRA L. REV. 9 (1984) [hereinafter Macey, From Fairness to Contract]; Henry G. Manne, In Defense of Insider Trading, 44 HARV. BUS. REV. Nov.-Dec. 1966, at 113; Manne, supra note 6.
28. See, e.g., HENRY G. MANNE, INSIDER TRADING AND THE STOCK MARKET (1966) [hereinafter, MANNE, INSIDER TRADING]; David D. Haddock & Jonathan R. Macey, A Coasian Model of Insider Trading, 80 NW. U. L. REV. 1449, 1457-58 (1987) [hereinafter Haddock & Macey, Coasian Model]; David D. Haddock & Jonathan R. Macey, Regulation on Demand: A Private Interest Model, with an Application to Insider Trading, 30 J.L. & ECON. 311 (1987) [hereinafter Haddock & Macey, Regulation on Demand]; Jonathan R. Macey, From Fairness to Contract: The New Direction of the Rules Against Insider Trading, 13 HOFSTRA L. REV. 9 (1984) [hereinafter Macey, From Fairness to Contract]; Henry G. Manne, In Defense of Insider Trading, 44 HARV. BUS. REV. Nov.-Dec. 1966, at 113; Manne, supra note 6.
29. See, e.g., HENRY G. MANNE, INSIDER TRADING AND THE STOCK MARKET (1966) [hereinafter, MANNE, INSIDER TRADING]; David D. Haddock & Jonathan R. Macey, A Coasian Model of Insider Trading, 80 NW. U. L. REV. 1449, 1457-58 (1987) [hereinafter Haddock & Macey, Coasian Model]; David D. Haddock & Jonathan R. Macey, Regulation on Demand: A Private Interest Model, with an Application to Insider Trading, 30 J.L. & ECON. 311 (1987) [hereinafter Haddock & Macey, Regulation on Demand]; Jonathan R. Macey, From Fairness to Contract: The New Direction of the Rules Against Insider Trading, 13 HOFSTRA L. REV. 9 (1984) [hereinafter Macey, From Fairness to Contract]; Henry G. Manne, In Defense of Insider Trading, 44 HARV. BUS. REV. Nov.-Dec. 1966, at 113; Manne, supra note 6.
30. KATZ, supra note 4, at 180-89 (arguing that insider trading should be prohibited because it is morally wrong); KIM LANE SCHEPPELE, LEGAL SECRETS: EQUALITY AND EFFICIENCY IN THE COMMON LAW ix (1988) [hereinafter SCHEPPELE, LEGAL SECRETS] (describing her book on the legal regulation of secrets, including the law governing insider trading, as a book about "moral philosophy"); Lawson, supra note 8 (discussing moral philosophy in the insider trading context); Kim Lane Scheppele, "It's Just Not Right": The Ethics of Insider Trading, 56 LAW & CONTEMP. PROBS. 125 (1993) [hereinafter Scheppele, Insider Trading] (advocating an equality of access approach to insider trading regulation based on a theory of "contractarian ethics"); Alan Strudler, Moral Complexity in the Law of Nondisclosure, 45 UCLA L. REV. 337 (1997) (defending a deontological treatment of the duty of disclosure required in contract negotiations); Alan Strudler & Eric W. Orts, Moral Principle in the Law of Insider Trading, 78 TEX. L. REV. 375 (1999) (arguing that "there are good moral reasons, even in the absence of a fiduciary relationship, to recognize a duty to disclose in certain circumstances when people with material nonpublic information trade with those who lack such information").
31. KATZ, supra note 4, at 180-89 (arguing that insider trading should be prohibited because it is morally wrong); KIM LANE SCHEPPELE, LEGAL SECRETS: EQUALITY AND EFFICIENCY IN THE COMMON LAW ix (1988) [hereinafter SCHEPPELE, LEGAL SECRETS] (describing her book on the legal regulation of secrets, including the law governing insider trading, as a book about "moral philosophy"); Lawson, supra note 8 (discussing moral philosophy in the insider trading context); Kim Lane Scheppele, "It's Just Not Right": The Ethics of Insider Trading, 56 LAW & CONTEMP. PROBS. 125 (1993) [hereinafter Scheppele, Insider Trading] (advocating an equality of access approach to insider trading regulation based on a theory of "contractarian ethics"); Alan Strudler, Moral Complexity in the Law of Nondisclosure, 45 UCLA L. REV. 337 (1997) (defending a deontological treatment of the duty of disclosure required in contract negotiations); Alan Strudler & Eric W. Orts, Moral Principle in the Law of Insider Trading, 78 TEX. L. REV. 375 (1999) (arguing that "there are good moral reasons, even in the absence of a fiduciary relationship, to recognize a duty to disclose in certain circumstances when people with material nonpublic information trade with those who lack such information").
32. KATZ, supra note 4, at 180-89 (arguing that insider trading should be prohibited because it is morally wrong); KIM LANE SCHEPPELE, LEGAL SECRETS: EQUALITY AND EFFICIENCY IN THE COMMON LAW ix (1988) [hereinafter SCHEPPELE, LEGAL SECRETS] (describing her book on the legal regulation of secrets, including the law governing insider trading, as a book about "moral philosophy"); Lawson, supra note 8 (discussing moral philosophy in the insider trading context); Kim Lane Scheppele, "It's Just Not Right": The Ethics of Insider Trading, 56 LAW & CONTEMP. PROBS. 125 (1993) [hereinafter Scheppele, Insider Trading] (advocating an equality of access approach to insider trading regulation based on a theory of "contractarian ethics"); Alan Strudler, Moral Complexity in the Law of Nondisclosure, 45 UCLA L. REV. 337 (1997) (defending a deontological treatment of the duty of disclosure required in contract negotiations); Alan Strudler & Eric W. Orts, Moral Principle in the Law of Insider Trading, 78 TEX. L. REV. 375 (1999) (arguing that "there are good moral reasons, even in the absence of a fiduciary relationship, to recognize a duty to disclose in certain circumstances when people with material nonpublic information trade with those who lack such information").
33. KATZ, supra note 4, at 180-89 (arguing that insider trading should be prohibited because it is morally wrong); KIM LANE SCHEPPELE, LEGAL SECRETS: EQUALITY AND EFFICIENCY IN THE COMMON LAW ix (1988) [hereinafter SCHEPPELE, LEGAL SECRETS] (describing her book on the legal regulation of secrets, including the law governing insider trading, as a book about "moral philosophy"); Lawson, supra note 8 (discussing moral philosophy in the insider trading context); Kim Lane Scheppele, "It's Just Not Right": The Ethics of Insider Trading, 56 LAW & CONTEMP. PROBS. 125 (1993) [hereinafter Scheppele, Insider Trading] (advocating an equality of access approach to insider trading regulation based on a theory of "contractarian ethics"); Alan Strudler, Moral Complexity in the Law of Nondisclosure, 45 UCLA L. REV. 337 (1997) (defending a deontological treatment of the duty of disclosure required in contract negotiations); Alan Strudler & Eric W. Orts, Moral Principle in the Law of Insider Trading, 78 TEX. L. REV. 375 (1999) (arguing that "there are good moral reasons, even in the absence of a fiduciary relationship, to recognize a duty to disclose in certain circumstances when people with material nonpublic information trade with those who lack such information").
34. KATZ, supra note 4, at 180-89 (arguing that insider trading should be prohibited because it is morally wrong); KIM LANE SCHEPPELE, LEGAL SECRETS: EQUALITY AND EFFICIENCY IN THE COMMON LAW ix (1988) [hereinafter SCHEPPELE, LEGAL SECRETS] (describing her book on the legal regulation of secrets, including the law governing insider trading, as a book about "moral philosophy"); Lawson, supra note 8 (discussing moral philosophy in the insider trading context); Kim Lane Scheppele, "It's Just Not Right": The Ethics of Insider Trading, 56 LAW & CONTEMP. PROBS. 125 (1993) [hereinafter Scheppele, Insider Trading] (advocating an equality of access approach to insider trading regulation based on a theory of "contractarian ethics"); Alan Strudler, Moral Complexity in the Law of Nondisclosure, 45 UCLA L. REV. 337 (1997) (defending a deontological treatment of the duty of disclosure required in contract negotiations); Alan Strudler & Eric W. Orts, Moral Principle in the Law of Insider Trading, 78 TEX. L. REV. 375 (1999) (arguing that "there are good moral reasons, even in the absence of a fiduciary relationship, to recognize a duty to disclose in certain circumstances when people with material nonpublic information trade with those who lack such information").
35. KATZ, supra note 4, at 180-89 (arguing that insider trading should be prohibited because it is morally wrong); KIM LANE SCHEPPELE, LEGAL SECRETS: EQUALITY AND EFFICIENCY IN THE COMMON LAW ix (1988) [hereinafter SCHEPPELE, LEGAL SECRETS] (describing her book on the legal regulation of secrets, including the law governing insider trading, as a book about "moral philosophy"); Lawson, supra note 8 (discussing moral philosophy in the insider trading context); Kim Lane Scheppele, "It's Just Not Right": The Ethics of Insider Trading, 56 LAW & CONTEMP. PROBS. 125 (1993) [hereinafter Scheppele, Insider Trading] (advocating an equality of access approach to insider trading regulation based on a theory of "contractarian ethics"); Alan Strudler, Moral Complexity in the Law of Nondisclosure, 45 UCLA L. REV. 337 (1997) (defending a deontological treatment of the duty of disclosure required in contract negotiations); Alan Strudler & Eric W. Orts, Moral Principle in the Law of Insider Trading, 78 TEX. L. REV. 375 (1999) (arguing that "there are good moral reasons, even in the absence of a fiduciary relationship, to recognize a duty to disclose in certain circumstances when people with material nonpublic information trade with those who lack such information").
36. Judith G. Greenberg, Insider Trading and Family Values, 4 WM. & MARY J. WOMEN & L. 303, 307-08 (1998) (arguing that insider trading regulation has been influenced by unconscious judicial perceptions of gender roles and the dichotomous spheres of market and family).
37. SCHEPPELE, LEGAL SECRETS, supra note 10, at ix (describing her book on the legal regulation of secrets, including the law governing insider trading, as a book about "the sociology of knowledge").
38. See Boyle, supra note 7, at 1417 ("[T]he area of legal doctrine that acknowledges that its main concern is information - conventionally defined intellectual property - is marked by severe disagreements over the most fundamental propositions."). Professor Boyle, for example, illustrates that the conceptual dilemma and legal puzzles raised by the dual nature of information in the marketplace confound the fields of copyright, blackmail, insider trading, and the treatment of genetic information. Id.; see also Stephen Breyer, The Uneasy Case for Copyright: A Study of Copyright in Books, Photocopies, and Computer Programs, 84 HARV. L. REV. 281, 282 (1970) (noting "the conflict between the need for book revenues high enough to secure adequate production and book prices low enough not to interfere with widespread dissemination of what is written"); Frank H. Easterbrook, Insider Trading, Secret Agents, Evidentiary Privileges, and the Production of Information, 1981 SUP. CT. REV. 309, 364 ("The tension between optimal use of existing information and optimal incentives to create new information pervades legal and economic problems arising out of claims to property rights in information."); Paul G. Mahoney, The Exchange As Regulator, 83 VA. L. REV. 1453, 1483-88 (1997) (discussing this tension in the context of prices generated by stock exchanges).
39. See Boyle, supra note 7, at 1417 ("[T]he area of legal doctrine that acknowledges that its main concern is information - conventionally defined intellectual property - is marked by severe disagreements over the most fundamental propositions."). Professor Boyle, for example, illustrates that the conceptual dilemma and legal puzzles raised by the dual nature of information in the marketplace confound the fields of copyright, blackmail, insider trading, and the treatment of genetic information. Id.; see also Stephen Breyer, The Uneasy Case for Copyright: A Study of Copyright in Books, Photocopies, and Computer Programs, 84 HARV. L. REV. 281, 282 (1970) (noting "the conflict between the need for book revenues high enough to secure adequate production and book prices low enough not to interfere with widespread dissemination of what is written"); Frank H. Easterbrook, Insider Trading, Secret Agents, Evidentiary Privileges, and the Production of Information, 1981 SUP. CT. REV. 309, 364 ("The tension between optimal use of existing information and optimal incentives to create new information pervades legal and economic problems arising out of claims to property rights in information."); Paul G. Mahoney, The Exchange As Regulator, 83 VA. L. REV. 1453, 1483-88 (1997) (discussing this tension in the context of prices generated by stock exchanges).
40. See Boyle, supra note 7, at 1417 ("[T]he area of legal doctrine that acknowledges that its main concern is information - conventionally defined intellectual property - is marked by severe disagreements over the most fundamental propositions."). Professor Boyle, for example, illustrates that the conceptual dilemma and legal puzzles raised by the dual nature of information in the marketplace confound the fields of copyright, blackmail, insider trading, and the treatment of genetic information. Id.; see also Stephen Breyer, The Uneasy Case for Copyright: A Study of Copyright in Books, Photocopies, and Computer Programs, 84 HARV. L. REV. 281, 282 (1970) (noting "the conflict between the need for book revenues high enough to secure adequate production and book prices low enough not to interfere with widespread dissemination of what is written"); Frank H. Easterbrook, Insider Trading, Secret Agents, Evidentiary Privileges, and the Production of Information, 1981 SUP. CT. REV. 309, 364 ("The tension between optimal use of existing information and optimal incentives to create new information pervades legal and economic problems arising out of claims to property rights in information."); Paul G. Mahoney, The Exchange As Regulator, 83 VA. L. REV. 1453, 1483-88 (1997) (discussing this tension in the context of prices generated by stock exchanges).
41. See Boyle, supra note 7, at 1417 ("[T]he area of legal doctrine that acknowledges that its main concern is information - conventionally defined intellectual property - is marked by severe disagreements over the most fundamental propositions."). Professor Boyle, for example, illustrates that the conceptual dilemma and legal puzzles raised by the dual nature of information in the marketplace confound the fields of copyright, blackmail, insider trading, and the treatment of genetic information. Id.; see also Stephen Breyer, The Uneasy Case for Copyright: A Study of Copyright in Books, Photocopies, and Computer Programs, 84 HARV. L. REV. 281, 282 (1970) (noting "the conflict between the need for book revenues high enough to secure adequate production and book prices low enough not to interfere with widespread dissemination of what is written"); Frank H. Easterbrook, Insider Trading, Secret Agents, Evidentiary Privileges, and the Production of Information, 1981 SUP. CT. REV. 309, 364 ("The tension between optimal use of existing information and optimal incentives to create new information pervades legal and economic problems arising out of claims to property rights in information."); Paul G. Mahoney, The Exchange As Regulator, 83 VA. L. REV. 1453, 1483-88 (1997) (discussing this tension in the context of prices generated by stock exchanges).
42. See generally Keith Aoki, (Intellectual) Property and Sovereignty: Notes Toward a Cultural Geography of Authorship, 48 STAN. L. REV. 1293, 1352 (1996) (describing this battle); Neil Weinstock Netanel, Copyright and a Democratic Civic Society, 106 YALE L.J. 283, 285-86 (1996) (same).
43. See generally Keith Aoki, (Intellectual) Property and Sovereignty: Notes Toward a Cultural Geography of Authorship, 48 STAN. L. REV. 1293, 1352 (1996) (describing this battle); Neil Weinstock Netanel, Copyright and a Democratic Civic Society, 106 YALE L.J. 283, 285-86 (1996) (same).
44. One of the most vocal proponents of this view is John Perry Barlow, Electronic Frontier Foundation Board Member, Vice-Chair and Co-founder: Governments of the Industrial World, you weary giants of flesh and steel, I come from Cyberspace, the new home of Mind. On behalf of the future, I ask you of the past to leave us alone. You are not welcome among us. You have no sovereignty where we gather. . . . Your legal concepts of property, expression, identity, movement, and context do not apply to us. . . . Your increasingly obsolete information industries would perpetuate themselves by proposing laws, in America and elsewhere, that claim to own speech itself throughout the world. These laws would declare ideas to be another industrial product, no more noble than pig iron. In our world, whatever the human mind may create can be reproduced and distributed infinitely at no cost. The global conveyance of thought no longer requires your factories to accomplish. John Perry Barlow, A Declaration of the Independence of Cyberspace (Feb. 9 1996), at http://www.eff. org/pub/Publications/John_Perry_Barlow/barlow_0296.declaration); see also David Lange, At Play in the Fields of the World: Copyright and the Construction of Authorship in the Post-Literate Millennium, 58 LAW & CONTEMP. PROBS. 139, 144-51 (1992) (arguing that copyright and other forms of intellectual property have no place in the digital environment).
45. One of the most vocal proponents of this view is John Perry Barlow, Electronic Frontier Foundation Board Member, Vice-Chair and Co-founder: Governments of the Industrial World, you weary giants of flesh and steel, I come from Cyberspace, the new home of Mind. On behalf of the future, I ask you of the past to leave us alone. You are not welcome among us. You have no sovereignty where we gather. . . . Your legal concepts of property, expression, identity, movement, and context do not apply to us. . . . Your increasingly obsolete information industries would perpetuate themselves by proposing laws, in America and elsewhere, that claim to own speech itself throughout the world. These laws would declare ideas to be another industrial product, no more noble than pig iron. In our world, whatever the human mind may create can be reproduced and distributed infinitely at no cost. The global conveyance of thought no longer requires your factories to accomplish. John Perry Barlow, A Declaration of the Independence of Cyberspace (Feb. 9 1996), at http://www.eff. org/pub/Publications/John_Perry_Barlow/barlow_0296.declaration); see also David Lange, At Play in the Fields of the World: Copyright and the Construction of Authorship in the Post-Literate Millennium, 58 LAW & CONTEMP. PROBS. 139, 144-51 (1992) (arguing that copyright and other forms of intellectual property have no place in the digital environment).
46. See generally Aoki, supra note 14, at 1352-55 (discussing what he views as a "hardening" of intellectual property rights in the digital age); Robert M. Kunstat et al., 18 NAT. L.J., May 20, 1996, at C2 (advocating patent protection for sports moves, such as the slam dunk and Fosbury Flop); Netanel, supra note 14, at 286-87 (discussing the movement toward greater intellectual property protections).
47. See generally Aoki, supra note 14, at 1352-55 (discussing what he views as a "hardening" of intellectual property rights in the digital age); Robert M. Kunstat et al., 18 NAT. L.J., May 20, 1996, at C2 (advocating patent protection for sports moves, such as the slam dunk and Fosbury Flop); Netanel, supra note 14, at 286-87 (discussing the movement toward greater intellectual property protections).
48. Netanel, supra note 14, at 285.
49. Prior to the invention of modern copying techniques, such as the printing press, the copying of original works was a laborious - and highly valued - effort. In fact, scribes were considered on a par with authors in terms of the craftsmen necessary to produce a book and skillful scribe work was often more valued than new expressions. See Keith Aoki, Authors, Inventors and Trademark Owners: Private Intellectual Property and the Public Domain, 18 COLUM.-VLA J.L. & ARTS 1, 27 (1994).
50. New information technology has, of course, increased the ease of transmission and use of inside information as well. See, e.g., Frances A. McMorris, Randall Smith & Michael Schroeder, Insider Case Involves a Temp at Two Brokers and Web Ring, WALL ST. J., Mar. 15, 2000, at C1 (discussing the prosecution of John J. Freeman, a computer graphics worker and word processor who tipped information about 23 pending mergers to friends he had met in Internet chat rooms).
51. The term aporia, as applied to information economics, was borrowed from Boyle, supra note 7, at 1420 n.5. However, the term is not only common, but some would also argue essential, to deconstructionist, or post-modern, philosophy and literature. See, e.g. RICHARD BEARDSWORTH, DERRIDA & THE POLITICAL 31 (1996) (stating that the term aporia "organizes in concentrated form the overall concerns of deconstruction"); Greig E. Henderson & Christopher Brown, Glossary of the Literary Theory, at http://utll.library.utoronto.ca/www/utel/glossary/Aporia.html (defining aporia as "[a] term used by deconstructionists to describe the point of impasse or undecidability to which reading a text necessarily gives rise"). "Aporia" is derived from the Greek aporos, which literally means "without passage." BEARDSWORTH, supra, at 33. The pre-Socratic sophists employed the term to describe two contradictory aphorisms of equal value. Id. Jacques Derrida, who is typically credited with bringing the term into modern usage, employed "aporia" in a different sense. For Derrida, aporia referred to an internal inconsistency or irreducibility, not to the external inconsistency of two separate entities. Id. at 32-33. See generally JACQUES DERRIDA, APORIAS (Thomas Dutoit trans., Stanford Univ. Press ed. 1993). It is with Derrida's intended meaning of internal inconsistency or tension that I use the term "aporia" in this Article.
52. The term aporia, as applied to information economics, was borrowed from Boyle, supra note 7, at 1420 n.5. However, the term is not only common, but some would also argue essential, to deconstructionist, or post-modern, philosophy and literature. See, e.g. RICHARD BEARDSWORTH, DERRIDA & THE POLITICAL 31 (1996) (stating that the term aporia "organizes in concentrated form the overall concerns of deconstruction"); Greig E. Henderson & Christopher Brown, Glossary of the Literary Theory, at http://utll.library.utoronto.ca/www/utel/glossary/Aporia.html (defining aporia as "[a] term used by deconstructionists to describe the point of impasse or undecidability to which reading a text necessarily gives rise"). "Aporia" is derived from the Greek aporos, which literally means "without passage." BEARDSWORTH, supra, at 33. The pre-Socratic sophists employed the term to describe two contradictory aphorisms of equal value. Id. Jacques Derrida, who is typically credited with bringing the term into modern usage, employed "aporia" in a different sense. For Derrida, aporia referred to an internal inconsistency or irreducibility, not to the external inconsistency of two separate entities. Id. at 32-33. See generally JACQUES DERRIDA, APORIAS (Thomas Dutoit trans., Stanford Univ. Press ed. 1993). It is with Derrida's intended meaning of internal inconsistency or tension that I use the term "aporia" in this Article.
