legl 2700 - exam 3

what is a crime?

wrong against society

elements of a crime:

• Means Rea

  • mind

  • focused on your mental state at the time the crime took place (guilty mind)

• Actus Rea

  • Act

  • must be voluntary and the person must be conscious

  • focused on the physical act of committing the crime

  • ex: sleepwalking and murdering someone: not conscious

intent (3 types)

• general intent

  • intention to do the act that constitutes the crime

• specific intent

  • intention to achieve the harmful result

  • ex: willful, knowingly

• reckless conduct

  • ex: drinking and driving

classifications of crimes (2 classifications)

• felony

  • commenced by a grand jury indictment

  • very different from petit jury (which determines guilty v. innocent!)

    • grand jury decides if we have probable cause to warrant going to trial

  • fine or imprisonment 1 year or MORE

• misdemeanor

  • commenced when the government files a charge called an information

  • fine or imprisonment LESS than 1 year

pleas

• not guilty

• guilty

• nolo contendere

nolo contendere

• stands for no contest

• allows for sentencing as if there had been a guilty plea (but no admission of guilt)

• allows you to avoid the cost of trial

• ex: traffic violation, would avoid points on license

• speeding ex:

  • 15 to 18 mph over the speed limit: 2 points

  • 19 to 23 mph over the speed limit: 3 points

  • 24 to 33 mph over the speed limit: 4 points

  • 34 mph or more over the speed limit: 6 points

what is white collar crime?

• any illegal offense that occurs in a business or professional setting that is committed to harm the business or for personal gains

• most major corporations have ethical codes and extensive compliance programs to combat these types of crimes

fraud

• defendant made a false statement

• defendant knew the statement was false or was recklessly indifferent regarding its truth

• defendant intended for the other party to rely on the false statement

• creates criminal liability

• actionable under state criminal codes

for fraud, fines and/or imprisonment are exerted on individuals who knowingly and willfully:

• falsify, conceal, or cover up any trick, scheme, or device a material fact

• make any materially false, fictitious, or fraudulent statement or representation

• make or use any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry

scheme to defraud

• plan designed to take from a person the tangible right of honest services

what is theft by deception?

• a person intentionally creates or reinforces an impression that is false

• a person fails to correct an impression that is false and that the person does not believe to be true if there is a confidential or fiduciary relationship between parties

• a person prevents another from acquiring information that is relevant to a transaction

• a person fails to disclose a known lien or legal impediment to property being transferred

federal fraud crimes

• mail and wire fraud

• securities fraud

• health care fraud

• counterfeiting

• bankruptcy fraud

mail and wire fraud

• mail fraud: unlawful to use the U.S. Postal Service (or any other interstate carrier like FedEx or UPS) to defraud someone

• wire fraud: unlawful to use any electronic means of interstates COMMUNICATION (ex: radio, tv, phone call, text message, fax, internet, email) to defraud someone

  • false?

    • known to be untrue or made with reckless indifference to its truth or falsity

  • defraud?

    • the material fact is vital to a reasonable person in determining whether to engage in a particular transaction

  • intent?

    • to act knowingly and with the specific intent to defraud someone

• examples:

  • mail: fake invoice in mail

  • wire:

    • pretend to sell something over phone (mostly with older people)

    • people getting calls from people impersonating IRS

    • fake call that daughter has been kidnapped

• defenses:

  • good faith: acting in good faith, not held accountable

securities fraud

• rule 10b of the securities and exchange commission and the securities exchange act of 1934 make fraud in the purchase or sale of a security a federal crime

• more in this is chapter 17

health care fraud

• prosecution of false claims under the false claims act

  • investigations are aided by information revealed by whistleblower suits

• examples of health care fraud include:

  • billing for services not actually performed

  • falsifying a patient’s diagnosis to justify tests, surgery, or other procedures that are not medically necessary

  • uncoding or billing for a more costly procedure than the one actually performed

  • unbundling or billing each stage of a procedure as if it were a separate procedure

  • accepting kickbacks for patient referrals

  • billing a patient more than the copay amount

• ex: ABC hospital charges $100 for IV

  • ABC hospital charges $10,000 for delivering baby (includes IV)

  • Tonya goes to hospital to deliver baby, received IV

  • later receives bill for 10,100

  • is this legal?

