SMRs: A Critical Piece of Washington’s Energy Future

By: Nicholas Lipperd

The state of Washington has been an effective leader in the transition to clean energy production and must continue to lead boldly. In passing the Clean Energy Transformation Act, Washington pledged to become a carbon-free energy producer by 2045. While the State’s natural resources allow hydroelectric power to lead the charge, hydroelectric cannot achieve Washington’s goal alone. With electricity demands expected to grow between 30% and 90% by 2045, in addition to the statewide drought that has been hampering hydroelectric power over the last decade, other clean energy sectors must step up. Solar is the industry that garners the most attention, and wind certainly has a role to play, but neither can contribute a reliable and sufficient portion of electricity demands for the immediate future. In order for the State  to meet its energy goals while maintaining its status as an energy exporter rather than importer, Washington should expand its commitment to nuclear energy. 

In the simplest of terms, a nuclear plant is nothing more than a hot rock that makes steam. That steam turns enormous turbines that, in turn, create clean, carbon-free electricity. Washington’s only nuclear power plant, Columbia Generating Station, generates 1200 megawatts (“MW”), enough to independently power the city of Seattle. By comparison, a single wind turbine typically creates 2.75 MW and the solar panels on a home generate about 300 watts (0.0003 MW). Given technological advancements, well-designed safety systems, and carefully monitored training standards, nuclear reactor plants in the U.S. are exceptionally safe steam-producing rocks. Just as importantly, the nuclear industry — as a whole — is an exceptionally safe operating environment, with only 0.1 fatalities per trillion kilowatt-hours of production in the U.S., as compared to 10,000 fatalities in U.S. coal production (and 100,000 in global coal).

Despite the incredible power reactors safely produce, America’s nuclear industry has been slowly declining because of diminishing economic value. Why make an investment in an industry with so many permitting and safety requirements when coal or gas can be produced so cheaply? This short-sighted approach is one from which America is finally shifting. The recently passed Bipartisan Infrastructure Bill (“BIB”) and Inflation Reduction Act (“IRA”) have created opportunities and incentives for the nuclear industry that the state of Washington must seize so that it may continue to meet its energy goals and lead our country towards clean, sustainable energy production. The BIB and IRA allow states to resurrect the dying nuclear industry and capitalize on an energy source that is powerful, long-lasting, and carbon-free. The IRA, for example, invests $2 billion into energy research, functionally accelerating the permitting and production of Small Module Reactors (“SMRs”). The IRA also allocates a $25 per MW credit for any new carbon-free energy production and invests $700 million in uranium enrichment for production of more efficient reactors. The BIB allocates funding directed to the continued operation of existing reactors; $6 billion in credits incentivizes companies and states to extend the lifetime of their reactors. Nuclear power currently provides 52% of the nation’s 100% clean electricity, and these bills embrace the idea that nuclear energy is vital to achieve carbon-free energy independence.

Washington must capitalize on these bills and further integrate nuclear power into its plan for clean energy production. Nuclear energy currently accounts for just under 10% of Washington’s power production, while hydroelectric dominates at 66%. Hydroelectric will continue to dominate, but it is unable to meet consumer demand alone. Washington’s two largest hydroelectric plants are over 80 years old. Its largest, Grand Coulee, has produced 20% less energy in recent years due to drought. As climate change makes droughts more likely and thus hydroelectric less reliable, nuclear energy can operate as a counterbalance. During dry seasons, Columbia Generating Station operates at near 100% output continuously to make up for demand. When spring comes and hydroelectric surges, Columbia is able to reduce its output, allowing demand to be met while extending the plant’s lifetime. Nuclear energy is dependent on, to paraphrase the USPS, neither wind nor rain nor heat nor sun. 

Columbia Generating Station is licensed to operate through 2043. The station seems to already be taking advantage of BIB funding: it has plans to increase power output 15% by 2033 and will likely extend the lifetime of the reactor through 2063. That is a critical step in the right direction, but, simply put, it won’t be enough. Washington needs more reactors and more flexibility in their operation to support its hydroelectric generation and meet increasing demands. Should Washington enable new reactor plant construction to meet demands, and SMRs are the best bet.

