Business Law Notes

Intellectual Property and Small Businesses

• Protecting intellectual property rights is often not a central concern for many small businesses.

Business Structures

• Sole Proprietorship: The owner and the business are one entity.

  • Advantages: Easy to start, fewer legal formalities, the owner receives all profits.

  • Taxation: Personal income taxes on profits.

  • Disadvantages: The owner bears all losses and liabilities.

  • Death of Owner: The business is automatically dissolved.

• Franchise: An arrangement where the owner of intellectual property licenses others to use it in selling goods or services.

  • The franchisee is generally legally independent of the franchisor but economically dependent.

• Partnership: A voluntary association of individuals formed by agreement.

  • Each partner is an agent of the others and the partnership.

  • Taxation: Pass-through entity, no tax liability; income passed to owners who pay income taxes.

  • Rights of Partners: Management, interest, compensation, inspection of books, accounting, and property.

  • Management: Equal rights unless agreed otherwise; unanimous vote for significant changes.

Business Legal Requirements

• Business name registration.

• Occupational licensing.

• State tax registration.

• Health and environmental permits.

• Zoning and building codes.

• Import/export regulations.

Intellectual Property Considerations

• Crucial for Business Success: Trademark/service mark protection, trade secret protection, patent protection.

Business Growth

• Raising capital is critical for the growth of most small businesses.

Agency Relationships

• Definition: One party (agent) agrees to act on behalf of another (principal).

• Duties Owed by Agent: Performance, notification, loyalty, and obedience.

• Termination: Can be terminated by an act of the parties.

• Employee vs. Independent Contractor: Determined by control, distinctiveness of work, supervision, tool provision, length of employment, payment method, and skill level.

Overtime Rules

• Employers must pay certain employees at least one-and-one-half times their regular hourly rate for overtime (hours exceeding 40 per week).

• Independent contractors are exempt.

IRS Criterion for Worker Classification

• The degree of control the business exercises over the worker.

Creation of Agency Relationship

• By agreement, ratification, estoppel, or operation of law.

Agent's Duties

• Obedience: Following the principal’s instructions.

• Loyalty: Avoiding conflicts of interest, protecting confidential information.

• Notification: Keeping the principal informed.

Principal's Remedies Against Agent

• Indemnification for losses caused by the agent's negligence.

Authority

• Apparent Authority: When a principal gives a third party reason to believe an agent has authority.

• Emergency Power: An agent's ability to act in an emergency when unable to contact the principal.

Respondeat Superior

• A principal-employer is liable for harm caused by an agent-employee within the scope of employment.

Factors Determining Scope of Employment

• Authorization by the employer, time/place/purpose of the act, commonality of the act, advancement of employer's interest.

Termination of Agency

• Automatic: Death, insanity, impossibility, changed circumstances, bankruptcy, war.

• By Act of Parties: Principal gives reasonable notice to the agent; termination is called revocation by the principal and renunciation by the agent.

Tort Law

• Designed to compensate for losses or injuries due to another's wrongful act.

• Intentional Tort: An act committed with intent to interfere with another’s interests, not permitted by law.

• Negligence: Injury due to failure to meet a required duty of care.

Damages

• Special Damages: Quantifiable losses (e.g., medical expenses, lost wages).

• General Damages: Non-monetary losses (e.g., pain and suffering).

Torts

• Assault: Threat of immediate harm or offensive contact.

• Battery: Unauthorized harmful or offensive physical contact with another person.

• Defamation: Wrongfully hurting a person’s good reputation.

  • Libel: Written or permanent form.

  • Slander: Oral form.

  • Slander per se: Includes statements about loathsome diseases, professional improprieties, serious crimes, or sexual misconduct.

• Trespass to Land: Unauthorized entry onto another's property.

• Trespass to Personal Property: Interference with another's use or enjoyment of personal property.

Negligence

• Elements: Duty, breach, causation, damages.

• Foreseeability: Established by Palsgraf case as test for proximate cause.

Defenses to Negligence

• Assumption of risk, superseding cause, and contributory/comparative negligence.

Defamation and Public Figures

• Public figures must prove actual malice to sue for defamation.

Invasion of Privacy

• Intrusion into affairs or seclusion, false light, public disclosure of private facts, and appropriation of identity.

Wrongful Interference

• Occurs when enticing someone to breach a valid contract.

• One application of strict liability is for damages proximately caused by an abnormally dangerous, or ultrahazardous, activity.

Product Liability

• Manufacturers and sellers can be liable for harm caused by defective products.

• The modern concept traces its origins to Rylands v. Fletcher.

Rationale for Strict Liability

• To spread the cost of injury by increasing prices and treating it as an operating expense.

Negligence in Product Liability

• The failure to exercise the degree of care that a reasonable, prudent person would have exercised under the circumstances.

Who Can Sue in Product Liability?

• Consumers, users, and bystanders harmed by a defective product.

Defective Products

• Unreasonably dangerous when dangerous beyond an ordinary consumer's expectation; or a safer alternative existed, but wasn't used.

Types of Product Defects:

• Manufacturing

• Design

• Inadequate warnings

Design Defect Claims

• Requires proof that a reasonable alternative design was available and wasn't adopted.

Defenses to Product Liability

• Preemption: Government regulations preempt claims

• Product Misuse: Unintended use not reasonably foreseen

• Assumption of Risk: User knew the risk and proceeded anyway.

• Substantial Change: The product was altered after leaving the manufacturer's control.

• Lack of Proximate Cause: Harm not a direct result of the defect.

Strict Product Liability

• Requires that the product was defective, that the defendant is engaged in the business of selling the product, that the product was unreasonably dangerous, that the plaintiff incurred physical injuries and/or property damage, & the defective condition was the proximate cause of the injury/damage.

Criminal Law

• Deals with crime and duties to society.

Elements of a Crime

• Required act (actus reus)

• Required intent (mens rea).

Verdict Standard

• Must be found “guilty beyond a reasonable doubt.”

Crime Classifications

• Felony, misdemeanor, petty offense.

Types of Crime

• Violent, property, public order, white-collar, organized, and cyber.

Criminal Recklessness

• Involves consciously disregarding a substantial and unjustifiable risk.

RICO

• Makes it a federal crime to use income from racketeering activity to purchase any interest in an enterprise.

Defenses to Criminal Liability

• Self-defense, necessity, duress, insanity, mistake.

Criminal Procedure

• Designed to protect individual rights and prevent government abuse.

Search Warrant

• Probable cause must be presented to a judge for approval.

Exclusionary Rule

• Illegally obtained evidence is inadmissible.

Miranda Rule

• Suspects must be informed of their rights (to remain silent, to counsel) before custodial interrogation.

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