53. The term aporia, as applied to information economics, was borrowed from Boyle, supra note 7, at 1420 n.5. However, the term is not only common, but some would also argue essential, to deconstructionist, or post-modern, philosophy and literature. See, e.g. RICHARD BEARDSWORTH, DERRIDA & THE POLITICAL 31 (1996) (stating that the term aporia "organizes in concentrated form the overall concerns of deconstruction"); Greig E. Henderson & Christopher Brown, Glossary of the Literary Theory, at http://utll.library.utoronto.ca/www/utel/glossary/Aporia.html (defining aporia as "[a] term used by deconstructionists to describe the point of impasse or undecidability to which reading a text necessarily gives rise"). "Aporia" is derived from the Greek aporos, which literally means "without passage." BEARDSWORTH, supra, at 33. The pre-Socratic sophists employed the term to describe two contradictory aphorisms of equal value. Id. Jacques Derrida, who is typically credited with bringing the term into modern usage, employed "aporia" in a different sense. For Derrida, aporia referred to an internal inconsistency or irreducibility, not to the external inconsistency of two separate entities. Id. at 32-33. See generally JACQUES DERRIDA, APORIAS (Thomas Dutoit trans., Stanford Univ. Press ed. 1993). It is with Derrida's intended meaning of internal inconsistency or tension that I use the term "aporia" in this Article.
54. The term aporia, as applied to information economics, was borrowed from Boyle, supra note 7, at 1420 n.5. However, the term is not only common, but some would also argue essential, to deconstructionist, or post-modern, philosophy and literature. See, e.g. RICHARD BEARDSWORTH, DERRIDA & THE POLITICAL 31 (1996) (stating that the term aporia "organizes in concentrated form the overall concerns of deconstruction"); Greig E. Henderson & Christopher Brown, Glossary of the Literary Theory, at http://utll.library.utoronto.ca/www/utel/glossary/Aporia.html (defining aporia as "[a] term used by deconstructionists to describe the point of impasse or undecidability to which reading a text necessarily gives rise"). "Aporia" is derived from the Greek aporos, which literally means "without passage." BEARDSWORTH, supra, at 33. The pre-Socratic sophists employed the term to describe two contradictory aphorisms of equal value. Id. Jacques Derrida, who is typically credited with bringing the term into modern usage, employed "aporia" in a different sense. For Derrida, aporia referred to an internal inconsistency or irreducibility, not to the external inconsistency of two separate entities. Id. at 32-33. See generally JACQUES DERRIDA, APORIAS (Thomas Dutoit trans., Stanford Univ. Press ed. 1993). It is with Derrida's intended meaning of internal inconsistency or tension that I use the term "aporia" in this Article.
55. The term aporia, as applied to information economics, was borrowed from Boyle, supra note 7, at 1420 n.5. However, the term is not only common, but some would also argue essential, to deconstructionist, or post-modern, philosophy and literature. See, e.g. RICHARD BEARDSWORTH, DERRIDA & THE POLITICAL 31 (1996) (stating that the term aporia "organizes in concentrated form the overall concerns of deconstruction"); Greig E. Henderson & Christopher Brown, Glossary of the Literary Theory, at http://utll.library.utoronto.ca/www/utel/glossary/Aporia.html (defining aporia as "[a] term used by deconstructionists to describe the point of impasse or undecidability to which reading a text necessarily gives rise"). "Aporia" is derived from the Greek aporos, which literally means "without passage." BEARDSWORTH, supra, at 33. The pre-Socratic sophists employed the term to describe two contradictory aphorisms of equal value. Id. Jacques Derrida, who is typically credited with bringing the term into modern usage, employed "aporia" in a different sense. For Derrida, aporia referred to an internal inconsistency or irreducibility, not to the external inconsistency of two separate entities. Id. at 32-33. See generally JACQUES DERRIDA, APORIAS (Thomas Dutoit trans., Stanford Univ. Press ed. 1993). It is with Derrida's intended meaning of internal inconsistency or tension that I use the term "aporia" in this Article.
56. See infra subpart II.A (defining and contrasting the terms "public good" and "collective good").
57. The phrases "informational-egalitarian" and "informational-propertarian" are borrowed from Aoki, supra note 18, at 10.
58. See, e.g., Saul Levmore, Securities and Secrets: Insider Trading and the Law of Contracts, 68 VA. L. REV. 117, 118 (1982) (explaining that the two primary approaches to securities regulation are "disclose or abstain," which would prohibit insider trading because it is unfair, and the "free market," which would permit insider trading because it fosters market efficiency).
59. As stated by Blackstone: There is nothing which so generally strikes the imagination, and engages the affections of mankind, as the right of property. . . . And yet there are very few, that will give themselves the trouble to consider the original and foundation of this right. Pleased as we are with the possession, we seem afraid to look back to the means by which it was acquired, as if fearful of some defect in our title; or at best we rest satisfied with the decision of the laws in our favor, without examining the reason or authority upon which those laws have been built.
60. WILLIAM BLACKSTONE, COMMENTARIES 2 (1809).
61. Part VI employs the term "property" in an unconventional sense, albeit one that is common among insider trading scholars. See infra note 101 (discussing both the standard definition of "property" and the term as used in Part VI of this Article).
62. Tippees are liable for insider trading under Rule 10b-5 only if they know or have reason to know that the information was given to them in breach of a fiduciary duty. See Dirks v. SEC, 463 U.S. 646 (1983) (finding that Dirks did not violate Rule 10b-5 by trading on information provided by Equity Funding employees, because the employees breached no fiduciary duty to Equity or its shareholders in conveying the information to Dirks).
63. EJAN MACKAAY, ECONOMICS OF INFORMATION AND LAW 107 (1982).
64. See, e.g., ROBERT H. FRANK, MICROECONOMICS AND BEHAVIOR 626 (2000) (noting that public goods "possess, in varying degrees, the properties of nondiminishability and nonexcludabilily"); WALTER NICHOLSON, INTERMEDIATE MICROECONOMICS AND ITS APPLICATIONS 612 (1983) (defining a public good as one possessing nonexclusivity and nonrivalness).
65. See, e.g., ROBERT H. FRANK, MICROECONOMICS AND BEHAVIOR 626 (2000) (noting that public goods "possess, in varying degrees, the properties of nondiminishability and nonexcludabilily"); WALTER NICHOLSON, INTERMEDIATE MICROECONOMICS AND ITS APPLICATIONS 612 (1983) (defining a public good as one possessing nonexclusivity and nonrivalness).
66. Harold Demsetz, The Private Production of Public Goods, 13 J.L. & Econ. 293, 295 (1970).
67. See NICHOLSON, supra note 28, at 612 ("A good is nonexclusive if it is impossible, or very costly, to exclude individuals from benefiting from the good.").
68. FRANK, supra note 28, at 626 (defining collective good, public good, and pure public good). Other examples of goods possessing high degrees of both nonexclusivity and nondiminishability are national defense and mosquito control. NICHOLSON, supra note 28, at 613, tbl. 21.2. Goods such as fishing grounds or public grazing land, on the other hand, are collective goods because they are nonexclusive, but diminishable. In contrast, bridges and highways are public goods, because they are non-diminishable (at least to the point of congestion), but are exclusive. Id.
69. Kenneth J. Arrow, Economic Welfare and the Allocation of Resources for Invention, in THE RATE AND DIRECTION OF INVENTIVE ACTIVITY: ECONOMIC AND SOCIAL FACTORS 609, 614 (Nat'l Bureau of Econ. Research ed., 1962) (stating that "information will frequently have an economic value" and arguing that "it might be expected that information will be traded in").
70. Demsetz, supra note 29, at 295 (defining "public good"); Paul A. Samuelson, The Pure Theory of Public Expenditure, 36 REV. ECON. & STAT. 387 (1954) (opining that with regard to public goods, "each individual's consumption of such a good leads to no subtraction from any other individual's consumption of that good").
71. Demsetz, supra note 29, at 295 (defining "public good"); Paul A. Samuelson, The Pure Theory of Public Expenditure, 36 REV. ECON. & STAT. 387 (1954) (opining that with regard to public goods, "each individual's consumption of such a good leads to no subtraction from any other individual's consumption of that good").
72. Boyle, supra note 7, at 1438 ("I explain Pythagoras' theorem to you. . . . Afterwards, I seem no poorer in the sense that we both have the knowledge.").
73. See Part IV infra (discussing informational-egalitarianism in the securities markets).
74. Aoki, supra note 14, at 1330 (noting the "distinct but strange egalitarian attitudes with which courts and legislatures seek to deal with informational disparities in all kinds of legal disputes by ordering redistribution of access to information, in ways that they would never do with regard to other types of inequalities"); Boyle, supra note 7, at 1438-39 ("Perhaps this is one of the reasons that in moments of high moral or ideological conflict, we often reach for a solution that involves giving the parties more information. If we are thinking of information as a resource that is infinite in this sense, then the distribution of wealth does not seem to have changed.").
75. See Roberta S. Karmel, Outsider Trading on Confidential Information - A Breach in Search of a Duty, 20 CARDOZO L. REV. 83, 111 (1998) (arguing that "the federal securities laws, and particularly the anti-fraud provisions, were primarily enacted to promote investor confidence in the fairness and honesty of the markets, and only secondarily to achieve efficiency in stock market pricing."); Levmore, supra note 23, at 118 (discussing "disclose or abstain" proponents and their concern with fairness).
76. See U.S. CONST. amend. I ("Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances.").
77. Aoki, supra note 18, at 11 ("Open access to all kinds of new and old information, ideas and facts is the premise on which the First Amendment rests."); Pamela Samuelson, Information as Property: Do Ruckelshaus and Carpenter Signal a Changing Direction in Intellectual Property Law?, 38 CATH. U. L. REV. 365, 372 (1989) ("The drafters of the Constitution, educated in the Enlightenment tradition, shared that era's legacy of faith in the enabling powers of knowledge for society as well as the individual. They viewed free access to knowledge as an essential step in building the fledgling nation.").
78. Aoki, supra note 18, at 11 ("Open access to all kinds of new and old information, ideas and facts is the premise on which the First Amendment rests."); Pamela Samuelson, Information as Property: Do Ruckelshaus and Carpenter Signal a Changing Direction in Intellectual Property Law?, 38 CATH. U. L. REV. 365, 372 (1989) ("The drafters of the Constitution, educated in the Enlightenment tradition, shared that era's legacy of faith in the enabling powers of knowledge for society as well as the individual. They viewed free access to knowledge as an essential step in building the fledgling nation.").
79. See subpart V.C infra (discussing the traditional U.S. legal view that information could not be owned) and Part IV infra (discussing informational-egalitarianism in the insider trading context).
80. See Arrow, supra note 32, at 614-15 (discussing the inappropriability of information); Samuelson, supra note 39, at 369 ("[I]nformation is very difficult to maintain in any exclusive manner unless kept secret by its discoverer or possessor.").
81. See ROBERT COOTER & THOMAS ULEN, LAW AND ECONOMICS 112-13 (1988); RICHARD A. POSNER, ECONOMIC ANALYSIS OF LAW 36 (5th ed. 1990); Arrow, supra note 32, at 615.
82. See ROBERT COOTER & THOMAS ULEN, LAW AND ECONOMICS 112-13 (1988); RICHARD A. POSNER, ECONOMIC ANALYSIS OF LAW 36 (5th ed. 1990); Arrow, supra note 32, at 615.
83. See COOTER & ULEN, supra note 42, at 112-13;
84. Arrow, supra note 32, at 614-15.
85. See COOTER & ULEN, supra note 42, at 112-13.
86. POSNER, supra note 42, at 36.
87. MACKAAY, supra note 27, at 114.
88. Justin Hughes, The Philosophy of Intellectual Property, 77 GEO. L.J. 287, 315 (1988).
89. PAUL MILGROM & JOHN ROBERTS, ECONOMICS, ORGANIZATION & MANAGEMENT 294 (1992).
90. Garrett Hardin, The Tragedy of the Commons, 162 SCIENCE 1243-48 (1968), reprinted in PERSPECTIVES ON PROPERTY LAW 132, 133 (Robert C. Ellickson et al. eds., 1995).
91. Garrett Hardin, The Tragedy of the Commons, 162 SCIENCE 1243-48 (1968), reprinted in PERSPECTIVES ON PROPERTY LAW 132, 133 (Robert C. Ellickson et al. eds., 1995).
92. Id. at 133. Theoretically, tragic overuse and underuse could be avoided if transaction costs did not prevent the interested parties from contracting or otherwise bargaining to reach the optimal use of the resource. See R.H. Coase, The Problem of Social Cost, 3 J.L. & ECON. 2-8 (1960); Harold Demsetz, Toward a Theory of Property Rights, 57 AM. ECON. REV. 347, 348 (1967). Subsequent scholars have demonstrated, however, that even absent transaction costs, cognitive biases such as framing and endowment effects may prevent the parties from reaching the efficient result. See generally MASSIMO PIATELLI-PALMARINI, INEVITABLE ILLUSIONS: How MISTAKES OF REASON RULE OUR MINDS (1994) (discussing a wide variety of psychological tendencies affecting decision making); Jeffrey J. Rachlinski, Gains, Losses, and the Psychology of Litigation, 70 S. CAL. L. REV. 113 (1996) (discussing the impact of risk and framing on decision making); Jeffrey J. Rachlinski & Forest Jourden, Remedies and the Psychology of Ownership, 51 VAND. L. REV. 1541 (1998) (discussing the endowment effect and its impact on decision making).
93. Id. at 133. Theoretically, tragic overuse and underuse could be avoided if transaction costs did not prevent the interested parties from contracting or otherwise bargaining to reach the optimal use of the resource. See R.H. Coase, The Problem of Social Cost, 3 J.L. & ECON. 2-8 (1960); Harold Demsetz, Toward a Theory of Property Rights, 57 AM. ECON. REV. 347, 348 (1967). Subsequent scholars have demonstrated, however, that even absent transaction costs, cognitive biases such as framing and endowment effects may prevent the parties from reaching the efficient result. See generally MASSIMO PIATELLI-PALMARINI, INEVITABLE ILLUSIONS: How MISTAKES OF REASON RULE OUR MINDS (1994) (discussing a wide variety of psychological tendencies affecting decision making); Jeffrey J. Rachlinski, Gains, Losses, and the Psychology of Litigation, 70 S. CAL. L. REV. 113 (1996) (discussing the impact of risk and framing on decision making); Jeffrey J. Rachlinski & Forest Jourden, Remedies and the Psychology of Ownership, 51 VAND. L. REV. 1541 (1998) (discussing the endowment effect and its impact on decision making).
94. Id. at 133. Theoretically, tragic overuse and underuse could be avoided if transaction costs did not prevent the interested parties from contracting or otherwise bargaining to reach the optimal use of the resource. See R.H. Coase, The Problem of Social Cost, 3 J.L. & ECON. 2-8 (1960); Harold Demsetz, Toward a Theory of Property Rights, 57 AM. ECON. REV. 347, 348 (1967). Subsequent scholars have demonstrated, however, that even absent transaction costs, cognitive biases such as framing and endowment effects may prevent the parties from reaching the efficient result. See generally MASSIMO PIATELLI-PALMARINI, INEVITABLE ILLUSIONS: How MISTAKES OF REASON RULE OUR MINDS (1994) (discussing a wide variety of psychological tendencies affecting decision making); Jeffrey J. Rachlinski, Gains, Losses, and the Psychology of Litigation, 70 S. CAL. L. REV. 113 (1996) (discussing the impact of risk and framing on decision making); Jeffrey J. Rachlinski & Forest Jourden, Remedies and the Psychology of Ownership, 51 VAND. L. REV. 1541 (1998) (discussing the endowment effect and its impact on decision making).
95. Id. at 133. Theoretically, tragic overuse and underuse could be avoided if transaction costs did not prevent the interested parties from contracting or otherwise bargaining to reach the optimal use of the resource. See R.H. Coase, The Problem of Social Cost, 3 J.L. & ECON. 2-8 (1960); Harold Demsetz, Toward a Theory of Property Rights, 57 AM. ECON. REV. 347, 348 (1967). Subsequent scholars have demonstrated, however, that even absent transaction costs, cognitive biases such as framing and endowment effects may prevent the parties from reaching the efficient result. See generally MASSIMO PIATELLI-PALMARINI, INEVITABLE ILLUSIONS: How MISTAKES OF REASON RULE OUR MINDS (1994) (discussing a wide variety of psychological tendencies affecting decision making); Jeffrey J. Rachlinski, Gains, Losses, and the Psychology of Litigation, 70 S. CAL. L. REV. 113 (1996) (discussing the impact of risk and framing on decision making); Jeffrey J. Rachlinski & Forest Jourden, Remedies and the Psychology of Ownership, 51 VAND. L. REV. 1541 (1998) (discussing the endowment effect and its impact on decision making).
96. Id. at 133. Theoretically, tragic overuse and underuse could be avoided if transaction costs did not prevent the interested parties from contracting or otherwise bargaining to reach the optimal use of the resource. See R.H. Coase, The Problem of Social Cost, 3 J.L. & ECON. 2-8 (1960); Harold Demsetz, Toward a Theory of Property Rights, 57 AM. ECON. REV. 347, 348 (1967). Subsequent scholars have demonstrated, however, that even absent transaction costs, cognitive biases such as framing and endowment effects may prevent the parties from reaching the efficient result. See generally MASSIMO PIATELLI-PALMARINI, INEVITABLE ILLUSIONS: How MISTAKES OF REASON RULE OUR MINDS (1994) (discussing a wide variety of psychological tendencies affecting decision making); Jeffrey J. Rachlinski, Gains, Losses, and the Psychology of Litigation, 70 S. CAL. L. REV. 113 (1996) (discussing the impact of risk and framing on decision making); Jeffrey J. Rachlinski & Forest Jourden, Remedies and the Psychology of Ownership, 51 VAND. L. REV. 1541 (1998) (discussing the endowment effect and its impact on decision making).
97. Id. at 133. Theoretically, tragic overuse and underuse could be avoided if transaction costs did not prevent the interested parties from contracting or otherwise bargaining to reach the optimal use of the resource. See R.H. Coase, The Problem of Social Cost, 3 J.L. & ECON. 2-8 (1960); Harold Demsetz, Toward a Theory of Property Rights, 57 AM. ECON. REV. 347, 348 (1967). Subsequent scholars have demonstrated, however, that even absent transaction costs, cognitive biases such as framing and endowment effects may prevent the parties from reaching the efficient result. See generally MASSIMO PIATELLI-PALMARINI, INEVITABLE ILLUSIONS: How MISTAKES OF REASON RULE OUR MINDS (1994) (discussing a wide variety of psychological tendencies affecting decision making); Jeffrey J. Rachlinski, Gains, Losses, and the Psychology of Litigation, 70 S. CAL. L. REV. 113 (1996) (discussing the impact of risk and framing on decision making); Jeffrey J. Rachlinski & Forest Jourden, Remedies and the Psychology of Ownership, 51 VAND. L. REV. 1541 (1998) (discussing the endowment effect and its impact on decision making).
98. Hardin, supra note 49, at 133. Because the herdsmen are locked into a prisoner's dilemma, some of the same methods of avoiding defection in that game, such as the existence of repeat players who find it mutually beneficial to cooperate, can also help avoid the tragedy of the commons. See AVINASH K. DIXIT & BARRY J. NALEBUFF, THINKING STRATEGICALLY: THE COMPETITIVE EDGE IN BUSINESS POLITICS, AND EVERYDAY LIFE 348-49 (1991). Similarly, Professor Robert Ellickson has argued that members of a closely-knit community will cooperate to avoid the tragic result predicted by Hardin.
99. Hardin, supra note 49, at 133. Because the herdsmen are locked into a prisoner's dilemma, some of the same methods of avoiding defection in that game, such as the existence of repeat players who find it mutually beneficial to cooperate, can also help avoid the tragedy of the commons. See AVINASH K. DIXIT & BARRY J. NALEBUFF, THINKING STRATEGICALLY: THE COMPETITIVE EDGE IN BUSINESS POLITICS, AND EVERYDAY LIFE 348-49 (1991). Similarly, Professor Robert Ellickson has argued that members of a closely-knit community will cooperate to avoid the tragic result predicted by Hardin.
100. See ROBERT C. ELLICKSON, ORDER WITHOUT LAW 167-83 (1991) (discussing the private ordering and enforcement mechanisms that develop in small, closely-knit groups);
101. Robert C. Ellickson, Property in Land, 102 YALE L.J. 1315, 1320 (1993) [hereinafter Ellickson, Property] (same).
102. Hardin, supra note 49, at 133.
103. Id.
104. MILGROM & ROBERTS, supra note 48, at 294; POSNER, supra note 42, at 37; Carol Rose, The Comedy of the Commons: Custom, Commerce, and Inherently Public Property, 53 U. CHI. L. REV. 711, 712 (1986) ("[W]hen things are left open to the public, they are thought to be wasted by overuse or underuse.").
105. MILGROM & ROBERTS, supra note 48, at 294; POSNER, supra note 42, at 37; Carol Rose, The Comedy of the Commons: Custom, Commerce, and Inherently Public Property, 53 U. CHI. L. REV. 711, 712 (1986) ("[W]hen things are left open to the public, they are thought to be wasted by overuse or underuse.").
106. Demsetz, supra note 50, at 348.
107. Id. at 351 (demonstrating that the failure to internalize all of the costs of hunting could result in overhunting and a depletion of game valuable to the fur trade).
108. Id. at 352 (demonstrating that, until American Indians had the ability to prevent poaching by others, there was no incentive to spend the resources necessary to engage in animal husbandry).
109. See, e.g., Anthony T. Kronman, Mistake. Disclosure, Information, and The Law of Contracts, 7 J. LEGAL STUD. 1, 2 (1978); William M. Landes & Richard A. Posner, An Economic Analysis of Copyright Law, 18 J. LEGAL STUD. 325, 328 (1989); Macey, From Fairness to Contract, supra note 9. See Part V infra (discussing informational-propertarianism).
110. See, e.g., Anthony T. Kronman, Mistake. Disclosure, Information, and The Law of Contracts, 7 J. LEGAL STUD. 1, 2 (1978); William M. Landes & Richard A. Posner, An Economic Analysis of Copyright Law, 18 J. LEGAL STUD. 325, 328 (1989); Macey, From Fairness to Contract, supra note 9. See Part V infra (discussing informational-propertarianism).
111. See, e.g., Anthony T. Kronman, Mistake. Disclosure, Information, and The Law of Contracts, 7 J. LEGAL STUD. 1, 2 (1978); William M. Landes & Richard A. Posner, An Economic Analysis of Copyright Law, 18 J. LEGAL STUD. 325, 328 (1989); Macey, From Fairness to Contract, supra note 9. See Part V infra (discussing informational-propertarianism).
112. See Michael Dooley, Enforcement of Insider Trading Restrictions, 66 VA. L. REV. 1, 64 (1980) (arguing that efficiency, rather than fairness, should be the goal of insider trading regulation); Levmore, supra note 23, at 118 (discussing the "free market" approach to insider trading regulation and its focus on market efficiency).
