![]() According to Mandiant, a 3CX employee’s PC was hacked through an earlier software-supply-chain attack that hijacked an application of the financial software firm Trading Technologies, conducted by the same hackers who compromised 3CX. Today, Mandiant revealed that it found patient zero for that widespread hacking operation, which hit a significant fraction of 3CX's 600,000 customers. Cybersecurity firm Mandiant now has an answer to the mystery of how 3CX was penetrated by those state-sponsored hackers: The company was one of an untold number of victims infected with the corrupted software of another company-a rare, or perhaps even unprecedented, example of how a single group of hackers used one software supply chain attack to carry out a second one. Theorists who make principled arguments for one or another remedy should attend to economic analyses of remedial design, including the idea of efficient breach, which cast new light on these distinctive features of contract law.The cybersecurity industry has scrambled in recent weeks to understand the origins and fallout of the breach of 3CX, a VoIP provider whose software was corrupted by North Korea–linked hackers in a supply chain attack that seeded out malware to potentially hundreds of thousands of its customers. And economic analysis suggest mechanisms lawmakers can use to delegate remedial choice to the parties while still giving weight to socially preferred remedies. Many parties are likely to prefer efficient remedies, posing a challenge to remedial theories that ignore efficiency altogether. In many transactions the remedy is likely to affect the price, complicating arguments about its fairness. Most importantly, a revised theory of efficient breach demonstrates how remedies that apply at the end of a transaction can affect the terms chosen at its birth. ![]() Many noneconomic critics of efficient breach criticize a theory that no economist would defend.Īll this notwithstanding, contract theorists should pay attention to efficient breach. And an exclusive focus on incentives ignores other welfare-enhancing functions remedies can serve, such as risk allocation and signaling. If expectation damages do provide efficient performance incentives, they might create inefficient incentives elsewhere in the transaction. ![]() When a contract does become inefficient, other remedies can do as good or better a job of allowing parties to avoid performance. Expectation damages do not sufficiently deter some types of opportunistic breach. Forty years of scholarship has established that even from the streamlined perspective of neoclassical economics, the simple theory simplifies too much. But today no economic thinker defends the simple theory of efficient breach. ![]() Thus critics commonly focus on the theory’s moral failings, or on problems with the neoclassical approach more generally. Many noneconomists assume the theory is well supported by principles of neoclassical economics. In its simplest form, which is the one that dominates the legal imagination, the theory argues that expectation damages are good because they allow, even encourage, a party to breach when performance becomes inefficient, thereby increasing social welfare. The theory of efficient breach is the best known, and the most controversial, product of nearly half a century of economic analysis of contract law.
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