Essay

Judicial Review of Emergency Powers in Banking and Financial Regulation

Banking and finance are arcane industries that often elude popular understanding, so courts, Congress, and the American public have largely delegated their regulation to federal agencies with considerable decision-making autonomy, affecting trillions of public and private dollars. Some regulatory powers, however, have the potential to destabilize the financial system. Yet for forty years, courts deferred to these agencies under the Chevron doctrine.

Over the past three years, the Supreme Court of the United States has generally curtailed the administrative state’s role in policy-making by overturning Chevron and enunciating the major questions doctrine. Deference to agencies plays a special role in banking and financial regulation as open-ended emergency provisions facilitate crisis response. But on several occasions since the 2008 financial crisis, agencies have misused these powers by invoking them routinely or when an emergency is not really afoot. If these regulators “cry wolf” too often, they create perverse incentives that heighten the risk of financial turmoil.

This Essay argues that the Court’s recent skepticism toward the administrative state is a positive development for banking and financial regulation. While courts should not totally abrogate regulatory discretion in this field of law, a stronger threat of judicial review could encourage agencies to reserve emergency powers for genuine crises. This will deter them from “crying wolf” to abuse their emergency powers, promote stability and transparency in regulatory decision-making, and better prepare the country for future financial crises.

Introduction

“Let us control the money of a country and we care not who makes its laws.”1 1.Investigation of the Money Trust: Hearings on H.R. 314 and H.R. 356 Before the H. Comm. on Rules, 62d Cong. 40 (1912) (statement of Mr. T. Cushing Daniel, author of “Daniel on Real Money”). The maxim is frequently—probably apocryphally—attributed to Mayer Amschel Rothschild (1744–1812), founder of the Rothschild banking dynasty. Id. But its sentiment—that money is more powerful than even law itself—rings true today. In 2011, just shy of one hundred years since it was spoken in a congressional hearing on regulating Wall Street, see id., a variation of the maxim appeared scrawled on a cardboard sign at the Occupy Wall Street protest. Photograph of Cardboard Sign (OWS_190b), in N.Y. Hist. Soc’y Shelby White & Leon Levy Digit. Libr., Occupy Wall Street Signs and Posters (2011), https://digitalc‌ollections.nyhistory.org/islandora/object/nyhs%3A169816 [https://perma.cc/NQA6-DRBT]. ↑Show More

The Roberts Court’s scrutiny of the administrative state escalated in June 2024 when it overturned the forty-year-old doctrine of Chevron deference2 2.Amy Howe, Supreme Court Strikes Down Chevron, Curtailing Power of Federal Agencies, SCOTUSblog (June 28, 2024, 12:37 PM), https://www.scotusblog.com/2024/06/su‌preme-court-strikes-down-chevron-curtailing-power-of-federal-agencies/ [https://perma.cc/Y‌UF7-FASL]. “Chevron deference” refers to the Supreme Court’s 1984 decision to defer to agencies’ interpretations of ambiguous statutes. Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984), overruled by Loper Bright Enters. v. Raimondo, 144 S. Ct. 2244 (2024). Some commentators predict the Court may soon go further in this direction by holding that broad delegations to agencies are altogether unconstitutional. Cydney Posner, Will SCOTUS Revive the Nondelegation Doctrine?, Harv. L. Sch. F. on Corp. Governance (Dec. 19, 2024), https://corpgov.law.harvard.edu/2024/12/19/will-scotus-revive-the-nondeleg‌ation-doctrine/ [https://perma.cc/RU5U-UQX7].Show Morein Loper Bright Enterprises v. Raimondo.3 3.Loper Bright, 144 S. Ct. 2244.Show MoreThis decision reaffirmed the Court’s skeptical stance on executive agencies in line with its decisions in Biden v. Nebraska4 4.143 S. Ct. 2355, 2368 (2023) (characterizing the Secretary of Education’s interpretation of the HEROES Act as an attempt to “rewrite that statute from the ground up”).Show Morein 2023 and West Virginia v. EPA5 5.142 S. Ct. 2587, 2614 (2022) (rejecting the Environmental Protection Agency’s “newly uncovered” interpretation that would have “conveniently enabled it to enact a program” that Congress had rejected).Show Morethe year before. Many legal commentators join Justice Kagan, who wrote a foreboding dissent in Loper Bright, in predicting that Chevron’s overturn will disrupt the legal system for the worse.6 6.See, e.g., Michael M. Epstein, Agency Deference After Loper: Expertise as a Casualty of a War Against the “Administrative State,” 89 Brook. L. Rev. 871 (2024); see also Loper Bright, 144 S. Ct. at 2295 (Kagan, J., dissenting) (“In one fell swoop, the majority today gives itself exclusive power over every open issue—no matter how expertise-driven or policy-laden—involving the meaning of regulatory law.”).Show MoreAnd they may well be right. But for at least one area of the law—banking and financial regulation—Chevron’s demise is a positive development.7 7.For an argument that Chevron helped cause the 2008 financial crisis by letting regulators expand “the business of banking,” see Todd Phillips, Chevron and Banking Law: What’s Good for the Goose Isn’t Good for the Gander, Yale J. on Regul.: Notice & Comment (May 2, 2024), https://www.yalejreg.com/nc/chevron-and-banking-law-whats-good-for-the-goose-isnt-good‌-for-the-gander/ [https://perma.cc/G7KN-PJJW].Show More

