Yearly Archives: 2021

Artificial Intelligence Meets Simplexity

Apr 20, 2021 Kristin HickmanAdd a Comment

Agency reliance on subregulatory guidance to advise the public is a perennial topic of discussion among regulatory practitioners and administrative law scholars. We want agencies to be forthcoming in sharing their thoughts regarding the laws that they administer, yet we fret that they rely inappropriately on subregulatory guidance to avoid their procedural responsibilities, and we struggle to balance the two.

The use of artificial intelligence in the administration of government statutes and programs is another hot topic these days, and rightly so. Optimism abounds that agencies will be able to harness the machines to make administration fairer and more efficient, yet of course we should think critically as well about the problems that relying on computer algorithms to achieve administrative ends may raise. In Automated Legal Guidance, Joshua Blank and Leigh Osofsky extend their wonderful work on “simplexity” in tax administration to put these concepts together and offer a critique of government reliance on artificial intelligence to provide guidance to the public.

As Blank and Osofsky explained a few years ago in another article, Simplexity: Plain Language and the Tax Law, “simplexity occurs when the government presents clear and simple explanations of the law without highlighting its underlying complexity or reducing this complexity through formal legal changes.” As they documented, IRS publications routinely translate complicated tax concepts into plain language to make those concepts more accessible to the general public. The problem with this exercise is that it “(1) present[s] contested tax law as clear tax rules, (2) add[s] administrative gloss to the tax law, and (3) fail[s] to fully explain the tax law, including possible exceptions.” In short, there is a trade-off between linguistic simplicity and accuracy. That trade-off does not always favor taxpayers, and it can result in inequitable treatment of different types of taxpayers.

The simplexity concept is by no means unique to tax. Many agencies publish guidance that aims to simplify complicated statutory and regulatory concepts for general audiences. In Automated Legal Guidance, Blank and Osofsky extend their simplexity critique to guidance from other agencies, and particularly guidance that is automated. Their examples include the U.S. Citizenship and Immigration Services virtual assistant “Emma” as well as the “MISSI” system used by the Mississippi state government to help people determine which state agency or service might be able to help them with particular problems. Their primary focus, however, is the IRS’s Interactive Tax Assistant (ITA), described by the IRS as “a tax law resource that takes you through a series of questions and provides you with responses to tax law questions” and that “can determine if a type of income is taxable, if you’re eligible to claim certain credits, and if you can deduct expenses on your tax return.” Suffering from deep budget cuts, the IRS has cut back on access to human beings to provide the public with tax assistance in favor of steering them to ITA.

Using a series of basic tax hypotheticals, Blank and Osofsky tested the accuracy and biases of ITA’s answers. Some answers were consistent with a more sophisticated reading of the tax laws. Other answers deviated from tax law requirements and were taxpayer-favorable in doing so, which at first blush might seem like a good thing but also could subject taxpayers who followed ITA’s advice to IRS enforcement. Still other answers were inconsistent with tax law requirements in ways that would deprive taxpayers of benefits to which they were entitled.

Blank and Osofsky acknowledge that ITA is superior to static written guidance in many ways. ITA is more personalized than written guidance and provides answers to questions that are at least clear, if infected by simplexity. ITA often is a quicker way to get answers than reading through written guidance. Nevertheless, ITA—and other automated guidance—can be improved, and those who promote the use of artificial intelligence in government administration would be wise to heed the suggestions that Blank and Osofsky advocate. The most obvious is simply to be cognizant of the tradeoffs inherent in simplexity. With that, government officials also should be aware of their audience and ensure that they “more accurately target the right legal dictates to the right people in the right situations” by adjusting the programming accordingly.

Blank and Osofsky also approach the issue of simplexity in automated guidance from the perspective of administrative law doctrine. They conclude, probably rightly, that the guidance provided by ITA is not legislative but interpretative in character, and thus not subject to notice-and-comment rulemaking procedures. On the other hand, they note that “the automated nature of systems like ITA seem to exacerbate problems already endemic to the administrative guidance.” Accordingly, they suggest “some form of centralized oversight, review, and public comment, regardless of whether such automated guidance is classified as a legislative rule.” Recognizing that noncompliance with subregulatory guidance in the tax context can lead to the assessment of penalties for tax underpayments, they argue that taxpayers ought to be able to rely on guidance from ITA as a defense against such penalties. Finally, they suggest that, as automated legal guidance evolves, agencies ought to figure out how to reduce its reliance on simplexity.