SMRs, defined by the U.S. Department of Energy (“DOE”) as modular nuclear power plants of 300 MW or less, are the next generation of nuclear reactors. A module design allows SMRs to be almost built completely in a controlled factory setting and installed module by module, reducing construction and maintenance costs and offline time. The small size means less heat energy to manage, less radioactivity during operations, and less radioactive waste. It also means the design is safer than current operating plants despite needing fewer safety systems. Due to their size and design, SMRs are so safe that they can’t melt down, the sensationalized concern of traditional nuclear plants. The small size also allows plants to be strategically placed in regions where power production or supply has traditionally been a challenge.

NuScale’s 77 MW is the leading SMR design for DOE approval. NuScale’s design includes installment plans of four or twelve reactors, depending on the energy demand for the region in which it would be installed. The small size and modularity allow flexibility of site location, expanding options to low water flow regions. This flexibility allows SMRs like NuScale to be built throughout Washington such that they are placed to efficiently bring energy to traditionally hard to supply regions while staying protected from natural disasters. SMRs can adjust power levels much more quickly and efficiently than large plants such as Columbia. Thus, placing SMRs near existing hydroelectric plants will allow nuclear power to more efficiently complement the hydroelectric plant’s output based on water flow. 

Even before the IRA made SMRs increasingly economically viable, Washington’s Energy Facility Site Evaluation Council (“EFSEC”) was scouting potential sites for SMRs. Because the DOE permitting process is cumbersome, sites with either existing energy operations or prior energy permits would enable the quickest installations. EFSEC has identified six of the former and nine of the latter with adequate conditions for SMR installation. With the IRA providing a pathway for cheaper, more efficient uranium and credits for clean energy production, Washington should take advantage and commit SMRs to some of these sites. 

Decades of design improvements prevent the world from experiencing another Chernobyl. Tightly regulated training standards and supervision prevents America from seeing another Three-Mile Island. Careful site selection and the design of SMRs are the nail in the coffin of nuclear disaster fears. In fact, the SMR idea has been flawlessly executed in Washington already. The U.S. Navy has operated SMR-style reactors incident-free in the most dynamic of environments for seventy-five years, with as many as a dozen such reactors operating on ships stationed in the Puget Sound. 
Nuclear power is energy that can be created without any carbon emissions that’s production does not rely on weather patterns. It is safe and reliable, but just as importantly, it produces magnitudes more power than other forms of energy. Not only has nuclear power earned a spot in Washington’s energy future, it is an energy source that Washington must embrace in order to meet its energy goals.

The Fourth Amendment’s Third-Party Exposure Doctrine in the New Age of Data

By: Kyle Kennedy

The Fourth Amendment protects US citizens from unreasonable searches and seizures by creating an administrative barrier between citizens and investigating authorities. In addition to the Fourth Amendment, the lack of government resources also serves to protect individual privacy because investigative authorities can neither afford nor validate surveillance of citizens past a certain cost-benefit tradeoff. Together, the intended effect of these protections is to sufficiently guard against invasions of citizen’s privacy by government authorities in pursuit of evidence. However, the interaction of modern-day technology and the increased availability of data as a result of the Third-Party Exposure Doctrine leaves US citizen’s personal information exposed to the government in unprecedented ways.

The Supreme Court has held that the Fourth Amendment provides protections to citizens based on a reasonable expectation of privacy. However, the Third-Party Exposure Doctrine states that information willingly revealed to third parties is not subject to Fourth Amendment protections. As an example, in U.S. v. Miller, the Supreme Court held that there is no reasonable expectation of privacy for information shared in bank records. However, in the landmark case of Carpenter v. United States, the Supreme Court limited the Third-Party Exposure Doctrine by holding that collecting seven days worth of cell phone location information was a violation of the Fourth Amendment. However, it is worth noting that the holding in Carpenter was cabined to its facts, therefore leaving significant questions about the application of the Third-Party Exposure Doctrine to consumer data and electronic records unanswered.  