Principal regulators in this field include the Federal Reserve (“Fed”), the Federal Deposit Insurance Corporation (“FDIC” or “Corporation”), and the Financial Stability Oversight Council (“FSOC” or “Council”). Congress granted these agencies elaborate statutory mandates aimed at safeguarding the stability of the United States financial system. Since the 2008 financial crisis, however, regulators have exploited broad provisions buried in these mandates to take risky and unprecedented action. But the Supreme Court’s new stance on the administrative state may halt that trend.

This Essay argues that stronger judicial review of banking and financial regulators will make the financial system sounder by encouraging wiser use of regulatory tools. Part I discusses why excessive agency involvement poses risks to the financial system, primarily by creating moral hazard. Part II covers three statutory provisions regulators questionably invoked during and after the 2008 financial crisis to justify more frequent intervention. Part III examines some judicial levers the Supreme Court has pulled to limit agency discretion in other contexts, and it predicts how and when the Court may use them to check banking and financial regulators in the future.

  1.  Investigation of the Money Trust: Hearings on H.R. 314 and H.R. 356 Before the H. Comm. on Rules, 62d Cong. 40 (1912) (statement of Mr. T. Cushing Daniel, author of “Daniel on Real Money”). The maxim is frequently—probably apocryphally—attributed to Mayer Amschel Rothschild (1744–1812), founder of the Rothschild banking dynasty. Id. But its sentiment—that money is more powerful than even law itself—rings true today. In 2011, just shy of one hundred years since it was spoken in a congressional hearing on regulating Wall Street, see id., a variation of the maxim appeared scrawled on a cardboard sign at the Occupy Wall Street protest. Photograph of Cardboard Sign (OWS_190b), in N.Y. Hist. Soc’y Shelby White & Leon Levy Digit. Libr., Occupy Wall Street Signs and Posters (2011), https://digitalc‌ollections.nyhistory.org/islandora/object/nyhs%3A169816 [https://perma.cc/NQA6-DRBT]. ↑
  2.  Amy Howe, Supreme Court Strikes Down Chevron, Curtailing Power of Federal Agencies, SCOTUSblog (June 28, 2024, 12:37 PM), https://www.scotusblog.com/2024/06/su‌preme-court-strikes-down-chevron-curtailing-power-of-federal-agencies/ [https://perma.cc/Y‌UF7-FASL]. “Chevron deference” refers to the Supreme Court’s 1984 decision to defer to agencies’ interpretations of ambiguous statutes. Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984), overruled by Loper Bright Enters. v. Raimondo, 144 S. Ct. 2244 (2024). Some commentators predict the Court may soon go further in this direction by holding that broad delegations to agencies are altogether unconstitutional. Cydney Posner, Will SCOTUS Revive the Nondelegation Doctrine?, Harv. L. Sch. F. on Corp. Governance (Dec. 19, 2024), https://corpgov.law.harvard.edu/2024/12/19/will-scotus-revive-the-nondeleg‌ation-doctrine/ [https://perma.cc/RU5U-UQX7]. ↑
  3.  Loper Bright, 144 S. Ct. 2244. ↑
  4.  143 S. Ct. 2355, 2368 (2023) (characterizing the Secretary of Education’s interpretation of the HEROES Act as an attempt to “rewrite that statute from the ground up”). ↑
  5.  142 S. Ct. 2587, 2614 (2022) (rejecting the Environmental Protection Agency’s “newly uncovered” interpretation that would have “conveniently enabled it to enact a program” that Congress had rejected). ↑
  6.  See, e.g., Michael M. Epstein, Agency Deference After Loper: Expertise as a Casualty of a War Against the “Administrative State,” 89 Brook. L. Rev. 871 (2024); see also Loper Bright, 144 S. Ct. at 2295 (Kagan, J., dissenting) (“In one fell swoop, the majority today gives itself exclusive power over every open issue—no matter how expertise-driven or policy-laden—involving the meaning of regulatory law.”). ↑

