“Crunch”Ing the Numbers Behind a Marquee Year in Video Games

April 4, 2021
Employment Law, Video Games

Ellie Soskin, MJLST Staffer

The COVID-19 pandemic has made this past year a financially devastating one for film and for sports, industries that rely on in-person ticket sales for a share of their revenue. But while those industries struggled, another form of entertainment was having a banner year. The videogame industry saw revenues reach a whopping $180 billion USD, by one estimate. As of last year, more than 214 million people in the United States alone reported playing some form of videogame for at least one hour per week. Four of five U.S. consumers reported playing a video game in the last six months. And with pandemic restrictions limiting activities, gaming on dedicated game consoles, on computers, and on smartphones (“mobile gaming”) has skyrocketed. For many, online gaming has provided a social outlet during a period of isolation, or an almost therapeutic form of escapism. But for all of the potential in the videogame industry, both economic and otherwise, there is a looming labor (and moral) issue that has escaped the law.

The Washington Post recently published a piece on the legality of what’s known in the gaming industry as “crunch.” Generally, crunch, short for “crunch time” occurs at the end of a game’s development cycle. As deadlines loom, the hours become longer and longer and every day becomes a workday; thirteen hour days and seven day workweeks are not remotely unheard of. Ultimately, though, crunch can occur any time there is a major development milestone looming, not just the end of a project.

This is not a new problem, with reports of crunch at major game developers and publishers like Electronic Arts (EA) dating back seventeen years. Back then, video game revenue sat at a relatively miniscule $7 billion annually, a mere 3 percent of where it is today. That explosion in revenue has not changed employment habits. As the Washington Post reports, a 2019 survey revealed that “40 percent of game developers reported working crunch time at least once over the course of the previous year,” with many working “at least 20 extra hours” per workweek and only 8 percent reporting overtime pay. The reports have been consistent over the years: one developer reported working “14 hours a day, six days a week” during a crunch period in 2016. In 2018, employees at major game development studio Rockstar reported an average of 60-hour weeks during crunch (generally six days of ten hour workdays); Rockstar co-founder Dan Houser described “100-hour weeks.” Those kinds of working conditions are a breeding ground for prolonged stress and fatigue, causing mental health issues and even actual physical illness.

News outlets have generally framed crunch as an industry problem without mind for the legal analysis. Publishers demand last minute changes, and studio heads push workers into crunch to appease their financial backers. Or it’s viewed as a rite of passage within the industry and just part of working what is a dream job for a number of young people. In the words of one employee, “[e]mployers know that it’s many people’s dream to be there, so they are able to exploit the fact.” Take This is a mental health non-profit focused on the gaming industry that published a white paper in 2019 reporting on the most pressing mental health issues faced by game developers. Career instability, particularly crunch and lack of job security, were found to be key drivers of poor mental health in developers. Additionally, developers report working for an average of 2.2 employers over a five year period, indicative of the low stability afforded by the industry.

The Washington Post’s piece is admittedly one of the first to focus on the legal framework enabling this kind of employment behavior in the United States. In sum, the video game industry has either exploited existing overtime exemptions for salaried employees under the FLSA and state law or lobbied for new exemptions. For example, after that aforementioned EA crunch exposé, employees sued and settled multiple multi-million dollar class action lawsuits over working conditions. The settlements would have limited the exemptions and reclassified certain employees as overtime eligible, had a new set of exemption rules not been enacted in 2008, lowering the point at which salaried employees are no longer considered eligible for overtime pay.

Crunch as a concept is not simply a United States video game industry problem. Crunch, particularly uncompensated crunch, is also a noted problem in Japanese studios, as well as in various studios worldwide. Polish video game studio CD Projekt Red (CDPR) made six-day workweeks mandatory in the weeks leading up to the highly anticipated release of their big-budget game “Cyberpunk 2077.” Notably, however, those employees all received paid overtime in accordance with Polish labor laws, as well as splitting 10% of the company’s 2020 profits amongst employees as a bonus.

Ultimately, crunch seems to be deeply embedded in the culture of the video game industry worldwide. But there’s no doubt that, as the Washington Post states, it has been enabled by the structure of current labor laws in the United States. Some industry insiders have floated unionization for developers as a potential solution to the lack of legal protections overall, particularly the lack of overtime, poor working conditions, and overall job instability. An industry survey from early 2020 indicated that, when asked if they should unionize, 54 percent of workers said yes, though only 23 percent believed that they actually would unionize. Last January, one of the biggest unions in the United States, Communications Workers of America (CWA), announced their intention to help game workers unionize. But it remains to be seen if anything will come of that and no new reports on unionization have emerged since the beginning of the COVID-19 pandemic. For now, it seems like it’s business as usual for a booming industry.

In the interest of full disclosure, this author’s brother works in the video game industry.

#IsTheShipStillStuck?