In addition to the privacy protections afforded by the Fourth Amendment, the Stored Communications Act (SCA) protects against searches of electronically stored information. Under the SCA, the government can access content information of emails that have been unopened and in storage for over 180 days or of email that have been opened and undeleted with a mere administrative subpoena or 2703(d) court order. The SCA provides even less protection to non-content data like account information or metadata. The weak protections this statute provides for electronically stored information demonstrates that the statute does not fit the modern state of technology and data privacy and is clearly outdated.

Given the exponential increase in internet use and data creation in recent years, consumer data has never been as plentifully available as it is today. According to Forbes, Americans send 188 million emails, 18.1 million texts, and 4.5 million Google searches every minute. Further, Americans download 390,030 third-party apps every minute, all of which seek consent from the user to collect their data. Under the landmark Carpenter case, the Fourth Amendment protects against the unwarranted collection of seven days of cell phone records. This precedent could ostensibly be extended to consumer data shared on third-party apps. However, the Supreme Court has so far declined to determine whether a shorter period of data collection would be permissible or whether data consensually shared with third-party apps triggers a lower expectation of privacy than automatically collected cell phone records. 

The SCA does not provide any better answers than the current body of case law. Overall, the SCA tends to create a relatively low administrative hurdle for searches of electronic data.  The SCA categorizing of digital records based on content, whether the records are opened, and the time in storage is an ineffective approach to balancing privacy protections against the government’s investigative need. A wide variety of individual data is not cleanly divided by the SCA’s categories of the content or whether it has been opened or deleted.  Furthermore, the efficacy of providing lower protections to older records is reduced by the government’s need for timely investigative data as well as individual’s continued privacy interest in that older data.

The lack of clear Fourth Amendment (or other statutory) protections for electronic data weakens the barrier of privacy between individuals and the government. This barrier is further weakened by the relatively low cost of investigation through the searching of electronic data and records. For example, advanced saliency algorithms and deep learning techniques allow authorities to process visual data and access information at quicker speeds and lower costs than ever before. These same algorithms and techniques are easily applied to non-visual user data generated by third-party applications. Individuals using third-party applications on their personal devices store messages, locational data, and other consumer data on these platforms which potentially exposes this data to the government under the Third-Party Exposure Doctrine.  Although the majority in Carpenter limited the Third-Party Exposure Doctrine as it relates to cell phone data, it remains unclear what level of privacy the Fourth Amendment provides to data shared with third-party applications. Although Carpenter discussed the pervasive nature of cell phones in everyday life, the Court also specifically mentioned that the cell phone data in that case was tracked and recorded without any affirmative action by the user. Data shared through third-party apps often requires the user’s consent to data collection. It could be argued that the user’s consent is a voluntary exposure to a third party, thus leaving room for a distinguishing argument by the government. While the precise nature of the privacy protections provided by the Fourth Amendment to electronic data are unclear, there is a clear tension between the modern state of technological surveillance and the current rule of law protecting US citizens’ individual information. 

The implications of insufficient protection of consumer data are wide-reaching.  For example, there is serious concern that data from third-party apps tracking menstrual cycles or location data could be used in criminal prosecution in states that have recently instituted abortion bans or restrictions. Given the current political climate, the relative powers of the branches of the federal government, and the slow-moving and unpredictable nature of the Supreme Court, the most ideal path forward would be for Congress to pass new nation-wide privacy protection legislation. There are many advantages to a clearcut, nation-wide framework of law which balances the need for privacy with the need for government investigation while providing technologically relevant protection to personal data. A question for future research would be whether Congress’s scope of power would allow it to regulate the use of consumer data by investigative authorities, specifically at the state level. Assuming the power is within their scope, an act of Congress would provide the most effective solution to closing the gap between modern technology and current law. Absent such congressional action, US citizens will be forced to rely upon the legislating bodies of their individual states to provide increased personal data privacy protections.