  7.  For an argument that Chevron helped cause the 2008 financial crisis by letting regulators expand “the business of banking,” see Todd Phillips, Chevron and Banking Law: What’s Good for the Goose Isn’t Good for the Gander, Yale J. on Regul.: Notice & Comment (May 2, 2024), https://www.yalejreg.com/nc/chevron-and-banking-law-whats-good-for-the-goose-isnt-good‌-for-the-gander/ [https://perma.cc/G7KN-PJJW]. ↑

Victory: How a Lawyer, a Minister, and Twenty Professional Football Players Helped End Segregation in Virginia and Professional Sports

Introduction

As Chapman Law Dean Matthew Parlow has noted, “[a]thletes in professional sports have long sought to use their platforms as celebrities to bring greater societal awareness to issues of social justice and racial inequality.”1 1.Matthew J. Parlow, Racial Protest and Racial Progress in Professional Sports, 31 S. Cal. Rev. L. & Soc. Just. 239, 253 (2022).Show MoreOne of the clearest examples is the 2020 NBA player boycott following the shooting death of Jacob Blake by police in Kenosha, Wisconsin, a boycott that spread to several other professional sports organizations.2 2.Id. at 242–43; Marc Stein, Led by N.B.A., Boycotts Disrupt Pro Sports in Wake of Blake Shooting, N.Y. Times (Sept. 4, 2020), https://www.nytimes.com/2020/08/26/sports/basketba‌ll/nba-boycott-bucks-magic-blake-shooting.html.Show MoreMultiple media outlets covering the 2020 boycott referenced an event that garnered national attention in October 1961, when several members of the Boston Celtics and St. Louis Hawks refused to play in a preseason NBA game in response to discrimination in a hotel in Lexington, Kentucky.3 3.See, e.g., Des Bieler, Bill Russell Led an NBA Boycott in 1961. Now He’s Saluting Others for “Getting in Good Trouble,” Wash. Post (Aug. 27, 2020), https://www.washingtonpost.co‌m/sports/2020/08/27/bill-russell-nba-boycott/.Show MoreSome of the stories referred to this incident as the first professional athlete boycott related to a civil rights issue.4 4.Dustin Jones, As a Racial Justice Activist, NBA Great Bill Russell Was a Legend Off the Court, NPR (Aug. 21, 2022, 5:00 AM), https://www.npr.org/2022/08/01/1114795613/racial-j‌ustice-pioneer-nba-bill-russell [https://perma.cc/E3TX-99XE]; Darren Hartwell, Bill Russell’s Civil Rights Legacy Rivals His On-Court Accolades, NBC Sports Bos. (Feb. 7, 2023, 8:51 AM), https://www.nbcsportsboston.com/nba/boston-celtics/bill-russells-civil-righ‌ts-legacy-rivals-his-on-court-accolades/284760/ [https://perma.cc/3KSD-V3CU].Show More

Just two months earlier, however, another group of professional athletes—this time, a group of football players—had agreed to boycott a professional athletic event in protest of racial discrimination in Roanoke, Virginia. The athletes did so at the behest of a local minister, who was a prominent civil rights activist. At the same time, a local civil rights lawyer was pursuing litigation to challenge the discrimination at issue, specifically enforcement of a Virginia law that prohibited integrated seating at public events, including professional sporting events. But that summer, the lawyer, the minister, and twenty football players would use a preseason NFL game to bring attention to the injustice of Virginia’s law and challenge its constitutionality. In the process, they would play an important role in helping to end segregationist practices in the NFL, establishing precedent for future racial protests by professional athletes and helping to bring about an end to Virginia’s discriminatory law.

