Thursday, January 22, 2009

Randomness and the Law

Posted by Jeff Lipshaw

There seems to be an industry right now in popularizing (for the New York Times crowd at least) the Tversky and Kahneman insights on human judgment under conditions of uncertainty.  Nassim Nicholas Taleb goes at it from the standpoint of financial markets in The Black Swan and Fooled by Randomness, and science writer Leonard Mlodinow (of Feynman's Rainbow fame) has a go in The Drunkard's Walk.  The gist of all of it is that there is a lot more randomness in what we come to interpret after the fact as great feats of skills or stupidity.  I'm having a harder time warming up to Taleb (here's a guy who takes himself pretty seriously!), but what I recall most about Mlodinow in Feynman was his engaging insecurity about living up to his appointment to the Cal Tech faculty.

Mlodinow's opening set of examples includes the game of studio executives picking Hollywood winners.  He cites Sherry Lansing, the Paramount chief, who had a great run with Forrest Gump, Braveheart, and Titanic, but then backed a string of losers and got fired.  The point is we find it pretty easy after the fact to attribute success or failure to specific causes, but (a) it's a hell of a lot harder to say the decisions were wrong at the time they were made, and (b) our after-the-fact intuitions about what caused what don't bear a lot of relationship to the actual probabilities of the events occurring.  In the long run we all regress to the mean, whatever the mean is. 

Is George Soros a financial genius?  Well, he came up trumps on one big bet.  So did Mark Cuban.  Can we really explain who gets hired and who doesn't at the AALS meat market?  Certainly there are ways to make yourself more saleable, but at a certain point, it's a crap shoot. 

Here's a thesis I've been circling around for a while:  everything about scientific jurisprudence wants to identify cause-and-effect.  Whether it's identifying the proximate cause for purpose of tort liability, or linking up future disputes to present contract provisions for the purpose of avoiding the disputes, what we do as lawyers is link up events in the world by way of a set of rules, axioms, conditions, statutes, principles, etc.  Niklas Luhmann said, in so many words, the legal system depends on an illusion, at least within legal system, that there is something called justice, even though anybody looking at it from the outside can see it's just a lot of people using those rules, axioms, conditions, statutes, and principles to further their self-interested ends.  The system would break down if the illusion of justice were exploded.  Justice is another way of describing in word a counterfactual world in which the randomness of "is" has given way to the order of somebody's "ought."  So, for example, some lawyers argue that what they write in contracts (and how courts deal with them) has something to do with entrepreneurial success; others wonder whether maybe it's 49% perspiration, 1% inspiration, and 50% dumb luck.  How many law professors are willing to take the position that much of what lawyers do (at least in the forward-looking business world, rather than the backward-looking litigation world) is swept away in the tsunami of randomness of real-world outcomes?

An example below the fold. 

We had litigation that went to trial over whether another company was infringing our patent.  The other company counterclaimed that the patent was invalid.  We picked as our trial lawyer somebody who by all accounts was the best patent trial lawyer in the country.  Indeed, he had won seven or eight straight jury verdicts.  We made the usual array of strategic and tactical litigation decisions.  Here's the outcome as reported in part by Bruce Rubenstein in the May, 2001 issue of Corporate Legal Times:

The jury upheld the validity of Great Lakes' patent. It awarded Great Lakes $1.04 million in damages for the two years during which Clariant stipulated to infringing the patent. Great Lakes had asked for $9 million in damages for lost profits and an additional $1 million for price erosion due to competition.

It also ruled against Clariant's claim that it hadn't violated U.S. patent law when it shipped nelfinavir into the United States.

The jury decided that the process Clariant has used since 1998 does not infringe the patent. Thus, it can continue to manufacture and sell tic-D in competition with Great Lakes.

"This vindicates the position we took throughout the litigation, that the process the company has used since late 1998 is a different process that does not infringe," says Murphy. "In fact, it's a better process for making both tic-D and nelfinavir."

Not so, according to Jeffrey M. Lipshaw, senior vice president, general counsel and secretary of Great Lakes. Lipshaw observes that Clariant stipulated to infringement.

"I don't know how you can call that a vindication," he says. "Indeed, they were found to be patent infringers, and we were awarded damages. We won on validity, and we won on the issue of whether what they did with our chemical when they made it into a drug changed it materially. It did not. The only issue they won on was their contention that, after infringing for two years, the tweaks they made to the process took them outside the scope of the patent."

Unfortunately, of course, that last issue was the difference between $1 million and $9 million plus an injunction, so you can decide for yourself if it was a win or a loss, given what it costs to take a major patent case to trial.  The question is:  should I have been blaming myself as much as I did?  Or was I just being a lawyer?

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