113. See Michael Dooley, Enforcement of Insider Trading Restrictions, 66 VA. L. REV. 1, 64 (1980) (arguing that efficiency, rather than fairness, should be the goal of insider trading regulation); Levmore, supra note 23, at 118 (discussing the "free market" approach to insider trading regulation and its focus on market efficiency).
114. Samuelson, supra note 39, at 370.
115. U.S. CONST. art. I, § 8, cl. 8.
116. Landes & Posner, supra note 58, at 328.
117. Id. at 326 ("Copyright protection . . . trades off the costs of limiting access to a work against the benefits of providing incentives to create the work in the first place."); Samuelson, supra note 39, at 372 (noting that "copyright protects a writing's 'expression,' not the facts contained in the writing. A patent does not protect an inventor's discovery; it only prevents the invention from being 'practiced' by others during the seventeen year life of the patent without the patentee's permission."). Recent commentators have argued that judges are increasingly applying patent and copyright law in a manner that protects information rather than expression and have criticized these perceived grants of rights in new types of property as detracting from the public domain of ideas. See subpart V.C infra. 64 See Part V infra (discussing the property rights based approach to insider trading liability).
118. See, e.g., Roberta Karmel, The Relationship Between Mandatory Disclosure and Prohibitions Against Insider Trading: Why a Property Rights Theory of Inside Information is Untenable, 59 BROOK. L. REV. 149, 168 (1993) (reviewing arguments by Professors Jonathan R. Macey and Bernhard Bergmans that inside information should be regulated through a property rights approach, and arguing that "[t]he view that inside information is a property right that insiders should be permitted to exploit is morally obnoxious and legally unsound").
119. See, e.g., MANNE, INSIDER TRADING, supra note 9, at 233 n.42 (referring to arguments that insider trading is unfair as "it's just not right propositions" in honor of "an anonymous lady law student, who, during a classroom discussion of the subject, stamped her foot and angrily declaimed, 'I don't care; it's just not right.'"); Manne, supra note 6, at 549 ("Morals, someone once said, are a private luxury. Carried into the arena of serious debate on public policy, moral arguments are frequently either sham or a refuge for the intellectually bankrupt.").
120. The notion that false public/private distinctions pervade mainstream legal and political discourse is one of the hallmarks of Critical Legal Studies (CLS). Many readers may be surprised to learn that, despite the frequent tensions between CLS and law and economics, the two schools of thought share a similar rejection of the alleged neutrality and objectivity of legal rules. See MARK KELMAN, A GUIDE TO CRITICAL LEGAL STUDIES 114 (1987) (noting that, because much CLS literature is critical of law and economics scholarship, CLS is often perceived as anti-law and economics); Duncan Kennedy & Frank Michelman, Are Property and Contract Efficient?, 8 HOFSTRA L. REV. 711 (1980) (criticizing Professor Richard A. Posner's economic approach to private property). Professor Kelman, however, expresses his own opinion that "the relationship between CLS and Law and Economics is in fact quite intimate."). KELMAN, supra, at 115. Similarly, Professor Edward L. Rubin has explored the possibility of a convergence between "second generation" CLS scholars (such as critical race theorists, feminist legal theorists, and gay legal studies scholars) and "second generation" law and economics scholars (sometimes referred to as "new Chicago School" theorists). See generally Edward L. Rubin, The New Legal Process, The Synthesis of Discourse, and the Microanalysis of Institutions, 109 HARV. L. REV. 1393, 1403 (1996) (discussing the possibility of a convergence of CLS and law and economics); see also NICHOLAS MERCURO & STEVEN G. MEDEMA, ECONOMICS AND THE LAW FROM POSNER TO POST-MODERNISM 157-70 (1997) (discussing CLS in a book entitled Economics and the Law, implying a close relationship between the two schools of thought).
121. The notion that false public/private distinctions pervade mainstream legal and political discourse is one of the hallmarks of Critical Legal Studies (CLS). Many readers may be surprised to learn that, despite the frequent tensions between CLS and law and economics, the two schools of thought share a similar rejection of the alleged neutrality and objectivity of legal rules. See MARK KELMAN, A GUIDE TO CRITICAL LEGAL STUDIES 114 (1987) (noting that, because much CLS literature is critical of law and economics scholarship, CLS is often perceived as anti-law and economics); Duncan Kennedy & Frank Michelman, Are Property and Contract Efficient?, 8 HOFSTRA L. REV. 711 (1980) (criticizing Professor Richard A. Posner's economic approach to private property). Professor Kelman, however, expresses his own opinion that "the relationship between CLS and Law and Economics is in fact quite intimate."). KELMAN, supra, at 115. Similarly, Professor Edward L. Rubin has explored the possibility of a convergence between "second generation" CLS scholars (such as critical race theorists, feminist legal theorists, and gay legal studies scholars) and "second generation" law and economics scholars (sometimes referred to as "new Chicago School" theorists). See generally Edward L. Rubin, The New Legal Process, The Synthesis of Discourse, and the Microanalysis of Institutions, 109 HARV. L. REV. 1393, 1403 (1996) (discussing the possibility of a convergence of CLS and law and economics); see also NICHOLAS MERCURO & STEVEN G. MEDEMA, ECONOMICS AND THE LAW FROM POSNER TO POST-MODERNISM 157-70 (1997) (discussing CLS in a book entitled Economics and the Law, implying a close relationship between the two schools of thought).
122. The notion that false public/private distinctions pervade mainstream legal and political discourse is one of the hallmarks of Critical Legal Studies (CLS). Many readers may be surprised to learn that, despite the frequent tensions between CLS and law and economics, the two schools of thought share a similar rejection of the alleged neutrality and objectivity of legal rules. See MARK KELMAN, A GUIDE TO CRITICAL LEGAL STUDIES 114 (1987) (noting that, because much CLS literature is critical of law and economics scholarship, CLS is often perceived as anti-law and economics); Duncan Kennedy & Frank Michelman, Are Property and Contract Efficient?, 8 HOFSTRA L. REV. 711 (1980) (criticizing Professor Richard A. Posner's economic approach to private property). Professor Kelman, however, expresses his own opinion that "the relationship between CLS and Law and Economics is in fact quite intimate."). KELMAN, supra, at 115. Similarly, Professor Edward L. Rubin has explored the possibility of a convergence between "second generation" CLS scholars (such as critical race theorists, feminist legal theorists, and gay legal studies scholars) and "second generation" law and economics scholars (sometimes referred to as "new Chicago School" theorists). See generally Edward L. Rubin, The New Legal Process, The Synthesis of Discourse, and the Microanalysis of Institutions, 109 HARV. L. REV. 1393, 1403 (1996) (discussing the possibility of a convergence of CLS and law and economics); see also NICHOLAS MERCURO & STEVEN G. MEDEMA, ECONOMICS AND THE LAW FROM POSNER TO POST-MODERNISM 157-70 (1997) (discussing CLS in a book entitled Economics and the Law, implying a close relationship between the two schools of thought).
123. The notion that false public/private distinctions pervade mainstream legal and political discourse is one of the hallmarks of Critical Legal Studies (CLS). Many readers may be surprised to learn that, despite the frequent tensions between CLS and law and economics, the two schools of thought share a similar rejection of the alleged neutrality and objectivity of legal rules. See MARK KELMAN, A GUIDE TO CRITICAL LEGAL STUDIES 114 (1987) (noting that, because much CLS literature is critical of law and economics scholarship, CLS is often perceived as anti-law and economics); Duncan Kennedy & Frank Michelman, Are Property and Contract Efficient?, 8 HOFSTRA L. REV. 711 (1980) (criticizing Professor Richard A. Posner's economic approach to private property). Professor Kelman, however, expresses his own opinion that "the relationship between CLS and Law and Economics is in fact quite intimate."). KELMAN, supra, at 115. Similarly, Professor Edward L. Rubin has explored the possibility of a convergence between "second generation" CLS scholars (such as critical race theorists, feminist legal theorists, and gay legal studies scholars) and "second generation" law and economics scholars (sometimes referred to as "new Chicago School" theorists). See generally Edward L. Rubin, The New Legal Process, The Synthesis of Discourse, and the Microanalysis of Institutions, 109 HARV. L. REV. 1393, 1403 (1996) (discussing the possibility of a convergence of CLS and law and economics); see also NICHOLAS MERCURO & STEVEN G. MEDEMA, ECONOMICS AND THE LAW FROM POSNER TO POST-MODERNISM 157-70 (1997) (discussing CLS in a book entitled Economics and the Law, implying a close relationship between the two schools of thought).
124. The notion that false public/private distinctions pervade mainstream legal and political discourse is one of the hallmarks of Critical Legal Studies (CLS). Many readers may be surprised to learn that, despite the frequent tensions between CLS and law and economics, the two schools of thought share a similar rejection of the alleged neutrality and objectivity of legal rules. See MARK KELMAN, A GUIDE TO CRITICAL LEGAL STUDIES 114 (1987) (noting that, because much CLS literature is critical of law and economics scholarship, CLS is often perceived as anti-law and economics); Duncan Kennedy & Frank Michelman, Are Property and Contract Efficient?, 8 HOFSTRA L. REV. 711 (1980) (criticizing Professor Richard A. Posner's economic approach to private property). Professor Kelman, however, expresses his own opinion that "the relationship between CLS and Law and Economics is in fact quite intimate."). KELMAN, supra, at 115. Similarly, Professor Edward L. Rubin has explored the possibility of a convergence between "second generation" CLS scholars (such as critical race theorists, feminist legal theorists, and gay legal studies scholars) and "second generation" law and economics scholars (sometimes referred to as "new Chicago School" theorists). See generally Edward L. Rubin, The New Legal Process, The Synthesis of Discourse, and the Microanalysis of Institutions, 109 HARV. L. REV. 1393, 1403 (1996) (discussing the possibility of a convergence of CLS and law and economics); see also NICHOLAS MERCURO & STEVEN G. MEDEMA, ECONOMICS AND THE LAW FROM POSNER TO POST-MODERNISM 157-70 (1997) (discussing CLS in a book entitled Economics and the Law, implying a close relationship between the two schools of thought).
125. KELMAN, supra note 67, at 102 ("The mainstream right-centrist legal position . . . [i]s that there is a fairly distinct line between the domain of intentional choice and freedom (private life, contract) and the domain of coerced choicelessness (public life, mandatory law, subjection to political sovereignty)."); Boyle, supra note 7, at 1433-34 (describing the public/private distinction as a central theme in the modern liberal state).
126. See Boyle, supra note 7, at 1433-34.
127. See id.
128. Id. at 1434 ("The central fear of the liberal political vision is that unrestrained state power will invade the private sphere.").
129. Id. ("By policing the lines between public and private and between citizens and other citizens, the law offers us the hope of a world that is neither the totalitarian state nor the state of nature.").
130. Id. at 1433; KARL MARX, On the Jewish Question, in KARL MARX EARLY WRITINGS 11 (T.B. Bottomore ed., 1964).
131. Id. at 1433; KARL MARX, On the Jewish Question, in KARL MARX EARLY WRITINGS 11 (T.B. Bottomore ed., 1964).
132. Boyle, supra note 7, at 1433.
133. Id. at 1437. James Madison explained the point best: "A popular Government, without popular information, or the means of acquiring it, is but a Prologue to a Farce or a Tragedy; or, perhaps both. Knowledge will forever govern ignorance; And a people who mean to be their own Governors, must arm themselves with the power which knowledge gives." Letter from James Madison to W.T. Barry (Aug. 4, 1822), in THE COMPLETE MADISON 337, 337 (Saul K. Padover ed., 1953), quoted in Boyle, supra note 7, at 1437; see also Aoki, supra note 18, at 11-12 ("This 'informationally egalitarian' atmosphere is a crucial feature of the public world. Informational disparities between citizens are seen as flaws to be corrected only through wider access to even more speech.").
134. Id. at 1437. James Madison explained the point best: "A popular Government, without popular information, or the means of acquiring it, is but a Prologue to a Farce or a Tragedy; or, perhaps both. Knowledge will forever govern ignorance; And a people who mean to be their own Governors, must arm themselves with the power which knowledge gives." Letter from James Madison to W.T. Barry (Aug. 4, 1822), in THE COMPLETE MADISON 337, 337 (Saul K. Padover ed., 1953), quoted in Boyle, supra note 7, at 1437; see also Aoki, supra note 18, at 11-12 ("This 'informationally egalitarian' atmosphere is a crucial feature of the public world. Informational disparities between citizens are seen as flaws to be corrected only through wider access to even more speech.").
135. See infra note 77 (describing property as "a bundle of rights"); see also infra note 165 (discussing the other rights in this "bundle").
136. See Kaiser Aetna v. United States, 444 U.S. 164, 176 (1979) (describing the right to exclude others as "one of the most essential sticks in the bundle of rights that are characterized as property"); COOTER & ULEN, supra note 42, at 91. See also infra note 101 (discussing the importance that property rights scholars attach to the right to exclude).
137. See COOTER & ULEN, supra note 42, at 91-93.
138. Aoki, supra note 18, at 11 ("[U]nder traditional enlightenment-based liberal political social theory, the idea and institution of private property demarcates a contradictory border between individual freedom of action and the threat of coercion by the state."); Aoki, supra note 14, at 1318.
139. Copyright law, for example, traditionally protects "expressions," but not ideas. Breyer, supra note 13, at 282. Trade secret law may restrict certain uses of information, but generally avoids characterizing information itself as property; see also subpart V.C infra (discussing criticisms by some legal observers of a perceived increase in information commodification in recent years).
140. Rose, supra note 54, at 713-14.
141. See subpart V.C infra (noting the general reluctance of the American legal system to recognize property rights in information).
142. See generally MARX, supra note 73.
143. Id. at 8.
144. Id. at 10-11.
145. Id. at 12. As Marx stated: The state abolishes, after its fashion, the distinctions between birth, social rank, education, occupation, when it decrees that birth, social rank, education, occupation are non-political distinctions; when it proclaims, without regard to these distinctions, that every member of society is an equal partner in popular sovereignty, and treats all the elements which compose the real life of the nation from the standpoint of the state. But the state, nonetheless, allows private property, education, occupation, to act after their own fashion, namely as private property, education, occupation, and to manifest their particular nature. Far from abolishing these effective differences, it only exists so far as they are presupposed. Id.
146. KELMAN, supra note 67, at 103.
147. Id. at 103-05.
148. Id. at 105.
149. Boyle, supra note 7, at 1433.
150. Id. at 1434-35.
151. Id. at 1435.
152. Id. (explaining that legal representation is at least partly contained in the public sphere because criminal defendants are constitutionally entitled to an attorney when being tried for crimes that carry the possibility of a substantial jail term, regardless of whether or not the defendant has the resources to pay for legal representation). Professor Boyle illustrates the public/private dichotomy and the law's role in preserving and promoting the distinction through the example of tort and criminal assault laws. Tort law, being a division of civil law, lies in the private realm and thus tolerates numerous inequalities among individuals. For example, an investment banker injured by a negligent driver will collect far more damages in the form of lost wages than would a homeless plaintiff. Criminal law on the other hand tolerates no such distinctions. The punishment for one guilty of criminal assault is the same regardless of whether the victim is rich or poor. All crime victims are legally entitled, but may not actually receive, the same protections. Our notions of fundamental fairness are offended by assertions that the reality may be otherwise. Id. at 1433-35.
153. Aoki, supra note 18, at 26-27; Boyle, supra note 7, at 1418. But see infra note 96 (discussing criticisms of the theory that author reasoning explains the commodification of information).
154. Martha Woodmansee, The Genius and the Copyright: Economic and Legal Conditions of the Emergence of the 'Author,' 17 EIGHTEENTH CENTURY STUD. 425, 427 (1984).
155. Id. at 427 ("'Inspiration' came to be explicated in terms of original genius, with the consequence that the inspired work was made peculiarly and distinctively the product - and the property - of the writer."). John Locke argued that property rights originated by natural law when a person applied his labor to an item, thus removing it from the public domain. JOHN LOCKE, 2 TWO TREATISES OF GOVERNMENT 134 (Thomas I. Cook ed., 1947) (1698) ("Whatsoever then he removes out of the state that nature hath provided and left it in, he hath mixed his labour with, and joined to it something that is his own, and thereby makes it his property."). Locke imposed only two conditions on this theory. First, one's labor only justifies removal of a good from the public domain "where there is enough, and as good left in common for others." Id. Second, one can only acquire a property right in the amount of a good that he could make use of and is not entitled to allow goods to go to waste. Id. There is currently a lively ongoing debate among intellectual property law scholars regarding whether recent expansions of intellectual property are primarily attributable to neoclassical economics or to natural rights-based philosophies. See, e.g., Julie E. Cohen, Lochner in Cyberspace: The New Economic Ortohodoxy of "Rights Management," 97 MICH. L. REV. 462, 474 (1998) (arguing that scholars following a Lockean justification for intellectual property express more concern for protecting the public domain of ideas than do scholars advancing neoclassical economic justifications, who tend to favor strong intellectual property rights); Mark A. Lemley, Romantic Authorship and the Rhetoric of Property, 75 TEX. L. REV. 873 (1997) (reviewing and rejecting James Boyle's romantic author theory and arguing instead that the growing propertization of information is best explained by reliance on neoclassical economic theory); Netanel, supra note 14, at 307 n.97 (arguing that reliance on neoclassical economics explains the recent growth of intellectual property rights much better than does Boyle's natural rights-based theories of romantic authorship). I argue in this Article that both theories are at work in the insider trading debate.
156. Id. at 427 ("'Inspiration' came to be explicated in terms of original genius, with the consequence that the inspired work was made peculiarly and distinctively the product - and the property - of the writer."). John Locke argued that property rights originated by natural law when a person applied his labor to an item, thus removing it from the public domain. JOHN LOCKE, 2 TWO TREATISES OF GOVERNMENT 134 (Thomas I. Cook ed., 1947) (1698) ("Whatsoever then he removes out of the state that nature hath provided and left it in, he hath mixed his labour with, and joined to it something that is his own, and thereby makes it his property."). Locke imposed only two conditions on this theory. First, one's labor only justifies removal of a good from the public domain "where there is enough, and as good left in common for others." Id. Second, one can only acquire a property right in the amount of a good that he could make use of and is not entitled to allow goods to go to waste. Id. There is currently a lively ongoing debate among intellectual property law scholars regarding whether recent expansions of intellectual property are primarily attributable to neoclassical economics or to natural rights-based philosophies. See, e.g., Julie E. Cohen, Lochner in Cyberspace: The New Economic Ortohodoxy of "Rights Management," 97 MICH. L. REV. 462, 474 (1998) (arguing that scholars following a Lockean justification for intellectual property express more concern for protecting the public domain of ideas than do scholars advancing neoclassical economic justifications, who tend to favor strong intellectual property rights); Mark A. Lemley, Romantic Authorship and the Rhetoric of Property, 75 TEX. L. REV. 873 (1997) (reviewing and rejecting James Boyle's romantic author theory and arguing instead that the growing propertization of information is best explained by reliance on neoclassical economic theory); Netanel, supra note 14, at 307 n.97 (arguing that reliance on neoclassical economics explains the recent growth of intellectual property rights much better than does Boyle's natural rights-based theories of romantic authorship). I argue in this Article that both theories are at work in the insider trading debate.
157. Id. at 427 ("'Inspiration' came to be explicated in terms of original genius, with the consequence that the inspired work was made peculiarly and distinctively the product - and the property - of the writer."). John Locke argued that property rights originated by natural law when a person applied his labor to an item, thus removing it from the public domain. JOHN LOCKE, 2 TWO TREATISES OF GOVERNMENT 134 (Thomas I. Cook ed., 1947) (1698) ("Whatsoever then he removes out of the state that nature hath provided and left it in, he hath mixed his labour with, and joined to it something that is his own, and thereby makes it his property."). Locke imposed only two conditions on this theory. First, one's labor only justifies removal of a good from the public domain "where there is enough, and as good left in common for others." Id. Second, one can only acquire a property right in the amount of a good that he could make use of and is not entitled to allow goods to go to waste. Id. There is currently a lively ongoing debate among intellectual property law scholars regarding whether recent expansions of intellectual property are primarily attributable to neoclassical economics or to natural rights-based philosophies. See, e.g., Julie E. Cohen, Lochner in Cyberspace: The New Economic Ortohodoxy of "Rights Management," 97 MICH. L. REV. 462, 474 (1998) (arguing that scholars following a Lockean justification for intellectual property express more concern for protecting the public domain of ideas than do scholars advancing neoclassical economic justifications, who tend to favor strong intellectual property rights); Mark A. Lemley, Romantic Authorship and the Rhetoric of Property, 75 TEX. L. REV. 873 (1997) (reviewing and rejecting James Boyle's romantic author theory and arguing instead that the growing propertization of information is best explained by reliance on neoclassical economic theory); Netanel, supra note 14, at 307 n.97 (arguing that reliance on neoclassical economics explains the recent growth of intellectual property rights much better than does Boyle's natural rights-based theories of romantic authorship). I argue in this Article that both theories are at work in the insider trading debate.
158. Aoki, supra note 18, at 26; Boyle, supra note 7, at 1470.
159. A frequently cited example is Feist Publ'ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340 (1991). In Feist, the Supreme Court refused to extend copyright protection to the creators of a white pages compilation of names, phone numbers, and addresses - despite the fact that the creators had mixed their labor in the Lockean sense with the raw materials and that the white pages presented classic collective goods problems. Feist, 499 U.S. at 345, 363 (arguing that "the sine qua non of copyright is originality" and that the creators of the white pages at issue had applied "insufficient creativity to make it original"); Peter Jaszi, On the Author Effect: Contemporary Copyright and Collective Creativity, 10 CARDOZO ARTS & ENT. L.J. 293, 302 (1992) ("[Feist] wears its values on its sleeve; from first to last, its rhetoric proceeds from unreconstructed faith in the gospel of Romantic 'authorship.'").
160. A frequently cited example is Feist Publ'ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340 (1991). In Feist, the Supreme Court refused to extend copyright protection to the creators of a white pages compilation of names, phone numbers, and addresses - despite the fact that the creators had mixed their labor in the Lockean sense with the raw materials and that the white pages presented classic collective goods problems. Feist, 499 U.S. at 345, 363 (arguing that "the sine qua non of copyright is originality" and that the creators of the white pages at issue had applied "insufficient creativity to make it original"); Peter Jaszi, On the Author Effect: Contemporary Copyright and Collective Creativity, 10 CARDOZO ARTS & ENT. L.J. 293, 302 (1992) ("[Feist] wears its values on its sleeve; from first to last, its rhetoric proceeds from unreconstructed faith in the gospel of Romantic 'authorship.'").
