Lecture

Outline

I. THE NEED FOR LAWS.

A. Laws are an essential part of a civilized nation.

1. The JUDICIARY is the branch of government chosen to oversee the legal system through the court system.

2. The court system in the U.S. is organized at the federal, state, and local levels.

a. TRIAL COURTS hear cases involving criminal and civil law.

b. CRIMINAL LAW defines crimes, establishes punishment, and regulates prosecution.

c. CIVIL LAW involves legal proceedings that do not involve criminal acts.

d. Both federal and state systems have APPELLATE COURTS to hear appeals of trial court decisions.

3. The judiciary also governs the activities and operations of a business.

4. Government has stepped in to make LAWS governing behavior because the U.S. business community has been perceived as not implementing acceptable practices fast enough.

5. BUSINESS LAW refers to the rules, statutes, codes, and regulations that are established to provide a legal framework within which business may be conducted and that are enforceable by court action.


6. A businessperson should be familiar with the laws regarding product liability, sales, contracts, fair competition, consumer protection, taxes, and bankruptcy.

B. STATUTORY AND COMMON LAW.

1. STATUTORY LAW includes state and federal constitutions, legislative enactments, treaties of the federal government, and ordinances; in short, written laws.

2. COMMON LAW is the body of the law that comes from decisions handed down by judges; also referred to as unwritten law.

a. PRECEDENT are decisions judges have made in earlier cases that guide the handling of new cases.

b. Lower courts must abide by the precedents set by higher courts.

C. ADMINISTRATIVE AGENCIES.

1. ADMINISTRATIVE AGENCIES are federal or state institutions and other government organizations created by Congress or state legislatures with delegated power to pass rules and regulations within their mandated area of authority.

2. Administrative agencies hold quasilegislative, quasi-executive, and quasi judicial powers.

a. The agency is allowed to pass regulations within its area of authority, conduct


investigations, and hold hearings when rules and regulations have been violated.

b. They issue more rulings and settle more disputes than courts.

II. TORT LAW.

A. A TORT is a wrongful act that causes injury to another person=s body, property, or reputation.

1. An INTENTIONAL TORT is a willful act purposely inflicted that results in injury.

2. NEGLIGENCE, in tort law, deals with behavior that causes unintentional harm or injury.

3. Such product liability is one of the more controversial areas of tort law.

B. PRODUCT LIABILITY.

1. PRODUCT LIABILITY is the part of tort law that holds businesses liable for harm that results from production, design, sale, or use of products it markets.

2. At one time the legal standard for liability was knowingly placing a product on the market.

a. Today many states have extended liability to the level of strict liability.

b. STRICT PRODUCT LIABILITY is legal responsibility for harm or injury caused by a product regardless of fault.

3. A company could be liable for damages caused by placing a product on the market with an unknown defect.


4. The rule of strict liability has caused serious problems for manufacturers of some products, such as asbestos and lead-based paint.

a. Manufacturers of chemicals and drugs are lobbying Congress to set damage limits.

b. The gun industry has been accused of damages under the rules of strict product liability.

c. Fast food companies are facing liability suits charging that its food causes obesity and other health concerns.

5. Businesses and insurance companies have called for legal relief from huge losses in strict product liability suits.

III. LAWS PROTECTING IDEAS: PATENTS, COPYRIGHTS, AND TRADEMARKS.

A. A PATENT is a document that gives inventors EXCLUSIVE RIGHTS to their inventions for 20 YEARS.

1. Filing a patent with the U.S. Patent Office requires a SEARCH to ensure the patent is truly unique, followed by the FILING OF FORMS.

2. Patents owners may SELL OR LICENSE the use of the patent to others.

3. Penalties for violating a patent can be severe.

a. Defense of patent rights is solely the job of the patent holder.

b. Kodak lost millions of dollars for infringing on a Polaroid patent.


4. Some 60% of patent applications are approved, costing the inventor a minimum of $6,600.

a. The process takes almost two years.

b. The growth in patents requested is exceeding the capacity of the U.S. Patent Office.

c. There is a tremendous growth of business-method patents, which involve different business applications using the Internet.

B. The American Invention Protection Act requires patent applications to be made public after 18 months.

1. It was passed in part in response to some inventors intentionally dragging out the patent application.

2. Some inventors use a submarine patent, intentionally delaying a patent application and waiting for others to develop the technology.

C. A COPYRIGHT is a document that protects a creator’s rights to materials such as books, articles, photos, and cartoons.

