1. Working within the Legal Environment Bonus Chapter A McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

2. 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 GOALS Bonus Chapter A A-2

3. 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 GOALS Bonus Chapter A A-3

4. 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. Profile KENNETH FRAZIER Merck A-4

5. NAME that COMPANY Bonus 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! A-5

6. 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 LAWS LG1 A-6

7. Trial courts hear cases of criminal and civil law. Appellate courts hear appeals from the losing party at the trial court level. TYPES of COURT LG1 The Case for Laws A-7

8. 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 LAW LG1 The Case for Laws A-8

9. 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 LAW LG1 A-9

10. 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 AGENCIES LG1 A-10

11. PROGRESS ASSESSMENT What is business law? What is the difference between statutory and common law? What is an administrative agency? Progress Assessment A-11

12. 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 A-12

13. 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 LAWS LG2 A-13

14. MAJOR PRODUCT LIABILITY CASES CompanyYearSettlement Ford Motor Company1978 $125 million in punitive damages awarded after a boy was severely burned during a rear end collision A.H. Robins1987 Dalkon Shield recalled after eight separate punitive damage settlements Jack In the Box1993 Assessed large damages after a child died of E. coli and others became ill General Motors1999 Paid $4.8 billion in damages in faulty fuel-tank case Major Tobacco Firms2004 $130 billion sought by the federal government for smoking cessation programs (settled for $10 billion) LG2 Product Liability A-14

15. 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. A trademark is a legally protected name, symbol, or design that identifies the goods or services of a seller. LG3 A-15

16. 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. PATENT FACTS LG3 Legally Protecting Ideas: Patents, Copyrights and Trademarks A-16

17. Source: IFI Patent Intelligence, www.ificlaims.com, accessed July 2011.www.ificlaims.com PATENT LEADERS in 2010 Company# of PatentsHome Country IBM5,896USA Samsung4,551Korea Microsoft3,094USA Canon2,552Japan Panasonic2,482Japan LG3 Legally Protecting Ideas: Patents, Copyrights and Trademarks A-17

18. 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 A-18

19. 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.UCC WHAT is the UNIFORM COMMERCIAL CODE? LG4 A-19

20. 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 WARRANTIES LG4 A-20

21. 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 INSTRUMENTS LG4 A-21

22. 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 LAW LG5 A-22

23. 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 REQUIREMENTS LG5 Contract Law A-23

24. If a contract is breached the following may be ordered:  Specific performance  Payment of damages  Discharge of obligation BREACHED CONTRACTS LG5 Contract Law A-24

25. 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 A-25

26. The History of Antitrust Legislation The Clayton Act prohibits:  Exclusive dealing  Tying contracts  Interlocking directorates The CLAYTON ACT of 1914 LG6 A-26

27. 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 LEGISLATION LG6 The History of Antitrust Legislation A-27

28. HISTORY of HIGH PROFILE ANTITRUST CASES CaseYearOutcome U.S. v. Standard Oil1911Standard Oil broken into 34 companies U.S. v. American Tobacco 1911American Tobacco split into 16 companies U.S. v. E. I. du Pont de Nemours 1961DuPont ordered to divest its 23% ownership in General Motors U.S. v. AT&T1982Settled after Ma Bell spun off into regional companies U.S. v. Microsoft2000Microsoft ordered to halt prior anticompetitive practices LG6 The History of Antitrust Legislation A-28

29. 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 PROTECTIONS LG6 A-29

30. Source: Federal Trade Commission, www.ftc.gov, accessed July 2011.www.ftc.gov NUMBER of IDENTITY THEFT COMPLAINTS LG6 Laws to Protect Consumers A-30

31. Tax Laws Taxes -- The way federal, state, and local governments raise money. Some forms of taxes:  Income taxes  Property taxes  Sales taxes  Excise taxes TAXES LG7 A-31

32. Source: National Conference of State Legislators, www.ncsl.org, accessed July 2011.www.ncsl.org 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 LG7 Tax Laws A-32

33. Source: IRS, Statistics of Income, www.irs.gov, accessed July 2011.www.irs.gov 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 LG7 Tax Laws A-33

34. 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 LAWS LG8 A-34

35. 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 BANKRUPTCY LG8 A-35

36. How ASSETS are DIVIDED in BANKRUPTCY LG8 Bankruptcy Laws A-36

37. GOING, GOING, GONE Big Bankruptcies of 2008-2011 Circuit City KB Toys Linens ‘n Things Mrs. Field’s Cookies Borders LG8 Bankruptcy Laws A-37

38. 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 A-38

39. HAMBURGER REGULATIONS LG9 Deregulation vs. Regulation A-39

40. 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 A-40