161. A frequently cited example is Feist Publ'ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340 (1991). In Feist, the Supreme Court refused to extend copyright protection to the creators of a white pages compilation of names, phone numbers, and addresses - despite the fact that the creators had mixed their labor in the Lockean sense with the raw materials and that the white pages presented classic collective goods problems. Feist, 499 U.S. at 345, 363 (arguing that "the sine qua non of copyright is originality" and that the creators of the white pages at issue had applied "insufficient creativity to make it original"); Peter Jaszi, On the Author Effect: Contemporary Copyright and Collective Creativity, 10 CARDOZO ARTS & ENT. L.J. 293, 302 (1992) ("[Feist] wears its values on its sleeve; from first to last, its rhetoric proceeds from unreconstructed faith in the gospel of Romantic 'authorship.'").
162. Professor Boyle further argues that the rather puzzling case of blackmail can also be explained by reference to the romantic author ideal. Boyle, supra note 7, at 1418-19. The case of blackmail is puzzling because revealing the acquired information would be perfectly legal absent an attempt to extract compensation in exchange for silence. See James Lindgren, Unraveling the Paradox of Blackmail, 84 COLUM. L. REV. 670, 670-71 (1984) ("I have a legal right to expose or threaten to expose the crime or affair, and I have a legal right to seek a job or money, but if I combine these rights it is blackmail."). According to Professor Boyle, because there is no identifiable romantic author in the blackmail context whose originality and effort must be rewarded through the grant of property rights, information used for the purpose of blackmail is relegated to the private sphere of personal life, home, and family, where others are excluded from intrusion. Boyle, supra note 7, at 1470. Legal scholars have also explained the blackmail paradox on other grounds. For a thorough and insightful review and rejection of these attempts, see Lindgren, supra, at 670-71, 680-701 (surveying the blackmail literature and concluding that the blackmail prohibition is best explained by its "triangular structure" - that is, by its impact on third parties).
163. See Karmel, supra note 65, at 152; Karmel, supra note 37, at 113.
164. I use the concept of property rights in this Article in a rather unconventional sense, albeit one that has gained acceptance among insider trading scholars. Insider trading scholars have used the concept of property rights in the following two ways: either the owner of information may be permitted to trade on the information without disclosure to others, or the information owner may be granted the right to prohibit others from using her information. See BAINBRIDGE, INSIDER TRADING, supra note 8, at 164. Most commentators in more traditional areas of property law, however, would take issue with the notion that permission to trade on information is a property right, and instead would refer to an entitlement of this sort as a privilege or liberty. See, e.g., Wesley Newcomb Hohfeld, Some Fundamental Legal Conceptions as Applied in Judicial Reasoning, 23 YALE L.J. 16, 30 (1913) (distinguishing "rights" from "liberties" or "privileges" and arguing that, in order to qualify as a right, someone else must have a corresponding duty, for example, to refrain from interfering with the right); Thomas Merrill, Property and the Right to Exclude, 77 NEB. L. REV. 730 (1998) (arguing that the right to exclude others is the "sine qua non" of property). Economists, however, often refer to liberties or privileges as property rights, a practice that has been criticized as causing misunderstandings and a bias in economic analysis. See Daniel H. Cole & Peter Z. Grossman, The Meaning of Property "Right": Law v. Economics? (Apr., 19, 2000) (unpublished manuscript, on file with author).
165. I use the concept of property rights in this Article in a rather unconventional sense, albeit one that has gained acceptance among insider trading scholars. Insider trading scholars have used the concept of property rights in the following two ways: either the owner of information may be permitted to trade on the information without disclosure to others, or the information owner may be granted the right to prohibit others from using her information. See BAINBRIDGE, INSIDER TRADING, supra note 8, at 164. Most commentators in more traditional areas of property law, however, would take issue with the notion that permission to trade on information is a property right, and instead would refer to an entitlement of this sort as a privilege or liberty. See, e.g., Wesley Newcomb Hohfeld, Some Fundamental Legal Conceptions as Applied in Judicial Reasoning, 23 YALE L.J. 16, 30 (1913) (distinguishing "rights" from "liberties" or "privileges" and arguing that, in order to qualify as a right, someone else must have a corresponding duty, for example, to refrain from interfering with the right); Thomas Merrill, Property and the Right to Exclude, 77 NEB. L. REV. 730 (1998) (arguing that the right to exclude others is the "sine qua non" of property). Economists, however, often refer to liberties or privileges as property rights, a practice that has been criticized as causing misunderstandings and a bias in economic analysis. See Daniel H. Cole & Peter Z. Grossman, The Meaning of Property "Right": Law v. Economics? (Apr., 19, 2000) (unpublished manuscript, on file with author).
166. I use the concept of property rights in this Article in a rather unconventional sense, albeit one that has gained acceptance among insider trading scholars. Insider trading scholars have used the concept of property rights in the following two ways: either the owner of information may be
167. I use the concept of property rights in this Article in a rather unconventional sense, albeit one that has gained acceptance among insider trading scholars. Insider trading scholars have used the concept of property rights in the following two ways: either the owner of information may be permitted to trade on the information without disclosure to others, or the information owner may be granted the right to prohibit others from using her information. See BAINBRIDGE, INSIDER TRADING, supra note 8, at 164. Most commentators in more traditional areas of property law, however, would take issue with the notion that permission to trade on information is a property right, and instead would refer to an entitlement of this sort as a privilege or liberty. See, e.g., Wesley Newcomb Hohfeld, Some Fundamental Legal Conceptions as Applied in Judicial Reasoning, 23 YALE L.J. 16, 30 (1913) (distinguishing "rights" from "liberties" or "privileges" and arguing that, in order to qualify as a right, someone else must have a corresponding duty, for example, to refrain from interfering with the right); Thomas Merrill, Property and the Right to Exclude, 77 NEB. L. REV. 730 (1998) (arguing that the right to exclude others is the "sine qua non" of property). Economists, however, often refer to liberties or privileges as property rights, a practice that has been criticized as causing misunderstandings and a bias in economic analysis. See Daniel H. Cole & Peter Z. Grossman, The Meaning of Property "Right": Law v. Economics? (Apr., 19, 2000) (unpublished manuscript, on file with author).
168. It is important to distinguish between a "parity of information" rule, which would prohibit any transaction between parties possessing unequal information, and an "equality of access" rule, which would prohibit transactions in which one trading partner had information that the other did not have, and could not acquire, regardless of the amount of effort expended. Justice Blackmun explained the distinction well in Chiarella: "[T]here is a significant conceptual distinction between parity of information and parity of access to material information. The latter gives free rein to certain kinds of informational advantages that the former might foreclose, such as those that result from differences in diligence or acumen." Chiarella v. United States, 445 U.S. 222, 252 n.2 (Blackmun, J., dissenting). Because a truly level playing field would likely result in fewer market exchanges, a strict parity of information rule was apparently never seriously considered as a rule of modern law. Lawson, supra note 8, at 736-37 ("Anglo-American contract law has never forbidden all trading in the absence of full disclosure, and, to paraphrase Professor Manne, I know of no modern commentator who has suggested that it should.").
169. Because the fraud-on-the-source version of the misappropriation theory focuses on the trader's duties to the information source, rather than her duties to other marketplace traders, the fraud-on-the-source version of the misappropriation theory more closely resembles a regime that treats inside information as the issuer's property, as opposed to public property. See Part V infra (discussing legal regimes, including the fraud-on-the-source version of the misappropriation theory, that treat inside information as the issuer's property); see also infra note 115 (defining and contrasting the fraud-on-the-market and fraud-on-the-source versions of the misappropriation theory).
170. See JONATHAN R. MACEY, INSIDER TRADING: ECONOMICS, POLITICS AND POLICY 3 (1991); Bainbridge, supra note 4, at 55 ("[T]he most common argument against insider trading has been that it is unfair."); Brudney, supra note 5, at 354-55; Levmore, supra note 23, at 118. The insider trading prohibition has also been justified as preventing harm to the issuer and its shareholders and as promoting market efficiency by reducing the incentives for corporate management to delay disclosure of relevant information. See infra note 237 (discussing these arguments in greater detail).
171. See JONATHAN R. MACEY, INSIDER TRADING: ECONOMICS, POLITICS AND POLICY 3 (1991); Bainbridge, supra note 4, at 55 ("[T]he most common argument against insider trading has been that it is unfair."); Brudney, supra note 5, at 354-55; Levmore, supra note 23, at 118. The insider trading prohibition has also been justified as preventing harm to the issuer and its shareholders and as promoting market efficiency by reducing the incentives for corporate management to delay disclosure of relevant information. See infra note 237 (discussing these arguments in greater detail).
172. See Easterbrook, supra note 13, at 324 ("I suspect that few people who invoke arguments based on fairness have in mind any particular content for the term."); Levmore, supra note 23, at 119-20 (arguing that proponents of a "fair" insider trading rule have failed to define the term, and proposing a more definitive standard); Jonathan R. Macey, Ethics, Economics, and Insider Trading: Ayn Rand Meets the Theory of the Firm, 11 HARV. J.L. & PUB. POL'Y 785, 787 (1988) ("The current scholarship that decries insider trading as 'unfair' completely lacks reasoned argument. Often those who brand insider trading as unfair do not even attempt to explain what insider trading is, much less why it is unfair.").
173. See Easterbrook, supra note 13, at 324 ("I suspect that few people who invoke arguments based on fairness have in mind any particular content for the term."); Levmore, supra note 23, at 119-20 (arguing that proponents of a "fair" insider trading rule have failed to define the term, and proposing a more definitive standard); Jonathan R. Macey, Ethics, Economics, and Insider Trading: Ayn Rand Meets the Theory of the Firm, 11 HARV. J.L. & PUB. POL'Y 785, 787 (1988) ("The current scholarship that decries insider trading as 'unfair' completely lacks reasoned argument. Often those who brand insider trading as unfair do not even attempt to explain what insider trading is, much less why it is unfair.").
174. This debate is far too lengthy to include here. Good discussions, however, are available in WILLIAM K.S. WANG & MARC I. STEINBERG, INSIDER TRADING 13-117 (1996) and BAINBRIDGE supra note 8, at 149-64.
175. "Time-function" traders are those traders whose investment decisions are not dependent on changes in security prices, meaning that they are not induced by insider trading to purchase or sell. The investment decisions of "price-function" traders, by contrast, are induced by insider trading. See, e.g., Jonathan R. Macey, Securities Trading, A Contractual Perspective, 50 CASE W. RES. L. REV. 269, 273-74 (1999).
176. Id. at 274.
177. William K.S. Wang, Stock Market Insider Trading: Victims, Violators and Remedies - Including an Analogy to Fraud in the Sale of a Used Car with a Generic Defect, 45 VILL. L. REV. 27, 29 (2000) (discussing the "law of conservation of securities").
178. See generally Georgakopoulos, supra note 4.
179. These studies are not dispositive of the thesis proposed in this Article: to Prohibit insider trading by classical and temporary insiders and to leave trading by outsiders to regulation by private contract. Studies analyzing the impact of insider trading laws on market liquidity necessarily make no distinction between insider and outsider trading on the basis of material nonpublic information. Presumably, the decreased liquidity observed in those studies would be less severe in a regime where insiders, but no, outsiders, were prohibited from exploiting their informational advantages. Indeed, most such studies employ the United States as an example of a regime with strong insider trading enforcement and high market liquidity. In fact, empirical evidence indicates that, although U.S. regulators have experienced great success in deterring illegal insider trading by classical and temporary insiders, U.S. regulatory efforts have been largely ineffective in deterring illegal outsider trading. Nasser Arshadi, Insider Trading Liability and Enforcement Strategy, 27 FIN. MGMT. 70, 70 (1998) (finding that insider trading regulation in the United States has been reasonably effective at deterring trades by "registered and temporary insiders," but has failed to deter illegal insider trading by corporate outsiders).
180. Laura N. Beny, A Comparative Empirical Investigation of Agency and Market Theories of Insider Trading (1999) (unpublished manuscript, on file with author); Utpal Bhattacharya & Hazem Daouk, The World Price of Insider Trading (finding a roughly five percent reduction in the cost of capital in countries that enforce insider trading restrictions) (2000) (unpublished manuscript, on file with author).
181. See, e.g., Brudney, supra note 5, at 356; Arthur Levitt, A Question of Integrity: Promoting Investor Confidence by Fighting Insider Trading, INSIGHTS, Apr. 1998, at 17 ("Trading on inside information . . . damages the entire structure of our markets, because it deeply shakes this vital investor confidence."). The view that insider trading undermines investor confidence in the markets has been widely debated. For example, Professor Stephen Bainbridge has argued that, because there is no evidence that investors are actually harmed by insider trading, there is little cause to believe that insider trading would undermine investor confidence. Stephen M. Bainbridge, Incorporating State Law Fiduciary Duties into the Federal Insider Trading Prohibition, 52 WASH. & LEE L. REV. 1189, 1241-42 (1995). He further argues that the robust U.S. stock market performance after the highly publicized insider trading scandals of the 1980s undercuts the market integrity argument. Stephen M. Bainbridge, Insider Trading, in THE ENCYCLOPEDIA OF LAW & ECONOMICS 13 (1998), available at http://allserv.rug.ac.be/~gdegeest/ 5650art.htm. Furthermore, Professor Jonathan Macey argues that the experience of countries such as Japan, India, and Hong Kong, each of whom have lax insider trading prohibitions and enforcement mechanisms but vigorous securities markets, undermines the argument that insider trading may cause a loss of investor confidence in the public markets. See MACEY, supra note 104, at 44.
182. See, e.g., Brudney, supra note 5, at 356; Arthur Levitt, A Question of Integrity: Promoting Investor Confidence by Fighting Insider Trading, INSIGHTS, Apr. 1998, at 17 ("Trading on inside information . . . damages the entire structure of our markets, because it deeply shakes this vital investor confidence."). The view that insider trading undermines investor confidence in the markets has been widely debated. For example, Professor Stephen Bainbridge has argued that, because there is no evidence that investors are actually harmed by insider trading, there is little cause to believe that insider trading would undermine investor confidence. Stephen M. Bainbridge, Incorporating State Law Fiduciary Duties into the Federal Insider Trading Prohibition, 52 WASH. & LEE L. REV. 1189, 1241-42 (1995). He further argues that the robust U.S. stock market performance after the highly publicized insider trading scandals of the 1980s undercuts the market integrity argument. Stephen M. Bainbridge, Insider Trading, in THE ENCYCLOPEDIA OF LAW & ECONOMICS 13 (1998), available at http://allserv.rug.ac.be/~gdegeest/ 5650art.htm. Furthermore, Professor Jonathan Macey argues that the experience of countries such as Japan, India, and Hong Kong, each of whom have lax insider trading prohibitions and enforcement mechanisms but vigorous securities markets, undermines the argument that insider trading may cause a loss of investor confidence in the public markets. See MACEY, supra note 104, at 44.
183. See, e.g., Brudney, supra note 5, at 356; Arthur Levitt, A Question of Integrity: Promoting Investor Confidence by Fighting Insider Trading, INSIGHTS, Apr. 1998, at 17 ("Trading on inside information . . . damages the entire structure of our markets, because it deeply shakes this vital investor confidence."). The view that insider trading undermines investor confidence in the markets has been widely debated. For example, Professor Stephen Bainbridge has argued that, because there is no evidence that investors are actually harmed by insider trading, there is little cause to believe that insider trading would undermine investor confidence. Stephen M. Bainbridge, Incorporating State Law Fiduciary Duties into the Federal Insider Trading Prohibition, 52 WASH. & LEE L. REV. 1189, 1241-42 (1995). He further argues that the robust U.S. stock market performance after the highly publicized insider trading scandals of the 1980s undercuts the market integrity argument. Stephen M. Bainbridge, Insider Trading, in THE ENCYCLOPEDIA OF LAW & ECONOMICS 13 (1998), available at http://allserv.rug.ac.be/~gdegeest/ 5650art.htm. Furthermore, Professor Jonathan Macey argues that the experience of countries such as Japan, India, and Hong Kong, each of whom have lax insider trading prohibitions and enforcement mechanisms but vigorous securities markets, undermines the argument that insider trading may cause a loss of investor confidence in the public markets. See MACEY, supra note 104, at 44.
184. The Supreme Court has defined the classical theory as follows: Under the "traditional" or "classical theory" of insider trading liability, § 10(b) and Rule 10b-5 are violated when a corporate insider trades in the securities of his corporation on the basis of material, nonpublic information. Trading on such information qualifies as a "deceptive device" under § 10(b), we have affirmed, because "a relationship of trust and confidence [exists] between the shareholders of a corporation and those insiders who have obtained confidential information by reason of their position with that corporation." United States v. O'Hagan, 521 U.S. 642, 651-52 (1997) (quoting Chiarella v. United States, 445 U.S. 222, 228 (1980)).
185. Both the fraud-on-the-source version and the fraud-on-the-market version of the misappropriation theory arose from the Supreme Court's 1980 decision in Chiarella v. United States, 445 U.S. 222 (1980). The fraud-on-the-source theory, which was argued by the government as a basis for liability in Chiarella and discussed with some approval in Justice Stevens's concurring opinion, holds that the misappropriation of inside information from one to whom a duty of trust and confidence is owed gives rise to a duty of disclosure to that person. See 445 U.S. at 238 (Stevens, J., concurring). The fraud-on-the-market theory, by contrast, was favored by Chief Justice Warren Burger in his dissenting opinion, and holds that the misappropriation of confidential information gives rise to a duty of disclosure to other marketplace actors. Id. at 240-41 (Burger, C.J., dissenting).
186. Both the fraud-on-the-source version and the fraud-on-the-market version of the misappropriation theory arose from the Supreme Court's 1980 decision in Chiarella v. United States, 445 U.S. 222 (1980). The fraud-on-the-source theory, which was argued by the government as a basis for liability in Chiarella and discussed with some approval in Justice Stevens's concurring opinion, holds that the misappropriation of inside information from one to whom a duty of trust and confidence is owed gives rise to a duty of disclosure to that person. See 445 U.S. at 238 (Stevens, J., concurring). The fraud-on-the-market theory, by contrast, was favored by Chief Justice Warren Burger in his dissenting opinion, and holds that the misappropriation of confidential information gives rise to a duty of disclosure to other marketplace actors. Id. at 240-41 (Burger, C.J., dissenting).
187. The most skillful exposition of the fraud-on-the-market theory is contained in Nagy, supra note 5. I, and others, have criticized the misappropriation theory and, in particular, the fraud-on-the-source version of that theory, at length elsewhere and those criticisms are not repeated here. See, e.g., Richard W. Painter, Kimberly D. Krawiec & Cynthia A. Williams, Don't Ask. Just Tell: Insider Trading After United States v. O'Hagan, 84 VA. L. REV. 153 (1998) (criticizing O'Hagan and the misappropriation theory); see also Bainbridge, supra note 5; Nagy, supra note 5; Ribstein, supra note 5. Instead, I emphasize simply that O'Hagan not only raised more questions than it answered, but by conditioning insider trading liability on the breach of a fiduciary duty owed to a principal, regardless of whether the principal has an interest in the securities being traded or is even a market participant at all, the misappropriation theory divorces insider trading liability from any conceivable source of investor protection.
188. The most skillful exposition of the fraud-on-the-market theory is contained in Nagy, supra note 5. I, and others, have criticized the misappropriation theory and, in particular, the fraud-on-the-source version of that theory, at length elsewhere and those criticisms are not repeated here. See, e.g., Richard W. Painter, Kimberly D. Krawiec & Cynthia A. Williams, Don't Ask. Just Tell: Insider Trading After United States v. O'Hagan, 84 VA. L. REV. 153 (1998) (criticizing O'Hagan and the misappropriation theory); see also Bainbridge, supra note 5; Nagy, supra note 5; Ribstein, supra note 5. Instead, I emphasize simply that O'Hagan not only raised more questions than it answered, but by conditioning insider trading liability on the breach of a fiduciary duty owed to a principal, regardless of whether the principal has an interest in the securities being traded or is even a market participant at all, the misappropriation theory divorces insider trading liability from any conceivable source of investor protection.
189. The most skillful exposition of the fraud-on-the-market theory is contained in Nagy, supra note 5. I, and others, have criticized the misappropriation theory and, in particular, the fraud-on-the-source version of that theory, at length elsewhere and those criticisms are not repeated here. See, e.g., Richard W. Painter, Kimberly D. Krawiec & Cynthia A. Williams, Don't Ask. Just Tell: Insider Trading After United States v. O'Hagan, 84 VA. L. REV. 153 (1998) (criticizing O'Hagan and the misappropriation theory); see also Bainbridge, supra note 5; Nagy, supra note 5; Ribstein, supra note 5. Instead, I emphasize simply that O'Hagan not only raised more questions than it answered, but by conditioning insider trading liability on the breach of a fiduciary duty owed to a principal, regardless of whether the principal has an interest in the securities being traded or is even a market participant at all, the misappropriation theory divorces insider trading liability from any conceivable source of investor protection.
190. Charles C. Cox & Kevin S. Fogarty, Bases of Insider Trading Law, 49 OHIO ST. L.J. 353, 366 (1988) ("[T]He whole [misappropriation] theory is merely a pretext for enforcing equal opportunity in information.").
191. Bainbridge, supra note 5, at 1648 (stating that the majority opinion in O'Hagan constitutes an "arguable revival of the long-discredited equal access theory of liability."); Elliot J. Weiss, United States v. O'Hagan: Pragmatism Returns to the Law of Insider Trading, 23 J. CORP. L. 395 (1998); see also O'Hagan, 521 U.S. at 659 (arguing that misappropriators enjoy an informational advantage "that cannot be overcome with research or skill").
192. Bainbridge, supra note 5, at 1648 (stating that the majority opinion in O'Hagan constitutes an "arguable revival of the long-discredited equal access theory of liability."); Elliot J. Weiss, United States v. O'Hagan: Pragmatism Returns to the Law of Insider Trading, 23 J. CORP. L. 395 (1998); see also O'Hagan, 521 U.S. at 659 (arguing that misappropriators enjoy an informational advantage "that cannot be overcome with research or skill").