April 4, 2021
Economy, Litigation

Schuyler Troy, MJLST Staffer

The Ever Given, a massive four-hundred-meter-long cargo ship weighing over two hundred thousand tons and carrying over eighteen thousand cargo containers, ran aground in the Suez Canal on March 23, 2021. Wedged between the edges of the canal, the ship blocked all transport through the canal for just over six days. Trade routes were brought to a screeching halt as a backlog of hundreds of ships were left stranded in Egypt’s Great Bitter Lake waiting for passage through the canal, which serves as a conduit for about thirty percent of daily global shipping container volumes, including roughly one million barrels of oil a day. After days of round-the-clock work, the Ever Given was finally pried loose on March 29, allowing traffic to flow again through the canal. The precise cost of the trade stoppage is still unclear, but data from Lloyd’s List showed that the ship held up an estimated $9.6 billion in trade each day that it was stuck—roughly $400 million per hour. The canal itself generated $5.6 billion for Egypt in 2020.

What exactly caused the Ever Given to run aground is currently under investigation. According to an article from Business Insider, initial theories suggested that sudden strong winds caused the hull to deviate from its course and hit the bottom of the canal. Human error is also suspected to have played a part in the fiasco, with reports that the ship was traveling faster than the canal’s speed limit and that its crew opted not to utilize a tugboat escort through the canal. Investigators are also likely to scrutinize the performance of the Ever Given’s two Egyptian canal pilots, both senior chief pilots with more than thirty years of experience.

With so much money on the line, attention will surely turn to who will be left liable for the losses, and the complex structure of ownership and operation of the Ever Given has revealed a tangled web of potentially liable parties. The ship is owned by Shoei Kisen Kaisha, a Japanese subsidiary of Imabari Shipbuilding. At the time it ran aground in the Suez Canal, it was chartered and operated by Evergreen Marine, a Taiwanese container line. The Ever Given is registered in Panama, and is technically managed by the German ship management company Bernhard Schulte Shipmanagement. The crew was comprised of twenty-five Indian citizens, and the ship was insured in part by the UK P&I Club, a United Kingdom based insurance group.

Aggrieved parties are likely to raise claims arising not only from delays in shipment of the goods aboard the Ever Given, but also from cargoes on other ships that were delayed due to inability to transit the canal and from ships which diverted their course around the Cape of Good Hope, a longer and costlier route. There could also be claims for damage to the canal itself, as diggers were required to remove earth and rock from the canal’s banks around the areas where the ship ran aground.

Litigation over the Ever Given’s grounding will likely take years to sort out. In the meantime, we will always have the memes that the fiasco spawned.

It’s Not Always Greener on the Other Side: Challenges to Environmental Marketing Claims

March 28, 2021
Environment, Environmental Law, FTC, Regulatory

Ben Cooper, MJLST Staffer

On March 16, 2021 a trio of environmental groups filed an FTC complaint against Chevron alleging that Chevron violated the FTC’s Green Guides by falsely claiming “investment in renewable energy and [Chevron’s] commitment to reducing fossil fuel pollution.” The groups claim that this complaint is the first to use the Green Guides to prevent companies from making misleading environmental claims. Public attention has supported companies that minimize their environmental impact, but this FTC complaint suggests that a critical regulatory eye might be in the future. If the environmental groups convince the FTC to enforce the Green Guides against Chevron, other companies should review the claims they make about their products and operations.

A Morning Consult poll released in early December 2020 showed that nearly half of U.S. adults supported expanding the use of carbon removal practices and technologies. Only six percent of survey respondents opposed carbon removal practices. In response to the overwhelming public support for carbon reduction, hundreds of major companies are making some type of commitment to reduce their carbon footprint and curb climate change. One popular program, the Science Based Targets initiative, has over 1,200 participants who made various pledges to decarbonize (or offset the carbon within) their operations.

International and non-governmental organizations took the reins of climate change policy, especially once the Trump Administration withdrew the United States from the Paris Agreement in 2017. “Climate change seems to be the leading fashion statement for business in 2019,” declared a Marketplace story in October of 2019. Yet, as with fashion, style only gets one so far. Substance is key—and often lacking. One of the founders of the Science Based Targets initiative criticized fashionable but flimsy voluntary corporate commitments: “[T]here is not a lot of substance behind those [voluntary corporate] commitments or the commitments are not comprehensive enough.”

The voluntary commitments placated environmental groups when the alternative was the Trump Administration’s silence—but the Biden Administration presents an eager environmental partner: the FTC complaint “is the first test to see if [the Biden Administration] will follow through with their commitment to hold big polluters accountable,” said an environmental group spokesperson according to a Reuters report. The consensus of environmental groups, industry commentators, and regulatory observers appears to be that government oversight is imminent to encourage consistency and accountability—and to avoid “greenwashing.”

Should organizations that make environmental claims be concerned about enforcement action?  It is too early to tell if the Chevron FTC complaint portends future complaints. In the Green Guides, the FTC declared that it seeks to avoid placing “the FTC in the inappropriate role of setting environmental policy,” which might suggest that it will stick to questions of misrepresentation and avoid wading into questions of evaluating environmental claims. It is also worth noting that the FTC is missing one of its five commissioners and Commissioner Rohit Chopra is expected to resign in anticipation of his nomination to head the Consumer Financial Protection Bureau. While the FTC might not be in a position at the moment to enforce the Green Guides, organizations that make environmental claims in marketing materials should monitor this complaint and ensure their compliance with FTC guidance as well as any policy changes from the Biden Administration.