Adventures in Antitrust: Evaluating the Probability of Regulatory Action Related to Adobe’s Acquisition of Figma

By: Cooper Cuene

Since early this year, both public and private markets have endured a considerable slowdown as interest rates rose and the economy slowed. Despite this turbulence, one super-sized acquisition has demonstrated that not all companies are deterred from making big moves in the current market. In September, Adobe announced a plan to acquire Figma, a fast-growing tech company known for its cloud-based collaborative graphic design software. At a staggering $20 billion, the deal is set to break the record for the largest acquisition of a private tech startup, making Figma’s founder a billionaire in the process. That is, of course, assuming the deal goes through. 

That assumption looms large. Because Figma is Adobe’s largest competitor in the market for cloud-based design software, news of the acquisition immediately triggered antitrust concerns. The unease was palpable throughout Figma’s user base, many of whom had been disappointed by Adobe’s mishandling of other design tools acquired in the past. However, while many observers have opined that FTC intervention is forthcoming, regulatory agencies are yet to take any meaningful action to block the acquisition. 

The legality of corporate acquisitions, such as this one, is governed by section 7 of the Clayton Act. The act forbids one company from acquiring another when the result would be the creation of a monopoly. The act’s language is expansive, stating that “[n]o person . . . shall acquire, directly or indirectly, the whole or any part of the stock or other share capital . . . where . . . the effect of such acquisition may be substantially to lessen competition, or tend to create a monopoly.” 15 USC §18. 

Naturally, such broad language has led to the development of expansive case law defining when the results of an acquisition will “lessen competition” or “tend to create a monopoly.” The Supreme Court has not ruled on the interpretation of these provisions since the 1960s. In the 1963 decision U.S. v. Philadelphia Nat. Bank, the Supreme Court ruled that any acquisition that results in a “significant increase” in market concentration would be viewed as “presumptively illegal.” 

Over the years, the circuit courts have refined these broad principles. In addition to the standards set forth by the Supreme Court, many circuits have adopted a forward-looking analysis of the merger’s effects. For example, the Seventh Circuit noted in its 1986 decision Hospital Corp. of America v. F.T.C. that all that is required to show the formation of a monopoly is that “the merger create[s] an appreciable danger of such [monopolistic] consequences in the future.” This principle has continued to be applied to more recent cases. For example, when the Ninth Circuit granted an injunction to stop the acquisition of a seafood processing company in the 2016 case Boardman v. Pacific Seafood Group, the court noted that “a prima facie case [under section 7] can be established simply by showing a high market share would result from the proposed merger.” 

Alternatively, we can consider the FTC’s own guidelines used to determine whether the agency will take action on a merger or acquisition. According to Section 1 of those guidelines, the “unifying theme” is the idea that mergers should not be permitted to “create, enhance, or entrench market power or to facilitate its exercise.” To this end, the guidelines state that important types of evidence to consider include: whether the firms are, or absent the merger are likely to become, head-to-head competitors; the sizes of the merging parties’ market shares; and direct historical comparisons to the potential merger. In addition to these considerations, the guidelines also consider the principle that the acquisition of one company by another should not serve to “diminish innovation.” 

Drawing from both the applicable case law and the guidance published by the regulatory agencies, it seems overwhelmingly likely that Adobe will face antitrust action in its attempted acquisition. Adobe and Figma are the two largest competitors with the market for collaborative graphic design tools, a market which is projected to near $17.7 billion globally by 2027. If the acquisition were to be completed, combining Figma and Adobe’s pre-existing suite of graphic design tools would lead Adobe to possess a market share of nearly 70%. 

The probability of FTC action is only increased by the fact that Figma and Adobe are direct head-to-head competitors. Figma’s website speaks for itself: it has an entire page dedicated to directly comparing its product to Adobe XD. By acquiring its largest competitor, Adobe could have the freedom to raise prices for all of its graphic design products. Speculation is already widespread that Figma’s free tier will be eliminated soon after a merger is completed. Finally, as mentioned previously, Adobe has a history of acquiring innovative graphic design upstarts before eventually allowing the products to stagnate and die. A direct historical comparison can be found in Adobe’s own acquisition of Macromedia and their well-loved design software, Firework, which stopped receiving development support soon after the acquisition completed. Between price hikes, direct competition, and Adobe’s acquisition track record, the likelihood of FTC action to block this deal is nearly certain. 