193. A commonly cited example of this phenomenon is the land sale transaction at issue in S.E.C. v. Texas Gulf Sulphur Co. 401 F.2d 833 (2d Cir. 1968); see also Paula J. Dalley, From Horse Trading to Insider Trading: The Historical Antecedents of the Insider Trading Debate, 39 WM. & MARY L. REV. 1289, 1290 (1998) (citing Texas Gulf Sulphur as an example of the general presumption of caveat emptor in arms-length business transactions); Fisch, supra note 7, at 251 n.189 (same). In Texas Gulf Sulphur, Texas Gulf wanted to buy a tract of land that it knew contained valuable mineral deposits, although the owner of the land was unaware of that fact. The Second Circuit found Texas Gulf liable under Rule 10b-5 for failing to disclose the valuable ore deposit to the securities traders who had sold their stock to the company. The Ontario High Court of Justice, however, ruled that Texas Gulf was under no obligation to disclose this same information to the owner of the property before purchasing it at a price far below its true value. Leitch Gold Mines, Ltd. v. Texas Gulf Sulphur Co., 1 O.R. 469, 492-93 (1969).
194. A commonly cited example of this phenomenon is the land sale transaction at issue in S.E.C. v. Texas Gulf Sulphur Co. 401 F.2d 833 (2d Cir. 1968); see also Paula J. Dalley, From Horse Trading to Insider Trading: The Historical Antecedents of the Insider Trading Debate, 39 WM. & MARY L. REV. 1289, 1290 (1998) (citing Texas Gulf Sulphur as an example of the general presumption of caveat emptor in arms-length business transactions); Fisch, supra note 7, at 251 n.189 (same). In Texas Gulf Sulphur, Texas Gulf wanted to buy a tract of land that it knew contained valuable mineral deposits, although the owner of the land was unaware of that fact. The Second Circuit found Texas Gulf liable under Rule 10b-5 for failing to disclose the valuable ore deposit to the securities traders who had sold their stock to the company. The Ontario High Court of Justice, however, ruled that Texas Gulf was under no obligation to disclose this same information to the owner of the property before purchasing it at a price far below its true value. Leitch Gold Mines, Ltd. v. Texas Gulf Sulphur Co., 1 O.R. 469, 492-93 (1969).
195. A commonly cited example of this phenomenon is the land sale transaction at issue in S.E.C. v. Texas Gulf Sulphur Co. 401 F.2d 833 (2d Cir. 1968); see also Paula J. Dalley, From Horse Trading to Insider Trading: The Historical Antecedents of the Insider Trading Debate, 39 WM. & MARY L. REV. 1289, 1290 (1998) (citing Texas Gulf Sulphur as an example of the general presumption of caveat emptor in arms-length business transactions); Fisch, supra note 7, at 251 n.189 (same). In Texas Gulf Sulphur, Texas Gulf wanted to buy a tract of land that it knew contained valuable mineral deposits, although the owner of the land was unaware of that fact. The Second Circuit found Texas Gulf liable under Rule 10b-5 for failing to disclose the valuable ore deposit to the securities traders who had sold their stock to the company. The Ontario High Court of Justice, however, ruled that Texas Gulf was under no obligation to disclose this same information to the owner of the property before purchasing it at a price far below its true value. Leitch Gold Mines, Ltd. v. Texas Gulf Sulphur Co., 1 O.R. 469, 492-93 (1969).
196. 791 F.2d 1024, 1031 (2d Cir. 1986), aff'd, 484 U.S. 19 (1987).
197. It has been frequently noted, for example, that the average investor is routinely excluded from the new issue market at the initial public offering price. Michael Siconolfi, The Spin Desk: Underwriters Set Aside IPO Stock for Officials of Potential Customers, WALL ST. J., Nov. 12, 1997, at A1 [hereinafter Siconolfi, Spin Desk] ("It is no news that underwriters make most of the shares in hot IPOs available not to the little-guy investor but to institutions, such as mutual-fund companies and pension funds, that provide a lot of trading commissions and other business."). This practice favors large investors by permitting them to earn huge profits by quickly selling IPO shares in the aftermarket, which often soars by as much as 50% on the first day of trading, due to high demand from investors who were unable to purchase in the initial IPO distribution. See id.; see also Michael Siconolfi, SEC Broadens 'Spinning' Probe to Corporations, WALL ST. J., Dec. 24, 1997, at C1 [hereinafter Siconolfi, Spinning Probe]. The practice, however, is not illegal. This is in contrast to the practice known as "spinning," the allocation of desirable IPO shares to the discretionary trading accounts of corporate executives and venture capitalists, in the hopes that the executive will award future investment banking business to the underwriting firm. See Siconolfi, Spin Desk, supra, at A1. Spinning is of questionable legality. See Siconolfi, Spinning Probe, supra. The standard defense of this inequality in the IPO market is that individuals profit from this practice by purchasing shares in mutual funds, which are the largest beneficiaries of current IPO share allocation practices. See Randall Smith & Suzanne McGee, Major Institutions, Led by Fidelity, Get Most of Hot IPOs, Lists Show, WALL ST. J., Jan. 27, 2000, at C1 (noting that the IPO allocation of Fidelity Investments, a large mutual fund, is twice that of most other institutions). Given the poor performance of most mutual funds, however, this argument should be recognized for the author reasoning that it is, rather than as a legitimate defense of market inequality. See infra notes 144-55 and accompanying text (discussing author reasoning and the romanticization of analysts and other market professionals that leads to their preferential treatment under the securities laws).
198. It has been frequently noted, for example, that the average investor is routinely excluded from the new issue market at the initial public offering price. Michael Siconolfi, The Spin Desk: Underwriters Set Aside IPO Stock for Officials of Potential Customers, WALL ST. J., Nov. 12, 1997, at A1 [hereinafter Siconolfi, Spin Desk] ("It is no news that underwriters make most of the shares in hot IPOs available not to the little-guy investor but to institutions, such as mutual-fund companies and pension funds, that provide a lot of trading commissions and other business."). This practice favors large investors by permitting them to earn huge profits by quickly selling IPO shares in the aftermarket, which often soars by as much as 50% on the first day of trading, due to high demand from investors who were unable to purchase in the initial IPO distribution. See id.; see also Michael Siconolfi, SEC Broadens 'Spinning' Probe to Corporations, WALL ST. J., Dec. 24, 1997, at C1 [hereinafter Siconolfi, Spinning Probe]. The practice, however, is not illegal. This is in contrast to the practice known as "spinning," the allocation of desirable IPO shares to the discretionary trading accounts of corporate executives and venture capitalists, in the hopes that the executive will award future investment banking business to the underwriting firm. See Siconolfi, Spin Desk, supra, at A1. Spinning is of questionable legality. See Siconolfi, Spinning Probe, supra. The standard defense of this inequality in the IPO market is that individuals profit from this practice by purchasing shares in mutual funds, which are the largest beneficiaries of current IPO share allocation practices. See Randall Smith & Suzanne McGee, Major Institutions, Led by Fidelity, Get Most of Hot IPOs, Lists Show, WALL ST. J., Jan. 27, 2000, at C1 (noting that the IPO allocation of Fidelity Investments, a large mutual fund, is twice that of most other institutions). Given the poor performance of most mutual funds, however, this argument should be recognized for the author reasoning that it is, rather than as a legitimate defense of market inequality. See infra notes 144-55 and accompanying text (discussing author reasoning and the romanticization of analysts and other market professionals that leads to their preferential treatment under the securities laws).
199. It has been frequently noted, for example, that the average investor is routinely excluded from the new issue market at the initial public offering price. Michael Siconolfi, The Spin Desk: Underwriters Set Aside IPO Stock for Officials of Potential Customers, WALL ST. J., Nov. 12, 1997, at A1 [hereinafter Siconolfi, Spin Desk] ("It is no news that underwriters make most of the shares in hot IPOs available not to the little-guy investor but to institutions, such as mutual-fund companies and pension funds, that provide a lot of trading commissions and other business."). This practice favors large investors by permitting them to earn huge profits by quickly selling IPO shares in the aftermarket, which often soars by as much as 50% on the first day of trading, due to high demand from investors who were unable to purchase in the initial IPO distribution. See id.; see also Michael Siconolfi, SEC Broadens 'Spinning' Probe to Corporations, WALL ST. J., Dec. 24, 1997, at C1 [hereinafter Siconolfi, Spinning Probe]. The practice, however, is not illegal. This is in contrast to the practice known as "spinning," the allocation of desirable IPO shares to the discretionary trading accounts of corporate executives and venture capitalists, in the hopes that the executive will award future investment banking business to the underwriting firm. See Siconolfi, Spin Desk, supra, at A1. Spinning is of questionable legality. See Siconolfi, Spinning Probe, supra. The standard defense of this inequality in the IPO market is that individuals profit from this practice by purchasing shares in mutual funds, which are the largest beneficiaries of current IPO share allocation practices. See Randall Smith & Suzanne McGee, Major Institutions, Led by Fidelity, Get Most of Hot IPOs, Lists Show, WALL ST. J., Jan. 27, 2000, at C1 (noting that the IPO allocation of Fidelity Investments, a large mutual fund, is twice that of most other institutions). Given the poor performance of most mutual funds, however, this argument should be recognized for the author reasoning that it is, rather than as a legitimate defense of market inequality. See infra notes 144-55 and accompanying text (discussing author reasoning and the romanticization of analysts and other market professionals that leads to their preferential treatment under the securities laws).
200. It has been frequently noted, for example, that the average investor is routinely excluded from the new issue market at the initial public offering price. Michael Siconolfi, The Spin Desk: Underwriters Set Aside IPO Stock for Officials of Potential Customers, WALL ST. J., Nov. 12, 1997, at A1 [hereinafter Siconolfi, Spin Desk] ("It is no news that underwriters make most of the shares in hot IPOs available not to the little-guy investor but to institutions, such as mutual-fund companies and pension funds, that provide a lot of trading commissions and other business."). This practice favors large investors by permitting them to earn huge profits by quickly selling IPO shares in the aftermarket, which often soars by as much as 50% on the first day of trading, due to high demand from investors who were unable to purchase in the initial IPO distribution. See id.; see also Michael Siconolfi, SEC Broadens 'Spinning' Probe to Corporations, WALL ST. J., Dec. 24, 1997, at C1 [hereinafter Siconolfi, Spinning Probe]. The practice, however, is not illegal. This is in contrast to the practice known as "spinning," the allocation of desirable IPO shares to the discretionary trading accounts of corporate executives and venture capitalists, in the hopes that the executive will award future investment banking business to the underwriting firm. See Siconolfi, Spin Desk, supra, at A1. Spinning is of questionable legality. See Siconolfi, Spinning Probe, supra. The standard defense of this inequality in the IPO market is that individuals profit from this practice by purchasing shares in mutual funds, which are the largest beneficiaries of current IPO share allocation practices. See Randall Smith & Suzanne McGee, Major Institutions, Led by Fidelity, Get Most of Hot IPOs, Lists Show, WALL ST. J., Jan. 27, 2000, at C1 (noting that the IPO allocation of Fidelity Investments, a large mutual fund, is twice that of most other institutions). Given the poor performance of most mutual funds, however, this argument should be recognized for the author reasoning that it is, rather than as a legitimate defense of market inequality. See infra notes 144-55 and accompanying text (discussing author reasoning and the romanticization of analysts and other market professionals that leads to their preferential treatment under the securities laws).
201. It has been frequently noted, for example, that the average investor is routinely excluded from the new issue market at the initial public offering price. Michael Siconolfi, The Spin Desk: Underwriters Set Aside IPO Stock for Officials of Potential Customers, WALL ST. J., Nov. 12, 1997, at A1 [hereinafter Siconolfi, Spin Desk] ("It is no news that underwriters make most of the shares in hot IPOs available not to the little-guy investor but to institutions, such as mutual-fund companies and pension funds, that provide a lot of trading commissions and other business."). This practice favors large investors by permitting them to earn huge profits by quickly selling IPO shares in the aftermarket, which often soars by as much as 50% on the first day of trading, due to high demand from investors who were unable to purchase in the initial IPO distribution. See id.; see also Michael Siconolfi, SEC Broadens 'Spinning' Probe to Corporations, WALL ST. J., Dec. 24, 1997, at C1 [hereinafter Siconolfi, Spinning Probe]. The practice, however, is not illegal. This is in contrast to the practice known as "spinning," the allocation of desirable IPO shares to the discretionary trading accounts of corporate executives and venture capitalists, in the hopes that the executive will award future investment banking business to the underwriting firm. See Siconolfi, Spin Desk, supra, at A1. Spinning is of questionable legality. See Siconolfi, Spinning Probe, supra. The standard defense of this inequality in the IPO market is that individuals profit from this practice by purchasing shares in mutual funds, which are the largest beneficiaries of current IPO share allocation practices. See Randall Smith & Suzanne McGee, Major Institutions, Led by Fidelity, Get Most of Hot IPOs, Lists Show, WALL ST. J., Jan. 27, 2000, at C1 (noting that the IPO allocation of Fidelity Investments, a large mutual fund, is twice that of most other institutions). Given the poor performance of most mutual funds, however, this argument should be recognized for the author reasoning that it is, rather than as a legitimate defense of market inequality. See infra notes 144-55 and accompanying text (discussing author reasoning and the romanticization of analysts and other market professionals that leads to their preferential treatment under the securities laws).
202. It has been frequently noted, for example, that the average investor is routinely excluded from the new issue market at the initial public offering price. Michael Siconolfi, The Spin Desk: Underwriters Set Aside IPO Stock for Officials of Potential Customers, WALL ST. J., Nov. 12, 1997, at A1 [hereinafter Siconolfi, Spin Desk] ("It is no news that underwriters make most of the shares in hot IPOs available not to the little-guy investor but to institutions, such as mutual-fund companies and pension funds, that provide a lot of trading commissions and other business."). This practice favors large investors by permitting them to earn huge profits by quickly selling IPO shares in the aftermarket, which often soars by as much as 50% on the first day of trading, due to high demand from investors who were unable to purchase in the initial IPO distribution. See id.; see also Michael Siconolfi, SEC Broadens 'Spinning' Probe to Corporations, WALL ST. J., Dec. 24, 1997, at C1 [hereinafter Siconolfi, Spinning Probe]. The practice, however, is not illegal. This is in contrast to the practice known as "spinning," the allocation of desirable IPO shares to the discretionary trading accounts of corporate executives and venture capitalists, in the hopes that the executive will award future investment banking business to the underwriting firm. See Siconolfi, Spin Desk, supra, at A1. Spinning is of questionable legality. See Siconolfi, Spinning Probe, supra. The standard defense of this inequality in the IPO market is that individuals profit from this practice by purchasing shares in mutual funds, which are the largest beneficiaries of current IPO share allocation practices. See Randall Smith & Suzanne McGee, Major Institutions, Led by Fidelity, Get Most of Hot IPOs, Lists Show, WALL ST. J., Jan. 27, 2000, at C1 (noting that the IPO allocation of Fidelity Investments, a large mutual fund, is twice that of most other institutions). Given the poor performance of most mutual funds, however, this argument should be recognized for the author reasoning that it is, rather than as a legitimate defense of market inequality. See infra notes 144-55 and accompanying text (discussing author reasoning and the romanticization of analysts and other market professionals that leads to their preferential treatment under the securities laws).
203. Steven Lipin, Judge Blasts M&A Players' Zeal for Edge, WALL ST. J., Jan. 25, 1999, at C19. The public perception that this type of activity is unfair and illegal under current insider trading laws is demonstrated by the movie Wall Street. In one of the film's more memorable scenes, Charlie Sheen's character, Bud Fox, tails a known corporate raider and relates his movements to Gordon Gekko (played by Michael Douglas), who then trades on the information. The film's director (Oliver Stone) seems to believe that movie audiences will perceive Fox's and Gekko's conduct as both morally offensive and illegal under United States insider trading laws. I am grateful to Professor Jennifer O'Hare for this amusing illustration.
204. Lipin, supra note 122.
205. See id. (quoting banker's and lawyer's statements that such behavior is not "unfair or inappropriate" and that arbitrage is a "research-driven business").
206. Id. (quoting Judge Stanley Sporkin's statement that investors "know that insider trading is wrong and yet they condone the practice simply by calling it arbitrage").
207. Levitt, supra note 113, at 17; see also Susan Pulliam & Gary McWilliams, Compaq Is Criticized for How It Disclosed PC Troubles, WALL ST. J., Mar. 2, 1999, at C1 (reporting that a Compaq Corporation official disclosed during a tour with several important investors that personal computer sales were below initial expectations. Compaq stock fell by 16% the following day as the news became more widely known).
208. Levitt, supra note 113, at 17; see also Susan Pulliam & Gary McWilliams, Compaq Is Criticized for How It Disclosed PC Troubles, WALL ST. J., Mar. 2, 1999, at C1 (reporting that a Compaq Corporation official disclosed during a tour with several important investors that personal computer sales were below initial expectations. Compaq stock fell by 16% the following day as the news became more widely known).
209. Regulation FD, 17 C.F.R. § 243.100-.102 (2000); Levitt, supra note 113, at 17 (stating that the Commission "hope[s] that self-restraint will solve the problem - before we [the Commission] have to step in" and that "Legally, you can split hairs all you want. But ethically, it's very clear: If analysts or their firms are trading - knowing this information, and prior to public release - it's just as wrong as if corporate insiders did it."). It has been cogently argued that, despite the Commission's insistence that Regulation FD protects investors and promotes fairness in the securities markets, Regulation FD (and particularly its exemption for foreign issuers) cannot be supported on fairness grounds. Merritt B. Fox, Regulation FD and Foreign Issuers: The Strains qf Globalization, 41 VA. J. INT'L L. (forthcoming 2001).
210. Regulation FD, 17 C.F.R. § 243.100-.102 (2000); Levitt, supra note 113, at 17 (stating that the Commission "hope[s] that self-restraint will solve the problem - before we [the Commission] have to step in" and that "Legally, you can split hairs all you want. But ethically, it's very clear: If analysts or their firms are trading - knowing this information, and prior to public release - it's just as wrong as if corporate insiders did it."). It has been cogently argued that, despite the Commission's insistence that Regulation FD protects investors and promotes fairness in the securities markets, Regulation FD (and particularly its exemption for foreign issuers) cannot be supported on fairness grounds. Merritt B. Fox, Regulation FD and Foreign Issuers: The Strains qf Globalization, 41 VA. J. INT'L L. (forthcoming 2001).
211. See supra subpart III.B (introducing the concept of author reasoning).
212. In the case of classical insider trading liability, the duty is owed by the insider to the corporation and its shareholders. See supra note 114 (discussing the classical theory of insider trading liability). In the case of liability under the misappropriation theory, the duty is owed to an employer, family member, partner, or some other person or entity to whom the trader stands in a relationship of trust and confidence. See supra note 115 (discussing the misappropriation theory).
213. See, e.g., Chiarella v. United States, 445 U.S. 222, 222 (1980) (Burger, C.J., dissenting) (stating that Chiarella's acquisition of tender offer information through breach of a fiduciary duty to his employer "quite clearly serves no useful function except [Chiarella's] enrichment at the expense of others.").
214. This is referred to as a "disclose or abstain" rule. See infra Part VI (discussing disclose or abstain rules).
215. Brudney, supra note 5, at 341 ("Exploration for relevant corporate and economic information is a service of value in the functioning of the market.").
216. The connection between the perceived harm to the investor and the breach of a fiduciary duty is particularly attenuated when, as in the misappropriation context, the source of the information to whom the duty is owed is not the issuer or its shareholders.
217. See S.E.G. v. Switzer, 590 F. Supp. 756 (W.D. Okla. 1984) (finding that University of Oklahoma football coach Barry Switzer did not violate Rule 10b-5 by trading stocks based on information overheard at a track meet).
218. The United States conceded at oral argument that trading on information stolen from a person to whom the trader owed no pre-existing fiduciary duty would not constitute a violation of Rule 10b-5. See United States Supreme Court Official Transcript, United States v. O'Hagan, 521 U.S. 642 (1997), available at 1997 WL 182584 at *5 ("QUESTION: Well, Mr. Dreeben, then if someone stole the lawyer's briefcase and discovered the information and traded on it, no violation? MR. DREEBEN: That's correct, Justice O'Connor."). Although the Court's opinion does not explicitly adopt this concession, Justice Ginsburg's opinion seems to comport with the government's position. For example, she states that rule 10b-5 liability stems from the misappropriation of information entrusted to an agent by a principal. O'Hagan, 521 U.S. at 652. The information in the Court's briefcase example clearly was not entrusted to the thief. Consequently, the hypothetical would not seem to implicate the misappropriation theory as outlined in O'Hagan. In addition, the Ginsburg opinion seems to contemplate a preexisting fiduciary relationship. For example, she states that "the deception essential to the misappropriation theory involves feigning fidelity to the source of information." Id. at 655. It is difficult to imagine how one might "feign fidelity" to a complete stranger.
219. John R. Beeson, Comment, Rounding the Peg to Fit the Hole: A Proposed Regulatory Reform of the Misappropriation Theory, 144 U. PA. L. REV. 1077, 1137 (1996). The hairdresser's trades should not run afoul of Rule 10b-5 because the relationship between client and hairdresser does not give rise to a fiduciary duty under state law.
220. See United States v. Chestman, 947 F.2d 551 (2d Cir. 1991) (en banc) (finding that a husband did not violate Rule 10b-5 by trading on information entrusted to him by his wife).
221. See infra note 26 (explaining tippee liability under Dirks). 139 See United States v. O'Hagan, 521 U.S. 642 (1997) (finding James Herman O'Hagan guilty of violating Rule 10b-5 by trading on information misappropriated from his employer, a law firm representing the acquirer in a takeover bid); United States v. Reed, 601 F. Supp. 685 (S.D.N.Y. 1985), rev'd. 773 F.2d 477 (2d Cir. 1985) (finding that a son violated Rule 10b-5 by trading on information entrusted to him by his father).
222. United States v. Willis, 778 F. Supp. 205 (S.D.N.Y. 1991) (denying a psychiatrist's motion to dismiss allegations of insider trading based on information gained from one of his patients during a therapy session).
223. Brudney, supra note 5, at 360-63; see also O'Hagan, 521 U.S. at 658-59 (stating that "[a]n investor's informational disadvantage vis-à-vis a misappropriator with material, nonpublic information stems from contrivance, not luck; it is a disadvantage that cannot be overcome with research or skill").
