Gatekeeper Liability Versus Regulation of Wrongdoers

Abstract

A legal regime that imposes civil or criminal liability directly on wrongdoers is limited in terms of deterring unlawful conduct. Direct liability may fail to deter when wrongdoing is difficult for victims to detect or for the government to prosecute, or when wrongdoers have limited assets. Although criminal liability may deter wrongdoing by those with limited assets, it does not compensate victims. Furthermore, imprisonment is not a realistic sanction against corporations. Corporate scandals, such as the collapse of Enron, have underlined the use of gatekeepers - lawyers, auditors and underwriters - as a means of deterring corporate fraud. Gatekeeper liability, however, also has limitations and disadvantages. There is no consensus about the scope of such liability, and gatekeepers are not in a good position to deter misconduct effectively in all contexts. The desirability of imposing liability on gatekeepers depends on whether they are in a good position to deter misconduct at acceptable costs. In addition, because gatekeeper liability increases the price of the goods or service, it may have an inevitable tradeoff between preventing misconduct and the market distortions it causes. It may drive out law-abiding clients as well as wrongdoers. In this case, regulation of wrongdoers may be an appealing alternative.

Professor Steven Shavell only discusses the choice between liability of direct infringers and regulation of direct infringers. Scant attention has been given, however, to the choice between gatekeeper liability and regulation of direct infringers. In this essay, I compare gatekeeper liability with regulation of direct infringers.

Keywords: gatekeeper liability, government regulation, direct infringers, joint use, insurance, cost, architecture