Draft:Commercial law intersection

A commercial law intersection (CLI) is a legal phenomenon in which a transaction or corporate action falls concurrently within the purview of two or more branches of commercial law, creating an overlap between those areas of law. The concept was introduced by legal scholars Giuliano G. Castellano and Andrea Tosato in their 2020 article "Commercial Law Intersections" published in the Hastings Law Journal.

CLIs arise due to the increasing fragmentation of commercial law into specialized subject areas, combined with new types of complex business activities that implicate multiple fields simultaneously. For example, a transaction in which a bank takes a security interest in a company's patent portfolio would create a CLI between secured transactions law, patent law, and banking regulation.

Castellano and Tosato argue that CLIs often suffer from coordination failures stemming from gaps or conflicts between the intersecting areas of law. This can increase transaction costs, create uncertainty, and distort incentives for market participants. In severe cases, these issues can deter parties from entering into beneficial transactions altogether due to excessively high risks or costs.

To address CLI coordination failures, Castellano and Tosato propose a two-step method centered around the concept of "legal coherence." The first step involves precisely identifying the rules causing tensions and assessing their systemic relevance. The second step focuses on harmonizing the intersections through statutory reforms, refined interpretations, or regulatory guidance aimed at ensuring consistency across the relevant legal frameworks.

The notion of commercial law intersections draws attention to a widening phenomenon in business regulation. Managing CLIs represents an increasingly pressing challenge for lawmakers, judges, and practitioners seeking to facilitate complex commercial activities and maintain well-coordinated legal infrastructures.

Examples
The following are archetypal examples of CLIs:

This range of examples demonstrates how CLIs arise frequently in modern commerce and underlie many routine business transactions. Identifying and mitigating tensions across the associated legal and regulatory frameworks has thus become an increasingly salient challenge for commercial law.
 * Secured lending transactions - A bank extending a loan to a company and taking a security interest in the debtor's shares creates a CLI between secured transactions law governing the collateral and laws regulating securities and banking activities.
 * Cross-border supply chain financing - When a supplier in one country delivers goods to a buyer in another country under a trade financing arrangement from a bank, it generates overlaps between sales law, banking law, transportation law, insurance law, and document of title laws across multiple jurisdictions.
 * Financial technology (FinTech) innovation - The rise of blockchain-based tokenized assets and digital currencies has led to CLIs involving payment systems law, banking and securities regulation, financial stability regulation, investor protection laws, and secured transactions law.
 * Intellectual property licensing - An agreement allowing a licensee to sublicense a portfolio of copyrighted software code to further licensees internationally can create complex intersections between domestic copyright law, international IP treaties, contract law principles, and competition/antitrust oversight of licensing marketplaces.
 * Financial technology (FinTech) innovation - The rise of blockchain-based tokenized assets and digital currencies has led to CLIs involving payment systems law, banking and securities regulation, financial stability regulation, investor protection laws, and secured transactions law.
 * Intellectual property licensing - An agreement allowing a licensee to sublicense a portfolio of copyrighted software code to further licensees internationally can create complex intersections between domestic copyright law, international IP treaties, contract law principles, and competition/antitrust oversight of licensing marketplaces.
 * Intellectual property licensing - An agreement allowing a licensee to sublicense a portfolio of copyrighted software code to further licensees internationally can create complex intersections between domestic copyright law, international IP treaties, contract law principles, and competition/antitrust oversight of licensing marketplaces.

Coordination Failures
A key issue highlighted by the commercial law intersections framework is that of "coordination failures" arising from gaps or conflicts between converging legal regimes.

Coordination failures can stem from outright contradictions between rules governing a transaction, unclear scope of application for certain standards, or overarching dysfunction in achieving intended commercial outcomes. For instance, ambiguities may exist on whether trademark law or secured transactions law takes priority when trademarks are used as collateral.

A real-world example analyzed by Castellano and Tosato is that of using copyright licenses as collateral in secured lending deals. Here, there are unresolved tensions between security interests perfected under secured transactions law versus those recorded under copyright law. The resultant legal uncertainty deters parties from relying on copyright licenses as collateral.

These failures increase transaction costs as parties must contend with legal uncertainty or complex regimes rife with inconsistencies. They also distort market incentives as participants face risk-reward calculations that do not match the underlying transaction.

In severe cases, excessive uncertainty and complexity lead to a "chilling effect" deterring beneficial commercial activity altogether. The prospect of disentangling applicable legal requirements becomes prohibitive.

Overall, resolving CLI coordination failures is crucial for facilitating efficient business transactions and maintaining well-aligned infrastructures of commercial law. The issues highlight the increasing need for deliberate mechanisms to harmonize intersections between specialized branches.

Reception
The concept of commercial law intersections has gained increasing traction as a useful framework for understanding complex business transactions.

In 2021, Justice Mark Leeming of the Supreme Court of New South Wales expressly referenced CLIs in the 2021 Bathurst Lecture, stating:

"The notion of ‘commercial law intersections’ is one recently devised to explain the challenges posed by the proliferation of specialised commercial law regimes, and the transactions that straddle more than one of them simultaneously. Transactions in the energy and natural resources sector routinely intersect with various areas of law, including the sale of goods, intellectual property, corporations, property, and planning and environmental law." A Supreme Court judge endorsing the CLI framework demonstrates its utility for conceptualizing complex commercial disputes implicating overlaps between legal spheres. It also signals the practical importance of managing intersections as a rising challenge within business litigation.

Similarly, Professor Steven L. Schwarcz relied substantively on the intersections model developed by Castellano and Tosato in his article "Rethinking Commercial Law’s Uncertain Boundaries". When discussing how fragmentation across specialized commercial law branches creates legal uncertainty and inconsistencies, he rooted his analysis in the CLI framework. Using the intersection of different commercial law branches as the inception point of his reasoning, Schwarcz argues that unclear boundaries reduce efficiency, impede beneficial transactions, and disrupt markets. He also references Castellano and Tosato's concept of autonomous legal regimes converging to analyze the multiplicity of laws governing complex financial services and products.

The CLI model has also been substantively incorporated into several official documents, guidelines and toolkits by leading international organizations. The World Bank relied extensively on the commercial law intersections framework in its “Knowledge Guide on Factoring Regulation and Supervision,” stating that “Crucially, transactions enabling access to credit through the use of collateral are characterized by an overlap between secured transactions law and financial regulation – typically consisting of conduct of business and prudential rules. Such an overlap generates a legal phenomenon that is defined as a “commercial law intersection.”

Likewise, the IFC Primer on “Coordinating Prudential Regulation and Secured Transactions Frameworks” relied on CLIs, affirming that "Crucially, transactions enabling access to credit through the use of collateral are characterized by an overlap between secured transactions law and financial regulation – typically consisting of conduct of business and prudential rules. Such an overlap generates a legal phenomenon that is defined as a “commercial law intersection”.

The Cape Town Convention Project also directly relied on the CLI model in its “Guide on Best Practices for Electronic Collateral Registries,” as did the Asia Pacific Economic Cooperation (APEC) in its study on implementing international secured transactions standards.

Overall, the CLI framework and its underlying legal theory model have quickly gained appreciation among judges, legal scholars, and international organizations as a useful lens through which to conceptualize overlaps between commercial law branches. It has become an influential tool for elucidating multifaceted legal overlap problems and resolving resultant tensions and antinomies. The traction of Castellano and Tosato’s intersections model underscores its value in addressing the rising challenges posed by multiplying intersections of specialized business regulation spheres.