Chapter A

Learning Objectives

• After reading this bonus chapter, you should be able to:
  • Define business law, distinguish between statutory and common law, and explain the role of administrative agencies.
  • Define tort law and explain the role of product liability in tort law.
  • Identify the purposes and conditions of patents, copyrights, and trademarks.
  • Describe warranties and negotiable instruments as covered in the Uniform Commercial Code (UCC).
  • List and describe the conditions necessary to make a legally enforceable contract and describe the possible consequences if such a contract is violated.
  • Summarize several laws that regulate competition and protect consumers in the United States.
  • Explain the role of tax laws in generating income for the government and their use as a method of encouraging or discouraging certain behaviors among taxpayers.
  • Distinguish among the various types of bankruptcy as outlined by the bankruptcy code.
  • Explain the role of deregulation as a tool to encourage competition.

The Case for Laws

Define Business Law

• Business Law refers to the rules, statutes, codes, and regulations that provide a legal framework for the conduct of business
• Essential aspects include: product liability, sales, contracts, fair competition, consumer protection, taxes, and bankruptcy.

Statutory vs. Common Law

• Statutory Law consists of written laws enacted by legislatures, including federal and state constitutions, legislative enactments, treaties, and ordinances. This body of law is often documented but must be interpreted by courts.
• Common Law is unwritten law derived from judicial decisions and court rulings; it evolves based on precedents established in prior case law. Courts utilize these precedents in deciding new cases, thus maintaining continuity and predictability in legal judgments.

Administrative Agencies

• Administrative Agencies are government organizations created by Congress or state legislatures to implement laws and regulations within specific areas of authority. They can have quasi-legislative, executive, and judicial powers.
  • Such agencies create rules, conduct investigations, and hold hearings regarding alleged rule violations, impacting businesses profoundly.
  • Examples include:
  • Securities and Exchange Commission (SEC)
  • Federal Communications Commission (FCC)
  • Equal Employment Opportunity Commission (EEOC)

Tort Law

Define Tort Law

• Tort: A wrongful act leading to injury or harm to another's body, property, or reputation.
  • Courts can award compensation to victims if the tortious conduct is deemed intentional or negligent.
  • Intentional Tort: Willful acts resulting in injury.
  • Negligence: Unintentional harm resulting from a failure to exercise reasonable care.
  • Case Example: McDonald's was found liable in a negligence suit after a customer was severely burned, thereby instigating debates over product liability.

Product Liability

• Product Liability: A segment of tort law which holds businesses accountable for harm caused by defective products they produce, design, or fail to adequately warn consumers about.
  • Legal standard has evolved to include strict product liability, meaning companies can be held liable without proving fault.
  • Financial implications are significant, with companies facing substantial costs associated with litigation and damages.
  • Case Examples: General Motors faced penalties exceeding $2.5 billion due to safety failures linked to faulty ignition switches resulting in fatalities.

Intellectual Property Protection

Patents, Copyrights, and Trademarks

Patents

• Patent: A document granting inventors exclusive rights to their invention for 20 years post-application submission.
  • Requirements for a patent include demonstrating that the invention is unique. Approval rates are roughly 55%, with costs ranging significantly based on complexity:
  • Complex technology patents: $10,000 - $30,000
  • Simpler inventions: $5,000 - $10,000
• Patent infringement can result in significant legal costs, illustrated by various high-profile cases.

Copyrights

• Copyright protects the creator's rights to creative materials (books, articles, art) for the lifetime of the author plus 70 years; they can be passed to heirs.
  • Copyright examples include legal victories over unauthorized derivative works like the unauthorised Harry Potter encyclopedia.

Trademarks

• Trademark: A legally protected identifier (name, symbol, design) that distinguishes a seller's goods or services from competitors.
  • Trademarks must be properly registered and can last indefinitely, provided they are renewed periodically.

Uniform Commercial Code (UCC)

Warranties and Negotiable Instruments

Warranties

• Warranty: A guarantee regarding the quality or functionality of a product.
  • Types of Warranties:
  • Express Warranty: Specific assurances made by the seller.
  • Implied Warranty: Legal obligation that the goods meet established industry standards.

Negotiable Instruments

• Negotiable Instruments: Commercial papers representing a promise to pay that can be transferred among parties. They must meet specific criteria outlined in the UCC:
  1. Written and signed by maker or drawer
  2. Payable on demand or at a set time
  3. Payable to bearer or a specified order
  4. Contain an unconditional promise to pay a fixed amount

Contract Law

Legally Enforceable Contracts

• Contract: A legally binding agreement requiring certain conditions to be enforceable:
  • An offer must be made
  • Voluntary acceptance of the offer by both parties
  • Consideration must be present
  • Parties must be competent
  • The subject matter must be legal
  • Contracts over $500 must be in writing.

Consequences of Breach

• Breach may result in:
  • Specific Performance: Requirement to fulfill the contract terms
  • Damages: Compensation for losses occurring due to breach
  • Discharge of Obligation: Agreement not to pursue damages, releasing both parties from obligations.

Competition Laws

Regulating Competition and Protecting Consumers

• Antitrust Laws: Designed to prevent unfair competition and protect consumer rights. Highlighted laws include:
  • Sherman Antitrust Act: Prohibits anti-competitive practices like monopolization.
  • Clayton Act: Recognizes and addresses modern competitive issues.
  • Federal Trade Commission Act: Enforces laws against unfair competitive practices.

Tax Laws

Role of Taxation

• Tax Laws provide governmental revenue and can incentivize or discourage certain actions:
  • Examples include high taxes on tobacco to diminish use and tax credits for businesses that hire more employees or invest in specific assets.

Bankruptcy Laws

Types of Bankruptcy

• Chapter 7: Straight bankruptcy that liquidates the debtor's assets.
• Chapter 11: Allows a business to reorganize and continue operating while repaying debts.
• Chapter 13: Allows individuals to create a repayment plan over 3-5 years.

Deregulation and Competition

Deregulation

• Deregulation refers to the reduction or elimination of governmental controls in an industry, facilitating increased competition.
  • Notable examples include the airline industry deregulation in 1978, which resulted in lower fares and more choices for consumers.
  • Deregulation has had mixed results; while beneficial in many cases, overly aggressive deregulation has led to significant market failures, especially in the banking and energy sectors.

Summary

• Laws govern business conduct, with clear distinctions between statutory and common law, the functionality of administrative agencies, the nuances of tort and product liability, protection of intellectual property through patents, copyrights and trademarks, the implications of the UCC, contract enforceability, and the overall legislative guidance aimed at fostering fair competition and consumer protection. The importance of tax laws, various bankruptcy provisions, and the balance between deregulation and regulation are also crucial in understanding the complex interplay of business law in practice.