Judicial precedent, FTC guidelines, and the circumstances of the acquisition support the conclusion that the FTC will take action to block the Adobe and Figma merger. The timing of the FTC suit and its exact allegations remain to be seen, but in all likelihood, the only question remaining is not if, but when.  

Compensation and Competition after NIL 

By: Kelton McLeod

The sands of collegiate athletics have been shifting rapidly over the past eighteen months and have yet to find any stability. In 2021, the Supreme Court of the United States released its opinion in the case National Collegiate Athletic Association v. Alston. In that case, the NCAA lost in its appeal of the Ninth Circuit’s ruling related to violations of §1 of the Sherman Antitrust Act. In a unanimous ruling, the Supreme Court found that some of the “NCAA’s compensation limits [for student-athletes] ‘produce significant anticompetitive effects in the relevant market.’” In other words, the NCAA could not use its monopsony power to completely suppress or limit the amount of education related payments that a student-athlete could receive. 

The Supreme Court’s holding was a formal rebuke of how the NCAA, the largest proprietor of amateur collegiate athletics, was treating the athletes on which they so desperately rely. This rebuke resulted in the institution of so-called “Alston payments,” which allow some of the largest schools to now directly pay their athletes $6,000 per academic year for education related expenses. The result of this ruling was much greater than just these payments though; the ruling also paved the way for individual student athletes to be able to monetize their own Name, Image, or Likeness (NIL).

For years, student-athletes (and former student-athletes) have complained about the NCAA’s usage of their name, image, or likeness for profit. While schools could profit off a player’s NIL, the NCAA forbade student-athletes from doing the same. By the time the Alston decision was passed down, several states were already in the process of passing laws to wrest some control of a student-athletes NIL away from the NCAA. These states were attempting to compensate these student-athletes in some form for the work that the student-athletes were doing for both their collegiate institution and the NCAA. So, when the Supreme Court ruled against the NCAA, the NCAA was forced to recognize the shifting sands beckoning changes in compensation for collegiate sports. 

The NCAA acted quickly. Within weeks of the Alston decision, the NCAA instituted an “Interim NIL Policy”—which remains in place as of October 2022—that laid out ground rules for a policy allowing student-athletes to profit off their Name, Image, or Likeness. The NIL deals made possible by the NCAA’s new Interim NIL Policy can take many different forms, as the deals are permitted to include any form of advertisement that uses the athlete’s personal brand as a selling point. However, in the past year NIL deals have traditionally come in the form of making public appearances, posting on social media, or wearing a company’s products. The NCAA’s one-page Interim NIL Policy provides little direction but has five basic tenants that student-athletes and Collegiate Institutions must follow: (1) NIL agreements must include a quid pro quo, (2) NIL compensation cannot be contingent upon enrollment at a particular school, (3) pay for play compensation is not allowed, (4) institutions may not provide compensation in exchange for the use of a student-athletes NIL, and (5) the NCAA rules were subservient to any state NIL laws present. 

There is no federal regulation or policy that offers a uniform NIL experience to student-athletes. The Uniform Law Commission (ULC), a state-supported, nonpartisan, nonprofit organization drafted the “Uniform College Athlete Name, Image, or Likeness Act” (“NIL Act”) to provide a level of uniformity across state NIL laws. While some states acted quickly, instituting policies supporting student-athlete rights to NIL, no state has directly adopted the ULC’s NIL Act. Among the fifty states, twenty-eight currently have passed NIL legislation or have a some guidance in place, leaving the remaining twenty-two as the “wild west,” with athletes and colleges only beholden to the NCAA Interim Policy and whatever level of self-governance institutions have chosen to place on themselves. These differing state laws, or lack thereof, have posed a unique challenge for the institutions and athletes that are now obliged by them. Much like the athletic programs that they now have influence over, not all NIL rules are created equal. 

