LAW AND
SOCIAL entrepreneurSHIP

PHARMACEUTICAL PUBLIC-PRIVATE PARTNERSHIPS: MOVING FROM THE BENCH TO THE BEDSIDE

From the Harvard Law Review – Volume 4, Issue 2

This article provides a game theory and law-and-management analysis of for- profit pharmaceutical public-private partnerships, a complex type of legal arrangement in the highly regulated pharmaceutical industry. A pharmaceutical public-private partnership (PPPP) agreement is a legally binding contract be- tween a private pharmaceutical enterprise and a public research university (or a private university conducting publicly funded research) to support research leading to new commercial pharmaceutical and biologic products. The key purpose of this article is to provide a theoretical explanation and a practical perspective on how properly crafted PPPP arrangements can promote innovation more efficiently than traditional self-optimizing contracts. In particular, a properly framed binding contract, coupled with respect for positive incentives, can move the parties away from an inefficient prisoners’ dilemma Nash equilibrium to the Pareto Optimal Frontier and thereby increase both the overall size of the pie and the value of the share retained by each participant. To deliver an efficient framework for collaboration, the PPPP contract must include mechanisms for encouraging cooperative behavior, leading to a win-win approach rather than a traditional competitive perspective. Thus, this article discusses how the PPPP contract should encourage the parties to collaborate with a strong focus on attaining common goals by sharing gains or losses and information, and by instituting risk and reward systems to build and share innovation. When coupled with appropriate attention to the difficult task of coordinating the actions of interdependent actors, a PPPP arrangement can enhance the likelihood of successful commercialization of pharmacological discoveries by flipping the par- ties’ incentives as compared with a more traditional contract.

Full article found here

SOCIAL ENTERPRISE INNOVATION: DELAWARE’S PUBLIC BENEFIT CORPORATION LAW

From the Harvard Law Review – Volume 4, Issue 2

Delaware has innovated in the benefit corporation area by creating its own statutory framework to compete with the Model Benefit Corporation Legislation (the “Model”), and when Delaware talks, other states listen.  This Article provides a comparative analysis of Delaware’s Public Benefit Corporation (“PBC”) law and the Model, and suggests that Delaware’s approach is superior in most areas. Despite Delaware’s superiority, this Article also calls for policymakers to consider amendments to Delaware’s PBC statute, including clarifying the priority of the specific public benefit purpose, requiring a partial-asset lock, imposing a charitable giving floor, providing more effective enforcement mechanisms, and reconfiguring the current re- porting requirements. Social enterprise legal forms are extraordinarily recent additions to the list of possible business entity types. While Delaware’s PBC law is likely to have significant influence on social enterprise statutes, continued innovation in this field, from inside and outside of Delaware, is both likely and necessary.

The full article can be found here.

 

CROWDFUNDING: THE REAL AND THE ILLUSORY EXEMPTION

From the Harvard Law Review – Volume 4, Issue 2

Crowdfunding is commonly defined as raising small amounts of capital from a large number of people over the Internet. To avoid the expense of securities regulation, companies often crowdfund by giving away rewards (such as a free t-shirt) instead of selling stock or other securities. In April 2012, Title III of the JOBS Act sought to change this status quo by directing the Securities and Ex- change Commission (SEC) to facilitate securities-based crowdfunding through websites like Kickstarter. Congress and the President believed this would broaden access to sidelined capital and help companies grow and hire. But this “retail crowdfunding” exemption, open to all investors, was not the only means of crowdfunding in the bill. A last minute compromise, which has been largely overlooked, expanded the ability of issuers to use the private placement exemption, as revised in new Rule 506(c), to crowdfund from accredited investors. This “accredited crowdfunding” exemption provides a less regulated capital-raising alternative to retail crowdfunding that is available to the same companies and more.

This article is the first to examine the impact that accredited crowdfunding will have on retail crowdfunding. It claims that accredited crowdfunding is likely to dominate and, depending on SEC action, could render retail crowdfunding superfluous or a market for lemons. But it also claims that accredited crowdfunding—when compared to traditional private placements—may face a similar lemons problem over the longer term on account of rules that discourage investors from fending for themselves. These potential problems threaten to under- mine the social welfare goals of the JOBS Act: increasing access to capital, spurring business growth, and creating jobs. But the SEC can minimize these problems and promote social welfare by strengthening the bargaining incentives of accredited investors and encouraging retail investors to piggyback off of ac- credited investors’ work. The normative section of this Article provides targeted recommendations that balance the need for capital formation against a novel incentives-based theory of investor protection.

Full article can be found here

M&A UNDER DELAWARE’S PUBLIC BENEFIT CORPORATION STATUTE: A HYPOTHETICAL TOUR

From the Harvard Law Review – Volume 4, Issue 2

Noting the enthusiastic initial response to Delaware’s 2013 public benefit corporation statute, this Article presents a series of hypotheticals as vehicles for comment on issues that are likely to arise in the context of mergers and acquisitions of public benefit corporations. The Article first examines appraisal rights, concluding that such rights will be generally available to stockholders in public benefit corporations, and noting the potential for ambiguity in defining “fair value” where the corporation’s purposes extend to public purposes as well as private profit. Next, the Article examines whether and to what extent “Revlon” duties and limitations on deal protection devices may be relaxed or modified in the context of the sale of a public benefit corporation. Finally, the Article examines whether and to what extent a commitment to promote the specified public purposes of a public benefit corporation can be made enforceable against the buyer of the corporation

Full article can be found here