In a world in which government agencies are expected to do more and more with less and less, artificial intelligence holds great promise for the efficient administration of complicated statutory and regulatory schemes. Optimism in this regard should not blind us, however, to the tradeoffs and drawbacks of this turn to automation. Drawing from the tax system, with which millions of ordinary people interact regularly, Blank and Osofsky tell an important cautionary tale for those of us who care about the efficacy and legitimacy of administrative governance.

Illuminating The Problems of Electricity Regulation

Mar 30, 2021 Miriam SeifterAdd a Comment

Energy law today should be everyone’s concern, and especially the concern of administrative law scholars. Scientists report that we are in a climate emergency. Policymakers agree that the electricity sector will be vital to the clean energy transition. A functional electric grid is also a public good that cannot be taken for granted, as the recent disaster in Texas underscores. State and federal agencies, in partnership with their sibling branches, will play a pivotal role in administering the energy solutions the nation adopts. It is an administrative law problem for the ages.

Yet the field of energy law can be an impenetrable slog (I say this as a once and future teacher of the class). Really grappling with energy administration requires excavating dense layers of complex science and technology, unusual regulatory structures, and endless insiders’ terminology to reveal the important problems that lie beneath. Professor Shelley Welton is here to help. In a series of articles, she has elegantly translated the core dilemmas of the clean energy transition. Problems that seemed hyper-technical emerge as familiar administrative law issues of accountability, institutional design, and allocations of power among public and private entities. I’ll focus on one article, Rethinking Grid Governance for the Climate Change Era, but I recommend the entire series, available on SSRN.

If you’re new to the administrative law of energy, here’s something you might not know: for roughly 2/3 of the country’s population, key decisions regarding electric power rest not with a state or federal agency, but with privatized administrators known as Regional Transmission Organizations or Independent System Operators (RTOs for short). As Welton describes them, RTOs are “private membership clubs in which incumbent industry members make the rules for electricity markets and the electricity grid through private mini-democracies—with voting privileges reserved for RTO members.” They also have an important public dimension: FERC incentivized and guided their creation, effectively bestowing them with power to file “tariffs” (energy law speak for rate schedules and related rules and policies), subject only to deferential FERC review pursuant to the Federal Power Act.

Welton’s core argument is that to make needed climate progress, it’s time to rethink RTOs’ structure and role in our electricity system. States around the country are increasingly adopting bold clean-energy mandates, but RTOs are standing in the way—yet escaping public scrutiny. Once brought to light, she argues, RTOs’ shortcomings are best understood as a product of their flawed design. Their structure and incentives enable protectionism by powerful fossil-fuel incumbents in energy markets, and that’s what has happened. We need a new model.

Administrative law scholars will find much to admire in Welton’s reconstruction of how RTOs came about. She traces their emergence as a product of the late 1990s intellectual milieu in regulatory governance: a focus on “new governance” and privatized strategies that would allow government to run more “like a business.” Early on in their existence, RTOs did very technical work akin to traffic direction, such that privatization seemed sensible. But over time, RTOs have gained responsibilities and real clout, transforming from “policy takers” to “policy makers.” Every RTO now runs (and sets the rules of) a set of electricity markets—markets where generators sell and utilities buy electricity for a region before eventually selling it to end users. RTOs have also expanded into transmission planning and transmission cost allocation. Still more, several RTOs now control “resource adequacy,” the question whether a region has enough capacity to meet projected demand; through capacity auctions, RTOs determine which energy resources will be financed in that region. In short, in much of the country, RTOs can shape the electric grid’s sources (renewable or not), capacity (how much), and payment (to whom and how much). Given this influence, Welton explains that “if the United States is to have any chance at decarbonizing at the rate necessary to avoid catastrophic climate change, then RTOs must play a pivotal role.”

The problem is that RTOs haven’t been cooperative in aiding decarbonization. Welton describes them as “inveterate stallers when it comes to integrating new resources that would improve their markets but threaten incumbents’ bottom line,” and “aggressive and misguided” in impeding market competition by renewables. These delays and obstructions are highly consequential, effectively blocking the clean energy transition. Yet RTOs have escaped sustained criticism, much less reform. Welton suspects this is partly because “these topics are so complicated that they confound efforts at media attention or civic engagement.” Read a few of the documents and filings that she brings to life in this article, and I’m confident you’ll agree.

