Working within the Legal Environment Bonus Chapter A McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.

Working within the

Legal Environment

Bonus Chapter A

McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.

1. Define business law, distinguish between statutory and common law, and explain the role of administrative agencies.

2. Define tort law and explain the role of product liability in tort law.

3. Identify the purposes and conditions of patents, copyrights, and trademarks.

4. Describe warranties and negotiable instruments as covered in the Uniform Commercial Code.

5. List and describe the conditions necessary to make a legally enforceable contract, and describe the possible consequences if such a contract is violated.

LEARNING GOALSBonus Chapter A

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6. Summarize several laws that regulate competition and protect consumers in the United States.

7. Explain the role of tax laws in generating income for the government and as a method of discouraging or encouraging certain behaviors among taxpayers.

8. Distinguish among the various types of bankruptcy as outlined by the Bankruptcy Code.

9. Explain the role of deregulation as a tool to encourage competition.

LEARNING GOALSBonus Chapter A

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• Frazier started as Merck’s general counsel in 1999.

• Greatest challenge was a sea of lawsuits involving Vioxx.

• Frazier won 11 of 16 lawsuits at trial before agreeing to a settlement fund.

ProfileKENNETH FRAZIER

Merck

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NAME that COMPANYBonus Chapter A

This automaker sells more cars in the United States than any other auto producer. In 2010-2011, however, the company was forced to recall 3 million cars due to sudden accelerator incidents. It’s likely the company will face years of litigation from customers that were affected by the product problem.

Name that company!

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The Case for Laws

• Laws are a key part of a civilized society, but must change with the times.

• Judiciary -- The branch of government chosen to oversee the legal system through a system of courts.

• The U.S. courts system is organized at the federal, state, and local levels.

The NEED for LAWSLG1

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• Trial courts hear cases of criminal and civil law.

• Appellate courts hear appeals from the losing party at the trial court level.

TYPES of COURTLG1

The Case for Laws

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• Criminal law defines crimes, establishes punishments, and regulates the investigation and prosecution of people accused of committing crimes.

• Civil law proceedings cover non-criminal acts - divorce, personal injury lawsuits and more.

• Business Law -- Refers to the rules, statutes, codes and regulations that provide a legal framework for the conduct of business.

TYPES of LAWLG1

The Case for Laws

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Statutory and Common Law

• Statutory Law -- Includes state and federal constitutions, legislative enactments, treaties of the federal government and ordinances; written law.

• Common Law -- The body of law that comes from decisions handed down by courts; unwritten law.

• Precedent -- Decisions judges have made in previous cases to guide their handling of new cases.

MAJOR AREAS of LAWLG1

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Administrative Agencies

• Administrative Agencies -- Federal or state institutions and other government organizations with delegated power to create rules and regulations within their given area of authority.

• Examples of Administrative Agencies:

- The Federal Reserve Board

- The Securities and Exchange Commission

- The Equal Employment Opportunity Commission

- The Federal Trade Commission

ADMINISTRATIVE AGENCIESLG1

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PROGRESS ASSESSMENT

• What is business law?

• What is the difference between statutory and common law?

• What is an administrative agency?

Progress Assessment

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Tort Law

• Tort -- A wrongful act that causes injury to another person’s body, property or reputation.

• An Intentional Tort is a willful act that results in injury.

• Negligence – Behavior that causes unintentional harm or injury.

WHAT is TORT LAW?LG2

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Product Liability

• Product Liability -- Holds businesses liable for harm that results from the production, design, or inadequate warnings of products they market.

• Strict Product Liability -- Liability without regard to fault; a company can be held liable for a defective product even if they didn’t know of the defect.

PRODUCT LIABILITY LAWSLG2

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MAJOR CURRENTPRODUCT LIABILITY CASES

Company Date Settlement

Arup, USA, Inc.April 9, 2014

Engineering firm Arup helped design Miami's new art museum, suing two contractors on the project 4/8/14 for nearly $7M for allegedly failing to heed warning signs of brittle steel bolts which caused the November 2012 collapse of three large t-beams.

ChryslerApril 9, 2014

Chrysler was hit with a suit 4/2/14 in Texas federal court alleging its Dodge Durango line of SUVs do not have skid plates or other methods to protect the fuel tank from undercarriage strikes, which can cause injury to drivers.