    • NO, unbundling

counterfeiting

• don’t confuse with wire fraud!

  • wire: electronic means of COMMUNICATION

  • counterfeiting: don’t know it is happening, NO COMMUNICATION

• use of counterfeit access devices including bank cards, plates, codes, account numbers, or other means to initiate a transfer of funds is outlawed

• the use of an UNAUTHORIZED ACCESS DEVICE is prohibited

  • lost, stolen, expired, revoked, cancelled, or fraudulently obtained bank card

• must result in at least $1000 being fraudulently obtained within a 1-YEAR PERIOD!

bankruptcy fraud

• certain conduct by the debtors, creditors, and others are said to be a federal crime as per the U.S. code

• examples:

  • falsifying information in a bankruptcy proceeding

  • presenting a false claim in any bankruptcy proceeding

  • bribing a trustee

  • CONCEALMENT

    • YOU ARE INTENTIONALLY MISREPRESENTING OR WITHOLDING SOMETHING THAT IS MATERIAL (MATERIAL FACT) THROUGH YOUR SILENCE

    • ex: bankruptcy - fail to mention you have another house

      • even if you are not successful, if they know about it, you are still held accountable for trying to conceal in the first place

conspiracy

• separate from the underlying charge

• 2 or more individuals knowingly agree on a plan or scheme or method for carrying out an illegal act

  • have to intend to accomplish the objective of the conspiracy

• defendant willfully became a member of such conspiracy (can join at any point in time)

• requires an OVERT ACT (ANYONE from group does anything to further the objective of the act!)

  • any act knowingly committed by AT LEAST ONE of the conspirators in an effort to carry out or accomplish some objective of the conspiracy

• a person can be charged with conspiracy even if they don’t know all the details of the unlawful scheme

• ex: can charge for wire fraud or conspiracy to commit wire fraud

• fred and barney example:

  • they agree to rob bank

  • is this conspiracy? NO, no overt act

    • simply agreeing to rob bank isn’t enough

  • fred driving getaway car, parked outside bank

    • now have an overt act, so YES conspiracy

  • crime is planned for wednesday night and on monday, fred goes out and buys a gun for barney to use during the robbery

    • can both fred and barney be guilty of conspiracy? YES, only one person has to do the overt act

obstruction of justice

• commission of an act with the intent to obstruct or interfere with the legislative or judicial process

• laws are designed to protect the integrity of:

  • legislative and judicial proceedings

  • proceedings before federal departments or agencies

• examples:

  • if you know you are going to be investigated and have documents in office that show guilt and you shred them, that is obstruction of justice

  • shredding evidence

  • altering phone calls

  • committing a murder and trying to get rid of murder weapons

  • testify falsely

  • talking to cops and lie

false statement to a bank

• law aims to protect banks and ensure the accuracy of financial information

• a statement or report is false if it:

  • relates to a material fact and is untrue

  • is known to be untrue by the person making it

• ex: people lying about employment status when buying house

false statement to a federal agency

• federal crime for anyone to willfully and knowingly make a false or fraudulent statement to a department or agency of the united states

• must be related to a material matter

larceny

• unlawful taking a personal property with the intent to deprive owner of it permanently

• commonly referred to as THEFT or STEALING/shoplifting

• robbery

  • larceny by VIOLENCE

  • typically have a gun and say give me your money

• burglary

  • breaking into building/car with intent to commit felony

• embezzlement

  • someone who is entrusted with money, abuses trust and does something for own personal gain

  • ex: writes check out to yourself from company that was supposed to pay company expenses

racketeer influences and corrupt organizations act (RICO)

• aimed at preventing organized crime

  • you can take down the entire group at once!