Clawing Back the “Jackpot” Won During the Texas Blackouts

March 28, 2021
Economics, Energy Law, Regulatory

Isaac Foote, MJLST Staffer

For most Texans, the winter storm in February 2021 meant cold temperatures, uncertain electricity at best, and prolonged blackouts at worst. For some energy companies, however, it was like “hitting the jackpot.” We here at MJLST (in Madeline Vavricek’s excellent piece) have already discussed the numerous historical factors that made Texas’s power system so vulnerable to this storm, but in the month after power was restored to customers, a new challenge has emerged for regulators to address: who will pay the estimated $50 billion in electricity transactions carried out during the week of blackouts. A number estimated to eclipse the total sales on the system over the previous three years!

At the highest level, the Texas blackouts were a result of the electric grid’s need to be ‘balanced’ in real time, i.e. always have sufficient electricity supply to meet demand. As the winter storm hit Texas, consumers increased demand for electricity, as they turned up electric heaters, while simultaneously a lack of winterization drove natural gas, wind, and nuclear electricity producers offline. So, to “avoid a catastrophic failure that could have left Texans in the dark for months,” Texas grid operator, the Electric Reliability Council of Texas (ERCOT), needed to find a way to drastically increase electricity supply and reduce electricity demand. Blackouts were the tool-of-last-resort to cut demand, but ERCOT also attempted to increase supply through authorizing an extremely high wholesale price of electricity. Specifically, ERCOT and the Texas Public Utility Commission (PUC) authorized a price of $9,000 per megawatt hour (MWh), over 340 times the annual average price of $26/MWh.

These high prices may have kept some additional generation online, but they also resulted in devastating impacts for consumers (especially those using the electric provider Griddy) and electric distributors (like Brazos Electric Power Cooperative that has already filed for Chapter 11 bankruptcy protection). Now, the Independent Market Monitor (IMM)for the PUC is questioning whether the $9,000/MWh electricity price was maintained for too long after the storm hit: specifically, the 32 hours following the end of controlled blackouts between February 17th and 19th. The IMM claims that the decision to delay reducing the price of electricity “resulted in $16 billion in additional costs to ERCOT’s market” that will eventually need to be recovered from consumers.

The IMM report on the issue has created a showdown in Texas Government between the State Senate, House, and the PUC. Former Chair of the PUC, Arthur D’Andrea, argued against repricing as “it’s just nearly impossible to unscramble this sort of egg,” while the State Senate passed a bill that would require ERCOT to claw back between $4.2 billion and $5.1 billion in from generators for the inflated prices. D’Andrea’s opposition to the clawback has already resulted in his resignation, but it appears unlikely this conflict will be resolved as the State House may concur with the PUC’s position.

There is further confusion over whether such a clawback would be legal in the first place. Before his resignation, D’Andrea implied such a clawback was beyond the power of the PUC. However, Texas Attorney General Ken Paxton issued an opinion that: “the Public Utility Commission has complete authority to act to ensure that ERCOT has accurately accounted for electricity production and delivery among market participants in the region. Such authority likely could be interpreted to allow the Public Utility Commission to order ERCOT to correct prices for wholesale electricity and ancillary services during a specific timeframe . . . provided that such regulatory action furthers a compelling public interest.”

Going forward it appears that the Texas energy industry will be facing a wave of lawsuits and bankruptcies, whatever the decisions made by the PUC or legislators. However, it is important to remember that someone will end up bearing responsibility for the billions of dollars in costs incurred during the crisis. While most consumers will not see this directly on their electricity bill, like those using Griddy had the misfortune to experience, these costs will eventually be transferred onto consumers in some ways. Managing this process in conjunction with rebuilding a more resilient energy system will be a challenge that Texas energy system stakeholders, policymakers, and regulators will have to take on.

No, Dolphins Did Not Reappear in Venice Canals: The Effects of COVID-19 on the Environment

March 14, 2021
COVID-19, Environment, Public Health

Drew Miller, MJLST Staffer

2020 was a strange, difficult year for billions of people as the COVID-19 pandemic wreaked havoc across the globe. The virus has claimed the lives of over 2,500,000 people, but the effects of the pandemic extend well beyond the loss of life. In an effort to slow the spread of the virus, governments at every level around the world began to implement protective measures such as stay-at-home orders and travel bans as early as March 2020 in the United States—nearly a full year ago. The mass quarantine forced over 100,000 businesses to close their doors in the first two months—some temporarily, some permanently— which in turn led to a rise in unemployment and massive drops in stock markets such as the Dow Jones and the FTSE. These economic effects and their potential remedies have been debated endlessly by news organizations, politicians, and regular citizens alike. However, the environmental effects of the pandemic have not been covered as extensively. Reduced travel tendencies have provided the climate and environment a reprieve, but it will not last; if we are to continue down the road towards environmental sustainability, we must continue to push for reform despite the unique challenges presented by COVID-19.

Environmental Effects

In mid-March, 2020, scattered among an unremitting flood of bad news, some happy stories emerged. Swans and dolphins had returned to formerly desolate Venice canals. A group of elephants had sauntered through a village in Yunnan, China, gotten drunk off corn wine, and passed out in a tea garden. Wild boars were wandering through towns. The stories continued. These reports of the Earth healing and wildlife reclaiming space in a world without people went viral, and understandably so: they offered a spark of light in a dark and uncertain time. One tweet (since deleted) about fish, swans, and clear water in Venice canals amassed over 1,000,000 likes.