Metro-North Railroader

April 9, 2014

Railroad worker from Westchester, N.Y., was paralyzed in deadly Dec. 1 derailment, sued the commuter railroad 4/7/14 for $100M under N.Y. common law and under the Federal Employers Liability Act, which protects rail workers.

Tesla Motors, Inc.

April 8, 2014

Milwaukee man filed first-ever lemon law case against Tesla, alleging 4/7/14 that his Model S is defective and has spent more than a month in the shop, according to a video posted on YouTube by attorney Vince Megna.

LG2

Product Liability

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Legally Protecting Ideas: Patents, Copyrights and Trademarks

• Patent -- A document that gives inventors exclusive rights to their inventions for 20 years.

PATENTS, COPYRIGHTS, and TRADEMARKS

• Copyright -- Protects a creator’s rights to materials such as books, articles, photos, paintings, and cartoons.

• Trademark -- Is a legally protected name, symbol, or design that identifies the goods or services of a seller.

LG3

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• Patent applicants should seek the advice of a lawyer.

• Foreign applicants are eligible to file U.S. patents.

• Patent owners have the right to sell or license the use of their patent to others.

PATENT FACTSLG3

Legally Protecting Ideas: Patents, Copyrights and Trademarks

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Source: IFI Patent Intelligence, http://ificlaims.com/index.php?page=misc_top_50_2013 2014

PATENT LEADERS in 2013

Company # of Patents Home Country

IBM 6,809 USA

Samsung 4,676 Korea

Canon 3,825 Japan

Microsoft 2,660 USA

Panasonic 2,601 Japan

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Legally Protecting Ideas: Patents, Copyrights and Trademarks

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PROGRESS ASSESSMENT

• What is tort law?

• What is product liability? What is strict product liability?

• How many years is a patent protected from infringement?

• What is a copyright?

Progress Assessment

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Sales Law: The Uniform Commercial Code

Uniform Commercial Code (UCC) -- A comprehensive commercial law that covers sales laws and other commercial laws.

•The UCC has 11 articles that contain laws covering a wide range of business issues.

WHAT is the UNIFORM COMMERCIAL CODE?LG4

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Warranties

A Warranty guarantees that the product sold will be acceptable for the purpose for which the buyer intends to use it.

•Express Warranties -- Specific representations made by the seller that buyers rely on regarding the goods they purchase.

•Implied Warranties -- Legally imposed on the seller, who implies that a product will conform to the standards of trade.

UNDERSTANDING WARRANTIESLG4

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Negotiable Instruments

Negotiable Instruments -- Forms of commercial paper that are transferable among businesses and individuals.

•Four conditions for using negotiable instruments:

1. They must be written and signed by the maker or drawer.

2. Be made payable on demand or at a certain time.

3. Be made payable to the bearer.

4. Contain an unconditional promise to pay a specified amount.

NEGOTIABLE INSTRUMENTSLG4

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Contract Law

Contract -- A legally enforceable agreement between two or more parties.

•Contract Law -- Specifies what constitutes a legally enforceable agreement.

•Breach of Contract -- When one party fails to follow the terms of a contract.

CONTRACT LAWLG5

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• A contract is legal and binding when:

1. An offer is made

2. There’s a voluntary acceptance of the offer

3. Both parties give consideration

4. Both parties are competent

5. The contract covers a legal act

6. The contract is in the proper form

CONTRACT REQUIREMENTSLG5

Contract Law

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If a contract is breached the following may be ordered:

- Specific performance

- Payment of damages

- Discharge of obligation

BREACHED CONTRACTSLG5

Contract Law

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PROGRESS ASSESSMENT

• What Is the purpose of the Uniform Commercial Code (UCC)?

• Compare express and implied warranties.

• What are the four elements of a negotiable instrument specified in the UCC?

• What are the six conditions for a legally binding contract? What could happen if it’s breached?

Progress Assessment

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The History of Antitrust Legislation

The Clayton Act prohibits:

- Exclusive dealing

- Tying contracts

- Interlocking directorates

The CLAYTON ACT of 1914LG6

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• The Federal Trade Commission Act of 1914 created the FTC and prohibits unfair methods of competition in commerce.

• The Wheeler Lea Amendment of 1938 gave the FTC additional control over false and misleading ads.

• The Robinson-Patman Act of 1936 prohibits price discrimination and applies to buyers and sellers.

