legl 2700 unit 3.

Unit 3 Notes:

Intellectual Property:

• Justification
• Importance
• Competition
• Capturing:

- Does not happen automatically, steps need to be taken in order to transform it into valuable assets

- Once the information is in public domain, an intellectual property right can not be applied to recapture

Trade Secret:

A common way of asserting property or knowledge based on tangible resources.

Knowledge or Info:

• Kept Secret (reasonable measures taken): Commercially valuable because it is secret and subject to reasonable steps to keep it secret.
• Economic value: Has economic value because it is not known by others or ascertainable by reasonable means.

Uniform Trade Secrets Act-Many states have adopted the Uniform Trade Secrets Act, and it in part defines a trade secret as information, technique, or process. It can also include marketing sales, etc. and need not be unique. To be successful, it has to be proven it court first that you have a trade secret, then proved that someone misappropriated it.

Establishing the Existence of a Trade Secret:

• Conduct a trade secret audit to identify confidential knowledge-based resources
• Preserve secrecy

- Lock written material

- Secure computer-stored knowledge with firewalls and encryption

- Impose confidentiality restrictions

- Regulate visitors

- Ask employees, customers, and business partners to sign nondisclosure agreements

Court Case: Al Minor & Associates, Inc. v. Martin, 881 N.E. 2d 850 (Ohio 2008): Martin is an employee at-will at Al Minor & Associates (he doesn’t have a contract or non-complete). Martin decides after a few years at AMA to start his own business and a year later, he leaves AMA. When he leaves he doesn’t take any documents or save any papers from his work, but memorizes information for 15 of AMA clients for his own company. AMA sues for monetary and injunctive relief (order him to stop). The court rules that there is no provision that suggests for trade secrets between information from a tangible form and what has been memorized. Memorized information can in fact be a trade violation, because many states have adopted the Uniform Trade Secrets Act. He knew it was a secret and confidential, and still memorized it and approached those people, and Martin lost the lawsuit.

Demonstrating Misappropriation:

• Misappropriation occurs when one improperly acquires or discloses secret information
• Independent creation (creating something on your own) and reverse engineering (putting something out, and someone reverse creates it; patents can help to dissuade this from happening) are exempted
• Employee mobility and trade secrets: Trade secrets can be protected forever (for example, Coca-cola made an agreement many years ago deciding not to share their full ingredients, maintaining their formula as a trade secret)

- Confidentiality contracts forbid employees from disclosing knowledge obtained in the workplace

- Employers can enforce agreements not to compete only when there is a valid business purpose for the contract

- Trade owner may seek money damages if someone misappropriates

- Most criminal prosecution for this is under the EAA act, and these claims can only be brought by the federal government because it is a criminal allegation. Includes missappropriation that benefits the federal government.

Many Companies Do Not Allow:

• Things like carrying/using cell phones, usb/flash drive, notes derived during meetings

Document Markings:

• Documents generated should possess appropriate “markings” to imply what is considered a trade secret or protected data

Patent Law:

• New invention
• Legal monopoly

Chapter 11 Notes:

• The essence of “property” is a certain system of law
• Property establishes a relationship of legal exclusion between an owner and other people regarding limited resources
• Property includes the legal uses of what you own, and the full extent of these uses is frequently unclear
• It’s the job of both common and statutory tort law to determine when you cross the boundary separating your proper use from wrongful injury to what belongs legally to others
• Modern businesses count on the advantage of controlling inventions, expressions, marks, designs, and business secrets like marketing plans or a list of customers. This may include employee skills and talents, production designs, inventions, and technologies, marketing plans, etc.
• Intellectual property represents protection of some of the most valuable resources that businesses have

The Justification for Intellectual Property:

• Property relationships are believed to be more productive in allocating scarce resources and producing new ones than legal relationships that merely divide resources equally
• The creation of patents goes back to Article 1, Section 8 of the Constitution, which grants 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.”
• The Constitution also ensures that after “limited Times” defined by Congress, the resources of new expression and invention, which were formerly exclusive to “Authors and Inventors,” will be freely available to everyone