• imposes criminal and civil liability

• a RICO violation occurs when a person, in connection with an enterprise, engages in a pattern of racketeering activity

  • must have engaged in AT LEAST 2 racketeering activities

• examples of racketeering activities:

  • murder, kidnapping, gambling, arson, robbery, bribery, extortion, dealing in obscene material or controlled substances, counterfeiting, mail and wire fraud, obstruction of justice, tampering with a witness, victim or informant

• young thug case:

  • should you be able to use musical lyrics to determine guilt or does that breach freedom of speech

• trump case in GA:

  • rico federal vs. state

  • federal charges can be pardoned, state level can’t be pardoned

cyber crime

• person who intentionally accesses (or attempts to access) a computer without authorization or exceeds authorized access to obtain classified, restricted, or protected data

• electronic theft - hackers steal money, trade secrets, personnel records, consumer lists, and company plans. issuing corporate stock to yourself

• identity theft - using accessed information to commit fraud (using stolen information to create a new form of identity)

endangering workers

• occupational safety and health act of 1970 imposes criminal sanctions for:

  • willfully violating an OSHA standard that causes the death of an employee

  • giving advanced notice of an OSHA inspection

  • falsification of documents filed under OSHA

• must have adequate safety precautions in place

bribery & kickbacks

• bribery of a public official is illegal under federal law

• accepting a bribe to “fix” or “throw” a game is a federal crime

  • Sports Bribery Program (FBI)

    • investigates violations of federal statutes related to gambling and corruption in sports

    • helps ensure the integrity of college and professional sports

• kickbacks: payments made to a person who facilitated a transaction

fourth amendment

• illegal search & seizure

  • protects individuals and corporations from unreasonable searches and seizures by the government

    • the police must obtain a search warrant before searching a place where people have a reasonable expectation of privacy

    • the police must show probable cause that the search will yield evidence of a crime

  • expectations of privacy

    • private residence vs. commercial premises

      • more privacy at private residency compared to commercial premises/work

  • exceptions:

    • consent searches

    • motor vehicle searches (in some cases)

    • evidence in plain view

    • exigent circumstances

      • ex: if someone is about to shoot up a place/immediate threat to society

      • ex: hear you moving cocaine around, trying to destroy evidence

    • police making an arrest

      • have right to search/pat down if arresting

    • once you hit a certain checkpoint at airport, irrevocable consent for them to search you

4th amendment case: riley v. california

• facts:

  • stopped for traffic violation, learned his driver’s license was suspended, during the process of arrest he can pat down, but not go through cell phone

• what is the issue?

  • higher expectation of privacy with cell phone, no warrant, cell phone showed evidence of shooting involvement

• did the trial court get it wrong or were they right?

  • they ruled the evidence is inadmissible

fifth amendment

• grand jury

• self incrimination

• miranda rights

• double jeopardy

grand jury (5th amendment)

• 5th amendment of the constitution requires an indictment by a grand jury for felony charges (felony charges at federal level)

• comprised of 23 citizens

  • 16 must be present to hear evidence and grant votes on cases

  • at least 12 people must concur for the court to issue an indictment

• determines if there is PROBABLE CAUSE

• serves as investigative body

• grand jury proceedings are confidential

  • exception:

    • grand jury ultimately decides you can go to trial, one of witnesses takes the stand and says they don’t remember, can pull grand jury transcripts to jog memory

    • or if witness takes stand and is saying something completely different (impeach them)

self incrimination (5th amendment)

• protects the accused from being compelled to testify against self

• the “right to remain silent”

• does not protect:

  • against being required to produce physical evidence

    • ex: fingerprints, voice samples, bodily fluids

  • a person who is required to produce business records

    • in writing, not making you say it out loud

• corporations

  • 5th amendment doesn’t protect corporations because they can’t testify

  • exception - sole proprietorship business

miranda rights (5th amendment)

• you have the right to remain silent

• anything you say can be used against you in court, you have the right to talk to a lawyer for advice before we ask you any questions

• you have the right to have a lawyer with you during questioning

• if you cannot afford a lawyer, one will be appointed for you before any questioning if you wish

• if you decide to answer questions without a lawyer present you have the right to stop answering at any time

• NOTE: MERE SILENCE DOESN’T INVOKE YOUR MIRANDA RIGHTS

  • YOU HAVE TO CLEARLY ARTICULATE THAT YOU ARE INVOKING YOUR MIRANDA RIGHTS

double jeopardy (5th amendment)

• individuals cannot be tried twice by the same governmental entity for the same crime based on the same factual situation

  • can bring civil and criminal trial because they are different government entities