Unfortunately, the stories weren’t real. “The swans … regularly appear in the canals of Burano.” “The ‘Venetian’ dolphins were filmed at a port in Sardinia, in the Mediterranean Sea, hundreds of miles away.” The water was clearer because fewer boats were disturbing the sediment at the bottom. The elephants are a regular presence in the depicted village. If anything, allow these stories to serve as a reminder not to believe everything on the internet.

Moreover, the pandemic may have hurt wildlife more than it helped. Many governments pay for environmental conservation and enforcement initiatives with tourism revenue. As that revenue dried up and budgets were cut, those protections weakened. Financial distress caused by widespread unemployment further exacerbated the situation. In April, there were reports of increased falcon smuggling in Pakistan; in June, poaching of leopards and tigers in India; and in October, trafficking of rhino horns in South Africa and Botswana. The chaos of the pandemic also provided cover for illegal logging in the Brazilian Amazon rainforest, which rose more than 50% in the first three months of 2020 compared to the same period in 2019.

Nevertheless, despite the absence of Venetian dolphins, the pandemic looked “okay” from an environmental perspective in 2020. Although there was an uptick in reliance on single-use plastics during lockdowns and increased generation of biomedical waste, pollution levels improved. Transportation, the most significant source of greenhouse gases in the United States, saw a 14.7% decline in emissions, and America’s greenhouse gas emissions from energy and industry plummeted more than 10 percent in 2020, reaching their lowest levels in at least three decades. According to a research group, the fall in emissions nationwide was the largest one-year decline since at least World War II. There were also reduced levels of water and noise pollution.

Policy Implications

Unfortunately, the pollution-related benefits of COVID-19 are likely only temporary. Emissions reductions and air quality improvements primarily resulted from reduced transportation. Consequently, as more people return to their typical travel habits, emissions and air quality are likely to bounce back to their pre-pandemic levels. As Corinne Le Quere, professor of climate change at the University of East Anglia in Britain, stated, “We still have the same cars, the same roads, the same industries, same houses. So as soon as the restrictions are released, we go right back to where we were.”

In fact, emissions may bounce back to levels even higher than they were prior to the pandemic due to the dismantling of numerous climate and environmental policies worldwide. In the United States, nearly 100 environmental protection policies and regulations were reversed or rolled back during the Trump presidency. Citing economic concerns due to COVID, the Czech Prime Minister urged the European Union to abandon the Green New Deal and the European Automobile Manufacturers Association lobbied the European Commission to weaken vehicle emission standards.

COVID-19 has impacted just about every industry in the world, and its economic ramifications continue to present significant difficulties. However, the pandemic is, ultimately, temporary; rebuilding will be challenging, but just as the economy rebounded after the 2008 recession, so it will do again. The Earth may not be so resilient. If we are to achieve a healthier and more sustainable world, businesses and policymakers alike must not recoil from that effort even in the face of unexpected bumps in the road—instead, they must forge ahead.

Decode 16 Tons (of Bitcoin), What Do You Get? Nevada Considers Redefining the Phrase “corporate Governance”

March 14, 2021
Corporate Ethics, Cryptocurrency, Economics, Regulatory

Jesse Smith, MJLST Staffer

On January 16, 2020, Nevada Governor Steve Sisolak, as part of his state of the state address, announced a new legislative proposal allowing certain types of private companies to essentially purchase the ability to govern as public entities. The proposal applies specifically to tech firms operating within the fields of blockchain, autonomous technology, the internet of things, robotics, artificial intelligence, wireless technology, biometrics, and renewable resources technology. Those that purchase or own at least 50,000 contiguous acres of undeveloped and uninhabited land within a single county can apply to create  “innovation zones” within the property, or self-governed cities structured around the technology the company develops or operates. The company must apply to Nevada’s Office of Economic Development and provide a preliminary capital investment of at least $250 million, along with an additional $1 billion invested over ten years. Upon approval by the state, the area would become an “innovation zone,” initially governed by a three-member board appointed by the governor, two members of which would be picked from a list provided by the company creating the zone. This board would be able to levy taxes and create courts, school districts, police departments, and other offices empowered to carry out various municipal government functions.

One of the main companies lobbying for the passage of the bill, and the likely its first candidate or adopter, is Blockchains LLC, a Nevada based startup that designs blockchain based software in the areas of “digital identity, digital assets, connected devices and a stable means of digital payment.” The company purchased 67,000 acres of largely undeveloped land near Reno in 2018 for $170 million, in pursuit of building what it calls a “sandbox city,.” There, the company would further develop and use its blockchain technology to store records and administer various public and private functions, including “banking and finance, supply chains, ID management, loyalty programs, digital security, medical records, real estate records, and data sharing.”