224. Brudney, supra note 5, at 354-55.
225. Id. at 376.
226. Id. at 361-63. Indeed, it has been argued that the preferential treatment extended to analysts and professional investors under the securities laws may represent a much greater unfairness to individual investors than if insider trading were actually permitted. Commentators have noted that it is primarily analysts and professional traders that benefit from insider trading regulation. MACEY, supra note 104, at 17-20 (discussing public choice theory as applied to insider trading); Bainbridge, supra note 5, at 17 (arguing that insider trading regulation has been "supported and driven" by market professionals who are insulated from liability under the current regime); Haddock & Macey, Coasian Model, supra note 9, at 1457-58 (discussing public choice theory as applied to insider trading). It has also been argued that the advantages accorded to analysts and other market professionals may lead to excessive research that merely reallocates profits without enhancing efficiency. Eugene F. Fama & Arthur B. Laffer, Information and Capital Markets, 44 J. BUS. L. 289 (1971) (discussing private incentives to engage in an overproduction of information); Jack Hirshleifer, The Private and Social Value of Information and the Reward to Inventive Activity, 61 AM. ECON. REV. 561, 572 (1971) (same).
227. Id. at 361-63. Indeed, it has been argued that the preferential treatment extended to analysts and professional investors under the securities laws may represent a much greater unfairness to individual investors than if insider trading were actually permitted. Commentators have noted that it is primarily analysts and professional traders that benefit from insider trading regulation. MACEY, supra note 104, at 17-20 (discussing public choice theory as applied to insider trading); Bainbridge, supra note 5, at 17 (arguing that insider trading regulation has been "supported and driven" by market professionals who are insulated from liability under the current regime); Haddock & Macey, Coasian Model, supra note 9, at 1457-58 (discussing public choice theory as applied to insider trading). It has also been argued that the advantages accorded to analysts and other market professionals may lead to excessive research that merely reallocates profits without enhancing efficiency. Eugene F. Fama & Arthur B. Laffer, Information and Capital Markets, 44 J. BUS. L. 289 (1971) (discussing private incentives to engage in an overproduction of information); Jack Hirshleifer, The Private and Social Value of Information and the Reward to Inventive Activity, 61 AM. ECON. REV. 561, 572 (1971) (same).
228. Id. at 361-63. Indeed, it has been argued that the preferential treatment extended to analysts and professional investors under the securities laws may represent a much greater unfairness to individual investors than if insider trading were actually permitted. Commentators have noted that it is primarily analysts and professional traders that benefit from insider trading regulation. MACEY, supra note 104, at 17-20 (discussing public choice theory as applied to insider trading); Bainbridge, supra note 5, at 17 (arguing that insider trading regulation has been "supported and driven" by market professionals who are insulated from liability under the current regime); Haddock & Macey, Coasian Model, supra note 9, at 1457-58 (discussing public choice theory as applied to insider trading). It has also been argued that the advantages accorded to analysts and other market professionals may lead to excessive research that merely reallocates profits without enhancing efficiency. Eugene F. Fama & Arthur B. Laffer, Information and Capital Markets, 44 J. BUS. L. 289 (1971) (discussing private incentives to engage in an overproduction of information); Jack Hirshleifer, The Private and Social Value of Information and the Reward to Inventive Activity, 61 AM. ECON. REV. 561, 572 (1971) (same).
229. Id. at 361-63. Indeed, it has been argued that the preferential treatment extended to analysts and professional investors under the securities laws may represent a much greater unfairness to individual investors than if insider trading were actually permitted. Commentators have noted that it is primarily analysts and professional traders that benefit from insider trading regulation. MACEY, supra note 104, at 17-20 (discussing public choice theory as applied to insider trading); Bainbridge, supra note 5, at 17 (arguing that insider trading regulation has been "supported and driven" by market professionals who are insulated from liability under the current regime); Haddock & Macey, Coasian Model, supra note 9, at 1457-58 (discussing public choice theory as applied to insider trading). It has also been argued that the advantages accorded to analysts and other market professionals may lead to excessive research that merely reallocates profits without enhancing efficiency. Eugene F. Fama & Arthur B. Laffer, Information and Capital Markets, 44 J. BUS. L. 289 (1971) (discussing private incentives to engage in an overproduction of information); Jack Hirshleifer, The Private and Social Value of Information and the Reward to Inventive Activity, 61 AM. ECON. REV. 561, 572 (1971) (same).
230. Id. at 361-63. Indeed, it has been argued that the preferential treatment extended to analysts and professional investors under the securities laws may represent a much greater unfairness to individual investors than if insider trading were actually permitted. Commentators have noted that it is primarily analysts and professional traders that benefit from insider trading regulation. MACEY, supra note 104, at 17-20 (discussing public choice theory as applied to insider trading); Bainbridge, supra note 5, at 17 (arguing that insider trading regulation has been "supported and driven" by market professionals who
231. See Brudney, supra note 5, at 360-63; Donald C. Langevoort, Investment Analysts and the Law of Insider Trading, 76 VA. L. REV. 1023, 1032 (1990).
232. Easterbrook, supra note 13, at 330 ("People do not have or lack 'access' in some absolute sense. There are, instead, different costs of obtaining information . . . . The different costs of access are simply a function of the division of labor . . . . But unless there is something unethical about the division of labor, the difference is not unfair.").
233. See supra subpart III.A (discussing the public/private distinction).
234. See e.g., Paul G. Mahoney, Technology, Property Rights in Information, and Securities Regulation, 75 WASH. U. L.Q. 815, 816 (arguing that "technology is helping to expose the limits of the regulatory system's ability to eliminate informational asymmetries in securities markets"); id. at 837 (noting that the greater wealth of brokerage firms and banks gives them access to more technology and, consequently, more information, than most investors despite the Commission's mandatory disclosure rules).
235. See e.g., Paul G. Mahoney, Technology, Property Rights in Information, and Securities Regulation, 75 WASH. U. L.Q. 815, 816 (arguing that "technology is helping to expose the limits of the regulatory system's ability to eliminate informational asymmetries in securities markets"); id. at 837 (noting that the greater wealth of brokerage firms and banks gives them access to more technology and, consequently, more information, than most investors despite the Commission's mandatory disclosure rules).
236. Brudney, supra note 5, at 361.
237. Lawson, supra note 8, at 757; Frank Easterbrook & Daniel Fischel, Trading on Inside Information, in THE ECONOMIC STRUCTURE OF THE CORPORATE LAW 254 (1991) ("If one who is an 'outsider' today could have become a manager by devoting the same time and skill as today's 'insider' did, is access to information outside of the tender offer context equal or unequal? There is no principled answer to such questions."). The selling of such corporate information outside of the tender offer context is presumably illegal only if sold in breach of a fiduciary duty. See Dirks v. S.E.C., 463 U.S. 646, 661 (1983) (holding that tipping violates Rule 10b-5 only if done in breach of a fiduciary duty of which the tippee is or should be aware). If the information is sold for a fair price and the funds are deposited in the corporate treasury, there is no reason to believe that such sales would be considered a fiduciary breach.
238. Lawson, supra note 8, at 757; Frank Easterbrook & Daniel Fischel, Trading on Inside Information, in THE ECONOMIC STRUCTURE OF THE CORPORATE LAW 254 (1991) ("If one who is an 'outsider' today could have become a manager by devoting the same time and skill as today's 'insider' did, is access to information outside of the tender offer context equal or unequal? There is no principled answer to such questions."). The selling of such corporate information outside of the tender offer context is presumably illegal only if sold in breach of a fiduciary duty. See Dirks v. S.E.C., 463 U.S. 646, 661 (1983) (holding that tipping violates Rule 10b-5 only if done in breach of a fiduciary duty of which the tippee is or should be aware). If the information is sold for a fair price and the funds are deposited in the corporate treasury, there is no reason to believe that such sales would be considered a fiduciary breach.
239. Lawson, supra note 8, at 757.
240. Fisch, supra note 7, at 251 n.190; Langevoort, supra note 145, at 1039; Pulliam & McWilliams, supra note 126 (stating that "the little guy can forget about getting a call from a broker" regarding important nonpublic corporate information).
241. Fisch, supra note 7, at 251 n. 190; Langevoort, supra note 145, at 1039.
242. Using the example of arbitragers' courtroom "research" discussed earlier, only the judge's final ruling is actually relevant to the stock's intrinsic value. See supra notes 123-25 and accompanying text. Arbitragers monitor the entire proceeding, however, and place bets on the future outcome of the trial based on the judge's body language, extraneous courtroom comments and rulings on interim motions. Lipin, supra note 122. Arguably, this type of research prior to a final decision merely adds unnecessary volatility to the stock price. This is evidenced by the stock price fluctuations of Bergen Brunswig Corp. and AmeriSource Health Corp., two potential target corporations in deals the Federal Trade Commission attempted to prevent. Id. After Federal District Court Judge Stanley Sporkin made courtroom comments perceived by arbitragers as positive, the stock prices of both companies soared on speculative trading. Both stocks plunged, however, after Judge Sporkin ultimately sided with the FTC and ruled against the combinations. Id. Fuel was added to the controversy surrounding Judge Sporkin's public statements that arbitrage based on information of this type bordered on insider trading when he commented that he had "fixed" the arbitragers, leading many wall street observers to believe that Judge Sporkin had intentionally misled traders in an attempt to discourage behavior that he viewed as unfair to other investors. Id. 155 Lawson, supra note 8, at 757.
243. See, e.g., United States v. Chestman, 947 F.2d 551, 576-77 (2d Cir. 1991) (en banc) (Winter, J., dissenting); Bainbridge, supra note 5, at 1590; Macey, From Fairness to Contract, supra note 9, at 62.
244. See, e.g., United States v. Chestman, 947 F.2d 551, 576-77 (2d Cir. 1991) (en banc) (Winter, J., dissenting); Bainbridge, supra note 5, at 1590; Macey, From Fairness to Contract, supra note 9, at 62.
245. See A.C. Pritchard, United States v. O'Hagan: Agency Law and Justice Powell's Legacy for the Law of Insider Trading, 78 B.U. L. REV. 13, 48 (1998) (arguing that the misappropriation theory protects property rights in valuable information and also protects investors and stock market integrity). In other respects, however, current law does not resemble a system of private property rights in issuers. See, e.g., Fisch, supra note 7, at 251 n.196 (noting that if the prospective bidder in a tender offer tips a friend about the upcoming tender offer and advises the friend to purchase target shares, the friend will be guilty of insider trading under Rule 14e-3 and the rule, therefore, is inconsistent with a property-rights approach to insider trading liability). Similarly, the classical theory of insider trading liability, unlike an intellectual property rights system, does not permit the issuer or its shareholders to opt out of the insider trading regulation scheme of Rule 10b-5, a point forcefully criticized by informational-propertarians. But see Prakash, supra note 7, at 1493 n.6, 1495 (arguing that so long as a classical insider discloses her intent to trade based on inside information, neither the issuer's permission nor disclosure of the inside information is required).
246. See A.C. Pritchard, United States v. O'Hagan: Agency Law and Justice Powell's Legacy for the Law of Insider Trading, 78 B.U. L. REV. 13, 48 (1998) (arguing that the misappropriation theory protects property rights in valuable information and also protects investors and stock market integrity). In other respects, however, current law does not resemble a system of private property rights in issuers. See, e.g., Fisch, supra note 7, at 251 n.196 (noting that if the prospective bidder in a tender offer tips a friend about the upcoming tender offer and advises the friend to purchase target shares, the friend will be guilty of insider trading under Rule 14e-3 and the rule, therefore, is inconsistent with a property-rights approach to insider trading liability). Similarly, the classical theory of insider trading liability, unlike an intellectual property rights system, does not permit the issuer or its shareholders to opt out of the insider trading regulation scheme of Rule 10b-5, a point forcefully criticized by informational-propertarians. But see Prakash, supra note 7, at 1493 n.6, 1495 (arguing that so long as a classical insider discloses her intent to trade based on inside information, neither the issuer's permission nor disclosure of the inside information is required).
247. See A.C. Pritchard, United States v. O'Hagan: Agency Law and Justice Powell's Legacy for the Law of Insider Trading, 78 B.U. L. REV. 13, 48 (1998) (arguing that the misappropriation theory protects property rights in valuable information and also protects investors and stock market integrity). In other respects, however, current law does not resemble a system of private property rights in issuers. See, e.g., Fisch, supra note 7, at 251 n.196 (noting that if the prospective bidder in a tender offer tips a friend about the upcoming tender offer and advises the friend to purchase target shares, the friend will be guilty of insider trading under Rule 14e-3 and the rule, therefore, is inconsistent with a property-rights approach to insider trading liability). Similarly, the classical theory of insider trading liability, unlike an intellectual property rights system, does not permit the issuer or its shareholders to opt out of the insider trading regulation scheme of Rule 10b-5, a point forcefully criticized by informational-propertarians. But see Prakash, supra note 7, at 1493 n.6, 1495 (arguing that so long as a classical insider discloses her intent to trade based on inside information, neither the issuer's permission nor disclosure of the inside information is required).
248. Fisch, supra note 7, at 225 (noting that, although the property rights approach focuses on harm to the source of information or to the issuer, consistent with the classical and misappropriation theories, this does not seem consistent with the real reason we prohibit insider trading, which is a perceived unfairness to investors); Karmel, supra note 37, at 113 ("The easiest criticism of the property rights theory is that when Congress passed and subsequently amended the Exchange Act, it was concerned about fairness and the protection of investors, not the protection of property rights in information held by issuers and traders.").
249. See MERCURO & MEDEMA, supra note 67, at ix (1997) (stating that law and economics reflects several traditions, including public choice theory, institutional economics, neo-institutional economics, the New Haven School, modern civic republicanism, and critical legal studies); Netanel, supra note 14, at 311 (discussing the influence of Chicago School law and economics and its reliance on neoclassical economic principles); Martha C. Nussbaum, Flawed Foundations: The Philosophical Critique of (A Particular Type of) Economics, 64 U. CHI. L. REV. 1197, 1197 (1997) (arguing that Law and Economics has for the most part been built on the conceptual foundations of neoclassical economics and has largely ignored other schools of economic thought). "Chicago school" law and economics is a phrase (sometimes intended pejoratively) used to describe a particular means of analyzing the law and the legal system by reference to certain economic hypotheses. See Edmund W. Kitch, Chicago School of Law and Economics, in 1 THE NEW PALGRAVE DICTIONARY OF ECONOMICS & THE LAW 227 (Peter Newman ed., 1998). Some of the more important of those hypotheses are as follows: that human beings act as rational utility maximizers, that market-determined outcomes advance social welfare and that government intervention in the marketplace is normally unlikely to enhance social welfare.
250. See MERCURO & MEDEMA, supra note 67, at ix (1997) (stating that law and economics reflects several traditions, including public choice theory, institutional economics, neo-institutional economics, the New Haven School, modern civic republicanism, and critical legal studies); Netanel, supra note 14, at 311 (discussing the influence of Chicago School law and economics and its reliance on neoclassical economic principles); Martha C. Nussbaum, Flawed Foundations: The Philosophical Critique of (A Particular Type of) Economics, 64 U. CHI. L. REV. 1197, 1197 (1997) (arguing that Law and Economics has for the most part been built on the conceptual foundations of neoclassical economics and has largely ignored other schools of economic thought). "Chicago school" law and economics is a phrase (sometimes intended pejoratively) used to describe a particular means of analyzing the law and the legal system by reference to certain economic hypotheses. See Edmund W. Kitch, Chicago School of Law and Economics, in 1 THE NEW PALGRAVE DICTIONARY OF ECONOMICS & THE LAW 227 (Peter Newman ed., 1998). Some of the more important of those hypotheses are as follows: that human beings act as rational utility maximizers, that market-determined outcomes advance social welfare and that government intervention in the marketplace is normally unlikely to enhance social welfare.
251. See MERCURO & MEDEMA, supra note 67, at ix (1997) (stating that law and economics reflects several traditions, including public choice theory, institutional economics, neo-institutional economics, the New Haven School, modern civic republicanism, and critical legal studies); Netanel, supra note 14, at 311 (discussing the influence of Chicago School law and economics and its reliance on neoclassical economic principles); Martha C. Nussbaum, Flawed Foundations: The Philosophical Critique of (A Particular Type of) Economics, 64 U. CHI. L. REV. 1197, 1197 (1997) (arguing that Law and Economics has for the most part been built on the conceptual foundations of neoclassical economics and has largely ignored other schools of economic thought). "Chicago school" law and economics is a phrase (sometimes intended pejoratively) used to describe a particular means of analyzing the law and the legal system by reference to certain economic hypotheses. See Edmund W. Kitch, Chicago School of Law and Economics, in 1 THE NEW PALGRAVE DICTIONARY OF ECONOMICS & THE LAW 227 (Peter Newman ed., 1998). Some of the more important of those hypotheses are as follows: that human beings act as rational utility maximizers, that market-determined outcomes advance social welfare and that government intervention in the marketplace is normally unlikely to enhance social welfare.
252. See MERCURO & MEDEMA, supra note 67, at ix (1997) (stating that law and economics reflects several traditions, including public choice theory, institutional economics, neo-institutional economics, the New Haven School, modern civic republicanism, and critical legal studies); Netanel, supra note 14, at 311 (discussing the influence of Chicago School law and economics and its reliance on neoclassical economic principles); Martha C. Nussbaum, Flawed Foundations: The Philosophical Critique of (A Particular Type of) Economics, 64 U. CHI. L. REV. 1197, 1197 (1997) (arguing that Law and Economics has for the most part been built on the conceptual foundations of neoclassical economics and has largely ignored other schools of economic thought). "Chicago school" law and economics is a phrase (sometimes intended pejoratively) used to describe a particular means of analyzing the law and the legal system by reference to certain economic hypotheses. See Edmund W. Kitch, Chicago School of Law and Economics, in 1 THE NEW PALGRAVE DICTIONARY OF ECONOMICS & THE LAW 227 (Peter Newman ed., 1998). Some of the more important of those hypotheses are as follows: that human beings act as rational utility maximizers, that market-determined outcomes advance social welfare and that government intervention in the marketplace is normally unlikely to enhance social welfare.
253. Many of the theories attributed in this article to neoclassical economics may hold true for other economic movements or schools as well, especially new institutional economics.
254. BLACKSTONE, supra note 24, at 7 ("[W]ho would be at pains of tilling [the earth], if another might watch an opportunity to seize upon and enjoy the product of his industry, art, and labour? Had not therefore a separate property in land, as well as moveables, been vested in some individuals, the world must have continued a forest."); POSNER, supra note 42, at 32-33.
255. POSNER, supra note 42, at 34 ("If every valuable . . . resource were owned by someone (the criterion of universality), ownership connoted the unqualified power to exclude everybody else from using the resource (exclusivity) as well as to use it oneself, and ownership rights were freely transferable, or as lawyers say alienable (transferability), value would be maximized."). The neoclassical approach to private property meshes well with a Lockean natural rights-based approach to private property, and both theories are inclined to favor broad private property rights. See supra note 96 (discussing Locke's theory of property and describing the debate as to whether a natural rights-based theory of intellectual property or neoclassical economics is most responsible for the increasing propertization of information).
256. POSNER, supra note 42, at 34 ("If every valuable . . . resource were owned by someone (the criterion of universality), ownership connoted the unqualified power to exclude everybody else from using the resource (exclusivity) as well as to use it oneself, and ownership rights were freely transferable, or as lawyers say alienable (transferability), value would be maximized."). The neoclassical approach to private property meshes well with a Lockean natural rights-based approach to private property, and both theories are inclined to favor broad private property rights. See supra note 96 (discussing Locke's theory of property and describing the debate as to whether a natural rights-based theory of intellectual property or neoclassical economics is most responsible for the increasing propertization of information).
257. BLACKSTONE, supra note 24, at 2 (defining property as "that sole and despotic dominion which one man claims and exercises over the external things of the world, in total exclusion of the right of any other individual in the universe."); POSNER, supra note 42, at 32.
258. POSNER, supra note 42, at 32-33; Hardin, supra note 49, at 6 ("The tragedy of the commons as a food basket is averted by private property.").
259. Property is often defined as a "bundle of rights." COOTER & ULEN, supra note 42, at 91; Demsetz, supra note 50, at 347. In Western free-market legal regimes, this bundle typically includes (subject to some limitations) the rights of possession, use, transformation, transferability, and exclusion. COOTER & ULEN, supra note 42, at 91; POSNER, supra note 42, at 32-33; see also, A.M. Honoré, Ownership, in OXFORD ESSAYS IN JURISPRUDENCE 107, 113-26 (A.G. Guest ed., 1961) (listing 11 common attributes of private property). Although all of the rights appurtenant to private property need not reside in the same individual, neoclassicists view such a division of property rights as inefficient. POSNER, supra note 42, at 66. For example, due either to custom or legal mechanisms, several persons may possess the right to exclude others from property, resulting in a potential anticommons. Michael A. Heller, The Tragedy of the Anticommons: Property in the Transition from Marx to Markets, 111 HARV. L. REV. 621, 675 n.246 (1998) (defining an anticommons as "a property regime in which multiple owners hold effective rights of exclusion in a scarce resource"). United States law, however, places serious restrictions on the rights of owners overly to decompose property. Id. at 664 ("[T]he owner may break up the bundle of rights, subject to the restriction that he or she may not 'decompose' the bundle in ways that overly impair the object's marketability.").
260. Property is often defined as a "bundle of rights." COOTER & ULEN, supra note 42, at 91; Demsetz, supra note 50, at 347. In Western free-market legal regimes, this bundle typically includes (subject to some limitations) the rights of possession, use, transformation, transferability, and exclusion. COOTER & ULEN, supra note 42, at 91; POSNER, supra note 42, at 32-33; see also, A.M. Honoré, Ownership, in OXFORD ESSAYS IN JURISPRUDENCE 107, 113-26 (A.G. Guest ed., 1961) (listing 11 common attributes of private property). Although all of the rights appurtenant to private property need not reside in the same individual, neoclassicists view such a division of property rights as inefficient. POSNER, supra note 42, at 66. For example, due either to custom or legal mechanisms, several persons may possess the right to exclude others from property, resulting in a potential anticommons. Michael A. Heller, The Tragedy of the Anticommons: Property in the Transition from Marx to Markets, 111 HARV. L. REV. 621, 675 n.246 (1998) (defining an anticommons as "a property regime in which multiple owners hold effective rights of exclusion in a scarce resource"). United States law, however, places serious restrictions on the rights of owners overly to decompose property. Id. at 664 ("[T]he owner may break up the bundle of rights, subject to the restriction that he or she may not 'decompose' the bundle in ways that overly impair the object's marketability.").