Welton’s intervention is a direct response to this problem of unaccountability-through-complexity. She makes the underlying energy concepts clear and accessible. Take her explanation of how some RTOs have resisted the integration of renewable resources in their markets. One would be forgiven for staring blankly when an RTO asserts that “the market participation of resources that receive ‘state support’ results in ‘price suppression and thus negatively impact[s] the market’s ability to retain and justly compensate needed existing resources and to attract new, competitively compensated resources.’” But Welton breaks it down. “In plainer speak, natural gas generators are worried that the entry of substantial renewable resources into the market might lower prices enough to drive fossil fuel competitors out of business, or halt future construction of fossil fuel-fired generation.” And “[c]uriously,” she observes, these RTOs define “state support” to include only state policies that promote clean energy, not longstanding subsidies for fossil fuels. Yet these RTOs explain their renewables-resistance only using “vague worries about ‘market integrity’ or ‘investor confidence.’” (To those excuses, Welton chides: “there is no reason that fossil fuel generators should be confident when building new, polluting generation for states that do not want it or need it.”) The narrative of incumbent protectionism becomes easy to grasp. It turns out that energy law is full of familiar administrative law stories once we can see the field clearly.

So what went wrong, in terms of regulatory design? Welton takes this up in Part IV of the article. Here she goes further than many commentators on privatized governance structures, who cast privatization as offering the benefits of increased efficacy and efficiency, to be weighed against the costs of decreased accountability. That’s too generous here, Welton opines. “RTOs’ membership-club format has not led to entrepreneurial efficiency,” she argues—it has done the opposite, allowing the energy haves to “block cost-reducing reforms.” Most impressively, Welton dissects internal RTO governance (famous for its opacity) to show why these failures shouldn’t be that surprising. For example, RTOs supposedly use a sort of internal checks-and-balances model of weighted voting, in which the demand and supply sectors of the market have voting power that could offset the other. But that’s no check at all because, as Welton explains, both of those sectors prefer to build more traditional electricity infrastructure rather than support a shift to renewables. Only consumers and their designated advocates are “natural watchdog[s] against overbuilding,” but they have negligible voting power. As a result, reforms that would help consumers (and the planet) “often wither and die in committee.”

Welton concludes by proposing four solutions that might contribute to a new model of administering the electricity system. First, FERC could pare back RTOs’ authority, reverting them “to a more basic set of functions.” Second, FERC might accept RTOs’ expansive duties but increase public oversight and control accordingly. For example, FERC might require RTOs to give greater say (or even veto power) to the states in which they operate; FERC itself might use what power it has left (after judicial rulings narrowly construing its authority) to step in; or Congress might increase FERC’s oversight authority. Third, either FERC or Congress could take steps to alter underlying power dynamics by limiting utility power or scrutinizing the effect of corporate mergers on the electricity system. Finally, and most radically, FERC or Congress might drive a transition to either public ownership or public control of the grid, a model used in other nations.

In the end, Welton’s article is a twofold achievement. It is an expertly told excavation of a pressing policy problem—to which solutions “must be calculated, swift, and decisive if the United States is to achieve anything close to the clean energy transition demanded by atmospheric physics.” It is also an ingenious analysis of how institutional design choices, and especially choices regarding the structure of privatization, drive administrative performance. Welton connects the history of RTOs to trends in regulatory thought and links RTOs’ future to efforts to reclaim the concept of “public utility”—the storied and reemerging idea that concentrated corporate power might be steered toward the public interest. That effort may be promising in a variety of sectors today. But Welton’s closing pitch is that none is more important than the electricity sector, “which will either embrace the existential challenge of climate change or take us all down with it.”

Patent Fake News

Feb 22, 2021 Jack BeermannAdd a Comment

Complaints about the patent system are legion. Critics complain that it is too easy to get a patent, that it is too easy to challenge an existing patent, that many patent denials are rationally inexplicable, that aggressive enforcement of patents stifles innovation, that patent trolls abuse the system to extort money from innocent users of widespread technology, and that inventors leverage modest modifications of existing patents to extend the patent period beyond intended legislative limits. While Janet Freilich’s forthcoming article, Ignoring Information Quality, may not reveal the root of all patent evil, it illuminates an important problem in the U.S. patent system, namely that patent examiners rely on low quality information to make their ever-important decisions on patentability. This, according to Professor Freilich, leads examiners to grant patents based on dubious claims that undercut, rather than further, patent law’s purpose of encouraging useful innovation and to reject deserving patents based on an incorrect understanding of background information.