Natural and rightful criticism of the legislation has mounted since the announcement. Many pointed out that Jeffrey Berns, the founder of Blockchains LLC, is a large donor to both Sisolak and Democratic PACs in Nevada. Furthermore, months before the proposal was unveiled, Blockchains purchased water rights hundreds of miles away to divert to its Nevada land, prompting various outcries from water rights and indigenous activists. From a broader perspective, skeptics conjured up dystopian images of zone residents waking up to “focus group tested alarm[s]” in constantly monitored “corporate apartments.” Others reflected on the history of company-controlled towns in the U.S. and the various problems associated with them.

Proponents of the plan seem fixated on two particular arguments. First, they note that the bill in its current incarnation requires an innovation zone to hold elections for the offices it sets up once its population hits 100. This allegedly demonstrates that while any company behind the zone “retains significant control over the jurisdiction early on, that entity’s control quickly recedes and democratic mechanisms are introduced.” Yet this argument ignores the fact that there is no requirement that a zone ever reach 100 residents. Additionally, even where this threshold is met, the board still retains significant control over election administration, and may divide or consolidate various types of municipal offices as it sees fit, and dismiss officials for undefined “malfeasance or nonfeasance” (§ 20 para. 2). Such powers provide ripe opportunity for gaming how an innovation zone’s government operates and avoiding true democratic control through consolidation of various powers into strategic elected offices.

Second is the more traditional argument that these zones will attract new businesses to the state and bestow an influx of money and jobs upon the citizens of Nevada. Setting aside various studies and arguments that question this assumption, this argument is yet another tired talking point that ignores the damage large businesses already wreak on the local communities they take over. Many overuse the limited resources of various departments. Others use the “value” that big businesses supposedly bring to communities to pit local governments against each other in bidding wars to see who can offer more tax breaks and subsidies to bring the business to their town, money and revenue that could and likely should be used to fund other local programs. Thus, the ability to actually govern appears to be the logical end in a progression of demands big businesses expect from the cities they set up shop in. Perhaps the best argument in favor of innovation zones is also the saddest, in that they allow big businesses to, as is said in corporate speak, “cut out the middleman” by directly collecting the tax dollars they already consume by the billions and directly controlling the municipal resources they already monopolize.

Sisolak, Berns, and other proponents of the proposal fight back against the idea that innovation zones will become the equivalent of “company towns” and argue that it will make Nevada a tech capital of the world by attracting the businesses specified in the bill. They would be well suited to remember two maxims that summarize the criticism of their idea: that history repeats itself and the road to hell is paved with good intentions. There is a reason these phrases are overused cliches. Last week’s MJLST blog post left us with the sweet sounds of Billy Joel to close out its article. As suggested by Tony Tran of “The Byte,” I’ll end mine with the classic, yet unknowingly cyberpunk ballad “16 tons” (the Tennessee Ernie Ford version), and leave the reader thinking about the future plight of the Nevada Bitcoin miner, owing her or his uploaded cloud soul to the company store, aka Blockchains LLC, in their innovation zone job.

Everything’s Bigger in Texas, Including Power Outages

March 7, 2021
Energy Law, Public Health, Regulatory

Madeline Vavricek, MJLST Staffer

On last week’s episode of “now what?”, Texas was experiencing massive power shortages following a winter storm, leaving hundreds of thousands of Texans without power and water. An estimated 4.3 million Texans were rendered without power for up to a week as the cold snap that swept the nation caused Texas’s power grids to fail. Though the power grid is back up and Texas has returned to its regularly scheduled spring temperatures, last month’s empty grocery store shelves and power shortages have yet to melt from many Texans’ memories. As massive electric bills arrive in citizens’ mailboxes (hello, surge pricing!), lawsuits levied against power companies, and bankruptcies filed by energy companies, one might ask why Texas, far from being the coldest part of the United States that week, was so thoroughly and singularly felled by the winter weather. The answer, perhaps unsurprisingly, is both political and economic, and requires a history lesson as well.

Nearly half a century after Thomas Edison’s 1880 invention of the light bulb, the advent of the power grid was gaining traction in the nation’s cities and becoming less of a luxury and more of a necessity. This created a highly profitable market for electricity where previously no market had existed, and the expansion of the industry only shed light on ways that electric companies were utilizing the novel market to their advantage. This expansion eventually lead to the passage of the 1935 Public Utility Holding Company Act (PUHCA) under President Franklin D. Roosevelt. The Act outlawed the “pyramidal structure” of interstate utility holding companies, preventing holding companies from being more than twice removed from their operating subsidiaries, and required companies with a ten percent stake or greater in a utilities market to register with the Securities and Exchange Commission for monitoring. Essentially, this legislation was to prevent energy companies from operating as monopolies in the relatively new energy market, a move met with vehement opposition by the utility companies themselves; the bitter feeling was mutual, with FDR notably calling the holding companies “evil” in his 1935 State of the Union address.

While PUHCA inconvenienced these villainous utility companies’ interstate operations, there was one loophole left available to them: their “evil” was left unregulated within the state, allowing holding companies that operated within a single state unregulated under PUHCA.  While the Act was effective, decreasing the number of holding companies from 216 to 18 between 1938 and 1958, creating a “a single vertically-integrated system which served a circumscribed geographic area regulated by either the state or federal government.” It was following the 1935 passage of PUHCA that Texas power companies decided to band together within the state rather than submit to the federal regulation at hand. By only operating within state lines, Texas companies effectively skirted federal regulation and interference, politically maneuvering itself to an energy independence largely made possible through Texas’s energy-rich natural resources.