261. Property is often defined as a "bundle of rights." COOTER & ULEN, supra note 42, at 91; Demsetz, supra note 50, at 347. In Western free-market legal regimes, this bundle typically includes (subject to some limitations) the rights of possession, use, transformation, transferability, and exclusion. COOTER & ULEN, supra note 42, at 91; POSNER, supra note 42, at 32-33; see also, A.M. Honoré, Ownership, in OXFORD ESSAYS IN JURISPRUDENCE 107, 113-26 (A.G. Guest ed., 1961) (listing 11 common attributes of private property). Although all of the rights appurtenant to private property need not reside in the same individual, neoclassicists view such a division of property rights as inefficient. POSNER, supra note 42, at 66. For example, due either to custom or legal mechanisms, several persons may possess the right to exclude others from property, resulting in a potential anticommons. Michael A. Heller, The Tragedy of the Anticommons: Property in the Transition from Marx to Markets, 111 HARV. L. REV. 621, 675 n.246 (1998) (defining an anticommons as "a property regime in which multiple owners hold effective rights of exclusion in a scarce resource"). United States law, however, places serious restrictions on the rights of owners overly to decompose property. Id. at 664 ("[T]he owner may break up the bundle of rights, subject to the restriction that he or she may not 'decompose' the bundle in ways that overly impair the object's marketability.").
262. Property is often defined as a "bundle of rights." COOTER & ULEN, supra note 42, at 91; Demsetz, supra note 50, at 347. In Western free-market legal regimes, this bundle typically includes (subject to some limitations) the rights of possession, use, transformation, transferability, and exclusion. COOTER & ULEN, supra note 42, at 91; POSNER, supra note 42, at 32-33; see also, A.M. Honoré, Ownership, in OXFORD ESSAYS IN JURISPRUDENCE 107, 113-26 (A.G. Guest ed., 1961) (listing 11 common attributes of private property). Although all of the rights appurtenant to private property need not reside in the same individual, neoclassicists view such a division of property rights as inefficient. POSNER, supra note 42, at 66. For example, due either to custom or legal mechanisms, several persons may possess the right to exclude others from property, resulting in a potential anticommons. Michael A. Heller, The Tragedy of the Anticommons: Property in the Transition from Marx to Markets, 111 HARV. L. REV. 621, 675 n.246 (1998) (defining an anticommons as "a property regime in which multiple owners hold effective rights of exclusion in a scarce resource"). United States law, however, places serious restrictions on the rights of owners overly to decompose property. Id. at 664 ("[T]he owner may break up the bundle of rights, subject to the restriction that he or she may not 'decompose' the bundle in ways that overly impair the object's marketability.").
263. Property is often defined as a "bundle of rights." COOTER & ULEN, supra note 42, at 91; Demsetz, supra note 50, at 347. In Western free-market legal regimes, this bundle typically includes (subject to some limitations) the rights of possession, use, transformation, transferability, and exclusion. COOTER & ULEN, supra note 42, at 91; POSNER, supra note 42, at 32-33; see also, A.M. Honoré, Ownership, in OXFORD ESSAYS IN JURISPRUDENCE 107, 113-26 (A.G. Guest ed., 1961) (listing 11 common attributes of private property). Although all of the rights appurtenant to private property need not reside in the same individual, neoclassicists view such a division of property rights as inefficient. POSNER, supra note 42, at 66. For example, due either to custom or legal mechanisms, several persons may possess the right to exclude others from property, resulting in a potential anticommons. Michael A. Heller, The Tragedy of the Anticommons: Property in the Transition from Marx to Markets, 111 HARV. L. REV. 621, 675 n.246 (1998) (defining an anticommons as "a property regime in which multiple owners hold effective rights of exclusion in a scarce resource"). United States law, however, places serious restrictions on the rights of owners overly to decompose property. Id. at 664 ("[T]he owner may break up the bundle of rights, subject to the restriction that he or she may not 'decompose' the bundle in ways that overly impair the object's marketability.").
264. Property is often defined as a "bundle of rights." COOTER & ULEN, supra note 42, at 91; Demsetz, supra note 50, at 347. In Western free-market legal regimes, this bundle typically includes (subject to some limitations) the rights of possession, use, transformation, transferability, and exclusion. COOTER & ULEN, supra note 42, at 91; POSNER, supra note 42, at 32-33; see also, A.M. Honoré, Ownership, in OXFORD ESSAYS IN JURISPRUDENCE 107, 113-26 (A.G. Guest ed., 1961) (listing 11 common attributes of private property). Although all of the rights appurtenant to private property need not reside in the same individual, neoclassicists view such a division of property rights as inefficient. POSNER, supra note 42, at 66. For example, due either to custom or legal mechanisms, several persons may possess the right to exclude others from property, resulting in a potential anticommons. Michael A. Heller, The Tragedy of the Anticommons: Property in the Transition from Marx to Markets, 111 HARV. L. REV. 621, 675 n.246 (1998) (defining an anticommons as "a property regime in which multiple owners hold effective rights of exclusion in a scarce resource"). United States law, however, places serious restrictions on the rights of owners overly to decompose property. Id. at 664 ("[T]he owner may break up the bundle of rights, subject to the restriction that he or she may not 'decompose' the bundle in ways that overly impair the object's marketability.").
265. Cohen, supra note 96, at 466-67 (arguing that the "critiques of the neoclassical paradigm supplied by institutional welfare, theoretic, and political economists have identified several factors that should inform efforts to determine the optimal system of rights in digital works"); Netanel, supra note 14, at 308-11 (distinguishing the neoclassical economic justification for copyright protection from the economic incentive rationale for copyright).
266. Netanel, supra note 14, at 308-09. Just as the neoclassical economic approach to property meshed well with a Lockean natural-rights based theory of property, the economic incentive approach meshes well with a consequentialist or utilitarian philosophy of property rights. Utilitarianism posits that the state should adopt policies that enhance the welfare or utility of the members of the community. See JEREMY BENTHAM, AN INTRODUCTION TO THE PRINCIPLES OF MORALS AND LEGISLATION 50 (Hafner Publ'g Co. 1948) (1789) (arguing that "natural rights is simple nonsense" and advocating a utilitarian approach). Utilitarians thus focus on intellectual property's role as providing incentives for the production of more information as a means to enhance public welfare, but recognize the corresponding costs in terms of decreased public access to goods that might otherwise be more widely available.
267. Netanel, supra note 14, at 308-09. Just as the neoclassical economic approach to property meshed well with a Lockean natural-rights based theory of property, the economic incentive approach meshes well with a consequentialist or utilitarian philosophy of property rights. Utilitarianism posits that the state should adopt policies that enhance the welfare or utility of the members of the community. See JEREMY BENTHAM, AN INTRODUCTION TO THE PRINCIPLES OF MORALS AND LEGISLATION 50 (Hafner Publ'g Co. 1948) (1789) (arguing that "natural rights is simple nonsense" and advocating a utilitarian approach). Utilitarians thus focus on intellectual property's role as providing incentives for the production of more information as a means to enhance public welfare, but recognize the corresponding costs in terms of decreased public access to goods that might otherwise be more widely available.
268. Netanel, supra note 14, at 309.
269. Id.
270. Id.
271. Id. at 290.
272. The neoclassical economic approach to intellectual property has also been criticized for its overly "narrow" and "simplistic" assumptions. Cohen, supra note 96, at 515-19.
273. This is not to suggest that informational efficiency is a sufficient condition for allocative efficiency. Other conditions such as, for example, low transaction costs, must also be present for allocative efficiency to hold. See Lynn A. Stout, The Unimportance of Being Efficient: an Economic Analysis of Stock Market Pricing and Securities Regulation. 87 MICH. L. REV. 613, 617-18 (1988) (arguing that informational efficiency may not lead to allocational efficiency and is, therefore, unimportant as a policy objective).
274. See generally KARL MARX & FREIDRICH ENGELS, THE COMMUNIST MANIFESTO (1848).
275. Ellickson, Property, supra note 51, at 1318 (discussing collectivization attempts in Israel, Russia, China, Ethiopia, and Kampuchea, and by more discrete groups, such as Protestant sectarians and hippie communes). Professor Ellickson demonstrates that common ownership can sustain some degree of success when voluntarily implemented by close-knit groups that develop strong internal controls, but that common ownership is destined to fail when imposed on unwilling groups by political leaders. Id. at 1320-21, 1399-1400.
276. For example, Professor Carol Rose has argued that some resources, such as roads, waterways and beaches, may be most efficiently owned as common property. See Rose, supra note 54, at 718-23. In addition, Professors Duncan Kennedy and Frank Michelman have argued that private ownership does not necessarily lead to increased production or optimal efficiency. Kennedy & Michelman, supra note 67, at 717-20 (arguing that production of resources may be maximized in a "state of nature" as opposed to through a system of private ownership). Finally, Professor Robert C. Ellickson has argued that members of small, closely-knit groups tend to create cost-minimizing land regimes that incorporate a mix of private, group, and open-access spaces. Ellickson, Property, supra note 51, at 1397-98. Professor Ellickson further argues that some resources, for scale-economy or risk sharing reasons, may be more efficiently owned in common form. Id. at 1398.
277. For example, Professor Carol Rose has argued that some resources, such as roads, waterways and beaches, may be most efficiently owned as common property. See Rose, supra note 54, at 718-23. In addition, Professors Duncan Kennedy and Frank Michelman have argued that private ownership does not necessarily lead to increased production or optimal efficiency. Kennedy & Michelman, supra note 67, at 717-20 (arguing that production of resources may be maximized in a "state of nature" as opposed to through a system of private ownership). Finally, Professor Robert C. Ellickson has argued that members of small, closely-knit groups tend to create cost-minimizing land regimes that incorporate a mix of private, group, and open-access spaces. Ellickson, Property, supra note 51, at 1397-98. Professor Ellickson further argues that some resources, for scale-economy or risk sharing reasons, may be more efficiently owned in common form. Id. at 1398.
278. For example, Professor Carol Rose has argued that some resources, such as roads, waterways and beaches, may be most efficiently owned as common property. See Rose, supra note 54, at 718-23. In addition, Professors Duncan Kennedy and Frank Michelman have argued that private ownership does not necessarily lead to increased production or optimal efficiency. Kennedy & Michelman, supra note 67, at 717-20 (arguing that production of resources may be maximized in a "state of nature" as opposed to through a system of private ownership). Finally, Professor Robert C. Ellickson has argued that members of small, closely-knit groups tend to create cost-minimizing land regimes that incorporate a mix of private, group, and open-access spaces. Ellickson, Property, supra note 51, at 1397-98. Professor Ellickson further argues that some resources, for scale-economy or risk sharing reasons, may be more efficiently owned in common form. Id. at 1398.
279. For example, Professor Carol Rose has argued that some resources, such as roads, waterways and beaches, may be most efficiently owned as common property. See Rose, supra note 54, at 718-23. In addition, Professors Duncan Kennedy and Frank Michelman have argued that private ownership does not necessarily lead to increased production or optimal efficiency. Kennedy & Michelman, supra note 67, at 717-20 (arguing that production of resources may be maximized in a "state of nature" as opposed to through a system of private ownership). Finally, Professor Robert C. Ellickson has argued that members of small, closely-knit groups tend to create cost-minimizing land regimes that incorporate a mix of private, group, and open-access spaces. Ellickson, Property, supra note 51, at 1397-98. Professor Ellickson further argues that some resources, for scale-economy or risk sharing reasons, may be more efficiently owned in common form. Id. at 1398.
280. GEORGE J. STIGLER, THE THEORY OF PRICE 82 (4th ed. 1987) ("A perfect market is one characterized by perfect knowledge on the part of the traders."); Boyle, supra note 7, at 1443 (arguing that "the concept of 'perfect' information - meaning free, complete, instantaneous, and universally available -[is] one of the defining features of the perfect market").
281. GEORGE J. STIGLER, THE THEORY OF PRICE 82 (4th ed. 1987) ("A perfect market is one characterized by perfect knowledge on the part of the traders."); Boyle, supra note 7, at 1443 (arguing that "the concept of 'perfect' information - meaning free, complete, instantaneous, and universally available -[is] one of the defining features of the perfect market").
282. Gilson & Kraakman, supra note 6, at 552; Sanford J. Grossman & Joseph E. Stiglitz, On the Impossibility of Informationally Efficient Markets, 70 AM. ECON. REV. 393, 405 (1980). Professors Gilson and Kraakman, in their path breaking work on market efficiency, rephrased the debate as an attempt to explain why and how markets behave as if information is immediately and costlessly available, even when it is not. Gilson & Kraakman, supra note 6, at 552.
283. Gilson & Kraakman, supra note 6, at 552; Sanford J. Grossman & Joseph E. Stiglitz, On the Impossibility of Informationally Efficient Markets, 70 AM. ECON. REV. 393, 405 (1980). Professors Gilson and Kraakman, in their path breaking work on market efficiency, rephrased the debate as an attempt to explain why and how markets behave as if information is immediately and costlessly available, even when it is not. Gilson & Kraakman, supra note 6, at 552.
284. Gilson & Kraakman, supra note 6, at 552; Sanford J. Grossman & Joseph E. Stiglitz, On the Impossibility of Informationally Efficient Markets, 70 AM. ECON. REV. 393, 405 (1980). Professors Gilson and Kraakman, in their path breaking work on market efficiency, rephrased the debate as an attempt to explain why and how markets behave as if information is immediately and costlessly available, even when it is not. Gilson & Kraakman, supra note 6, at 552.
285. Easterbrook, supra note 13, at 313 ("A rule allowing information to be used fully, once in existence, may well maximize the wealth of both the users and society. Yet the same rule would reduce the ability of those who create information to appropriate the benefits of their efforts, people would create less information."); Gilson & Kraakman, supra note 6, at 571.
286. Cf. Gilson & Kraakman, supra note 6, at 593 (demonstrating that with lower information costs, information will be more widely distributed and will be more efficiently reflected in market price).
287. Grossman & Stiglitz, supra note 178, at 405. Kenneth Arrow demonstrated this tension between social welfare and private incentives by arguing that, while social welfare is enhanced by making information available free of charge, this results in a lack of incentives for private information production. Arrow, supra note 32, at 616-17. While a grant of private property rights in information producers would incentivize production, "precisely to the extent that it is successful, there is an underutilization of information." Id. Professors Grossman and Stiglitz resolved the "efficiency paradox" by proposing the existence of an "equilibrium degree of disequilibrium." Grossman & Stiglitz, supra note 178, at 393. They argued that "noise" prevented capital markets from ever reaching full efficiency, resulting in profit potential for informed traders and an incentive for information acquisition. Id. Professors Gilson and Kraakman expanded on this theory by recognizing that, due to temporal advantage, there is sufficient profit incentive to encourage the initial acquisition of new information. Gilson & Kraakman, supra note 6, at 625. The paradox, therefore, was not how markets initially became efficient, but how they remained so. Id. They demonstrated that the costs of maintaining the equilibrium were virtually zero (because it was not Dependent on new information discoveries, but rather on the continuing exploitation of prior discoveries) and that these costs in any event would probably be incurred in connection with other trading strategies. Id. at 624-25.
288. 456 N.E.2d 84 (Ill. 1983). See Boyle, supra note 7, at 1450. Professor Paul G. Mahoney has examined similar issues in connection with the prices and other information generated by stock exchanges. Mahoney, supra note 13, at 1483-88.
289. Dow Jones, 456 N.E.2d at 85.
290. Boyle, supra note 7, at 1449.
291. Dow Jones, 456 N.E.2d at 89 ("Competing with the policy that protection should be afforded one who expends labor and money to develop products is the concept that freedom to imitate and duplicate is vital to our free market economy.").
292. Id. at 89-90.
293. Id. at 91; Boyle, supra note 7, at 1449-50.
294. Gilson & Kraakman, supra note 6, at 572-79; David E. Van Zandt, The Market as a Property Institution: Rules for the Trading of Financial Assets, 32 B.C. L. REV. 967, 981 (1991) ("In a market in which there are frequent trades of large numbers of identical assets, the previous or the currently quoted price is often the most significant information to which a trader has access. Traders can safely and cheaply form their expectations of the true value of the asset by examining the price.").
295. Dow Jones, 456 N.E.2d at 91. Justice Simon also argued that the expansion of intellectual property rights should be left to Congress or to state legislatures, not to the courts. Id.
296. BAINBRIDGE, supra note 8, at 167.
297. Hirshleifer, supra note 144, at 570-72.
298. Id.
299. Id. at 570.
300. Id.
301. Id.
302. Id. at 571.
303. Id. at 570-73.
304. See, e.g., Demsetz, supra note 29, at 306 (illustrating that if consumption of a public good can be tied into consumption of a private good, then efficient production of the public good may be possible); Gilson & Kraakman, supra note 6, at 624-25 (arguing that traders may unavoidably incur the costs of acquiring information about past stock prices in connection with other trading strategies); Kitch, supra note 6, at 717-19 (discussing the possibility of multiple uses of information and its role in incentivizing information production); Landes & Posner, supra note 58, at 331 ("Many authors derive substantial benefits from publication that are over and beyond any royalties."). Professors Landes and Posner, however, raise a variety of persuasive arguments negating the hypothesis that the possibility of alternate sources of profit obviates the need for patent and copyright protection. Id. at 331-32.
305. Breyer, supra note 13, at 309; see also Landes & Posner, supra note 58, at 330 ("Copying takes time, so there will be an interval during which the original publisher will not face competition."). Many other commentators have noted the fact that timing advantages weaken the argument for intellectual property protection, although they differ in the extent to which they believe first mover advantages warrant eliminating or reducing intellectual property protection. For example, Professor Paul G. Mahoney has noted the importance of timing advantages in the context of stock exchanges. Mahoney, supra note 13, at 1488 ("The creators of a market face free rider problems, but counterbalancing these are first mover advantages, particularly in securities markets. Once an exchange begins to attract listings and investors, it can offer superior liquidity compared to the unorganized markets with which it competes, which will attract more companies and investors and strengthen its advantage.").
306. Breyer, supra note 13, at 302.
307. See Zohar Goshen & Gideon Parchomonsky, On Insider Trading, Markets, and "Negative" Property Rights in Information (2000) (unpublished manuscript, on file with the author) (demonstrating through an economic analysis that because insiders are isolated from competition, permission to trade on their informational advantages would cause them to prevent disclosure of valuable information to the marketplace, thus preserving their market power over inside information).
308. Int'l News Serv. v. Assoc. Press, 248 U.S. 215, 250 (1918) (Brandeis, J., dissenting).
309. Samuelson, supra note 39, at 365. While some trade secrets cases do refer to the information in question as property, the more accepted view appears to be that trade secrets are not the property of the entrustor of information. Id. at 374.
310. Aoki, supra note 18, at 26; Boyle, supra note 7, at 1463.
311. Christian S. Krause, her den Buchernachdruck, 1 DEUTSCHES MUSEUM 415-17 (1783), quoted in Woodmansee, supra note 95, at 443-44.
312. 248 U.S. 215 (1918).
313. Kitch, supra note 6, at 699.
314. Apparently some information was obtained from AP employees by unlawful means, primarily through bribes. These instances were not before the Supreme Court, however, as INS did not appeal that portion of the trial court decision. Int'l News Serv., 248 U.S. at 231-32.
315. Id. at 236. This "quasi-property" right was limited in duration, however. The court ruled that AP's property interest in its published news items lasted "until its commercial value as news to the complainant and all of its members has passed away." Id. at 245.
316. Id. at 240-41.
317. Id. at 246-48 (Holmes, J., dissenting); id. at 248-67 (Brandeis, J., dissenting).
318. See, e.g., Aoki, supra note 14, at 1318 ("Is something valuable because it's legally protected, or is it legally protected because it's valuable?").
319. Int'l News Serv., 248 U.S. at 246 (Holmes, J., dissenting).
320. Id. Samuelson, supra note 39, at 392. This same argument could be made in the insider trading context. There is nothing to prevent issuers from requiring confidentiality agreements from those with whom they transact business. Such contracts could prohibit third parties from trading on information acquired in the course of doing business with the issuer, obviating the need for a grant of property rights in the issuer. While it has been correctly noted that enforcement of such contracts would be more difficult if insider trading law were privatized in this manner, I believe that the benefits of deregulating insider trading by corporate outsiders outweighs the costs. Bainbridge, supra note 5, at 1625 (arguing that Professor Larry Ribstein's arguments in favor of private enforcement are unpersuasive); see also infra Part VI (proposing a federal regime that permits insider trading by corporate outsiders).
321. Jessica Litman, The Public Domain, 39 EMORY L.J. 965, 968 (1990) ("The public domain should be understood not as the realm of material that is undeserving of protection, but as a device that permits the rest of the system to work by leaving the raw material of authorship available for authors to use.").
322. Aoki, supra note 14, at 1323-24; Breyer, supra note 13, at 283-84 (arguing against stronger copyright laws); Wendy J. Gordon, An Inquiry into the Merits of Copyright: The Challenges of Consistency, Consent, and Encouragement Theory, 41 STAN. L. REV. 1343, 1460-61 (1989); Litman, supra note 215, at 965-67. The number of scholarly works reflecting concern over increased intellectual property rights and a decreasing public domain in American law are too numerous to cite here. A more thorough citation and survey is available in Aoki, supra note 18, at 8-10.
323. Aoki, supra note 14, at 1323-24; Breyer, supra note 13, at 283-84 (arguing against stronger copyright laws); Wendy J. Gordon, An Inquiry into the Merits of Copyright: The Challenges of Consistency, Consent, and Encouragement Theory, 41 STAN. L. REV. 1343, 1460-61 (1989); Litman, supra note 215, at 965-67. The number of scholarly works reflecting concern over increased intellectual property rights and a decreasing public domain in American law are too numerous to cite here. A more thorough citation and survey is available in Aoki, supra note 18, at 8-10.
324. Aoki, supra note 14, at 1323-24; Breyer, supra note 13, at 283-84 (arguing against stronger copyright laws); Wendy J. Gordon, An Inquiry into the Merits of Copyright: The Challenges of Consistency, Consent, and Encouragement Theory, 41 STAN. L. REV. 1343, 1460-61 (1989); Litman, supra note 215, at 965-67. The number of scholarly works reflecting concern over increased intellectual property rights and a decreasing public domain in American law are too numerous to cite here. A more thorough citation and survey is available in Aoki, supra note 18, at 8-10.
