Bonus
Chapter A
Working
within the
Legal
Environment
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Bonus Chapter
A
LEARNING GOALS
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
Bonus Chapter
A
LEARNING GOALS
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
Profile
KENNETH FRAZIER
Merck
• 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.
A-4
Bonus Chapter
A
NAME that COMPANY
This automaker sells more cars in the United
States than any other auto producer. In 20102011, 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!
A-5
The Case for
Laws
The NEED for LAWS
LG1
• 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.
A-6
The Case for
Laws
TYPES of COURT
LG1
• Trial courts hear cases of
criminal and civil law.
• Appellate courts hear
appeals from the losing
party at the trial court level.
A-7
The Case for
Laws
TYPES of LAW
LG1
• 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
Statutory and
Common Law
MAJOR AREAS of LAW
LG1
• 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
ADMINISTRATIVE AGENCIES
LG1
• 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
Progress
Assessment
PROGRESS ASSESSMENT
• What is business law?
• What is the difference between statutory and
common law?
• What is an administrative agency?
A-11
Tort Law
WHAT is TORT LAW?
LG2
• 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-12
Product Liability
PRODUCT LIABILITY LAWS
LG2
• 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-13
Product Liability
LG2
MAJOR
PRODUCT LIABILITY CASES
Company
Year
Settlement
Ford Motor Company
1978
$125 million in punitive damages
awarded after a boy was severely
burned during a rear end collision
A.H. Robins
1987
Dalkon Shield recalled after eight
separate punitive damage settlements
Jack In the Box
1993
Assessed large damages after a child
died of E. coli and others became ill
General Motors
1999
Paid $4.8 billion in damages in faulty
fuel-tank case
2004
$130 billion sought by the federal
government for smoking cessation
programs (settled for $10 billion)
Major Tobacco Firms
A-14
Legally Protecting
Ideas: Patents,
Copyrights and
Trademarks
LG3
PATENTS, COPYRIGHTS, and
TRADEMARKS
• 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-15
Legally Protecting
Ideas: Patents,
Copyrights and
Trademarks
PATENT FACTS
LG3
• 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-16
Legally Protecting
Ideas: Patents,
Copyrights and
Trademarks
PATENT LEADERS in 2010
LG3
Company
# of Patents
Home Country
IBM
5,896
USA
Samsung
4,551
Korea
Microsoft
3,094
USA
Canon
2,552
Japan
Panasonic
2,482
Japan
Source: IFI Patent Intelligence, www.ificlaims.com, accessed July 2011.
A-17
Progress
Assessment
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?
A-18
Sales Law:
The Uniform
Commercial
Code
LG4
WHAT is 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.
A-19
Warranties
UNDERSTANDING WARRANTIES
LG4
• 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-20
Negotiable
Instruments
NEGOTIABLE INSTRUMENTS
LG4
• 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-21
Contract Law
CONTRACT LAW
LG5
• 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-22
Contract Law
CONTRACT REQUIREMENTS
LG5
• 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-23
Contract Law
BREACHED CONTRACTS
LG5
• If a contract is breached the following may be
ordered:
- Specific performance
- Payment of damages
- Discharge of obligation
A-24
Progress
Assessment
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?
A-25
The History of
Antitrust
Legislation
The CLAYTON ACT of 1914
LG6
• The Clayton Act prohibits:
- Exclusive dealing
- Tying contracts
- Interlocking directorates
A-26
The History of
Antitrust
Legislation
ANTITRUST LEGISLATION
LG6
• 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-27
The History of
Antitrust
Legislation
HISTORY of HIGH PROFILE
ANTITRUST CASES
LG6
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
A-28
Laws to
Protect
Consumers
CONSUMER PROTECTIONS
LG6
• 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-29
Laws to
Protect
Consumers
LG6
NUMBER of IDENTITY THEFT
COMPLAINTS
Source: Federal Trade Commission, www.ftc.gov, accessed July 2011.
A-30
Tax Laws
TAXES
LG7
• Taxes -- The way federal, state, and local
governments raise money.
• Some forms of taxes:
- Income taxes
- Property taxes
- Sales taxes
- Excise taxes
A-31
Tax Laws
LG7
SIN TAXES
State Tax Rates per Pack of Cigarettes
State(s)
Rate per Pack
New York
$4.35
Rhode Island
$3.46
Washington
$3.02
Connecticut & Hawaii
$3.00
New Jersey
$2.70
Wisconsin
$2.52
Massachusetts
$2.51
Source: National Conference of State Legislators, www.ncsl.org, accessed July 2011.
A-32
Tax Laws
DO the RICH PAY TAXES?
LG7
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 July 2011.
A-33
Bankruptcy
Laws
BANKRUPTCY LAWS
LG8
• 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-34
Bankruptcy
Laws
CHAPTER 7 BANKRUPTCY
LG8
• 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-35
Bankruptcy
Laws
LG8
How ASSETS are DIVIDED in
BANKRUPTCY
A-36
Bankruptcy
Laws
GOING, GOING, GONE
LG8
Big Bankruptcies of 2008-2011
• Circuit City
• KB Toys
• Linens ‘n Things
• Mrs. Field’s
Cookies
• Borders
A-37
Deregulation
vs. Regulation
DEREGULATING COMMERCE
LG9
• 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-38
Deregulation
vs. Regulation
HAMBURGER REGULATIONS
LG9
A-39
Progress
Assessment
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.
A-40