In the late sixties, the federal government created two main power grids to serve the country: the Eastern Interconnection and the Western Interconnection. Texas opted out of this infrastructure, choosing instead to form its own grid operator, called the Electric Reliability Council of Texas, or ERCOT. The ERCOT grid “remains beyond the jurisdiction of the Federal Energy Regulatory Commission,” the federal entity that regulates the power grid for the rest of the nation. ERCOT took on additional power following the 1999 move to deregulate the energy economy in Texas, an effort to create a completely free market for electricity in the state to benefit both consumers and companies. This independence had most Texans’ ardent approval . . . until the cold front rolled in late February 2021, obstructing the flow of the state’s natural gas and leading to the failure of 356 electric generators state-wide. While other Southern states relied on the national power grid to maintain their electricity, Texas had no one but itself to fall back on, and was quite literally left out in the cold.

While some argue that the independent electrical grid was not to blame for Texas’s misfortunes, insisting that the cold temperatures in the rest of the nation meant there wouldn’t be much energy to spare anyway, it is undeniable that the deep freeze has called attention to many cons of Texas’s pro-deregulation energy market. Though there is what could be considered an “instinctive aversion to federal meddling” in avoiding federal regulation, as well as sensible reasons for a state of Texas’s size and natural resources to remain separate from the other 47 continental United States, the reality remains that many Texans suffered at the hands of its own power grid. As the bills pile up and Texans increase the water bottles they have in their pantry at any given time, one can see how some might favor the security of a more regulated system over the freedom that lead to surge pricing, dry faucets, and dark homes.  However, as with all government regulation, there is a price to pay, and perhaps the Lone Star State prefers to stay “lone” for that very reason. Either way, Texas, now warmer and well-lit, is no doubt grateful to return to our 2021 definition of “normal” and hoping that their lives stop sounding like a verse of a beloved Bill Joel song (no, not Piano Man).

Carbon Copy Critters: Cloned Species and the Endangered Species Act

February 28, 2021
Animal Law, Endangered Species Act, Environment, Environmental Law, EPA

Emily Kennedy, MJLST Staffer

The United States is home to over 1,600 species listed as threatened or endangered. These species face a number of challenges arising from human activity, such as habitat loss from encroaching human populations, pollution, climate change, and excessive hunting. While species such as the Houston toad or the Government Canyon bat cave Spider may seem insignificant, and perhaps a bit frightening, each species is an important part of an intricately connected biotic community. Losing a few species could trigger an “extinction domino effect” that results in ecosystem fragility and the loss of more and more species. The Endangered Species Act was designed to protect species and their ecosystems. While the Act did not contemplate cloning of endangered species, cloned animals are also protected.

The black-footed ferret (Mustela nigripes), a small mammal that historically inhabited the United States’ western mountain prairie region, is among the species listed as endangered. Black-footed ferrets were nearly wiped out entirely as a result of human efforts to kill them to ensure that prairie ranges were better suited for cattle. In fact, they were thought to be extinct until they were rediscovered and scientists captured the remaining animals for a captive breeding program.

Scientists recently announced the birth of Elizabeth Ann, a black-footed ferret who is the first clone of an endangered species indigenous to the United States. Born to a domestic ferret surrogate, she was cloned from a wild black-footed ferret named Willa who died and was frozen in 1988. After her death, Willa’s tissues were sent to a “frozen zoo” that retains genetic materials for over 1,000 species. Viagen, the company that cloned Elizabeth, also recently cloned an endangered Mongolian horse and will clone pet cats and dogs for a hefty fee of $35,000 to $50,000. Elizabeth and any future clone siblings will remain in the possession of scientists for study, with no plans for release into the wild.

The Endangered Species Act was signed into law in 1973 to protect the plant and animal species threatened with extinction in the United States. One commentator has argued that an “aggressive federal governmental policy of cloning endangered animal species would be consistent with the language and spirit of the Endangered Species Act as interpreted by the courts.” Additionally, “lack of genetic diversity in species revived in the laboratory should not preclude [Endangered Species Act] listing.” This was the case with the listing of a plant known as the Franciscan manzanita. Much like the black-footed ferret, the Franciscan manzanita was thought to be extinct until a single plant was discovered. Genetically identical clones were then propagated from cuttings from that plant.

Cloning is a cutting-edge and high-tech practice, but that does not mean that it is a panacea for species extinction concerns. Firstly, the process of cloning wild animals is successful only around 1% of the time. But the primary problem is that many species succumb to extinction due to habitat loss or fragmentation. Cloning does nothing to solve this issue, since cloned animals will still lack the habitat they need to thrive.

Further, genetic diversity is already a concern for many endangered and threatened species. Because they were nearly wiped out as a species before they rebounded in a captive breeding program, black-footed ferrets, like the one Elizabeth was cloned from, descend from seven closely related individuals. Such genetic homogeneity results in increased susceptibility to some diseases. Currently, cloning does not address this concern and may even exacerbate it, by relying on genetic material from even fewer individuals. However, some hope that manipulating the genome to improve genetic resistance is a “possibility in the future.”