325. Aoki, supra note 14, at 1323-24; Breyer, supra note 13, at 283-84 (arguing against stronger copyright laws); Wendy J. Gordon, An Inquiry into the Merits of Copyright: The Challenges of Consistency, Consent, and Encouragement Theory, 41 STAN. L. REV. 1343, 1460-61 (1989); Litman, supra note 215, at 965-67. The number of scholarly works reflecting concern over increased intellectual property rights and a decreasing public domain in American law are too numerous to cite here. A more thorough citation and survey is available in Aoki, supra note 18, at 8-10.
326. 248 U.S. at 263-64 (Brandeis, J., dissenting).
327. Id. at 250 (Brandeis, J., dissenting).
328. One alternative, for example, that would encourage the dissemination of information yet still provide AP with profit would be a rule that protected AP's news against appropriation by competitors, but forced AP to disclose the information to others at a reasonable price and without discrimination. Id. at 266-67 (Brandeis, J., dissenting); see also Samuelson, supra note 39, at 366-67 (arguing that the recharacterization of information as property is a revolutionary event that, at the very least, should be undertaken after thorough thought and careful debate - not accidentally and in an ad hoc manner by judges intent on reaching what they perceive to be an equitable result).
329. See, e.g., Painter et al., supra note 116, at 156. Professor Stephen Bainbridge, while acknowledging that the current insider trading regime was not authorized by Congress, has skillfully argued that the costs of changing course at this juncture are so great that insider trading regulation should be permitted to continue down its current "path dependent" course, with some doctrinal modifications. Bainbridge, supra note 5, at 1589-91.
330. Compare, e.g., Frank Easterbrook & Daniel Fischel, Mandatory Disclosure and the Protection of Investors, 70 VA. L. REV. 669, 682-84 (1984) (arguing that managers have sufficient market incentives to encourage corporate disclosure without mandatory disclosure regulations), with John C. Coffee, Jr., Market Failure and the Economic Case for a Mandatory Disclosure System, 70 VA. L. REV. 717, 722-23 (1984) (arguing that a mandatory disclosure system is needed), and Joel Seligman, The Historical Need for a Mandatory Corporate Disclosure System, 9 J. CORP. L. 1 (1983) (presenting historical evidence of fraudulent disclosure and underdisclosure prior to the enactment of the Securities Acts).
331. Compare, e.g., Frank Easterbrook & Daniel Fischel, Mandatory Disclosure and the Protection of Investors, 70 VA. L. REV. 669, 682-84 (1984) (arguing that managers have sufficient market incentives to encourage corporate disclosure without mandatory disclosure regulations), with John C. Coffee, Jr., Market Failure and the Economic Case for a Mandatory Disclosure System, 70 VA. L. REV. 717, 722-23 (1984) (arguing that a mandatory disclosure system is needed), and Joel Seligman, The Historical Need for a Mandatory Corporate Disclosure System, 9 J. CORP. L. 1 (1983) (presenting historical evidence of fraudulent disclosure and underdisclosure prior to the enactment of the Securities Acts).
332. Compare, e.g., Frank Easterbrook & Daniel Fischel, Mandatory Disclosure and the Protection of Investors, 70 VA. L. REV. 669, 682-84 (1984) (arguing that managers have sufficient market incentives to encourage corporate disclosure without mandatory disclosure regulations), with John C. Coffee, Jr., Market Failure and the Economic Case for a Mandatory Disclosure System, 70 VA. L. REV. 717, 722-23 (1984) (arguing that a mandatory disclosure system is needed), and Joel Seligman, The Historical Need for a Mandatory Corporate Disclosure System, 9 J. CORP. L. 1 (1983) (presenting historical evidence of fraudulent disclosure and underdisclosure prior to the enactment of the Securities Acts).
333. Gilson & Kraakman, supra note 6, at 632 n.218; Levmore, supra note 23, at 119-20.
334. The "disclose or abstain" rule was first articulated by the Commission in In re Cady, Roberts & Co., 40 S.E.C. 907, 912 (1961). The Commission held that a corporate insider in possession of material nonpublic information must either disclose that information or refrain from trading. Id. The rule was later expanded under the misappropriation theory to cover persons who acquired nonpublic information in breach of a fiduciary duty. United States v. O'Hagan, 521 U.S. 642, 652 (1997).
335. Bainbridge, supra note 5, at 22-23 (arguing that current insider trading law's disclose or abstain rule "collapses into a rule of abstention" because agency law prevents the firm's agents from disclosing corporate information when such disclosure would harm the corporate principal); Cox & Fogarty, supra note 117, at 353 ("The 'disclose or abstain' rule for those entrusted with confidential information usually is observed by abstention."); Easterbrook, supra note 13, at 327 (noting that a disclose or abstain rule usually results in abstention, not disclosure, and consequently does not encourage the release of relevant information to the market); Levmore, supra note 23, at 123.
336. Levmore, supra note 23, at 123.
337. Id. at 123-28. The example used by Professor Levmore as illustration is S.E.C. v. Texas Gulf Sulphur, 401 F.2d 833 (2d Cir. 1968). In Texas Gulf Sulphur, the corporation had information indicating that a valuable ore deposit made the company's shares more valuable than the market realized. Insiders were aware of this, and therefore knew not to sell their shares into the undervalued market. Outsiders, however, were unaware of these facts and, therefore, may have continued to sell their shares at less than fair value. Levmore, supra note 23, at 123. Professor Levmore recognized that outsiders as a group may not be harmed by the disclose or abstain rule because it is just as likely that some shareholders may have purchased undervalued shares as it is that some shareholders may have sold undervalued shares. Id. Nonetheless, he argued that the rule is ultimately unfair to outsiders because they are forced to trade "randomly" risking the misfortune of trading in an uninformed market, while insiders could abstain and avoid these risks. Id. at 123-24. While the disclose or abstain rule would not place the Texas Gulf Sulphur investors on an equal informational footing with insiders, therefore, an always disclose rule would. Id at 124-28.
338. Basic, Inc. v. Levinson, 485 U.S. 224, 239 n.17 (1988) ("Silence, absent a duty to disclose, is not misleading under Rule 10b-5."), Dirks v. SEC, 463 U.S. 646, 654-55 (1985) (same); Chiarella v. United States, 445 U.S. 222, 235 (1980) (holding that a duty to disclose does not arise from the mere possession of material nonpublic information).
339. Levmore, supra note 23, at 132.
340. For example, disclosure of an impending tender offer would jeopardize the success of the offer by attracting rival bidders or alerting the target to implement takeover defenses. Disclosure of new products or procedures would alert competitors and jeopardize first mover advantages. Returning to the Texas Gulf Sulphur example, a rule that forced Texas Gulf to disclose the secret ore deposits would have resulted in a more accurate price for Texas Gulf Sulphur stock, but also may have threatened the opportunity for the valuable land sale purchase, resulting in a huge loss for the Texas Gulf Sulphur shareholders. Levmore, supra note 23, at 135-36. Furthermore, an always disclose rule may reduce the incentives to produce valuable information, such as the ore deposits discovered - at great expense - by Texas Gulf Sulphur, raising further questions of allocative efficiency. Gilson & Kraakman, supra note 6, at 632 n.218.
341. For example, disclosure of an impending tender offer would jeopardize the success of the offer by attracting rival bidders or alerting the target to implement takeover defenses. Disclosure of new products or procedures would alert competitors and jeopardize first mover advantages. Returning to the Texas Gulf Sulphur example, a rule that forced Texas Gulf to disclose the secret ore deposits would have resulted in a more accurate price for Texas Gulf Sulphur stock, but also may have threatened the opportunity for the valuable land sale purchase, resulting in a huge loss for the Texas Gulf Sulphur shareholders. Levmore, supra note 23, at 135-36. Furthermore, an always disclose rule may reduce the incentives to produce valuable information, such as the ore deposits discovered - at great expense - by Texas Gulf Sulphur, raising further questions of allocative efficiency. Gilson & Kraakman, supra note 6, at 632 n.218.
342. See sources cited infra notes 6, 9.
343. See, e.g., MANNE, INSIDER TRADING, supra note 9; Manne, supra note 6.
344. MANNE, INSIDER TRADING, supra note 9, at 93-110, 131-45.
345. Id. at 80-90.
346. Manne refers to the entrepreneur as an innovator, an "upsetter of stable societies" and a "creator of disruptive forces." MANNE, INSIDER TRADING, supra note 9, at 119. Such a person would not be content to earn a mere salary, he contends, but instead must be rewarded with a share of the corporation's profitability. Id. at 131-45. Bonuses and stock options are ineffective, however, because the entrepreneur is "limited to a specific reward no matter how great his innovation." Id. at 138. According to Manne, only insider trading profits can adequately attract entrepreneurs and encourage their necessary innovations: "a rule allowing insiders to trade freely may be fundamental to the survival of our corporate system. People pressing for the rule banning insider trading may inadvertently be tampering with one of the wellsprings of American prosperity." Id. at 110.
347. See, e.g., Easterbrook, supra note 13, at 332; Gilson & Kraakman, supra note 6, at 632-33 n.221; Levmore, supra note 23, at 145 n.75.
348. See id.
349. See, e.g., Robert J. Haft, The Effect of Insider Trading Rules on the Internal Efficiency of the Large Corporation, 80 MICH. L. REV 1051, 1053-60 (1982) (arguing that insider trading may harm the corporation due to delayed transmission of information to superiors within the firm); id. at 1062-63 (arguing that the possibility of insider trading can injure the corporation by generating distrust and ill-will among management and thereby negatively affect corporate decision making); Easterbrook, supra note 13, at 331 (arguing that insider trading by corporate employees during the planning stages of a business combination can affect the target's share price, increasing the cost of the acquisition to the bidder and endangering completion of the transaction); Carlton & Fischel, supra note 3, at 884 (same); Easterbrook, supra note 13, at 333 (arguing that the opportunity to trade legally on inside information may encourage the delay of relevant corporate information, resulting in less market efficiency); Levmore, supra note 23, at 149-50 (same); see also Bainbridge, supra note 4, at 49-55 (discussing each of these potential dangers and the arguments that have been levied against them).
350. See, e.g., Robert J. Haft, The Effect of Insider Trading Rules on the Internal Efficiency of the Large Corporation, 80 MICH. L. REV 1051, 1053-60 (1982) (arguing that insider trading may harm the corporation due to delayed transmission of information to superiors within the firm); id. at 1062-63 (arguing that the possibility of insider trading can injure the corporation by generating distrust and ill-will among management and thereby negatively affect corporate decision making); Easterbrook, supra note 13, at 331 (arguing that insider trading by corporate employees during the planning stages of a business combination can affect the target's share price, increasing the cost of the acquisition to the bidder and endangering completion of the transaction); Carlton & Fischel, supra note 3, at 884 (same); Easterbrook, supra note 13, at 333 (arguing that the opportunity to trade legally on inside information may encourage the delay of relevant corporate information, resulting in less market efficiency); Levmore, supra note 23, at 149-50 (same); see also Bainbridge, supra note 4, at 49-55 (discussing each of these potential dangers and the arguments that have been levied against them).
351. See, e.g., Robert J. Haft, The Effect of Insider Trading Rules on the Internal Efficiency of the Large Corporation, 80 MICH. L. REV 1051, 1053-60 (1982) (arguing that insider trading may harm the corporation due to delayed transmission of information to superiors within the firm); id. at 1062-63 (arguing that the possibility of insider trading can injure the corporation by generating distrust and ill-will among management and thereby negatively affect corporate decision making); Easterbrook, supra note 13, at 331 (arguing that insider trading by corporate employees during the planning stages of a business combination can affect the target's share price, increasing the cost of the acquisition to the bidder and endangering completion of the transaction); Carlton & Fischel, supra note 3, at 884 (same); Easterbrook, supra note 13, at 333 (arguing that the opportunity to trade legally on inside information may encourage the delay of relevant corporate information, resulting in less market efficiency); Levmore, supra note 23, at 149-50 (same); see also Bainbridge, supra note 4, at 49-55 (discussing each of these potential dangers and the arguments that have been levied against them).
352. See, e.g., Robert J. Haft, The Effect of Insider Trading Rules on the Internal Efficiency of the Large Corporation, 80 MICH. L. REV 1051, 1053-60 (1982) (arguing that insider trading may harm the corporation due to delayed transmission of information to superiors within the firm); id. at 1062-63 (arguing that the possibility of insider trading can injure the corporation by generating distrust and ill-will among management and thereby negatively affect corporate decision making); Easterbrook, supra note 13, at 331 (arguing that insider trading by corporate employees during the planning stages of a business combination can affect the target's share price, increasing the cost of the acquisition to the bidder and endangering completion of the transaction); Carlton & Fischel, supra note 3, at 884 (same); Easterbrook, supra note 13, at 333 (arguing that the opportunity to trade legally on inside information may encourage the delay of relevant corporate information, resulting in less market efficiency); Levmore, supra note 23, at 149-50 (same); see also Bainbridge, supra note 4, at 49-55 (discussing each of these potential dangers and the arguments that have been levied against them).
353. See, e.g., Robert J. Haft, The Effect of Insider Trading Rules on the Internal Efficiency of the Large Corporation, 80 MICH. L. REV 1051, 1053-60 (1982) (arguing that insider trading may harm the corporation due to delayed transmission of information to superiors within the firm); id. at 1062-63 (arguing that the possibility of insider trading can injure the corporation by generating distrust and ill-will among management and thereby negatively affect corporate decision making); Easterbrook, supra note 13, at 331 (arguing that insider trading by corporate employees during the planning stages of a business combination can affect the target's share price, increasing the cost of the acquisition to the bidder and endangering completion of the transaction); Carlton & Fischel, supra note 3, at 884 (same); Easterbrook, supra note 13, at 333 (arguing that the opportunity to trade legally on inside information may encourage the delay of relevant corporate information, resulting in less market efficiency); Levmore, supra note 23, at 149-50 (same); see also Bainbridge, supra note 4, at 49-55 (discussing each of these potential dangers and the arguments that have been levied against them).
354. Lucian A. Bebchuck, Federalism and the Corporation: The Desirable Limits on State Competition in Corporate Law, 105 HARV. L. REV. 1435 (1992); see also Henry N. Butler, The Contractual Theory of the Corporation, 11 GEO. MASON L. REV. 99 (1989) (arguing that market forces do not adequately constrain managers during "last-period" problems, when the benefits of a certain action substantially outweigh any penalties imposed by the managerial labor market); Ernst Maug, Insider Trading Legislation and Corporate Governance (March 25, 1999) (unpublished manuscript, on file with author) (finding that "[p]rivate contracting between companies and shareholders leads to optimal insider trading regulation only if initial shareholders can enter a binding commitment, otherwise large shareholders and managers recontract at the expense of small shareholders"). Similarly, evidence indicates that legal changes negatively impacting shareholder welfare are not accurately reflected in share price. Elliot J. Weiss & Lawrence J. White, Of Econometrics and Indeterminacy: A Study of Investors' Reactions to "Changes" in Corporate Law, 75 CAL. L. REV. 551 (1987).
355. Lucian A. Bebchuck, Federalism and the Corporation: The Desirable Limits on State Competition in Corporate Law, 105 HARV. L. REV. 1435 (1992); see also Henry N. Butler, The Contractual Theory of the Corporation, 11 GEO. MASON L. REV. 99 (1989) (arguing that market forces do not adequately constrain managers during "last-period" problems, when the benefits of a certain action substantially outweigh any penalties imposed by the managerial labor market); Ernst Maug, Insider Trading Legislation and Corporate Governance (March 25, 1999) (unpublished manuscript, on file with author) (finding that "[p]rivate contracting between companies and shareholders leads to optimal insider trading regulation only if initial shareholders can enter a binding commitment, otherwise large shareholders and managers recontract at the expense of small shareholders"). Similarly, evidence indicates that legal changes negatively impacting shareholder welfare are not accurately reflected in share price. Elliot J. Weiss & Lawrence J. White, Of Econometrics and Indeterminacy: A Study of Investors' Reactions to "Changes" in Corporate Law, 75 CAL. L. REV. 551 (1987).
356. Lucian A. Bebchuck, Federalism and the Corporation: The Desirable Limits on State Competition in Corporate Law, 105 HARV. L. REV. 1435 (1992); see also Henry N. Butler, The Contractual Theory of the Corporation, 11 GEO. MASON L. REV. 99 (1989) (arguing that market forces do not adequately constrain managers during "last-period" problems, when the benefits of a certain action substantially outweigh any penalties imposed by the managerial labor market); Ernst Maug, Insider Trading Legislation and Corporate Governance (March 25, 1999) (unpublished manuscript, on file with author) (finding that "[p]rivate contracting between companies and shareholders leads to optimal insider trading regulation only if initial shareholders can enter a binding commitment, otherwise large shareholders and managers recontract at the expense of small shareholders"). Similarly, evidence indicates that legal changes negatively impacting shareholder welfare are not accurately reflected in share price. Elliot J. Weiss & Lawrence J. White, Of Econometrics and Indeterminacy: A Study of Investors' Reactions to "Changes" in Corporate Law, 75 CAL. L. REV. 551 (1987).
357. See, e.g., Macey & Haddock, Coasian Model, supra note 9, at 1451 (advocating a contractarian approach to insider trading regulation).
358. Gilson & Kraakman, supra note 6, at 630-32 (arguing that insider trading transmits relevant information to the marketplace slowly and inefficiently and, absent a rule requiring insiders to disclose their trades, is unlikely substantially to further market efficiency); Macey, supra note 107, at 275-76 (noting that "[e]conomists generally agree that insider trading will generally lead to more accurate stock prices"); Richard W. Painter, Insider Trading and the Stock Market Thirty Years Later, 50 CASE W. RES. L. REV. 305, 308 (1999) (stating that "the insider trader makes market prices more accurately reflect all available information").
359. See supra notes 178-81 and accompanying text.
360. The effectiveness of information transmission through insider trading could perhaps be increased through Commission filing requirements. For example, the Commission could require corporate outsiders to file their intention to trade on inside information (but not the information itself) thus reducing the costs associated with trade decoding. Gilson & Kraakman, supra note 6, at 630-32; Steven Huddart et al., Public Disclosure of Insider Trades, Trading Costs, and Price Discovery (June 26, 1998) (unpublished manuscript, on file with this author) (finding that mandatory disclosure accelerates price discovery). The problem posed by such a filing requirement is the means by which people would be induced to file. Voluntary disclosure absent some Commission enforcement mechanism is unlikely. However, granting the Commission enforcement power over such filings is unworkable because it reinserts regulators into the outsider trading regime.
361. The effectiveness of information transmission through insider trading could perhaps be increased through Commission filing requirements. For example, the Commission could require corporate outsiders to file their intention to trade on inside information (but not the information itself) thus reducing the costs associated with trade decoding. Gilson & Kraakman, supra note 6, at 630-32; Steven Huddart et al., Public Disclosure of Insider Trades, Trading Costs, and Price Discovery (June 26, 1998) (unpublished manuscript, on file with this author) (finding that mandatory disclosure accelerates price discovery). The problem posed by such a filing requirement is the means by which people would be induced to file. Voluntary disclosure absent some Commission enforcement mechanism is unlikely. However, granting the Commission enforcement power over such filings is unworkable because it reinserts regulators into the outsider trading regime.
362. See supra note 26 (explaining tippee liability).
363. See Ribstein, supra note 5, at 170 (arguing that misappropriation cases should be governed by state law, but that the Commission should share information regarding outsider trading with issuers and state regulators, similar to the information sharing activities of the FBI with state law enforcement agencies).
364. See Painter et al., supra note 116, at 196 (criticizing the misappropriation theory adopted by the Supreme Court for lacking sufficient clarity).
365. These facts are derived from the real case of Jonathan Sheinberg's alleged misappropriation of information from his father, Sid Sheinberg, regarding the sale of MCA to Matsushita, and Jonathan's subsequent tips to his wife's lover, his own lover (who told her mother, who told her husband) and his business manager. James B. Stewart, The Tipster, THE NEW YORKER, Jan. 17, 1994, at 54-71.
366. See id. (discussing the fact that both of these elements presented problems for the Commission's case). Under the Commission's new rule 10b5-2, a relationship of trust and confidence is deemed to exist whenever a person receives confidential information from certain enumerated family members, including spouses, parents, children, and siblings. The person receiving the information, however, has an affirmative defense if she can demonstrate that the particular facts and circumstances of that family relationship prevented a relationship of trust and confidence from developing. 17 C.F.R. § 240.10b5-2 (2000); see also Kimberly D. Krawiec & Richard W. Painter, New Insider Trading Rule Attempts to Clarify SEC's Approach, CORP. COUNS. WKLY., Nov. 1, 2000, at 8 (discussing Rule 10b5-2 and concluding that "the Rule is fraught with ambiguity").
367. In fact, the difficulty in proving that Sid and Jonathan shared a relationship of trust and confidence was part of the incentive for the Commission to settle the Sheinberg case. The nature of Sid and Jonathan's relationship presented serious obstacles to the Commission's case, because Sid argued that he did not trust his son and because it was not obvious that Jonathan had ever agreed to his father's requests for secrecy. Stewart, supra note 246, at 69. New Rule 10b5-2 does little to alter the problems involving the relationship between Sid and Jonathan Sheinberg, but shifts the burden of proof from the government to the defendant.
368. Professor Stephen Bainbridge has cogently argued against the privatization of insider trading law on precisely these grounds. Bainbridge, supra note 5, at 1625 (arguing that Professor Larry Ribstein's arguments in favor of private enforcement are unpersuasive). Nonetheless, this author remains convinced that the costs of current federal outsider trading regulation outweigh any potential benefits.
369. Empirical evidence indicates that, although U.S. regulators have experienced great success in deterring illegal insider trading by classical and constructive insiders, U.S. regulatory efforts have been largely ineffective in deterring illegal outsider trading. Arshadi, supra note 111, at 70 (finding that insider trading regulation in the United States has been reasonably effective at deterring trades by "registered and temporary insiders," but has failed to deter illegal insider trading by corporate outsiders).
370. See supra Part IV (discussing at length the alleged harms to investors and market integrity due to insider trading and concluding that, although sound policy reasons exist for the federal prohibition against insider trading by the issuer's employees and constructive insiders, the costs of the federal prohibition against outsider trading outweigh the minimal benefits provided by the prohibition).
371. Manne, supra note 6, at 3 (stating that economics "is perhaps the most scientific of the social sciences. Here the word scientific must connote objectivity and moral detachment, as well as systematic verification of results. . . . The question for an economist is rarely one of the mutual fairness of a transaction between individual parties.").