NewYorkUniversity
LawReview
Current Issue

Volume 83, Number 1

April 2008
Articles

Trademark Litigation as Consumer Conflict

Michael Grynberg

Trademark litigation typically unfolds as a battle between competing sellers who argue over whether the defendant’s conduct is likely to confuse consumers. This is an unfair fight. In the traditional narrative, the plaintiff defends her trademark while simultaneously protecting consumers at risk for confusion. The defendant, relatively speaking, stands alone. The resulting “two-against-one” storyline gives short shrift to the interests of nonconfused consumers who may have a stake in the defendant’s conduct. As a result, courts are too receptive to nontraditional trade- mark claims where the case for consumer harm is questionable. Better outcomes are available by appreciating trademark litigation’s parallel status as a conflict between consumers. This view treats junior and senior trademark users as proxies for different consumer classes and recognizes that remedying likely confusion among one group of consumers may cause harm to others. Focusing on the interests of benefited and harmed consumers also minimizes the excessive weight given to moral rhetoric in adjudicating trademark cases. Consideration of trademark’s consumer-conflict dimension is therefore a useful device for critiquing trademark’s expansion and assessing future doctrinal developments.

Two and Twenty: Taxing Partnership Profits in Private Equity Funds

Victor Fleischer

Private equity fund managers take a share of the profits of the partnership as the equity portion of their compensation. The tax rules for compensating general partners create a planning opportunity for managers who receive the industry standard “two and twenty” (a two percent management fee and twenty percent profits interest). By taking a portion of their pay in the form of partnership profits, fund managers defer income derived from their labor efforts and convert it from ordinary income into long-term capital gain. This quirk in the tax law allows some of the richest workers in the country to pay tax on their labor income at a low rate. Changes in the investment world—the growth of private equity funds, the adoption of portable alpha strategies by institutional investors, and aggressive tax planning—suggest that reconsideration of the partnership profits puzzle is overdue.

While there is ample room for disagreement about the scope and mechanics of the reform alternatives, this Article establishes that the status quo is an untenable position as a matter of tax policy. Among the various alternatives, perhaps the best starting point is a baseline rule that would treat carried interest distributions as ordinary income. Alternatively, Congress could adopt a more complex “Cost-of-Capital Method” that would convert a portion of carried interest into ordinary income on an annual basis, or Congress could allow fund managers to elect into either the ordinary income or “Cost-of-Capital Method.” While this Article suggests that treating distributions as ordinary income may be the best, most flexible approach, any of these alternatives would be superior to the status quo. These alternatives would tax carried interest distributions to fund managers in a manner that more closely matches how our tax system treats other forms of compensation, thereby improving economic efficiency and discouraging wasteful regulatory gamesmanship. These changes would also reconcile private equity compensation with our progressive tax system and widely held principles of distributive justice.

Essays

Our Agnostic Constitution

Steven D. Smith

According to an argument heard a good deal lately, the fact that the Constitution says nothing about God means that we have a “godless Constitution,” and that fact in turn entails that government and politics in the United States must be godless or, in the more usual locution, secular. The commitment to secular government in turn is thought to preclude governmental sponsorship of religious expressions (such as the national motto “In God We Trust”) or of religious symbols (such as monuments to the Ten Commandments). This Essay argues that this interpretation of our “godless” Constitution is importantly correct—but even more importantly mistaken. It is true that the Founders purposefully made no reference to a deity—in contrast to many other state and national constitutions. Thus, the Constitution is godless or, more precisely, agnostic. But the agnosticism of the Constitution does not mean that governments operating under the Constitution must also be agnostic or that they must refrain from religious expression. On the contrary, paradoxical though this may initially seem, it is precisely the Constitution’s agnosticism that permits governments to engage in such expression. Drawing a comparison with personal agnosticism, this Essay contends that, similar to a person who both believes and doubts at different cognitive levels, the political community too can affirm particular beliefs (on religious issues, for example) at one jurisdictional or juridical level while remaining noncommittal on other, more constitutive levels. Such “layered believing” can offer a valuable strategy for creating and maintaining political community in the midst of great diversity.

