Empirical Legal Studies

Judicial Outcomes, "Industry Peer" Stock Ownership, and Recusal

While research on "outside" influences on judicial decisions is relatively well-developed, much of that research dwells on various political influences (judge political ideology, etc.). Comparatively less well-developed is the possibility that judges' stock holdings influence their decisions in cases that involve corporate parties from "industry-peer" firms. While recusal doctrine (and practices and norms) are designed to guard against direct judicial financial conflicts of interests, indirect financial conflicts, by contrast, fall outside of formal recusal boundaries. And one example of an "indirect" financial conflict includes when a presiding judge has a financial stake in a litigant's "industry peer."

Barriers to data access are among the reasons that account for a deficit in research on this topic. In Stock Ownership of Federal Judges and its Impact on Corporations, April Knill (Fl. St.--Business) et al., explore this question after cobbling together data from an array of sources. The key move on the data front involved matching, at the individual case-level, presiding judges and their financial holdings. The authors "manually download 21,044 individual financial disclosures from JudicialWatch.org file by file... . This process results in a sample comprising 11,447 unique reports for federal judges in the years 2007 – 2012.” And within their sample, the authors report that the sample contains "observations from 69,060 federal district court cases.… Judges own industry peer stock in 8.6% of the cases in our sample.”

It is worth underscoring that in these instances the presiding judges did not violate any formal recusal obligations as the possible conflicts of interests flowing from their "industry peer" stock holdings are indirect. That said, the paper's core results imply that judges are "being influenced by their stock ownership in industry peer firms of litigants – a practice that is completely legitimate – in cases over which they preside." The paper's abstract follows.

“This paper investigates whether and how litigant peer stock ownership by federal district judges affects characteristics of case outcomes for large corporate litigants. We find that industry-peer stock ownership by district judges is associated with the following outcomes for corporate litigants named in their assigned cases: 1) an increased likelihood of judgments for the corporate litigants, 2) a decrease in the amount received by the parties suing these corporate litigants, and 3) a decrease in the length of the litigation proceedings. The random assignment of district judges to cases provides exogenous variation in the judge stock ownership. We further identify the association outlined in our base results by examining appellate court reversals of district judgments, a triple difference analysis isolating large-stake investments, and outcomes in case types that should impact industries either cooperatively or competitively. Our results survive a falsification test as well as a battery of robustness tests. Our findings underscore the importance of mandates governing judge stock ownership, and more broadly, judge conflicts of interest.”

Mistaking Correlation for Causation

Economists--and econometrics--have been involved in empirical legal studies for generations. This is particularly true for anti-trust doctrine, both its development and current application. Legal challenges to proposed mergers, and questions relating to anti-competitive spill-over effects, including market concentration, remain a staple for empirical analyses.

In the anti-trust context, one intuitive move involves assessing whether "prices are positively related to measures of concentration, such as the Herfindahl-Hirschman Index (HHI), comparing across different geographic markets or time periods." Pursuing such a question can involve (and frequently does involve) something as simple (and potentially powerful) as regressing price on the HHI.

Despite whatever intuitive appeal such a move holds, in a recent brief essay--co-signed by many leading law and economics scholars (including, and I add in interest of full disclosure, my Cornell colleague George Hay), On the Misuse of Regressions of Price on the HHI in Merger Review, the authors caution against such a move as it invites one basic fundamental problem: Mistaking correlation for causation. And it is for the essay's description of just how such a basic mistake can arise (rather than it's specific application in the anti-trust context) that I recommend this essay, especially to younger, developing empirical legal scholars.

As it relates to the specific anti-trust point developed in the essay, the authors' argue that: "The underlying problem with regressions of price on the HHI is that the relationship between price and the HHI is not causal. Instead, both are equilibrium outcomes that are determined by demand, supply, and the factors that drive them. Thus, a regression of price on the HHI does not show the sort of causal effect that would be helpful in predicting the competitive effects of a merger." More specifically, as the "HHI can take values ranging from 0 to 10,000, with the former corresponding to a fragmented market with infinitesimal firms, and the latter to monopoly. All else equal, a decrease in the number of firms leads to a higher HHI. However, the HHI can increase if, for a given number of firms, the market shares of the larger firms increase."

The root problem, of course, flows from challenges posed by “endogeneity” or “simultaneity.” Such problems lurk "when a clear causal path between two variables is posited by the relevant economic theory but the causal factor (on the right side of the regression equation) is either correlated with unobserved factors or, more subtly, is simultaneously determined by the variables (in this case, price) on the left side of the regression. A famous example of simultaneity involves price and quantity, which are simultaneously determined in the classic economic model of supply and demand." The problems posed by "endogeneity” or “simultaneity," of course, are not limited to the anti-trust realm. An excerpted abstract follows.