This Essay tells the story of this largely forgotten event from the summer of 1961. The event represents a success story in the history of the civil right movement and illustrates how both legal and extra-legal methods were necessary to achieve the goals of the movement.5 5.See William P. Quigley, Ten Ways of Looking at Movement Lawyering, 5 How. Hum. & C.R.L. Rev. 23, 34 (2020) (stating that social justice lawyers “are always part of a team that mostly includes non-lawyers” and rejecting the assertion “that lawyers led and shaped the civil rights movement”).Show MoreMuch of the focus on how the civil rights movement brought about change in the law focuses on the role that lawyers played.6 6.See generally Jack Greenberg, Crusaders in the Courts: How a Dedicated Band of Lawyers Fought for the Civil Rights Revolution (1994) (chronicling the history of the NAACP Legal Defense Fund during the civil rights movement).Show MoreBut the history of civil rights advancement is a history not just of how lawyers helped change the law and society, but how non-lawyer organizers and activists were equal partners in the undertaking.7 7.See Tomiko Brown-Nagin, Elites, Social Movements, and the Law: The Case of Affirmative Action, 105 Colum. L. Rev. 1436, 1522–23 (2005) (“[T]he moral suasion of participatory democratic groups of nonlawyers, and typically nonelites, was integral to law’s movement from a Jim Crow regime to a constitutional order in which formal equality was the norm.”). See generally Jennifer Gordon, The Lawyer Is Not the Protagonist: Community Campaigns, Law, and Social Change, 95 Calif. L. Rev. 2133 (2007) (describing the role of lawyers in supporting community-led campaigns for justice); Ascanio Piomelli, Appreciating Collaborative Lawyering, 6 Clinical L. Rev. 427 (2000) (advocating for an approach of collaborative lawyering).Show More

This Essay focuses on how the lawyer at the center of the boycott in Roanoke, along with those who came before and after him, used the legal process to help change the law as well as societal norms regarding racial segregation. At the same time, the Essay explores how the non-lawyers involved in this episode played a vital and complementary role in the desegregation effort. In short, the Essay explores how Virginia’s segregation laws were toppled through a combination of legal action and activism. Most importantly, the Essay memorializes the forgotten role that these individuals played in helping to desegregate professional sports and in laying the foundation for future protests by professional athletes.

  1.  Matthew J. Parlow, Racial Protest and Racial Progress in Professional Sports, 31 S. Cal. Rev. L. & Soc. Just. 239, 253 (2022). ↑
  2.  Id. at 242–43; Marc Stein, Led by N.B.A., Boycotts Disrupt Pro Sports in Wake of Blake Shooting, N.Y. Times (Sept. 4, 2020), https://www.nytimes.com/2020/08/26/sports/basketba‌ll/nba-boycott-bucks-magic-blake-shooting.html. ↑
  3.  See, e.g., Des Bieler, Bill Russell Led an NBA Boycott in 1961. Now He’s Saluting Others for “Getting in Good Trouble,” Wash. Post (Aug. 27, 2020), https://www.washingtonpost.co‌m/sports/2020/08/27/bill-russell-nba-boycott/. ↑
  4.  Dustin Jones, As a Racial Justice Activist, NBA Great Bill Russell Was a Legend Off the Court, NPR (Aug. 21, 2022, 5:00 AM), https://www.npr.org/2022/08/01/1114795613/racial-j‌ustice-pioneer-nba-bill-russell [https://perma.cc/E3TX-99XE]; Darren Hartwell, Bill Russell’s Civil Rights Legacy Rivals His On-Court Accolades, NBC Sports Bos. (Feb. 7, 2023, 8:51 AM), https://www.nbcsportsboston.com/nba/boston-celtics/bill-russells-civil-righ‌ts-legacy-rivals-his-on-court-accolades/284760/ [https://perma.cc/3KSD-V3CU]. ↑
  5.  See William P. Quigley, Ten Ways of Looking at Movement Lawyering, 5 How. Hum. & C.R.L. Rev. 23, 34 (2020) (stating that social justice lawyers “are always part of a team that mostly includes non-lawyers” and rejecting the assertion “that lawyers led and shaped the civil rights movement”). ↑
  6.  See generally Jack Greenberg, Crusaders in the Courts: How a Dedicated Band of Lawyers Fought for the Civil Rights Revolution (1994) (chronicling the history of the NAACP Legal Defense Fund during the civil rights movement). ↑