The attentive reader may wonder why this is an administrative law jot rather than an intellectual property one. The answer is simple—the Patent and Trademark Office (PTO), the agency that grants patents, is an administrative agency, and thus Professor Freilich’s article is a case study in the importance of high quality information across the spectrum of administrative law. Information quality problems like those that plague the patent system exist in many corners of administrative law where sensible policy decisions and predictions are possible only in light of high quality information. Professor Freilich’s paper shines a light on a problem in the patent system that is similar to problems that have been noticed in administrative rulemaking, where mountains of comments may overwhelm the capacity of agencies to separate the wheat from the chaff and in adjudications where subjects of administrative action in areas such as immigration enforcement may lack the capacity or knowledge to gather and present the facts relevant to their cases.

Through careful examination of numerous patent files and caselaw on patent validity, Professor Freilich illustrates that patent examiners are not “digging” (her word) into the quality of evidence that is key to whether an invention is patentable. This is because, as courts have acknowledged, examiners lack the capacity to do the scientific work that would be necessary to evaluate the information. Patents may be granted or denied based on a cursory look at information that, with appropriate inquiry, would be revealed to support the opposite conclusion. Freilich contends, quite persuasively, that examiners’ “failure to evaluate evidence . . . permeates every aspect of examiner behavior.” If true, and Freilich’s article seems to establish that it is true, what we have is an unreliable administrative system for making highly consequential determinations, something administrative law should not tolerate.

Even more startling, in my view, is Professor Freilich’s analysis of the PTO’s policies which seem to guarantee that patent awards will be based on low quality, biased information. One key element of patentability is that an invention must be “useful.” PTO rules tell examiners that ordinarily they should accept an applicant’s assertion that their invention is useful and should only “rarely” request additional evidence. Even further, the PTO’s rules specify that the claim that an invention is useful should be rejected mainly only when the claim violates a scientific principle. Professor Freilich summarizes this as a requirement that examiners “accept the applicant’s stated utility unless it is utterly impossible.” This extreme standard does not inspire confidence in the accuracy of patent determinations.

Professor Freilich supports her claim that examiners rarely inquire into the quality of the information contained in the patent application with research that indicates that when examiners reject patent applications, it is always because a required piece of information is absent, not because the information provided is of insufficient quality. This is a disturbing finding because patentability depends on the accuracy of the information provided by the applicant, not merely whether the applicant has completed all of the required sections of the application.

Professor Freilich proposes to address the pervasive problem of low quality information in the patent system in a number of ways, all of which could be applied across a wide spectrum of information-dependent administrative proceedings. Professor Freilich’s first, quite simple, proposal is to require applicants to provide scientific corroboration for their conclusory statements on the elements of patentability, such as lab notebooks, copies of scientific analyses and physical models, or detailed drawings. She also suggests that all parties to patent applications, including inventors and their attorneys, should be held rigorously to a duty of disclosure to the PTO, with penalties such as additional scrutiny applied to applicants and their agents who do not disclose all relevant information in a useful format. Finally, she observes briefly that automation in the form of artificial intelligence may be useful tools for improving PTO performance.

Another of Professor Freilich’s proposals raises a central issue in administrative law—deference. In light of the generally low quality of information underlying many patents, she proposes that courts should no longer presume that patents are valid, at least not with regard to those elements that are fact-dependent. In her view, the patent process should be viewed more like a registration system than an examination system. In this light, courts would presume only that the PTO’s formal requirements have been satisfied, while leaving the substantive question of patentability open to non-deferential judicial determination. Professor Freilich recognizes that post hoc judicial determination is far from ideal, preferring her proposed internal reforms, but she recognizes that until the PTO starts performing more reliably, it may be the only alternative.

Professor Freilich’s article should be of interest to two groups of scholars, most obviously patent scholars but more broadly administrative law scholars looking to broaden their perspective into agencies that are rarely considered in the general study of administrative law. We have seen in recent decades a judicial broadening of the scope of general principles of administrative law to agencies that previously seemed to function in their own, isolated, spheres. Perhaps the PTO will be next.

Defending “Universal Vacatur” — Nationwide Injunctions for Administrative Law Nuts

Jan 19, 2021 Michael E HerzAdd a Comment

The nationwide injunction has seized the imagination of courts and law professors in recent years. Not surprisingly, JOTWELL’s pages screens have given it extensive attention. Recent jots have described important work by Samuel Bray (twice), Amanda Frost (also twice), Russell Weaver, and Alan Trammell that attacks, defends, or theorizes nationwide (or “universal”) injunctions. Jack Beermann, in praising Bray and Frost, did have one complaint: “As an administrative law nut, I wish they both grappled more with the meaning of the APA’s instruction that reviewing courts should ‘hold unlawful and set aside’ unlawful agency action.” Mila Sohoni has now filled that void. Sohoni convincingly shows that there just can be no question that in the Administrative Procedure Act Congress authorized—indeed, indicated a preference for and established a presumption in favor of—nationwide relief when a court finds a regulation defective. When APA § 706(2) authorizes a reviewing court to “set aside” an agency rule, it means exactly that.

