BONUS CHAPTER A
Working
within the
Legal
Environment
McGraw-Hill/Irwin
Copyright © 2015 by the McGraw-Hill Companies, Inc. All rights reserved.
LEARNING OBJECTIVES
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.
A-2
LEARNING OBJECTIVES
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.
A-3
EVE WRIGHT TAYLOR
Miami Heat
• Attended law school at the
University of Indiana and
worked for the LPGA before
heading into the maledominated NBA.
• With the Miami Heat, Taylor
may be asked for legal advice
on issues regarding the
stadium, marketing, sales, and
player-related matters.
A-4
NAME that COMPANY
As a federal government agency, we have a key role
in mergers and acquisitions in the United States
business community. Without our approval,
mergers or acquisitions can be rejected. For
example, we approved the merger of American
Airlines with U.S. Airways, but rejected a merger
between AT&T and T-Mobile.
Name that organization!
A-5
The NEED for LAWS
LO A-1
• 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.
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TYPES of COURT
LO A-1
• Trial courts hear cases of
criminal and civil law.
• Appellate courts hear
appeals from the losing party
at the trial court level.
A-7
TYPES of LAW
LO A-1
• 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.
A-8
MAJOR AREAS of LAW
LO A-1
• 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.
A-9
ADMINISTRATIVE AGENCIES
LO A-1
• 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
A-10
ADMINISTRATIVE AGENCIES
LO A-1
A-11
TEST PREP
• What is business law?
• What is the difference between statutory and
common law?
• What is an administrative agency?
A-12
WHAT is TORT LAW?
LO A-2
• 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.
A-13
PRODUCT LIABILITY LAWS
LO A-2
• 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.
A-14
MAJOR
PRODUCT LIABILITY CASES
LO A-2
A-15
PATENTS, COPYRIGHTS, and
TRADEMARKS
LO A-3
• Patent -- A document that gives inventors exclusive
rights to their inventions for 20 years.
• Copyright -- Protects a
creator’s rights to materials such
as books, articles, photos,
paintings, and cartoons.
• A trademark is a legally
protected name, symbol, or
design that identifies the goods
or services of a seller.
A-16
PATENT FACTS
LO A-3
• Patent applicants should
seek the advice of a lawyer.
• Foreign applicants are
eligible to file for U.S.
patents.
• Patent owners have the
right to sell or license the
use of their patent to others.
A-17
PATENT LEADERS in 2013
Company
# of Patents
Home Country
IBM
6,809
USA
Samsung
4,676
Korea
Canon
3,825
Japan
Sony
3,098
Japan
Microsoft
2,660
USA
Source: IFI Patent Intelligence, www.ificlaims.com, accessed November 2014.
LO A-3
A-18
TEST PREP
• 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?
A-19
WHAT is the
UNIFORM COMMERCIAL CODE?
LO A-4
• 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.
A-20
UNDERSTANDING WARRANTIES
LO A-4
• 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.
A-21
NEGOTIABLE INSTRUMENTS
LO A-4
• 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.
A-22
CONTRACT LAW
LO A-5
• 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.
A-23
CONTRACT REQUIREMENTS
LO A-5
• 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
A-24
BREACHED CONTRACTS
LO A-5
• If a contract is breached the following may be
ordered:
- Specific performance
- Payment of damages
- Discharge of obligation
A-25
TEST PREP
• 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?
A-26
The CLAYTON ACT of 1914
LO A-6
• The Clayton Act prohibits:
- Exclusive dealing
- Tying contracts
- Interlocking directorates
A-27
ANTITRUST LEGISLATION
LO A-6
• 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.
A-28
HISTORY of HIGH PROFILE
ANTITRUST CASES
LO A-6
A-29
CONSUMER PROTECTIONS
LO A-6
• 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.
A-30
NUMBER of IDENTITY THEFT
COMPLAINTS
Source: Federal Trade Commission, www.ftc.gov, accessed July 2011.
LO A-6
A-31
TAXES
LO A-7
• Taxes -- The way federal, state, and local
governments raise money.
• Some forms of taxes:
- Income taxes
- Property taxes
- Sales taxes
- Excise taxes
A-32
SIN TAXES
LO A-7
State Tax Rates per Pack of Cigarettes
State(s)
Rate per Pack
New York
$4.35
Massachusetts
$3.51
Rhode Island
$3.50
Connecticut
$3.40
Hawaii
$3.20
Washington
$3.025
Minnesota
$2.83
Source: Tobacco Free Kids, www.tobaccofreekids.org, accessed November 2014.
A-33
DO the RICH PAY TAXES?
Taxpayers
% of Total Taxes
Top 1%
40% of total taxes
Top 5%
60% of total taxes
Top 25%
86% of total taxes
Top 50%
97% of total taxes
Bottom 50%
3% of total taxes
Source: IRS, Statistics of Income, www.irs.gov, accessed November 2014.
LO A-7
A-34
BANKRUPTCY LAWS
LO A-8
• 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
A-35
CHAPTER 7 BANKRUPTCY
LO A-8
• 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
A-36
How ASSETS are DIVIDED in
BANKRUPTCY
LO A-8
A-37
GOING, GOING, GONE
LO A-8
Big Bankruptcies of 2008-2014
• Circuit City
• KB Toys
• Linens N Things
• Borders
• City of Detroit
A-38
DEREGULATING COMMERCE
LO A-9
• Deregulation -- The government withdraws certain
laws and regulations that seem to hinder competition.
• Deregulation efforts
were active in:
- The airline industry
- Telecommunication
- Some public utilities
A-39
HAMBURGER REGULATIONS
LO A-9
A-40
TEST PREP
• 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.
A-41