  • federal and state is ok because they are different government entities

  • two different states, not the same government entity

• limited to criminal activities, not civil (res judicata)

sixth amendment

• speedy and public trial

• trial by jury

• be informed of the charge against oneself

  • constitution doesn’t force police to say the charge

  • supreme court says it needs to be soon after the arrest

  • state level, every state is different, YES to be informed in Georgia, especially if they don’t have a warrant

• confront the accuser

• subpoena witnesses in your favor

• have the assistance of an attorney

eighth amendment

• excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted

• case: furman v. georgia

  • help us understand what is considered “cruel and unusual”

    • severe and degrade human dignity

    • inflicted completely in an arbitrary manner

    • largely rejected by society

    • patently unnecessary

  • must be at least 18 when you committed crime to face death penalty (same with mentally disabled people)

federal sentencing guidelines

• purpose

  • to make the criminal system more just

  • to ensure similar crimes receive similar sentences

• advisory in nature

• federal judges are free to decide the duration of the sentences

• special guidelines are available for sentencing organizations

  • emphasis is on monetary penalties

  • include both punishment and deterrence

intellectual property

• article 1, section 8 of the constitution gives congress the power to:

  • “promote the progress of science and useful arts, by securing, for limited times, to authors and inventors, the exclusive right to their respective writings and discoveries.”

  • ex: client lists, marketing, slogans, brands, designs

• why?

  • incentivizing new inventions

• how?

  • granting exclusive rights

• at what cost?

  • loss of competition, higher prices

intellectual property and research

• intellectual property is essential to maintain the growth of creative research and development (R&D)

capturing property and research

• certain steps need to be undertaken to transform knowledge into valuable intangible assets

  • have to apply for a patent

• strict deadlines are applicable for asserting rights of some intellectual property

• failure to follow the rules can position the product in public domain

types of intellectual property

• trade secrets

• patents

• trademarks

• copyrights

trade secrets

• any form of knowledge or information that has economic value from not being generally known to others or readily ascertainable by proper means. the owner has to make reasonable efforts to maintain secrecy.

• protected by common law

• most states have adopted the uniform trade secrets act

  • ex: marketing plans, business plans, secret recipes

how to win a trade secret case

• establish that the trade secret exists

• demonstrate misappropriation

establishing that the trade secret exists

• the information must be SECRET, and the business make take REASONABLE MEASURES TO KEEP IT SECRET

• examples of preserving secrecy:

  • lock written material

  • secure computer-stored knowledge with firewalls and encryption

  • regulate visitors

  • ask employees, customers, and business partners to sign nondisclosure agreements

  • impose confidentiality restrictions

• case example: al minor & associated, inc. v. martin

  • guy wants to leave company, memorizes client list at current company, quits job, uses memorized client list for his own company

  • could a client list memorized by a former employee be the basis of a trade secret?

    • it could be!

demonstrating misappropriation

• misappropriation occurs when one improperly acquires or discloses secret information

  • if you are able to do it on your own, NOT misappropriation

• examples:

  • burglary

  • espionage

  • computer hacking

  • breach of duty (ex: employment relationship/contract)

civil & criminal enforcement of trade secrets

• civil

  • injunction (ex: order to refrain the one who misappropriated from using the trade secret or from telling others about it)

  • monetary damages

• criminal via economic espionage act (theft of trade secrets)

  • individuals: fines & up to 10 years in prison

  • organizations: up to $5 million in fines

• ex: coke employee conspiring with other employees to sell secret recipes to pepsi, person sentenced to 8 years in jail

patents

• a patent is associated with a inventive act, and convey a right to exclude others from making, using, selling, or importing the covered invention

• a patent is an exclusive right created by statute and conveyed by the US patent and trademark office (PTO) for a limited period of time

  • exception: making improvements = can get new patent

    • don’t make your best invention right away if you want to be protected for a longer time

types of patents

• utility patent

• design patent

• plant patent

utility patent

• new, non-obvious, useful, processes, machines, compositions of matter or improvements thereof

• term: 20 years from FILING date

design patent

• new, original and ornamental design for an article of manufacture

• term: 15 years from the ISSUE date

• ex: mickey mouse toaster

plant patent

• new, variety of plants that can be reproduced asexually

• term: 20 years from FILING date

• ex: del monte pink glow pineapple (plant and utility patent)

obtaining a patent

• patent - exclusive right to invention

  • pay filing fee

  • explain invention

  • show difference from prior art

  • describe patentable aspects

  • file application

  • evaluation by the patent examiner

america invents act

• in 2011, former president obama signed into law the america invents act

• this was the first substantial revision to the U.S. patent law since 1999

• key change: switch from first-to-invent system to a FIRST-TO-FILE SYSTEM!