  7.  See Tomiko Brown-Nagin, Elites, Social Movements, and the Law: The Case of Affirmative Action, 105 Colum. L. Rev. 1436, 1522–23 (2005) (“[T]he moral suasion of participatory democratic groups of nonlawyers, and typically nonelites, was integral to law’s movement from a Jim Crow regime to a constitutional order in which formal equality was the norm.”). See generally Jennifer Gordon, The Lawyer Is Not the Protagonist: Community Campaigns, Law, and Social Change, 95 Calif. L. Rev. 2133 (2007) (describing the role of lawyers in supporting community-led campaigns for justice); Ascanio Piomelli, Appreciating Collaborative Lawyering, 6 Clinical L. Rev. 427 (2000) (advocating for an approach of collaborative lawyering). ↑

Consent and Compensation: Resolving Generative AI’s Copyright Crisis

Generative artificial intelligence (AI) has the potential to augment and democratize creativity. However, it is undermining the knowledge ecosystem that now sustains it. Generative AI may unfairly compete with authors, journalists, and other creative workers, displacing them in the market. Most AI firms are not compensating creative workers for composing the songs, drawing the images, and writing both the fiction and nonfiction books that their models need in order to function. AI thus threatens not only to undermine the livelihoods of authors, artists, and other creatives, but also to destabilize the very knowledge ecosystem it relies on.

Alarmed by these developments, many copyright owners have objected to the use of their works by AI providers. In order to recognize and empower their demands to stop nonconsensual use of their works, we propose a streamlined opt-out mechanism that would require AI providers to remove objectors’ works from their databases once copyright infringement has been documented. Those who do not object still deserve compensation for the use of their work by AI providers. We thus also propose a levy on AI providers, to be distributed to the copyright owners whose work they use without a license. This scheme is designed to ensure that creatives receive a fair share of the economic bounty arising out of their contributions to AI. Together, these mechanisms of consent and compensation would result in a new grand bargain between copyright owners and AI firms, helping to ensure the long-term viability of both AI and the human thought and expression it depends on.

Introduction

From the printing press to the Internet, technological advance has profoundly changed the way authors create, disseminate, and monetize their works.1 1.See generally Adrian Johns, Piracy: The Intellectual Property Wars from Gutenberg to Gates(2009) (discussing the history of copyright piracy).Show More Widespread access to the Internet has caused book, music, and film creators great economic setbacks via piracy, but has also created new opportunities, particularly for “long tail” creators shunned by dominant recording companies and broadcasters.2 2.See Chris Anderson, The Long Tail, Wired (Oct. 1, 2004, 12:00 PM), https://www.wired.‌com/2004/10/tail [https://perma.cc/P9QQ-MPTG].Show More Despite the upheaval, human authors have remained indispensable in the creation of works, as pirates do not create original content.

The rise of generative artificial intelligence (AI), however, represents an inflection point.3 3.Generative AI’s power to create exact replicas of existing works, and to imitate many characteristic elements of existing works, has provoked a wave of lawsuits over the past two years. However, copyright controversies over the training of AI antedate the rise of generative AI. To mark the relevance of that past work, and the continuity of the problems likely to be raised by AI when the next generation of AI arises, we refer to “AI” throughout the Essay, rather than the more cumbersome “generative AI” or “GenAI.”Show More AI can plagiarize at a far faster rate than human copyists.4 4.Kate Knibbs, Scammy AI-Generated Book Rewrites Are Flooding Amazon, Wired (Jan. 10, 2024, 7:00 AM), https://www.wired.com/story/scammy-ai-generated-books-flooding-am‌azon/ [https://perma.cc/4R7G-LXFU].Show More These capacities are menacing both fiction and nonfiction book authors, as well as journalists.5 5.Our focus in this Essay is on corporations developing, marketing, and selling AI services. The legislative approaches developed in this Essay may, in a calibrated fashion, adjust duties of AI providers to reflect their size, for-profit or nonprofit status, and other factors.Show More AI can also create new works that closely resemble the style and content of existing ones. When prompted skillfully, large language models (LLMs) aid in the rapid creation of a high volume of content. The bottom line is an “existential crisis” for many creatives, threatening to drive the marginal value of their labor below subsistence levels as cheap AI content displaces human works.6 6.See Michael Cavna, Artists Are Alarmed by AI—and They’re Fighting Back, Wash. Post (Feb. 14, 2023, 6:00 AM), https://www.washingtonpost.com/comics/2023/02/14/ai-in-illustra‌tion/ [https://perma.cc/4RFW-5FX3] (describing “an existential threat to the livelihood of artists”). Throughout this Essay, we will refer to artists, writers, journalists, and other creators of expressive works as “creatives” or “copyright owners.” We realize these terms may be too capacious: some expressive work only takes a minimal amount of creativity, and many creatives have transferred their copyrights to others in exchange for compensation. Nevertheless, copyright is premised on some minimal level of creativity, and the future compensation of creatives who plan to alienate their copyrights is at least in part premised on the value of those copyrights to those seeking them. Thus the terms capture enough of social and economic reality to be useful here.Show More

