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Won't matter: a shell company can dissolve and not pay anything if they lose.
by radley 13y ago
Won't matter: a shell company can dissolve and not pay anything if they lose.
- loup-vaillant 13y agoWhat about holding the stakeholders personally responsible? Could it be done without too much side effects?
- phildini 13y agoAs soon as stakeholders are personally responsible, you suddenly have no protection afforded by the corporation. "That's Great!" you might say. "Now everyone will make more careful decisions." Except what will actually happen is people will stop forming companies, since they will be completely liable for things outside their control, like the bad decisions of others or stock market crashes or the weather. The US corporation system is by no means perfect, but the protection it allows people who are actually trying to create things (read: not patent trolls) really does foster innovation a lot of the time.
- rayiner 13y agoI've always thought the justification for corporate limited liability was even flimsier than the justification for patent protection. At least with the latter you can point to economic theory and say that patents address free rider problems. What economic theory justifies corporate limited liability? Why should anyone be insulated from any liability incurred by their profit-making activities?
- clarky07 13y agoProbably because it's unreasonable for me to lose my house to a patent troll like these guys. Taking risks is good for the economy in general. Without the LLC giving me some protection from patent trolls it'd be too risky for me to start my own business.
- arjunnarayan 13y agoBecause without limited liability there is a MUCH smaller incentive to start a company. There are plenty of good intros as to how the invention of limited liability really was the beginning of modern economic takeoff. I recommend Ascent of Money" by Niall Ferguson for a good intro.
- rayiner 13y agoSure, but why is that smaller incentive not the right amount of incentive? You can create incentives for a lot of things, but generally those are distortionary. What economic justification is there for the idea that there needs to be a bigger incentive than the market provides?
- arjunnarayan 13y agoThat's an empirical question, and deserves an empirical treatment. I cannot do that in a comment. Luckily, this question has been thoroughly investigated for almost two centuries. If you want a serious treatment, you might look to: http://www.jstor.org/stable/825483?seq=2 http://www.jstor.org/stable/825483?seq=2 http://heinonline.org/HOL/Page?handle=hein.journals/uclr52&div=10&g_sent=1&collection=journals#103 http://heinonline.org/HOL/Page?handle=hein.journals/uclr52&d... But if you want a more casual treatment that explains it (and all the associated issues like why bonds and stocks and debt contracts even exist), I really recommend The Ascent of Money by Niall Ferguson.
- harryh 13y agoLimited liability encourages risk taking which, in aggregate, appears to lead to greater overall growth.
- tptacek 13y agoLimited liability enables the sale of corporate equity. Without it, purchase of an ownership stake in a company incurs potentially unbounded downside risk. So, in addition to "encouraging entrepreneurship" (which I agree is a nebulous benefit), limited liability also helps distribute the benefits of industrial capitalism to e.g. pension funds.
- jamesaguilar 13y agoWithout limited liability, if Lodsys wins, you lose your house. That should make things clear enough.
- darkarmani 13y agoWhy wouldn't you pay for insurance to cover your liability? If you are taking on a lot of liability, then you deserve to lose your house. When you complain about how high insurance rates are (think medical malpractice), there might actually be "tort" reform against patent trolls.
- foobarbazqux 13y agoThe pessimistic view is that not needing to worry about empathy is good for making money. The optimistic view is that having what amounts to a public insurance policy baked into your economic system is good for making money. Probably both are true.
- jessaustin 13y agoWhy should anyone be insulated from any liability incurred by their profit-making activities? You do realize, that this is the primary reason that corporations are formed, at least in USA? There are good arguments for the fairly radical proposition that we should end the corporation and the role it plays in our economic system, but you should recognize the scope of the argument you're making.
- ubernostrum 13y agoThere is plenty of precedent for laws which pierce the corporate veil in case of fraud or abuse. Such laws have yet to dissuade the formation of new corporations, and there is no reason to suspect that allowing it in the case of patent trolls would result in anything other than dissuading patent trolling.
- warfangle 13y agoWhat if this style of case assessment was limited to patent cases?
- sxp 13y agoIf the company is formed purely as a shell, then the courts can target the underlying shareholders: http://en.wikipedia.org/wiki/Piercing_the_corporate_veil http://en.wikipedia.org/wiki/Piercing_the_corporate_veil
- darkarmani 13y agoAnd yet how many patent trolls are punished in this way?
- bcoates 13y agoPresumably in a loser-pays system you would be required to post a bond to sue if there was some question of your ability/willingness to pay. Besides, the ability to offload your legal exposure (as opposed to the risk for ordinary debts, where the creditors should have known what they were dealing with) onto shell companies is exaggerated.
- mcherm 13y ago> Presumably in a loser-pays system you would be required to post a bond to sue if there was some question of your ability/willingness to pay. Ah, so would the policy will be that those too poor to post a bond would not be allowed access to the courts?
- bcoates 13y agoThey already don't have access, they have to pay their half of the costs. We're talking about patent lawsuits here anyway, both parties are corporations so "poor" isn't really a meaningful concept.
- hackula1 13y agoCash flow can be a problem in small to mid-size companies.
- kamjam 13y agoNot in the UK, you may have to declare yourself bankrupt or sell your house or whatever, but nothing required up front. On the flip side, if you can't afford your defence the you can claim legal aid: https://www.gov.uk/legal-aid/overview https://www.gov.uk/legal-aid/overview
- consciousness 13y agoWelcome to America. I wish there were a better way this could be handled.
- jamespo 13y agoThat's where you need a bond paid into court