  • first to file invention now gets priority even if someone else invented it first

patentable subject matter

• validity of a patent can be tested by scrutinizing its subject matter

• subject matter that CAN be patented:

  • process (can be controversial)

  • machine

  • article of manufacture or

  • composition of matter (or improvement thereto)

• subject matter that CAN’T be patented:

  • laws of nature

  • natural phenomena

  • abstract idea

  • mathematical algorithms or formulas

patentable subject matter case: alice corporation pty. ltd. v. cls bank international

• plaintiffs filed lawsuit against alice claiming that its patents for a system to settle financial transactions were invalid due to subject matter (abstract idea)

• what was the holding?

  • alice’s patents were invalid because they were directed to an abstract idea and did not contain an inventive concept sufficient to transform that idea into a patent-eligible invention

the alice “two-step”

• determine whether the invention covers an ineligible concept

• if it does, consider whether it adds something sufficiently inventive to transform the claims into something more than the concept itself

• people can challenge validity of patents later on

characteristics of patents

• novelty

  • something new and different from the prior art

• nonobviousness

  • ability of an invention to produce surprising or unexpected results

  • looking from the perspective of the expert in a particular field

• utility

  • must do something useful

  • doesn’t apply to design patents or plant patents

patent enforcement

• purpose of law

  • to allow inventions in the public domain after the limited period of legal property right (utility and plant patents last 20 yrs from filing date, design patent lasts 15 yrs from issue date).

• patent owner can sue infringer for injunction and/or damages (during the duration of the patent. after that time, anyone can freely use it)

• validity of patent may be challenged during litigation

overlapping intellectual property rights

• can have overlap

  • ex: cell phone

trademarks

• marks on what is produced to represent the origin of goods and services

• recognizability or distinctiveness is the function of trademarks

• protects consumers against confusion

types of trademarks

• trademark - mark, word, picture, or design that attaches to GOODS to indicate their source

• service mark - a mark associated with a SERVICE

• certification mark - a mark used by someone other than the owner to certify the quality of goods or service.

  • ex: USCA stamp on organic foods

• collective mark - mark represents membership in a certain organization or association

  • ex: NFL, NBA

• trade dress - the look or design of a product or service (i.e. the color or shape of a product)

  • ex: coca-cola bottle shape and color

  • design patent is concerned with copying of EXACT design, trade dress = are people going to confuse my product with your product, likeness between products

trademark registration

• register with US patent & trademark office

• PTO places the mark in the official gazette

• if existing owners raise objections, there is a hearing

• if mark is acceptable, PTO registers mark in principal register

  • when would the mark NOT be acceptable?

• note: trademarks enjoy potentially unlimited protection, but you must notify the PTO that trademark is still in use every 6 years and renew the trademark registration every 10 years

when can the PTO deny registration?

• the mark is the same or similar to another mark

  • ex: cherry logo on laptop, to similar to apple

• if it contains certain prohibited or reserved names or designs

• if it merely describes a product or service

  • ex: “fast food”

• if it is generic and represents a product or service (has to be distinct)

  • ex: “apple” at a fruit stand, different from Apple for computers

  • “taco tuesday” used to have trademark, later became generic, trademark rights taken away

what happens if your trademark registration is denied?

• answer: you can use your mark! however, it would be considered an unregistered trademark!

  • trademark rights are derived from USE not registration

  • can still sue for trademark, infringement of an unregistered trademark, but ONLY in the state where the owner does business!

    • if your trademark is registered, you have rights in all 50 states and all US territories

can you register descriptive terms or a person’s name as a trademark?