1. Copyrights are filed with the Library of Congress and involve a minimum of paperwork.

2. They last for the lifetime of the author or artist plus 70 years.

3. The holder of an exclusive copyright may charge a fee to anyone who wishes to use the material.


D. A TRADEMARK is a legally protected name, symbol, or design (or combination of these) that identifies the goods or services of one seller and distinguishes them from those of competitors.

1. Trademarks generally belong to the owner forever.

2. Examples include Disney’s Mickey Mouse and McDonald’s Golden Arches.

3. Like a patent, a trademark is protected from infringement.

IV. SALES LAW: THE UNIFORM COMMERCIAL CODE.

A. The UNIFORM COMMERCIAL CODE (UCC) is a comprehensive commercial law, adopted by every state in the United States, that covers SALES LAWS and other COMMERCIAL LAWS.

1. The 11 ARTICLES OF THE UCC cover sales; commercial paper; bank deposits and collections; letters of credit; bulk transfers; warehouse receipts, bills of lading, and other documents of title; investment securities; and secured transactions.

2. The text discusses two of these articles: ARTICLE 2 (WARRANTIES) and ARTICLE 3 (NEGOTIABLE INSTRUMENTS).

B. WARRANTIES.

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


2. EXPRESS WARRANTIES are specific representations by the seller that buyers rely on regarding the goods they purchase.

3. IMPLIED WARRANTIES are guarantees legally imposed on the seller.

4. A FULL WARRANTY requires a seller to replace or repair a product at no charge if the product is defective.

5. LIMITED WARRANTIES typically limit the defects or mechanical problems that are covered.

C. NEGOTIABLE INSTRUMENTS.

1. NEGOTIABLE INSTRUMENTS are forms of commercial paper (such as checks) that are transferable among businesses and individuals and represent a promise to pay a specified amount.

2. NEGOTIABLE INSTRUMENTS must:

a. Be written and signed by the maker.

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

c. Be made payable to the bearer or to specific order.

d. Contain an unconditional promise to pay a specified amount of money.

3. Checks or other forms of negotiable instruments are transferred when the payee signs the back of the check, known as an ENDORSEMENT.
V. CONTRACT LAW.

A. TERMINOLOGY.

1. A CONTRACT is a legally enforceable agreement between two or more parties.

2. CONTRACT LAW is the set of laws that specify what constituted a legally enforceable agreement.

B. A contract is LEGALLY BINDING if the following conditions are met:

1. An OFFER is made.

2. There is a VOLUNTARY ACCEPTANCE of the offer.

3. Both parties give CONSIDERATION (something of value).

4. Both parties are COMPETENT.

5. The contract must be LEGAL.

6. The contract is in a PROPER FORM.

C. BREACH OF CONTRACT.

1. BREACH OF CONTRACT occurs when one party fails to follow the terms of the contract.

2. CONSEQUENCES of a breached contract are:

a. SPECIFIC PERFORMANCE: The person violating contract may be required to live up to the agreement if no monetary award is adequate.

b. PAYMENT OF DAMAGES, the monetary settlement awarded to a person who is injured by a breach of contract.

c. DISCHARGE OF OBLIGATION, agreeing to drop the matter.

D. A contract should:

1. Be in writing.

2. Specify mutual consideration.

3. Be clearly offered and accepted.

VI. LAWS TO PROMOTE FAIR AND COMPETITIVE PRACTICES.

A. The legislature passes laws to enforce a competitive atmosphere among businesses.

1. The Justice Department’s antitrust division serves as watchdog.

2. The scope of government is broad and extensive.

3. Businesses were once able to drive smaller competitors out of business with little resistance.

B. THE HISTORY OF ANTITRUST LEGISLATION.

1. In the late 19th century, big industrial firms dominated the U.S. economy.

a. Congress passed the SHERMAN ANTITRUST ACT in 1890.

b. The act was designed to prevent large organizations from stifling the smaller competitors.

2. The SHERMAN ACT forbids:

a. Contracts, combinations, or conspiracies in restraint of trade.


b. Actual monopolies or attempts to monopolize any part of trade or commerce.