ANTITRUST LEGISLATIONLG6

The History of Antitrust Legislation

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HISTORY of HIGH PROFILE ANTITRUST CASES

Case Year Outcome

U.S. v. Standard Oil 1911 Standard Oil broken into 34 companies

U.S. v. American Tobacco

1911 American Tobacco split into 16 companies

U.S. v. E. I. du Pont de Nemours

1961 DuPont ordered to divest its 23% ownership in General Motors

U.S. v. AT&T 1982 Settled after Ma Bell spun off into regional companies

U.S. v. Microsoft 2000 Microsoft ordered to halt prior anticompetitive practices

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The History of Antitrust Legislation

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Laws to Protect Consumers

Consumerism -- A social movement that seeks to increase and strengthen the rights and powers of buyers in relations to sellers.

•The collapse of the real estate market and crisis in the banking industry led to the Dodd-Frank Wall Street Reform and Consumer Protection Act.

•Dodd-Frank created the Consumer Financial Protection Bureau.

CONSUMER PROTECTIONSLG6

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NUMBER of IDENTITY THEFT COMPLAINTSLG6

Laws to Protect Consumers

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Tax Laws

Taxes -- The way federal, state, and local governments raise money.

•Some forms of taxes:

- Income taxes

- Property taxes

- Sales taxes

- Excise taxes

TAXESLG7

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Source: National Conference of State Legislators, www.ncsl.org, accessed July 2011 and State Excise Tax Rates www.taxadmin.org/fta/rate/cigarette.pdf April 2014.

SIN TAXESState Tax Rates per Pack of Cigarettes

State(s)Rate per Pack2011 vs 2014

New York $4.35 $4.35

Rhode Island $3.46 $3.50

Washington $3.02 $3.03

Connecticut & Hawaii $3.00 $3.40 & $3.20

New Jersey $2.70 $2.70

Wisconsin $2.52 $2.52

Massachusetts $2.51 $3.51

LG7

Tax Laws

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DO the RICH PAY TAXES?

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Tax Laws

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are paid to filers even when they don't owe any tax.

Bankruptcy Laws

Bankruptcy -- The legal process by which a person, business, or government entity, unable to meet financial obligations, is relieved of those debts by a court.

•Options of declaring bankruptcy:

- Chapter 7: Straight bankruptcy

- Chapter 11: Reorganization

- Chapter 13: Repayment plan

BANKRUPTCY LAWSLG8

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Bankruptcy Laws

• Creditors with secured claims receive their collateral or repossess the asset.

• Unsecured claims are paid in this order:1) Costs of the bankruptcy case

2) Any business costs after filing

3) Wages, salaries, commissions

4) Contributions to employee benefits

5) Refunds to consumers for products not delivered

6) Federal and state taxes

CHAPTER 7 BANKRUPTCYLG8

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How ASSETS are DIVIDED in BANKRUPTCYLG8

Bankruptcy Laws

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GOING, GOING, GONELargest Bankruptcies of 2014LG8

Bankruptcy Laws

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Company Bankrupty Date Description Pre-Petition Assets

USEC Inc. 03/05/14 Energy $2,266,400,000

First Mariner Bancorp 02/10/14 Bank Holding $1,377,529,000

James River Coal Company 04/07/14 Coal $1,204,121,000

Sorenson Communications, Inc. 03/03/14 Telecom $645,000,000

Tuscany International Drilling Inc. 02/02/14 Oil Svcs. $645,000,000

MModal Holdings, Inc. 03/20/14 Health Data $626,811,000

Global Geophysical Services, Inc. 03/25/14 Seismic Data $552,875,000

Dolan Company, The 03/23/14 Prof. Svcs. $449,540,000

Brookstone, Inc. 04/03/14 Retailer $406,111,000

DynaVox Inc. 04/07/14 Software $34,941,000

Deregulation vs. Regulation

Deregulation -- The government withdraws certain laws and regulations that seem to hinder competition.

DEREGULATING COMMERCE

• Deregulation efforts were active in:

- The airline industry

- Telecommunication

- Some public utilities

LG9

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HAMBURGER REGULATIONSLG9

Deregulation vs. Regulation

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PROGRESS ASSESSMENT

• What is the primary purpose of antitrust law?

• Describe the different bankruptcy provisions under Chapters 7, 11, and 13.

• What is deregulation? Give examples of successful and unsuccessful deregulation.

Progress Assessment

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