• generally, the PTO will not accept a person’s name or descriptive term for protection of the principal register

• exception: if the descriptive term is listed on the PTO’s supplemental register for 5 years AND acquires a secondary meaning

• secondary meaning refers to a public meaning that is different from its meaning as a person’s name or as descriptive term, a public meaning that make the name or term distinctive

  • examples:

    • ford

    • levi’s

    • disney

• have to have secondary meaning AND supplemental register

trademark enforcement

• law protects the owner from unauthorized use of the mark

  • establishes civil and criminal violation

• civil violation:

  • infringement

    • remedies include damages and injunctions and orders to destroy infringing products

  • generic marks cannot be protected

• criminal violations:

  • manufacturing and trafficking counterfeit trademarked products (i.e. imitation rolex watches)

trademark infringement

• plaintiff must prove that defendant’s use has created a “likelihood of confusion” with the plaintiff’s trademark

• courts use a multifactored test that considers elements such as:

  • the defendant’s intent

  • proof of actual consumer confusion

trademark confusion

• case: cracker barrel and kraft

  • issue

    • plaintiff filed a suit against the defendant claiming that consumers will be confused by the similarity of logos and kraft will be blamed for any dissatisfaction with CBOCS products

  • what was the holding?

    • looking at side by side vs. separate isles

    • ultimately agree with kraft, there is a potential situation of confusion of products among customers

    • cracker barrel the restaurant couldn’t sell in grocery stores

  • what can a defendant argue?

    • the mark is not distinctive

    • there is little chance of the public being confused

    • the use is a fair use

federal trademark dilution act

• prohibits the usage of a mark that is the same as or similar to another’s “FAMOUS” trademark to dilute its significance, reputation, and goodwill

TYPES OF DILUTION:

• blurring - when usage of a mark blurs distinctiveness of a famous mark

  • ex: google = search engine

    • what if people can get trademark for “google lawn services”, etc.

    • taking away the power of it just being google

• tarnishment - when usage of a mark creates a negative impression about the famous company

  • ex: ben and jerry’s = ice cream

    • adult film company trying to get a trademark of “ben and cherries”

copyrights

• property right in creative expression that protects creators

• property rights in a copyright afford an author, artist, or other creator a monopoly in the right to copy and market their creative expression for a limited time

  • work must be original

  • must be fixed in a TANGIBLE medium of expression

    • may have an idea, once you fix it in tangible form it is good

  • must show creative expression

• automatic, but if you want certain protections, you need to register it

how long does copyright protection last?

• individual: the author’s lifetime +70 years

• company: 95 years from publication or 120 years from creation (whichever expires first)

civil - copyright infringement

• the author must:

  • register with the copyright office AND

  • establish that defendant violated one of his or her exclusive rights of:

    • reproduction

    • creation of derivative works

    • distribution

    • performance

    • display

criminal penalties are applicable for willful infringement

• piracy - large-scale copyright infringment

case: skidmore v. led zeppelin

• issue: skidmore (trustee of randy california’s estate) claimed the band led zeppelin copied part of his randy california’s song, taurus, in creating the song stairway to heaven

  • did the person have access to your work?

  • are the substantial similarities?

• what was the holding?

  • we aren’t going to give one person a monopoly over a specific 4 chord progression or certain notes

  • fair use defense

copyright act

• specifies that fair use of copyrighted materials is not an infringement of the owner’s property

  • fair use includes copying for:

    • criticism

    • comment

    • news reporting

    • teaching

    • scholarship

    • research

  • factors considered by the courts":

    • purpose and character of the use

    • nature of the copyrighted work

    • amount and substantiality of the portion used in relation to the copyrighted work as a while

    • effect of the use upon the potential market for the copyrighted work

    • ex: posting entire textbook vs. a few pages on ELC

      • a few pages is ok because it is for teaching purposes

    • copyright in the music industry

music copyright is made up of two different parts:

• composition - generally song lyrics

• master - recorded sound (what we listen to on spotify, apple music, or the radio)

  • ex: taylor swift only owned the composition of her earlier albums, she did not have the rights to her masters

    • this means she was unable to sing her old songs without the permission of the owner of her masters

• copyright act says you can re-record your own songs

ed sheeran case

• “thinking out loud” vs marvin gaye’s “let’s get it on”

• accuse sheeran of copying sheet music

• argue how common 4 chord progression is

• ed said marvin gaye was the furthest thing from his mind when making the song

• have to have a valid copyright, copied without authorization, and is similar

• saying that he didn’t copy anything without authorization

• have to show substantial similarity

  • show that sheet music is similar

• big takeaway: will not give one person copyright protection on a common 4-chord progression, don’t want one person to have a monopoly over that

international intellectual property rights

• once you have intellectual property right protection, is that protection automatically international as well?

