Business Courts and Interstate Competition

Over the past two decades, specialized trial courts that hear business disputes primarily or exclusively have been established in nineteen states. To explain the recent surge of interest in these courts, policymakers and scholars alike have cited the process of interstate competition. Specifically, these commentators have argued that business courts serve, among other purposes, to attract out-of-state companies to expand their business, reincorporate, or litigate disputes in the jurisdiction that created the business court. This Article critically evaluates each of these theories.

It argues first that business courts do not serve to attract companies from other states because business expansion decisions in the United States are rarely driven by the high quality of the courts in a particular jurisdiction. It next argues that business courts are unlikely to attract incorporation business because their core attributes are such that they are unlikely to compete successfully with the Delaware Court of Chancery. The Article goes on to argue that while the creation of a business court may in some cases serve to divert litigation business to local lawyers, the opportunities for diversion are relatively limited. The Article then draws upon these insights to offer a number of suggestions as to how future business courts should be designed.

It suggests that states seeking to attract technology companies should think twice before creating a business and technology court. It notes that major institutional reforms will be required if states wish to use business courts to attract incorporation business away from Delaware. It also identifies additional steps that states might take to more effectively attract litigation business. The Article concludes by evaluating the viability of several non-competition-based rationales for establishing business courts.