Monday, February 22, 2021

Yelderman on Damages for Privileged Harm

Stephen Yelderman has published an article titled Damages for Privileged Harm, 106 Va. L. Rev. 1569 (2020).  Here is a link to the paper, and here is the abstract:  

The law often permits us to impose substantial harm on others without incurring liability. Once liability is triggered, compensatory damages require a defendant to pay for the harm caused by his wrongful conduct. Calculating these damages requires consideration of the harm that the defendant could have caused without incurring liability in the first place. This harm is “privileged,” in the sense that the defendant would have been free to impose it in a counterfactual universe in which he complied with the substantive law. Having transgressed that law, he is responsible for damages. But the question is whether these damages should be reduced to account for the harm he could have imposed without owing damages at all.

The treatment of privileged harm is fundamental to the calculation of compensatory damages. Nonetheless, it has received little scholarly attention and has been the subject of conflicting decisions in the courts. In some areas of law, damages are routinely reduced to account for privileged harm; in others, this credit is given only sporadically, or not at all. Critically, there is not yet any sound theoretical explanation for why the rule ought to be different in one set of cases than another.

This Article begins by exploring the effects of crediting or not crediting privileged harm. It then relates the treatment of privileged harm to several well-known questions of remedial design. Finally, it proposes several general principles that a court or policymaker might follow in determining whether to reduce damages to account for privileged harm.

This is a really interesting and thought-provoking article, which I first read in draft nearly two years ago.  Professor Yelderman illustrates his thesis, that the law sometimes takes "privileged harm" into account when awarding damages, and sometimes doesn't, with examples drawn from several bodies of law, including patents.  In U.S. patent law, for example, when considering whether to award lost profits courts take into account whether a defendant could have caused the same harm to the patent owner by substituting a noninfringing alternative for the patented technology.  Professor Yelderman argues (and I agree) that in the IP context this makes sense, since IP rights themselves "are a tailored exception to a general policy of free competition" (p.1602).  (I might also add that if courts didn't take noninfringing alternatives into account, the result might be that the patentee is overcompensated in comparison with its contribution to the art.)  In some other contexts, by contrast, courts don't reduce damages even when the defendant could have caused the same harm lawfully, and this reluctance may be justified because (among other possibilities) the amount of privileged harm is predictably low, or because plaintiffs otherwise would be left with no remedy  or defendants inadequately deterred.  Highly recommended.  

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