Intellectual Property and Competition:

• The basic economic system of intellectual property is grounded in the idea of incentives
• The possibility of economic return on investment encourages firms and individuals to create more informatiuon than they otherwise would
• Without intellectual property, they pace of creative research and development in business would slow dramatically
• Property rights in information reduce competition that could otherwise increase availability and keep prices low for consumers
• Intellectual property systems presume that the long-term benefits of increased information and investment are greater than the short-term costs
• Intellectual property is believed to incrementally increase the production of information and investment over that which would normally occur
• The great debate regarding intellectual property laws is whether they are truly calibrated to provide a net benefit to society

Capturing Intellectual Property:

• The protections of property often don’t apply automatically to intangible knowledge resources all information a business creates
• Some intellectual property forms have very strict deadlines for asserting rights or other formal requirements
• Once information is in the public domain, an intellectual property right cannot be applied to recapture it
• Firms that don’t have an intellectual property strategy in place risk losing valuable assets

Trade Secrets:

• A trade secret is any form of knowledge or information that has economic value from not being generally known to others or readily ascertainable by proper means and has been the subject of reasonable efforts by the owner to maintain secrecy
• Trade secret law developed in the common law industrial revolutions of the 1800s
• The employees of factories weren’t apprentices and at first were free to take their employers’ knowledge, leave employment, and compete against their former employers. Trade secret law arose to protect the employers’ valuable knowledge
• All states except NY and NC have adopted the Uniform Trade Secrets Act as the basis of their protection. NC has their own act and NY uses common law rules that are very similar to UTSA rules
• Defend Trade Secrets Act: Applies the two basic elements of state trade secret law, though it can provide more consistent nationwide protection through a single federal statute
• The DTSA contains a civil seizure mechanism that allows a trade secret owner to secure property that may allow unauthorized dissemination of the secret

Establishing the Evidence of a Trade Secret:

• A first step in protecting trade secrets is to identify confidential knowledge based resources
• All businesses may conduct a trade secret audit, which simply identifies all the valuable forms of information possessed by businesses
• Trade secret audits help identify the valuable information that a business produces
• Trade secrets do not have to be unique; two businesses may have trade secret property in substantially the same knowledge. For example, they may each have customer lists that overlap with many of the same names
• After identifying potential trade secrets, a business must next work to preserve secrecy
• Reasonable measures to protect trade secrets include physically locking away written material, securing computer-stored knowledge with protective “firewalls” and encryption, etc
• Prospective business partners, customers, suppliers, and repair technicians may also have access to knowledge that a company values and protects, and may be asked to sign NDAS to keep these confidential
• Case Example-Al Minor and Associates, Inc. v. Martin: In 1998, AMA hired Martin as a pension analyst but didn’t require him to sign either an employment contract or a noncomplete agreement. He took the information he memorized from his work and used it to start his own business. It was found that a client list can serve as a trade secret because it provides value to the owner and information that was memorized and not written down.

Demonstrating Misappropriation:

• Misappropriation occurs when one improperly acquires secret information through burglary, espionage, or computer hacking
• If one acquires a secret from another who has a duty to maintain secrecy, and one knows that duty, misappropriation has occurred
• Independent creation does not constitute misappropriation
• If valuable information relates to processes or techniques that won’t be disclosed when a product or service is sold, trade secret rights may be a viable, relatively inexpensive, and long-lived option

Employee Mobility and Trade Secrets:

• Businesses have to take reasonable measures to protect trade secrets even from employees
• Employers require employees to sign confidentiality contracts promising not to disclose what they have gained to compete against their former employer, or they may go to work for their employer’s competitors
• Contractual confidentiality agreements and noncomplete agreements have a role in trade secret protection but aren’t always required
• The law states that employers can enforce agreements not to compete only when there is a “valid business purpose” for the contract. This means that employers are protecting trade secrets, or protecting their nvestmet in the training of their employees