In 2018, Attorney General Jeff Sessions distributed Litigation Guidelines instructing civil litigators in the Department of Justice (DOJ) to oppose universal injunctions always and everywhere. The memo’s seven sections gave seven reasons why such relief was beyond the pale, including the assertion that it was unconstitutional. Section VII was headed: “In APA Cases: Universal Vacatur is not Contemplated by the APA.” Sohoni’s article resoundingly contradicts this assertion.

The term “universal vacatur,” used by DOJ and adopted by Sohoni, is a neologism. No court has ever used it, and a Westlaw search of the secondary legal literature reveals only two usages: one in the current article and the other an article by . . . Mila Sohoni. When a court finds an agency regulation unlawful, the order typically “vacates” the rule; that action is “vacatur.” There is some dispute about whether and when a court can or should remand a defective rule to an agency without vacating it—a practice the Administrative Conference of the U.S. has endorsed though only in limited circumstances—which is known as “remand without vacatur.” But there has not been any disagreement about what “vacate” means in this setting: to “vacate” a rule or portion thereof means to set it aside or to invalidate it, period. Therefore “universal vacatur” at least borders on redundancy. Still, Sohoni adopts the term, explaining that while it “is relatively unfamiliar (and perhaps a bit loaded), it does crisply capture the concept of setting aside a rule not just as to the plaintiffs, but as to anyone.” Let it be some solace to DOJ that it has won the (terminological) battle even though it has lost the (substantive) war.

Sohoni begins by situating universal vacatur within the administrative law context. Challenges to statutes often arise in the context of the application of the statute to a particular person; to grant the litigating party relief does not require “setting aside” the statute universally. Challenges to regulations can arise in that setting, as, for example, when an entity challenges the validity of a regulation as a defense in an enforcement action. When that happens, the obvious and often sufficient relief is to block application of the regulation to the party. But the APA also authorizes a direct challenge to a regulation. Post Abbott Labs, that is the norm. And it does so through language that directly authorizes courts to consider the validity of the rule itself, not the validity of its application in particular circumstances. Accordingly, preconceptions about universal relief appropriate to challenges to statutes have to be left at the door.

With that groundwork laid, the article is a familiar and convincing exercise in statutory interpretation.

With regard to text, the APA’s grant of authority to “set aside” a regulation reads naturally as authorizing universal vacatur. The obvious synonym, or definition, Sohoni says, is “invalidate.” What else could “set aside” mean? DOJ does not deny that “set aside” means “set aside.” Instead, it contends that the thing that courts are authorized to set aside is not the regulation itself but only its application to the party challenging it. As Sohoni explains, that is a bizarre way of understanding the standard pre-enforcement challenge to an agency regulation.

Sohoni also offers a lengthy examination of equitable remedies against agencies in the pre-APA period, demonstrating that what we would today call a nationwide or universal injunction was well-established by 1946, so there is no reason not to take the text to mean what it says. The provenance of the phrase “set aside” is not completely clear, but she offers one compelling nugget from the 1941 Attorney General’s Report, which noted that a “judgment adverse to a regulation results in setting it aside” (emphasis added). That sure sounds like it is the regulation, not its application, that is invalidated. The direct legislative history from Congress’s drafting and consideration of the Act five years later is thin on this point, so Sohoni has little to say about it, but she does draw some supportive inferences from the history of § 705, regarding stays during litigation. (Sections 705 and 706 are mutually supportive; if a court can grant universal vacatur under the latter, it surely can grant a nationwide injunction against the enforcement pending litigation under the former, and vice versa.)

Finally, Sohoni describes the consistent post-1946 understanding (at least consistent until the recent brouhaha) that courts that set aside a regulation under § 706 have authority to grant relief in the form of universal vacatur.

This article is not and does not purport to be the last word on the nationwide injunction debate. (Of course, the last word is unlikely ever to be uttered, though the Supreme Court may weigh in this Term.) Larger constitutional issues loom in the background, and Sohoni perhaps brushes them off a little quickly. But The Power to Vacate a Rule is the definitive statement on the statutory issue of the legitimacy of universal relief in challenges to regulations under the APA.