While similar to the NCAA’s policy, Oklahoma’s NIL law is noticeably stricter. In Oklahoma, a “student-athlete shall not enter into a contract with a third party that provides compensation to the student-athlete for use of his or her name, image or likeness or athletic reputation if . . . [t]he contract allows for the use or consents to the use of any institutional marks during the student-athlete’s third-party contract activities.” This wording restricts the student athlete to profiting off of only his or her NIL, while the institution may profit off its own brand combined with the NIL of such a student athlete. While Oklahoma’s bill attempts to even the playing field of NIL deals for athletes across the many Oklahoma institutions, the bill does so in a way where unequal standing is given to the University relative to the student-athletes. 

Compare Oklahoma’s approach to the state of Washington’s approach, where there are more expansive opportunities to the athletes that attend one of Washington’s several fine institutions. With no NIL law in place, the direction of NIL is largely left up to the institution. A key example of Washington’s openness to NIL opportunities relates to the usage of intellectual property and trademarks owned by its state schools. Student-athletes at the University of Washington—while forbidden by NCAA rules to secure NIL deals based upon attending the UW—can wear their uniforms or wear any of the University’s several trademarked logos while endorsing a product or making a post on social media. 

Still, the University of Washington does not want its student-athletes wearing or posting its trademarks or intellectual property for any and every NIL deal, certainly not ones the administration has deemed unbefitting of the University. As a state school, the University of Washington is operated like a government agency and is regulated by the ethics rules related to sharing of state property for gain. In Washington, “[n]o state officer or state employee may employ or use any . . . property under the officer’s or employee’s official control or direction, or in his or her official custody, for the private benefit or gain of the officer, employee, or another.” Intellectual property, such as the University of Washington’s trademarks, falls directly under this ethics statute. So, the University of Washington has used its inter-collegiate athletics compliance office and its trademark office to monitor NIL contract requests to ensure that any request that includes usage of UW trademarks does not hurt the brand. To further this goal, the University has instituted rules regarding products with which student-athletes may not utilize the school’s trademarks while endorsing. These products include alcohol, marijuana, tobacco, gaming, sports wagering, pornography or adult entertainment, or weapons/weapons manufacturers. Overall, the products that the University seeks to keep at arm’s length account for only a small portion of the products a student-athlete could advocate for, ultimately allowing broad use of the institution’s trademark in NIL dealings. 
With the sands of student-athlete compensation still shifting, these different NIL systems may only be in place for the next few months, or even weeks. A proposed Washington’s House Bill 1084 still has the possibility of becoming law and changing the standards in Washington. While Oklahoma already has its law in place, it remains new enough where modifications could be instituted with reasonable ease. Even within the NCAA, change is still likely; its NIL committee is rumored to be soon instituting further clarifications to the Interim NIL Policy for the first time since July of 2021 when it was placed into effect. These changes are not expected to be expansive but could have an outsized impact on the schools in states without NIL laws, like Washington currently. Only time will tell where NIL will be a year from now, but at least compensations for athletes are continuing to trend in a more equitable direction for student-athletes.

Code is Law: The Importance of Legal Engineering in DAOs

By: Stephen Cromwell

Decentralized Autonomous Organizations (“DAOs”) are a revolutionary new way of conducting business, earning an income, and distributing profits to participants and investors. DAOs are, in essence, companies or organizations built on decentralized and permissionless blockchains using smart contracts. Smart contracts are simply programs stored on a blockchain that run when predetermined conditions are met, and can be customized to execute different business functions. Just as a company maintains one or more bank accounts in the real world, DAOs maintain one or more cryptocurrency wallets governed by smart contracts. 

