Litigation with Inalienable Judgments

We study strategic behavior by private litigants when courts’ judgments are inalienable in the sense that it is unlawful to contract around them ex post. Inalienable judgments arise in many contexts, including antitrust, labor law, intellectual property law, unfair competition, and various types of public interest litigation. We show that inalienability systematically creates incentives for problematic rent-seeking behaviors: strategic investments intended to influence the outcome of litigation and collusive ex ante settlements that enrich the parties at the public’s expense. These problems arise because the parties generally have asymmetric stakes, and asymmetric stakes affect strategic behavior differently when judgments are inalienable.

Our analysis offers new insights into the normative evaluation of private settlements and establishes a underlying economic connection between problematic settlements spanning a wide range of legal contexts. It also sheds new light on the selection of disputes for litigation.