Civil Enforcement of Trade Secrets:

• The wrongful taking of any kind of intellectual property is called misappropriation or infringement
• An injunction is an order by a judge either to do something or to refrain from doing something
• The injunction orders those who have misappropriated the trade secret to refrain from using it or telling others about it

Criminal Enforcement of Trade Secrets:

• Although various state laws make intentional trade secret misappropriation a crime, most criminal prosecutions today take place under the federal Economic Espionage Act, which makes it a crime to steal (intentionally missapropriate) trade secrets and provides for fines and up to ten years’ imprisonment for individuals and up to a $5 million fine for organizations
• Although one provision of the EEA makes one liable for standard trade secret misappropriation, another provision addresses misappropriation to benefit a foreign government–true espionage

Patent Law:

• Historically, a patent was any legal monopoly openly issued by the government, and it was not necessarily associated with a new idea. However, there’s evidence of patents being associated with invention as early as the 1400s. The Venetian Patent Act of 1474 is considered to be the world’s first patent statute for the purpose of rewarding new ideas
• Today, a patent is firmly associated with an incentive act, and conveys a right to exclude others from making, using, selling, or importing the covered invention

Obtaining a Patent:

• Patents last for only a limited period of time: 20 years from the date the application is filed in the Patent and Trademark Office (PTO)
• A patent is an exclusive right crated by statute and conveyed by the U.S. Patent and Trademark Office for a limited period of time. The property applies to inventions, which are new applications of information

Patent Type-

• In the United States, there are actually three types of patents granted by the PTO, each with its own distinct subject matter
• The difference between a utility patent and a design patent is that utility patents apply to useful, functioning inventions. Design patents apply to the appearance of an article of manufacture, unrelated to its function, and cover subject matter more similar to copyrights
• Inventions related to plants may also be protected as utility patents, for example, genetically modified plants.
• To obtain a patent, an inventor must pay a filing fee and file an application with the PTO
• In 2019, the US PTO granted a record 354,430 patents. This was more than double the number issued in 2000
• The PTO assigns a patent examiner to consider the application, and there is a great deal of communication between the examiner and the applicant over the adequacy of the application’s explanations, the scope of the proposed patent, and whether the invention qualifies
• The patent process can take several years
• America Invents Act: Passed in 2011, president Obama signed into law, it was the first substantial revision to US patent law since 1999. It meant that in a contest between two inventors claiming the same patentable idea, the first to get to the patent office will win (add image here).

Patentable Subject Matter:

• The validity of a patent can be challenged in court by an alleged infringer, or challenged by any individual or business in the PTO
• After the PTO issues a patent, the patent owner may choose to maintain its exclusivity in the invention
• The patentee may license others to use the invention
• When the patent owner threatens a lawsuit, it is common for the alleged infringer to respond by attacking the validity of the patent. Validity can be challenged in court or the PTO
• Attacking the “subject matter” of a patent is one common way of testing the validity of a patent
• In the case Diamond v. Chakrabarty, the Supreme Court ruled that a scientist could cover with a utility patent a genetically modified bacterium that ate hydrocarbons found in oil spills
• The 2011 revisions to the Patent Act explicitly preclude patents covering humans
• Laws of nature, natural phenomena, and abstract ideas are unpatentable
• One of the most controversial areas of potentially patentable subject matter concerns “processes:Business methods like double-entry bookkeeping is an example
• Case Example- Alice Corporation Pty. v. CLS Bank: Alice Corporation owns several patents that disclose a method system, and computer program for mitigating settlement risks in financial transactions like currency trades. Because they used computers to recite the concept of intermediated settlement there was not enough to transform an abstract idea into a patent-eligible innovation
• Many of the Supreme Court’s opinions on patentable subject matter refer to the idea of idea or concept “preemption”.

