A Law and Economics Perspective on Injunctive Relief
| Author | Anthony Ogus,Louis Visscher |
| DOI | 10.1177/1023263X1001700103 |
| Date | 01 March 2010 |
| Published date | 01 March 2010 |
| Subject Matter | Article |
32 17 MJ 1 (2010)
A LAW AND ECONOMICS PERSPECTIVE
ON INJUNCTIVE RELIEF
A O and L V*
AB STRAC T
e Law and Economics perspective on injunctive relief has been developed primarily from
the Calabresi and Melamed (1972) distinction betwe en property rule s and liability rul es,
two dierent judicial means of enforcing legal rights. eir analysis is predicated on the
assumption that, if the prevention of the unlawfu l activity by an injunction does not reach
an ecient solution between the relevant parties, then the latter can modify the te rms
of the injunction by means of bilateral negotiation, drawing on Coase’s basic analysis.
e approach is particularly important once it is appreci ated that l egal entitlements
are imperfectly formulated and that, in approp riate circumstances, legal wrongdoing
can inc rease social welfare. For e xample, in areas where intellectual proper ty rights are
particularly dicult to formulate because of the high technology involved, too rigid an
enforcement of those imperfec tly targeted rights generates welfare losses.
e task for economic analysis is then to d etermine whether injunctive relief or damages
is preferable in the particular circumstances governing the parties’ activitie s. is largely
involves comparing on the one hand the welfare losses which arise from imperfect damages
awards which arise predominantly where the court has high informat ion costs in assessing
the plainti’s losse s (particularly where those losses are subjec tive and therefore cannot be
determined b y reference to market evaluation) or include irrecove rable third-party losses
with, on the other han d, the transaction costs of negotiating a compromise solution or
the welfare losses arising from a holdo ut (both conditions are likely where more than two
parties are involved).
One branch of the literature has added a new dimension to this analysis. It is concerned to
explore how the choice of remedy ex post aects behaviour ex a n t e , i n p a r t i c u l a r t h e p r o p e n s i t y
to invest. In addition, literature on optimal enforcement provid es insights regarding the
optimal timing of sanction s, which is relevant for the choice between injunctions (the rst
possible stage of legal intervent ion) and damages (the last possible stage).
* Anthony Og us is Era smus Professor of Fundamenta ls of Pri vate Law and Louis Vi sscher is a ssociate
professor of law and econom ics, both at Erasmus Scho ol of Law (Rotterdam, the Net herlands).
A Law and Economics Per spective on Injuncti ve Relief
17 MJ 1 (2010) 33
Keywords: E conomic analysis of law; property rules and liabilit y rules; ex ante versus ex
post analysis; opti mal enforcement; timing of sanctions; negotiated releas e
§1. INTRODUCTION: SOME BASIC ECONOMIC
EXPLANATIONS FOR INJUNCTIONS
According to the classical lega l literature,1 the principa l ground for preferring an
injunction to dama ges as a remedy for tort ious liabilit y is summed up in the phr ase
‘inadequacy of damages’. ‘Inade quacy’ here has dierent connotations: most usually it
reects the corrective justice idea that the object of a tortious remedy is to make the injured
plainti whole; and if damages c an do this only very imperfectly then an injunction
should be ordered (assum ing that it is a continuing tort and that it is practic able in the
circumstances). A second pos sibility assumes a more public policy role for tort law.
e a rgument then is that certain forms of wrongdoing are so ha rmful, either to the
individual victim or to soc iety more generally, that t he law should prevent them, if it is
possible: hence an injunction, rather t han damages.
At a simple level, economic reasoning can assis t in ex plaining t hese two ideas. As
regards the rst, compensator y, objective, it is important to recogni ze the dierence
between ‘wealt h’ and ‘utilit y’. e va lue of an asset, and therefore of a lega l right, to its
owner is the utility which is conferred on that person. Although it is possible to translate
utility into wealth, by reference to the amount for which the indiv idual is willing to
sell the ass et (or r ight), that amount is only known to t hat person and c annot easily
be ascert ained by a t hird party, such as a judge tr ying to estim ate the value of an asset
for the purposes of a damages award.2 Assessment for the purposes of damages is
generally done by reference to the asset’s market value, since this can normally be readily
observed. Economists refer to the dierence between the market v alue and the personal
subjective value as the ‘consumer surplus’.3 Where, in a given action, the consumer
surplus is signicantly hig h, the problem for t he court in attributing a monet ary value
to it may, t hen, justify ordering an injunction. is line of reasoning does not hold for
assets for which there is a well functioning ma rket available on which perfect substitutes
are avai lable. Aer a ll, the consumer surplus t hat was acqu ired by the destroyed asset
can again be acquired by the substitute. Hence, g ranting damages which enable the
1 See e.g. Injuncti ons and Specic Performance (3rd ed , Canada Law Book Inc, Toronto, 1992), looselea f
§7–1.
2 We leave aside the debate whether ‘willi ngness to pay’ (when acquiring a right) or ‘willingness to accept’
(when selling a r ight) is the better mea sure to determine t he value of a right to a per son. Given that we
are deal ing in thi s paper with t he protection of a right that a person alre ady has, the above-described
willi ngness to accept seems the more appropriate me asure. e important issue for ou r argume nt is
that this w illingness i s only subjectively know n. at same problem holds for the w illingness t o pay.
3 See e.g. Harr is et al, ‘Contrac t Remedies and t he Consumer Surp lus’, 95 Law Quarterly R eview (1979),
p. 581–610 at 582 et seq.
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