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Legal Issues
Legal Issues
The uncertain legal status of idea futures markets has long discouraged their full-blown implementation. They risk qualifying as illegal gambling, as unauthorized commodities futures trading, or even, in the worst case, as both. A market in science claims, because it represents a type of idea futures market, raises similar legal worries. Hence the vital question: Would it be legal under U.S. law to offer to the public, or to participate in, a market in science claims?
I've dedicated extensive research to that question, and offer as my long answers, Prediction Markets for Promoting the Progress of Science and the Useful Arts, 14 Geo. Mason L. Rev. __ (2006) (forthcoming) (PDF format), and Gambling for the Good, Trading for the Future: The Legality of Markets in Science Claims, 5 Chapman L. Rev. 159 (2002) (PDF format). In very brief, those analyses show that markets in science claims, if properly structured, have a reasonable likelihood of escaping the reach both of anti-gambling laws and commodities futures regulations. Three points in particular bear noting:
- Science claims will probably not qualify as gambling because skill or knowledge can, in principle if not always in practice, play a larger role than mere chance in predicting a claim's resolution.
- None of the policy reasons for outlawing or heavily regulating gambling would apply to a market in science claims.
- Structuring a market in science claims as a forum for dealing in claim coupons--preferably one that operates as a peer-to-peer network--would arguably put it beyond the jurisdiction of the Commodities Futures Trading Commission.
What courts would ultimately say about a market in science claims for now remains, of course, conjecture. And, as the above-cited paper details, some uncertainty inheres in almost every aspect of the case for regarding such a market as legal under U.S. law. But, importantly and encouragingly, advocates for a market in science claims have got a realistic prospect of avoiding legal pitfalls.