  • no, a US patent isn’t automatically recognized in other countries

• world trade organization (WTO)

  • administers agreement on trade-related aspects of intellectual property rights (TRIPS)

    • requires member countries to provide protection for all forms of intellectual property

• world intellectual property organization (WIPO) administers:

  • patent cooperation treaty (PCT)

  • madrid system for international registration of marks

forms of business organizations

• sole proprietorships

• partnerships

• corporations

• limited liability companies

types of partnerships

• general partnership

• limited partnership

• limited liability partnership

types of corporations

• c-corp

• s-corp

• non-profit

• benefit corporation

number of owners

• closely held:

  • organizations owned by only a few people

  • ex: family-owned and family-operated businesses

• publicly held:

  • businesses owned by hundreds or thousands of people

  • ex: businesses whose stock is traded on a public exchange

facts to consider (business types)

• cost of creation

• continuity or stability of the organization

• managerial control of decisions

• owner liability

• taxation

sole proprietorships

• the simplest form of business organization, created and controlled by one owner

• pros:

  • easiest to create

  • creation: least expensive business organization to create

  • taxation: not taxed as an organization

  • managerial control: sole proprietor is in total control of the business’s goals and operations

• cons:

  • continuity: proprietorship’s continuity is tied directly to the will of the owner

    • person who creates sole proprietorship decides to shut down business, it is shut down with no transfer

  • liability: owner has unlimited liability for the obligations of the business organization

    • someone is suing, you are being sued

what is a partnership?

• agreement between two or more persons to share a common interest in a commercial endeavor and share in profits and losses

  • persons can be corporations or individuals

general partnerships

• pros:

  • creation can be automatic but may be modified by agreement

  • cost of formation is not significant

  • taxed at the partner level only (entity isn’t taxed)

  • equal voice in management unless there is a contrary agreement

  • partnerships may operate in more than one state without obtaining a license

  • partnerships are generally subject to less regulation and less government supervision than corporations

• cons:

  • only a limited number of people can be partners

  • dissolved whenever a partner ceases to be a partner (withdrawal, death)

    • dissolution - legal form of organization no longer exists as we currently know it

      • if a partner passes away, we can’t continue until you deal with that person’s interest

      • usually, an agreement for when this happens

      • typically, must buy out their interest in order to continue on, can continue on in a different way

  • each partner has an equal voice, which can lead to deadlocks

    • partners want to do different things, then you are at a standstill, may have to have a judge decide

    • maybe it establishes a different level of equity per partner

  • personal liability and join and several liability for all debts and liabilities

    • could be sued for an entire amount (joint and several)

  • partners taxed on their share of partnership profits, whether those profits are distributed or not (could pay taxes on income you don’t see)

limited partnerships

• limited partners are not personally responsible for the debts/liabilities of the organization

• limited partners are not involved in the operations of the partnership

• limited partnership certificate must be filed in the county of its principal POB and additional copies in other counties/states where limited partnership conducts business

  • WHAT HAPPENS IS THIS IS NOT DONE/KEPT UPDATED?

    • limited partners will be treated the same way as a general partner

differences between general partnerships and limited partnerships

• limited partners:

  • not responsible for the debts of the business organization

    • unless they participate in the management or control of the organization

  • can assign interest without dissolving the partnership

• general partners:

  • personally liable for the organization’s debts

  • manage and control the company

limited liability partnership

• all partners have some liability protection

• all partners are considered general partners

• all partners can participate in the operations of the business

• LLP partners are still liable for their individuals negligence

• taxed at the partner level

• commonly used by professionals (attorneys, accountants, doctors)

• ex: start of doctor’s office, one doctor is negligent, the negligent doc is personally liable and not you, person who was injured can go after individual doc or LLP, but not you

what is a corporation?