While cloning may not be a complete solution to increasing species extinction, some think that it is a useful tool to address the complex problem of extinction in conjunction with other measures. Perhaps in the future, cloning can offer a high-tech option that works in concert with more established methods such as habitat restoration and conservation, captive breeding programs, and measures to address climate change.

Intellectual Property in Crisis: Does SARS-CoV-2 Warrant Waiving TRIPS?

February 21, 2021
Bioethics, Biotechnology, COVID-19, Food and Drug Law, Health, Healthcare, Intellectual Property, Patents, Regulatory

Daniel Walsh, MJLST Staffer

The SARS-CoV-2 virus (which causes the disease COVID-19) has been a massive challenge to public health causing untold human suffering. Multiple vaccines and biotechnologies have been developed to combat the virus at a record pace, enabled by innovations in biotechnology. These technologies, vaccines in particular, represent the clearest path towards ending the pandemic. Governments have invested heavily in vaccine development. In May 2020 the United States made commitments to purchase, at the time, untested vaccines. These commitments were intended to indemnify the manufacture of vaccines allowing manufacturing to begin before regulatory approval was received from the Food and Drug Administration. The United States was not alone. China and Germany, just to name two, contributed heavily to funding the development of biotechnology in response to the pandemic. It is clear that both private and public institutions contributed heavily to the speed with which biotechnology has been developed in the context of the SARS-CoV-2 pandemic. However, there are criticisms that the public-private partnerships underlying vaccine manufacturing and distribution have been opaque. The contracts between governments and manufacturers are highly secretive, and contain clauses that disadvantage the developing world, for example forbidding the donation of extra vaccine doses.

Advanced biotechnology necessarily implicates intellectual property (IP) protections. Patents are the clearest example of this. Patents protect what is colloquially thought of as inventions or technological innovations. However, other forms of IP also have their place. Computer code, for example, can be subject to copyright protection. A therapy’s brand name might be subject to a trademark. Trade secrets can be used to protect things like clinical trial data needed for regulatory approval. IP involved in the pandemic is not limited to technologies developed directly in response to the emergence of SARS-CoV-2. Moderna, for example, has a variety of patents filed prior to the pandemic that protect its SARS-CoV-2 vaccine. IP necessarily restricts access, however, and in the context of the pandemic this has garnered significant criticism. Critics have argued that IP protections should be suspended or relaxed to expand access to lifesaving biotechnology. The current iteration of this debate is not unique; there is a perennial debate about whether it should be possible to obtain IP which could restrict access to medical therapies. Many nations have exceptions that limit IP rights for things like medical procedures. See, e.g., 35 U.S.C. 287(c).

In response to these concerns the waiver of a variety of IP protections has been proposed at the World Trade Organization (WTO). In October 2020 India and South Africa filed a communication proposing “a waiver from the implementation, application and enforcement of Sections 1, 4, 5, and 7 of Part II of the TRIPS Agreement in relation to prevention, containment or treatment of COVID-19.” The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) sets minimum standards for IP standards, acquisition, and enforcement and creates an intergovernmental dispute resolution process for member states. Charles R. McManis, Intellectual Property and International Mergers and Acquisitions, 66 U. Cin. L. Rev. 1283, 1288 (1998). It is necessary to accede to TRIPS in order to join the WTO, but membership in the WTO has significant benefits, especially for developing nations. “Sections 1, 4, 5, and 7 . . .” relate to the protection of copyrights, industrial designs, patents, and trade secrets respectively. Waiver would permit nation states to provide intellectual property protections “in relation to prevention, containment or treatment of COVID-19” that fall below the minimum standard set by the TRIPs Agreement. At time of writing, 10 nations have cosponsored this proposal.

This proposal has been criticized as unnecessary. There is an argument that patents will not enter effect until after the current crisis is resolved, implying they will have no preclusive effect. However, as previously mentioned, it is a matter of fact that preexisting patents apply to therapies that are being used to treat SARS-CoV-2. Repurposing is common in the field of biotechnology where existing therapies are often repurposed or used as platforms, as is the case with mRNA vaccines. However, it is true that therapies directly developed in response to the pandemic are unlikely to be under patent protection in the near future given lag between filing for and receiving a patent. Others argue that if investors perceive biotech as an area where IP rights are likely to be undermined in the event of an emergency, it will reduce marginal investment in vaccine and biotech therapies. Finally, critics argue that the proposal ignores the existing mechanisms in the TRIPS Agreement that would allow compulsory licensing of therapies that nations feel are unavailable. Supporters of the status quo argue that voluntary licensing agreements can serve the needs of developing nations while preserving the investments in innovation made by larger economies.

The waiver sponsors respond that a wholesale waiver would permit greater flexibility in the face of the crisis, and be a more proportionate response to the scale of the emergency. They also assert that the preexisting compulsory licensing provisions are undermined by lobbying against compulsory licensing by opponents of the waiver, though it is unlikely that this lobbying would cease even if a waiver were passed. The sponsors also argue that the public investment implies that any research products are a public good and should therefore be free to the public.