Notes

Resorting to Extraordinary Writs: How the All Writs Act Rises to Fill the Gaps in the Rights of Enemy Combatants

Dimitri D. Portnoi

The indefinite detention of prisoners at Guanta ́namo Bay Naval Base raises serious concerns about what rights those detainees are entitled to and whether detainees will have the power to exercise them. How, for instance, could a detainee pursue a meaningful appeal of a decision of the Combatant Status Review Tribunal without effective assistance of counsel? How could a detainee challenge his detention when the U.S. government renders that detainee to foreign custody? The All Writs Act, a broad and historic statute originally codified in the Judiciary Act of 1789, provides that “courts may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law.” The Act grants the courts equitable power to issue injunctions that ensure that litigants’ substantive rights are not frustrated by interstices in the applicable law. It is in this Act that district courts exercising habeas corpus jurisdiction found detainees’ rights to effective assistance of counsel and thirty days’ notice prior to transfer to foreign custody. While the Military Commissions Act stripped the courts of habeas jurisdiction with respect to alien enemy combatants, the equitable power granted by the All Writs Act can attach to any jurisdiction, including the appellate power given to the D.C. Circuit Court of Appeals to review determinations made at Guanta ́namo Bay. This Note provides a roadmap that courts should apply when considering whether to issue an All Writs Act injunction, and concludes that such injunctions are not only permissible but also an appropriate and important exercise of the courts’ power.

What is a Progressive Tax Change?: Unmasking Hidden Values in Distributional Debates

David Kamin

There is widespread confusion both in policy circles and in the academic literature about how to measure the progressivity of a tax change. The confusion is particularly vexing because policymakers and analysts often rely on progressivity as a guidepost in constructing and analyzing policy, but do little to justify the particular progressivity measures that they employ. Progressivity measures—which can differ considerably from one another—tend to be picked haphazardly or chosen based on arguments that have rhetorical flair but lack normative substance. Thus, policy is being constructed and evaluated based on distributional measures that may not be meaningful and, in fact, may be misleading. This Note proposes a framework for analyzing measures of progressivity. In particular, if the measures are to gauge accurately changes in tax fairness, progressivity measures must be rooted in whatever theory of distributive justice motivates our concern for distribution. This Note applies this approach and draws connections between particular measures of progressivity and individual theories of distributive justice.

The Earned Income Tax Credit as an Incentive to Report: Engaging the Informal Economy Through Tax Policy

John J. Infranca

The Earned Income Tax Credit (EITC) provides financial assistance to low-income workers through a refundable tax credit. The EITC, which has received strong bipartisan support since its introduction in 1975, now represents the nation’s largest anti-poverty program for non-elderly individuals. In this Note, I contend that the EITC’s historical development failed to account for (and prior scholarly analysis of its impact on labor supply decisions have ignored) the important role of informal employment in the lives of the working poor. This Note presents the first analysis of the financial impact of government transfer and tax programs on the decision to report informal income—income that, were it reported, would be otherwise legal. As the Note’s analysis reveals, while drastic changes in both tax and transfer programs may be necessary to provide financial incentives for many households with children to report informal income, more targeted changes to the EITC could pro- vide strong incentives for childless informal workers to report. The Note argues that the benefits to both individuals and society, financial and otherwise, of tax reporting by low-income individuals engaged in informal work merits reconsideration of the EITC’s overall structure and administration. Administrative and policy innovations described in the Note are also necessary to maximize reporting compliance.

Accuracy Counts: Illegal Votes in Contested Elections and the Case for Complete Proportionate Deduction

Kevin J. Hickey

Contested elections in which the number of illegal votes exceeds the purported winner’s margin of victory present courts with difficult choices. Simply certifying the result risks denying the true winner his victory, while ordering a new election leaves the choice to a changed electorate. Adjusting the results is also problematic, as it may create a perception that judges, and not voters, have decided the election. This Note argues that courts should be more willing to use statistical techniques to resolve this type of election dispute. It critiques the various remedial measures that courts have employed, as well as the rejection of statistical methods in existing case law and legal commentary. The author concludes that a statistics-based remedy—termed “complete proportionate deduction”—best balances the values of accuracy, finality, and public faith in the democratic process.