The governance of the company is typically commanded by documents and legal precedents dictating standard procedures for the formation, fundraising, employment, and operations of the company. Company governance may take many forms depending on how the company is structured, and there are a multitude of legal considerations for differing corporate structures, such as tax implications, fiduciary agreements of officers and board members, and profit distribution mechanisms. Each of these considerations are affected by the conduct of individuals and are dictated by corporate charters and contracts, which typically assign power in a hierarchical way. Although some forms of partnerships may mandate a democratic process for business purposes, typically they still maintain a board to simplify control and gain efficiency in decision making. 

DAOs, however, are entirely governed by the terms of the smart contract and money cannot move without the terms being met. This concept is commonly referred to as “code is law.” This means the charter can be automatically executed, and dividends and wages can be paid without necessary authorizations coming from officers or employees. Additionally, the issuance of governance tokens, much like traditional shares of equity, are issued in a predetermined way in accordance with the code of smart contracts. This enables much greater flexibility with respect to compensation schemes, ways to earn shares, or how DAO voting is conducted. For example, a DAO may issue governance tokens to its employees or contributors, much like an employee stock option. This issuance may be done in a more traditional, scheduled manner by issuing tokens in a specific quantity for a given period of time. However, the DAO could choose to issue governance tokens in a less traditional way, such as automatically awarding tokens for work performed, almost distributing equity through micro contract arrangements. Therefore, after a X amount of work is done, a contributor may receive Y amount of shares. This incentive structure may produce greater work efficiency as the contributor is incentivized to work as hard as possible and maximize both the wage and dividend they might receive. Since smart contracts monitor work products automatically, efficiently, and without bias, this form of compensation may prove to be more fair and allow for changes in productivity given a dynamic workforce. 

However, DAOs are not exempt from the law, and it is critically important that DAO founders think about building compliance into their smart contracts. For example, Merit Circle is a DAO that develops play-to-earn video games in which assets within the game can be bought and sold on open markets. To get off the ground, Merit Circle raised $4.5 million dollars in a seed round of funding composed of 10 investors in October of 2021, including another DAO named YieldGuild and YieldGuild’s founder. Merit Circle and YieldGuild entered a Simple Agreement for Future Tokens (SAFT), constituting a $175,000 investment at a price of $0.032 for 5,468,750 Merit Circle governance tokens. Then on May 5, 2022, a member of the Merit Circle DAO named “HoneyBarrel” posted a governance proposal titled “MIP-13” on the DAO’s forums requesting that YieldGuild’s ownership in seed tokens be refunded prior to the public unlocking of the tokens, effectively canceling their investment. Many of the members of the DAO expressed support for the action while a few members criticized the action. Given the public nature of decision making that is inherent in DAOs, the proposal was set for voting on the DAO’s governance protocol and passed with 86% of the vote. This vote forced the DAO to refund the investment and remove the governance tokens. In response, the Merit Circle administration issued a counter proposal to buy back the tokens at a price of $0.32 for a total purchase of $1,750,000 under a settlement agreement. This vote passed with 100% support of the DAO’s voting members. Both parties decided it was in their best interest to settle the matter and avoid litigation, and YieldGuild accepted Merit Circle’s settlement offer. However, if YieldGuild had decided to litigate instead, it is likely the DAO founders would have been liable for the resulting roughly $3 million dollar loss. 

Harm, such as the case above, is avoidable so long as DAO founders consider the agreements or laws they might be held to during development. However, doing so is extremely difficult given the need to diagnose complex legal agreements, determine what law applies, and build statutory interpretation into code. Therefore, a new class of lawyering has arisen. A lawyer that can practice and code is referred to as a Legal Engineer. As the importance of smart contracts grows and Web3 expands, the demand for competent legal engineers will grow as well. Some lawyers are actively embracing this new class and are beginning to set certifications and standards for this new kind of work. Additionally, there is opportunity for the development of legal applications that can add ease, certainty, and dispute resolution to Web3 transactions, something that has been missing in the world of immutable crypto transactions. So whether you’re a lawyer, law school administrator, or law student, adding Legal Engineering skills to your skillset is a must-do as the nature of transactions and contracts begins to evolve around the world of Web3.