It is unclear how the current debate on TRIPS will be resolved. The voluntary licensing agreements might end up abrogating the need for a wholesale waiver of IP protections in practice rendering the debate moot. However, the WTO should consider taking up the issue of IP protections in a crisis after the current emergency is over. The current debate is a reflection of a larger underlying disagreement about the terms of the TRIPS Agreement. Further, uncertainty about the status of IP rights in emergencies can dissuade investment in the same way as erosion of IP rights, implying that society may pay the costs of decreased investment without reaping any of the benefits.

 

Robinhood Changed the Game(Stop) of Modern Day Investing but Did They Go Too Far?

February 21, 2021
Antitrust, Class Action, Corporate Ethics, Economy, Financial Law, Internet, Litigation, Trade, Video Games

Amanda Erickson, MJLST Staffer

It is likely that you have heard the video game chain, GameStop, in the news more frequently than normal. GameStop is a publicly traded company that is known for selling, trading, and purchasing gaming devices and accessories. Along with many other retailers during the COVID-19 pandemic, GameStop has been struggling. Not only did COVID-19 affect its operations, but the Internet beat the company’s outdated business model. Prior to January 2021, GameStop’s stock prices reflected the apparent new reality of gaming. In March 2015, GameStop’s closing price was around $40 a share, but at the beginning of January 2021, it was at $20 a share. With a downward trend like this, it might come as a shock to learn that on January 27, 2021, GameStop’s closing price was at $347.51 a share, with the stock briefly peaking at $483 on the following day.

This dramatic surge can be accredited to a large group of amateur traders on the Reddit forum, r/WallStreetBets, who promoted investments in the stock. This sudden surge forced large scale institutional investors, who originally bet against the stock through short positions, to buy the stock in order to hedge their positions. Short selling involves “borrowing” shares of a company, and quickly selling the borrowed shares into the market. The short seller hopes that these shares will fall in price, so that they can buy the shares back at a potentially lower price. If this happens, they can return the shares back that they “borrowed” and keep the difference as profit. The practice of short selling is controversial. Short selling can lead to stock price manipulation and can generate misinformation about a company, but it can also serve to check and balance the markets. The group on Reddit knew that short sellers had positions betting against GameStop and wanted to take advantage of these positions. This caused the stock price to soar when these short sellers had to repurchase their borrowed shares.

This historic scene intrigued many day traders to participate and place bets on GameStop, and other stocks that this Reddit group was promoting. Many chose to use Robinhood, a free online trading app, to make these trades. Robinhood introduced a radical business model in 2014 by offering consumers a platform that allowed them to trade with zero commissions, and ultimately changed the way the industry operated. That is until Robinhood issued a statement on January 28, 2021 announcing that “in light of recent volatility, we restricted transactions for certain securities,” including GameStop. Later that day, Robinhood issued another statement saying it would allow limited buying of those securities starting the next day. This came as a shock to many Robinhood users, because Robinhood’s mission is to “democratize finance for all.” These events exacerbated previous questions about the profitability model of Robinhood and ultimately left many users questioning Robinhood’s mission.

The first lawsuit was filed by a Robinhood user on January 28, 2021, alleging that Robinhood blocked its users from purchasing any of GameStop’s stock “in the midst of an unprecedented stock rise thereby depriv[ing] retail investors of the ability to invest in the open-market and manipulating the open market.” Robinhood is now facing over 30 lawsuits, with that number only rising. The chaos surrounding GameStop stock has caught lawmakers’ attention, and they are now calling for congressional action. On January 29, 2021, the Securities and Exchange Commission issued a statement informing that it is “closely monitoring and evaluating the extreme price volatility of certain stocks’ trading prices” and expressed that it will “closely review actions taken by regulated entities that may disadvantage investors.” Robinhood issued another statement on January 29, 2021, stating they did not want to stop people from buying these stocks, but that they had to take these steps to conform with their regulatory capital requirements.

The frenzy has since calmed down but left many Americans with questions surrounding the legality of Robinhood’s actions. While it may seem like Robinhood went against everything the free market has to offer, legal experts disagree, and it all boils down to the contract. The Robinhood contract states “I understand Robinhood may at any time, in its sole discretion and without prior notice to Me, prohibit or restrict My ability to trade securities.” Just how broad is that discretion, though? The issue now is if Robinhood treated some users differently than others. Columbia Law School professor, Joshua Mitts, said, “when hedge funds are going to lose from a trading suspension, they don’t face any lockup like this, any suspension, any halt at the retail level, but when retail investors find themselves locked in, they find themselves unable to exit the trade.” This protective action by Robinhood directly contradicts the language in the Robinhood contract that states that the user agrees Robinhood does not “provide investment advice in connection with this Account.” The language in this contract may seem clear separately, but when examining Robinhood’s restrictions, it leaves room to question what constitutes advice when restricting retail investors’ trades.

Robinhood’s practices are now under scrutiny by retail investors who question the priority of the company. The current lawsuits against Robinhood could potentially impact how fintech companies are able to generate profits and what federal oversight they might have moving forward. This instance of confusion between retail investors and their platform choice points to the potential weaknesses in this new form of trading. While GameStop’s stock price may have declined since January 28, the events that unfolded will likely change the guidelines of retail investing in the future.

 

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