Novelty, Nonobviousness, and Utility:

• Perhaps the most common way of challenging a patent’s validity is to claim that the invention is obvious to someone with knowledge in the field
• To be patentable, it is not enough for something to be appropriate subject matter
• An invention must be novel, nonobvious, and useful
• The characteristic of novelty indicates that something is new and different from the prior art
• Under patent law, even if an invention is otherwise new, it fails the novelty test if it has been described in a publication, sold, or put to public use more than one year before a patent application on it is filed
• Nonobviousness refers to the ability of an invention to produce surprising or unexpected results: that is, results not anticipated by prior art. This standard is measured in relation to someone who has ordinary skill in the prior art
• Obviousness is assessed as of the date of the application as opposed to later in an infringement case
• Except for patents issued on designs or plants, a valid invention must have utility/must do something useful
• Any utility is sufficient, even if it is not the use that is eventually commercialized by the patentee. One major category of patent claims that lack utility are those that do not work. An inoperable invention, is not useful

Patent Enforcement:

• When a patent expires, the invention is in the public domain, and others may use it without permission of the patentee
• The consequences of patent infringement can be high, with recent cases involving jury awards of more than $1 billion. Such awards are often reduced on appeal but still amount to millions in damages
• As the U.S. Constitution specifies, the property represented by patents runs for limited duration
• Statutes limit utility patents and plant patents to 20 years from the filing date, and design patents to 15 years from the issue date. When a patent expires, the invention is in the public domain, and others may use it without the permission of the patentee
• Complicating the business environment for patents is the fact that inventions can cover methods and articles that can overlap
• The explicit purpose of patent law is to make inventions public following the limited period of legal property right
• The situation of overlapping patents exists to varying degrees with other products

Patent Trolls and the Litigation Threat:

• Some non-practicing patent entities have quite large portfolios, raising concerns on their impact on the marketplace
• In 2018, approximately 40% of all patent cases were filed in two district courts
• Patent trolls are non-producing patent owners that do not contribute as much to the innovation environment compared to the costs imposed by their enforcement.
• Patents do not require their owners to actually make and sell a product
• Judges have some ability to reduce trolling incentives by forcing the losing party to pay the winning side’s costs.
• At least two aspects of the 2011 reforms to patent law may reduce troll behavior. The new law precents patent owners from suing multiple parties merely because they infringe the same patent
• Business method parents are subject to a new review proceeding if litigated
• In addition to measures in the federal courts and legislature, state governments have taken action against patent trolls under their consumer protection laws

Trademark Law:

• According to a 2019 study by Forbes, the five most valuable brands belong to Apple, Google, Microsoft, Amazon, and Facebook
• Trademarks may indicate a specific producer, and the law protects them against use by others
• Trademarks are a form of intellectual property and can be registered with the PTO as well as are some of the most valuable properties that businesses own.
• Although registration systems exist at the federal and state level, it is important to understand that trademark rights come from use of the mark in association with goods or services
• Recognbizability or distinctiveness is the function of trademarks. In a world cluttered with stimulation, information, and advertising, trademarks pierce through the clutter and let people know that the goods or services represented are the “real thing” and come from one source.
• They are an information property
• Trademark infringement involves the intentional use of the owner’s mark or an accidental deisgn of one’s own mark too similar to another’s

Types of Trademarks-

• Lanham Act of 1946: Protects the following marks used to represent a product, service, or organization:

- Trademark: Any mark, word, picture, or design that attaches to goods to indicate their source

- Service mark: A mark associated with a service, for example, LinkedIn

- Certification mark: A mark used by someone other than the owner to certify the quality, point of origin, or other characteristics of goods or services

- Collective mark: A mark representing membership in a certain organization

Trade Dress-

• A color or shape associated with a product or service. For example, the distinctive “wasp-shaped” Coca-Cola bottle is part of its trade dress
• Case example- Two Pesos, Inc. v. Taco Cabana Inc., 505 US 763 (1992): The Court stated that trade dress may include the shape and general appearance of the exterior of the restaurant, the identifying sign, the interior kitchen floor plan, the decor, the menu, the equipmemnt, and other features reflecting on the total image of the restaurant. They upheld the decision that Two Pesos had violated Taco Cabana’s trade dress