Given the enthusiasm for AI evident among so many owners of dominant content distribution platforms, such a displacement may already be underway.7 7.Edward Zitron, Are We Watching the Internet Die?, Where’s Your Ed At? (Mar. 11, 2024), https://www.wheresyoured.at/are-we-watching-the-internet-die/ [https://perma.cc/PZC5-H9‌FF] (recognizing that because “platforms were built to reward scale and volume far more often than quality,” creatives who use AI enjoy important advantages over those who do not).Show More To create and improve their AI models, large technology firms have undermined authors’ proprietary control over their works by using these works as training data, without consent and often through opaque processes.8 8.See infra Section I.B.Show More At the same time, AI systems like ChatGPT and MidJourney can rapidly generate a wide variety of content, potentially outperforming humans in the marketplace of ideas—particularly when so many of this marketplace’s main organizers such as Alphabet (Google’s parent company), X (formerly Twitter), and Meta (formerly Facebook) are themselves developing AI.9 9.See Thomas H. Davenport & Nitin Mittal, How Generative AI Is Changing Creative Work, Harv. Bus. Rev. (Nov. 14, 2022), https://hbr.org/2022/11/how-generative-ai-is-changing-crea‌tive-work [https://perma.cc/SK98-ZE5T].Show More

To compound these challenges, leading firms in the AI space are unlikely to offer compensation for the vital contributions of copyrighted works to their systems. In 2023, this state of affairs helped lead to an unprecedented 148-day strike by Hollywood screenwriters.10 10.Ben Schwartz, AI and the Hollywood Writers’ Strike, Nation (May 8, 2023), https://www.‌thenation.com/article/economy/ai-and-the-hollywood-writers-strike [https://perma.cc/8TJR-ZBUC]; Jennifer Maas, The Writers Strike Is Over: WGA Votes to Lift Strike Order After 148 Days, Variety (Sept. 26, 2023, 5:07 PM), https://variety.com/2023/tv/news/writers-strike-over-wga-votes-end-work-stoppage-1235735512/ [https://perma.cc/F5P7-QEWF].Show More Book authors are also alarmed. Over 15,000 writers, including prominent novelists such as Dan Brown, Suzanne Collins, and Margaret Atwood, have endorsed an open letter demanding fair compensation, credit, and author consent for the use of their works in AI systems.11 11.Open Letter to Generative AI Leaders, Action Network, https://actionnetwork.org/petitio‌ns/authors-guild-open-letter-to-generative-ai-leaders [https://perma.cc/8D5W-WGFL] (last visited Mar. 3, 2024).Show More At least one former executive in an AI firm has resigned his position, considering the unlicensed use of music as training data both ethically and legally untenable.12 12.Kate Knibbs, This Tech Exec Quit His Job to Fight Generative AI’s Original Sin, Wired (Jan. 17, 2024, 4:44 PM), https://www.wired.com/story/ai-executive-ed-newton-rex-turns-cru‌sader-stand-up-for-artists [https://perma.cc/97NE-H4Y7].Show More This struggle has resulted in numerous courtroom battles over copyright infringement, too.13 13.Complaint at 2–3, Basbanes v. Microsoft Corp., No. 24-cv-00084 (S.D.N.Y. Jan. 5, 2024); Complaint at 2–4, N.Y. Times Co. v. Microsoft Corp., No. 23-cv-11195 (S.D.N.Y. Dec. 27, 2023); Generative AI-Intellectual Property Cases and Policy Tracker, Mishcon de Reya LLP, https://www.mishcon.com/generative-ai-intellectual-property-cases-and-policy-tr‌acker [https://perma.cc/7RHU-3PG2] (last visited Mar. 3, 2024).Show More AI firms claim that they are protected by the fair use defense,14 14.Mark A. Lemley & Bryan Casey, Fair Learning, 99 Tex. L. Rev. 743, 748 (2021) (arguing that “a [machine learning] system’s use of the data often is transformative as that term has come to be understood in copyright law, because even though it doesn’t change the underlying work, it changes the purpose for which the work is used”).Show More but application of the doctrine is notoriously uncertain, particularly with respect to new technologies.15 15.Katherine Lee, A. Feder Cooper & James Grimmelmann, Talkin’ ‘Bout AI Generation: Copyright and the Generative-AI Supply Chain, 71 J. Copyright Soc’y (forthcoming 2024) (manuscript at 105), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4523551 [https://pe‌rma.cc/Z3C7-PJWJ] (“[F]air use is famously case-specific, so no ex ante analysis can anticipate all of the relevant issues.”).Show More