"It might seem natural to determine whether prices are positively related to measures of concentration, such as the Herfindahl-Hirschman Index (HHI), comparing across different geographic markets or time periods. This might be implemented by using a simple regression of price on the HHI. However, for reasons that we describe, regressions of price on the HHI should not be interpreted as establishing causation. That is, they do not inform how a change in concentration from a merger would affect prices. Courts and other policy-makers should not rely on regressions of price on the HHI for the purposes of antitrust merger review."

An Empirical Assessment of What "Substantial Similiarity" Means to Courts in Copyright Litigation

Judicial assessments of copyright infringement claims remain dominated by the two-prong "substantial similarity" test. Despite this test's centrality to copyright doctrine, very little is known about how courts operationalize and apply it. In a recent paper, An Empirical Study of Copyright's Substantial Similarity Test, Clark Asay (BYU) seeks to sketch some of the test's general empirical contours. To do so, the paper, drawing from the universe of substantial similarity opinions (found on WestLaw), exploits a random sample of 1,005 opinions (district and appellate) between 1978 and 2020.

The study's key findings intrigue. First, and unsurprising to most practitioners in this space, the Second and Ninth Circuits dominate this litigation. Second, judicial analyses on the substantial similarity test tend to dwell on the second prong with comparably less judicial attention to the first. Third, judicial analyses focusing on prong two--assessing whether the defendant’s copying amounts to improper appropriation--evidence a wide diversity of approaches. As Asay notes, "[n]o dominant means exists for resolving this question, and, in any given opinion, a court typically uses multiple subtests and copyright limitations to decide this inquiry."

The paper concludes by recommending: "First, courts should maintain the two traditional prongs of the substantial similarity test as distinct and reinvigorate their assessments of similarity under the first prong of the substantial similarity test. Second, courts should make discussing and applying any relevant copyright limitations the heart of their prong two analyses to ensure that copyright law serves its constitutional purposes."

Defendant-Prosecutor Gender "Pairings" and Leniency

While various pockets on criminal law are increasingly subject to empirical analyses, one particular pocket--how prosecutors distribute discretion--is comparatively under-studied. This is so, partly, due to a comparative paucity of relevant data on the prosecutors themselves (and matching them to individual cases and dispositions). A recent paper, Gender Favoritism Among Criminal Prosecutors, by Stephanie Holmes Didwania (Wisc.), tries move the scholarly needle a bit by exploiting data on over 130,000 federal criminal defendants sentenced in 2002 through 2016 to assess possible "gender-based differences in how prosecutors exercise critical discretion."

The paper matches Sentencing Commission data and data from the Executive Office for United States Attorneys (EOUSA) which regularly publishes case data from the 93 USAOs located throughout the United States. Critically, the breadth of the LIONS data "is substantial—the data covers all cases in which a USAO was involved, including those cases that are the primary responsibility of another agency and those the USAO declines to prosecute." Despite its breath, the LIONS data set is not without important limitations including a comparatively non-trivial amount of missing data. After matching, the resultant data set data includes "131,207 federal criminal defendants sentenced between 2001 and 2016 in 63 of the 94 federal district courts."

Data set limitations aside, the paper's core finding intrigues: "That defendants receive more lenient charges when they match with their prosecutor on gender relative to when they are assigned a prosecutor of the opposite gender. Through this charging channel, prosecutor-defendant pairs that match on gender produce lower sentences relative to prosecutor-defendant pairs that mismatch." More specifically, "the leniency associated with gender-matching ultimately translates into significantly lower sentences: a defendant can expect to earn a roughly five-month shorter sentence when their prosecutor is their own gender compared to when their prosecutor is the opposite gender, which represents a roughly eight percent reduction in sentence length at the mean." The paper's abstract follows.

"Prosecutors enjoy wide discretion in the decisions they make but are largely unstudied by quantitative empirical scholars. This paper explores gender bias in prosecutorial decision-making. I find that male and female prosecutors exhibit small and statistically insignificant differences in their treatment of defendants overall but demonstrate relative leniency towards defendants of their own gender. Such favoritism at charging translates into a sentencing gap of roughly five months of incarceration for defendants who are paired with an own-gender prosecutor versus an opposite-gender prosecutor, which represents a roughly eight percent reduction in sentence length at the mean. The estimates do not appear to be driven by differences in case assignments for male and female prosecutors."