3. Later laws clarified the legal concepts of the Sherman Act.

a. The CLAYTON ACT OF 1914 prohibits exclusive dealing, tying contracts, interlocking directorates, and buying large amounts of stock in competing corporations.

i. Exclusive dealing is selling goods with the condition that the buyer will not buy goods from a competitor.

ii. A tying contract requires a buyer to purchase unwanted items in order to purchase desired items.

iii. An interlocking directorate occurs when a board of directors includes members of the board of competing corporations.

b. The FEDERAL TRADE COMMISSION ACT OF 1914 prohibits unfair methods of competition in commerce and created the Federal Trade Commission.

i. This legislation set up the five-member Federal Trade Commission (FTC) to enforce compliance with this act.

ii. In the early 2000s, the FTC’s antitrust authority was expanded by the Bush administration.

iii. The Wheeler-Lea Amendment in 1938 gave the FTC additional jurisdiction over false or misleading advertising.

c. The ROBINSONPATMAN ACT OF 1936 prohibits price discrimination.

i. It applies to both sellers and buyers who “knowingly” induce unlawful discrimination in price.

ii. The law outlaws price differences that “substantially” weaken competition unless these differences can be justified by lower selling costs.

iii. This act applies to business-to-business transactions and does not apply to consumers in business transactions.

4. In recent years Microsoft=s competitive practices have raised questions about unfair competition.

a. Microsoft was accused of hindering competition in its dealings with computer manufacturers.

b. The trial court found that Microsoft violated the law, but most conclusions were overturned.

VII. LAWS TO PROTECT CONSUMERS.

A. CONSUMERISM is a social movement that seeks to increase and strengthen the rights and powers of buyers in relation to sellers.

1. Consumerism has taken on new vigor in the wake of the Enron and WorldCom scandals.

2. Beginning in 2002 CEOs have to verify the accuracy of their firm’s financial reports to the SEC.

B. PRESIDENT JOHN F. KENNEDY identified four BASIC RIGHTS OF CONSUMERS:

1. The right to SAFETY.

2. The right to be INFORMED.

3. The right to CHOOSE.

4. The right to be HEARD.

VIII. TAX LAWS.

A. TAXES are how government (federal, state, and local) raises money.

1. Taxes are also government=s way of DISCOURAGING citizens from doing what it considers harmful (for example, sin taxes on cigarettes and alcohol.)

2. Government ENCOURAGE businesses to hire new employees or purchase new equipment by offering a tax credit.

B. Taxes are levied from a variety of SOURCES.

1. Income, sales, and property are the major bases of tax revenue.

2. States and local communities often make extensive use of sales taxes.

3. The tax policies of states and cities are taken into consideration when businesses seek to locate operations.

C. A key tax issue in the next few years involves Internet taxation, especially e-commerce.

IX. BANKRUPTCY LAW.

A. BANKRUPTCY is the legal process by which a person, business, or government entity, unable to meet financial obligations, is relieved of those obligations by a court that divides any assets among creditors, allowing creditors to get at least part of their money and freeing the debtor to begin anew.

1. The court divides any assets among creditors.

2. The Constitution gives Congress the power to establish bankruptcy laws.

3. There are efforts in Congress to make bankruptcy more difficult.

D. Bankruptcy can be either VOLUNTARY or INVOLUNTARY.

1. VOLUNTARY BANKRUPTCY involves legal procedures initiated by a debtor.

2. INVOLUNTARY BANKRUPTCY involves bankruptcy procedures filed by a debtor=s creditors.

E. Bankruptcy procedures are filed under one of the following SECTIONS OF THE BANKRUPTCY CODE:

1. CHAPTER 7 “Straight bankruptcy” or liquidation. (used by businesses and individuals.)

2. CHAPTER 11 Reorganization (used by businesses and some individuals.)

3. CHAPTER 13 Repayment (used by individuals.)

X. DEREGULATION.

A. DEREGULATION is the government withdrawal of certain laws and regulations that seem to hinder competition.

B. Deregulation has had a huge impact on the airline industry.

1. When restrictions on routes were lifted, airlines began competing for routes and lowering prices.

2. Airlines such as Southwest Air were born to take advantage of deregulation.

3. Similar deregulation in telecommunication occurred after the passage of the Telecom-munications Act of 1996.

4. The electric power industry has also been the target of deregulation, with disastrous results in California.

C. There have recently been calls for NEW REGULATIONS in some industries.

1. It seems some regulation of business is necessary to assure fair and honest dealings with the public.

2. With global competition increasing, businesses and government need to continue to work together to create a competitive environment that is fair and open.

3. If businesses do not want additional regulation, they must accept and respond to the responsibilities they have to society.

LE.6 UNDERSTANDING BUSINESS: Instructor’s Resource Manual