This litigation may drag on for years, slowing the development of AI while denying or delaying fair compensation to creatives. The situation strikes many policymakers as deeply unfair and undesirable. As the Communications and Digital Committee of the United Kingdom’s House of Lords has concluded, “[w]e do not believe it is fair for tech firms to use rightsholder data for commercial purposes without permission or compensation, and to gain vast financial rewards in the process.”16 16.Commc’ns & Digit. Comm., Large Language Models and Generative AI, 2023-24, HL 54, ¶ 245 (UK).Show More A legislative solution is desirable, and there is a venerable tradition of actual and proposed solutions to the copyright problems created by new technological uses of works.17 17.See William W. Fisher III, Promises to Keep: Technology, Law, and the Future of Entertainment 1–22 (2004).Show More

To guide policymakers, this Essay outlines a promising framework for a legislative solution premised on coupling mechanisms of control (via opt-out rights) and compensation (via a levy to be imposed on AI providers by a central authority and then distributed to owners of works used by those AI providers without a license). These mechanisms could first be imposed on the largest AI providers and then expanded as appropriate once standardized. Part I explains the urgency of this proposal by demonstrating that free expropriation of copyrighted works by AI providers not only devalues human creativity, but also threatens to undermine AI itself by eliminating critical incentives for the ongoing creation of works necessary for further technological development. Part II outlines an opt-out mechanism, permitting creatives to forbid nonconsensual use of their works for training AI models after documenting copyright infringement. Part III addresses the proper level of levies necessary to compensate those who do not choose to opt out or license their works to AI providers. Part IV anticipates and responds to objections to our proposal. This Essay concludes by reflecting on the broader policy implications of our proposal.

  1.  See generally Adrian Johns, Piracy: The Intellectual Property Wars from Gutenberg to Gates

    (2009) (discussing the history of copyright piracy). ↑

  2.  See Chris Anderson, The Long Tail, Wired (Oct. 1, 2004, 12:00 PM), https://www.wired.‌com/2004/10/tail [https://perma.cc/P9QQ-MPTG]. ↑
  3.  Generative AI’s power to create exact replicas of existing works, and to imitate many characteristic elements of existing works, has provoked a wave of lawsuits over the past two years. However, copyright controversies over the training of AI antedate the rise of generative AI. To mark the relevance of that past work, and the continuity of the problems likely to be raised by AI when the next generation of AI arises, we refer to “AI” throughout the Essay, rather than the more cumbersome “generative AI” or “GenAI.” ↑
  4.  Kate Knibbs, Scammy AI-Generated Book Rewrites Are Flooding Amazon, Wired (Jan. 10, 2024, 7:00 AM), https://www.wired.com/story/scammy-ai-generated-books-flooding-am‌azon/ [https://perma.cc/4R7G-LXFU]. ↑
  5.  Our focus in this Essay is on corporations developing, marketing, and selling AI services. The legislative approaches developed in this Essay may, in a calibrated fashion, adjust duties of AI providers to reflect their size, for-profit or nonprofit status, and other factors. ↑
  6.  See Michael Cavna, Artists Are Alarmed by AI—and They’re Fighting Back, Wash. Post
    (