• artificial and intangible entity created under the authority of a state’s law

types of corporations

• domestic

  • considered domestic in the state in which it was originally incorporated

• foreign

  • corporations in states other than where you originally incorporated

  • ex: originally incorporated in GA, expand and open location in FL

• alien

  • when you decide to form under the authority of another country

  • ex: want to originally form in Mexico

• DON’T CONFUSE FOREIGN WITH ALIEN!

articles of incorporation

• in order to form a corporation, you have to file an article of incorporation

• tell name of corporation, who you officers are, what the purpose is, how long you intend to be in business, etc.

• file through secretary of state’s website

  • if approved, they will issue a corporate charter

corporations (pros & cons)

• pros:

  • corporation has perpetual existence

  • shareholder’s death or sale of stock does not affect the organizational structure

  • limited personal liability of owners (limited to their investment)

  • allows for a large number of owners

  • shareholder can be both owners and employees which makes them entitled to benefits such as workers’ compensation

  • ownership can be divided into many unequal shares

• cons:

  • created by a state issuing a charter upon the application of incorporators

  • more costly to form

  • corporations must be licensed/qualified to be able to conduct business in foreign states

  • double taxation: taxes at the corporate and at the individual owners’ level

  • lack of direct control by the owners

  • subject to more government regulation

corporate managerial control (3 GROUPS)

• shareholders

  • elect board of directors

• board of directors

  • appoint officers

• officers

• employees

publicly held corporations

• when analyzing matters of managerial control, we need to look at publicly held corporations vs. closely held corporations

• publicly held corporations: in very large corporations, control by management is maintained with a small percentage of stock ownership and funds to request proxies

• proxy: agent appointed by a shareholder for the purpose of voting the shares

  • in publicly held corporations, management can solicit the right to vote the stock of shareholders unable to attend the meetings at which the directors of the company are elected

• what issues can arise?

  • what if shareholder is also on board of directors and an officer, and an employee?

    • don’t like this because chances of shady business/fraudulent behavior are high

    • want different people in different roles to serve as checks and balances

closely held corporations

• one shareholder or small group of shareholders may be able to control a closely held corporation by owning the majority of shares

  • note: the directors & officers stand in a fiduciary relationship to the corporation and to minority shareholders in a closely held corporation

• no ready market for minority stock should shareholders desire to sell it (should use a buy & sell agreement to protect against this)

• minority shareholders are subject to the decisions of the majority

what tool does a minority shareholder possess when the majority shareholder(s) is acting illegally or oppressing the minority by acting in his/her personal interest?

• bring a DERIVATIVE LAWSUIT against the majority shareholder(s) on behalf of the corporation

corporate liability

• general rule: owners are liable for debts only to extent of shareholders’ investment in the cost of the stock

• exception:

  • PIERCING THE CORPORATE VEIL

    • when courts find that the corporate organization is being misused, the corporate entity can be disregarded

    • shareholders are treated like partners and are subject to personal liability for the liabilities of the corporation

    • alter-ego theory: corporate entity is disregarded by officers, directors, and stockholders so that there is unity of ownership and interest (COMMINGLING OF CORPORATE AND PERSONAL ASSETS), consequence is to pierce corporate veil

corporate liability (piercing the corporate veil) case

• Alli v. US - husband and wife start corporation

• how did the court apply factors to the facts of the case?

  • the Alli’s were the sole owners

  • COMMINGLED PERSONAL AND CORPORATE FUNDS/ASSETS

  • took out loans in the name of the corporation but used them for PERSONAL MEANS

  • the Alli’s failed to maintain the buildings in a decent, safe, and sanitary conditions

  • the corporation was thinly capitalized so it could not pay the damages

corporate taxation

• corporations must pay income taxes on their earnings

• double tax: profits are taxed at corporate level and then dividends taxed at individual level

• LEGAL methods to avoid double taxation (just know that they face double taxation!):

  • reasonable salaries

  • reasonable expense accounts

  • reasonable loans from shareholders

  • reasonable accumulation of earnings

  • subchapter s election