    Feb. 14, 2023, 6:00 AM), https://www.washingtonpost.com/comics/2023/02/14/ai-in-illustra‌tion/ [https://perma.cc/4RFW-5FX3] (describing “an existential threat to the livelihood of artists”). Throughout this Essay, we will refer to artists, writers, journalists, and other creators of expressive works as “creatives” or “copyright owners.” We realize these terms may be too capacious: some expressive work only takes a minimal amount of creativity, and many creatives have transferred their copyrights to others in exchange for compensation. Nevertheless, copyright is premised on some minimal level of creativity, and the future compensation of creatives who plan to alienate their copyrights is at least in part premised on the value of those copyrights to those seeking them. Thus the terms capture enough of social and economic reality to be useful here. ↑

  7.  Edward Zitron, Are We Watching the Internet Die?, Where’s Your Ed At? (Mar. 11, 2024), https://www.wheresyoured.at/are-we-watching-the-internet-die/ [https://perma.cc/PZC5-H9‌FF] (recognizing that because “platforms were built to reward scale and volume far more often than quality,” creatives who use AI enjoy important advantages over those who do not). ↑
  8.  See infra Section I.B. ↑
  9.  See Thomas H. Davenport & Nitin Mittal, How Generative AI Is Changing Creative Work, Harv. Bus. Rev. (Nov. 14, 2022), https://hbr.org/2022/11/how-generative-ai-is-changing-crea‌tive-work [https://perma.cc/SK98-ZE5T]. ↑
  10.  Ben Schwartz, AI and the Hollywood Writers’ Strike, Nation (May 8, 2023), https://www.‌thenation.com/article/economy/ai-and-the-hollywood-writers-strike [https://perma.cc/8TJR-ZBUC]; Jennifer Maas, The Writers Strike Is Over: WGA Votes to Lift Strike Order After 148 Days, Variety (Sept. 26, 2023, 5:07 PM), https://variety.com/2023/tv/news/writers-strike-over-wga-votes-end-work-stoppage-1235735512/ [https://perma.cc/F5P7-QEWF]. ↑
  11.  Open Letter to Generative AI Leaders, Action Network, https://actionnetwork.org/petitio‌ns/authors-guild-open-letter-to-generative-ai-leaders [https://perma.cc/8D5W-WGFL] (last visited Mar. 3, 2024). ↑
  12.  Kate Knibbs, This Tech Exec Quit His Job to Fight Generative AI’s Original Sin, Wired
    (

    Jan. 17, 2024, 4:44 PM), https://www.wired.com/story/ai-executive-ed-newton-rex-turns-cru‌sader-stand-up-for-artists [https://perma.cc/97NE-H4Y7]. ↑

  13.  Complaint at 2–3, Basbanes v. Microsoft Corp., No. 24-cv-00084 (S.D.N.Y. Jan. 5, 2024); Complaint at 2–4, N.Y. Times Co. v. Microsoft Corp., No. 23-cv-11195 (S.D.N.Y. Dec. 27, 2023); Generative AI-Intellectual Property Cases and Policy Tracker, Mishcon de Reya LLP, https://www.mishcon.com/generative-ai-intellectual-property-cases-and-policy-tr‌acker [https://perma.cc/7RHU-3PG2] (last visited Mar. 3, 2024). ↑
  14.  Mark A. Lemley & Bryan Casey, Fair Learning, 99 Tex. L. Rev. 743, 748 (2021) (arguing that “a [machine learning] system’s use of the data often is transformative as that term has come to be understood in copyright law, because even though it doesn’t change the underlying work, it changes the purpose for which the work is used”). ↑
  15.  Katherine Lee, A. Feder Cooper & James Grimmelmann, Talkin’ ‘Bout AI Generation: Copyright and the Generative-AI Supply Chain, 71 J. Copyright Soc’y (forthcoming 2024) (manuscript at 105), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4523551 [https://pe‌rma.cc/Z3C7-PJWJ] (“[F]air use is famously case-specific, so no ex ante analysis can anticipate all of the relevant issues.”). ↑
  16.  Commc’ns & Digit. Comm., Large Language Models and Generative AI, 2023-24, HL 54, ¶ 245 (UK). ↑

  17.  See

    William W. Fisher III, Promises to Keep: Technology, Law, and the Future of Entertainment 1–22 (2004). ↑

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