Trademark Registration-

• If someone wishes to register a trademark with the PTO, they must use it in interstate commerce. For example, they could post the trademark on an Internet website in association with a product or service
• A mark that is descriptive or generic in one context may be unique and distinctive in another. For example, “Apple” in terms of electronics is very distinguishable, but a trademark would not be able to register for a fruit stand that sells apples
• The PTO places a proposed mark in the “Official Gazette,” which gives existing mark owners notice and allows them to object to the proposed mark if it is similar to theirs
• If the PTO determines the mark registrable, it registers the mark on the Principal Register
• After six years, the trademark owner must notify the PTO that the trademark is still in use
• People’s names or descriptive terms can sometimes be registered, but only if it is listed on the PTO’s Supplemental Register for five years and acquires a secondary meaning
• Secondary meaning: A public meaning that is different from its meaning as a person’s name or as a descriptive term, it makes the name distinctive (like “Levi’s” or “Ford”)

Trademark Enforcement-

• Civil violation of a trademark is termed infringement
• Likelihood of confusion: Parties with strong marks in different areas may be in conflict when selling produts in the same stores
• Generic marks cannot be protected as trade marks
• A number of trademarks have been lost because the public came to think of them as generic terms
• To win a trademark infringement lawsuit, a defendant must prove: the mark is not distinctive, there’s little chance of the public being confused by use of a term trademarked by someone else, or the use if a “fair use”
• Case Example- Kraft Foods Group Brands LLC v. Cracker Barrel Old Country Store, Inc: Kraft, a well known manufacturer, sells packaged cheeses under the trademarked “Cracker Barrel” label, however, Cracker Barrel Old Country Store, the chain of restaurants planned to sell a variety of food products, so Kraft filed a lawsuit saying customers will be confused by the similarity of the logos in grocery stores. This is an issue because if people see CBOCS’s products as not good, they may confuse it with Kraft’s products and Kraft’s sales would decline. Therefore, the grant of the preliminary injunction was affirmed
• One defense is that there is little chance of public confusion over two uses of the same mark (ex. Ford automobile and Ford modeling agency)
• Fair use: Yet another defense for trademark infringement. Fair use of a registered trademark is allowed by the Lanham Act and relates to a discussion, criticism, or parody of the trademark, the product, or its owner

Trademarks and the Internet:

• One new issue concerns the relationship between a website domain name registered with the Internet Corporation for Asigned Names and Numbers and a trademark registered with the PTO
• Generally, it is a violation of trademark law to use another’s registered mark in your domain name

Trademark Dilution:

• Only the owners of famous marks can prevail under the Federal Trademark Dilution Act
• The Federal Trademark Dilution Act prohibits you from using a mark the same as or similar to another’s “famous” trademark so as to dilute its significance, reputation, and goodwill
• The owner of the “senior” famous trademark can get an injunction prohibiting further use of the junior mark on the basis of trade-mark dilution
• There are two types of dilution that are recognized under federal law: blurring and tarnishment
• Blurring occurs when firm uses another trademark in a way that blurs the distinctiveness of a famous mark
• Tarnishment occurs when a firm uses a trademark in a way that creates a negative impression about the famous company
• In 2006, Congress passed the Trademark Dilution Revision Act, which established that dilution exists when a defendant creates a “likelihood of dilution,” and was designed to overrule an earlier Supreme Court decision, Moseley v. Secret Catalogue, Inc., 537 U.S. 418, which set a higher standard of actual dilution

Copyright Law:

• Gives those who have this property a monopoly over the right to exclude others from copying and marketing for a limited period of time
• Copyright deals with original expression rather than invention
• The first copyright law was the Statute of Anne, enacted in England in 1710
• The U.S. has joined most other countries in international agreements, like the Berne Convention, in protecting the copyright of other nations, but, copyright has come to a turning point in the road. People can copy materials quickly and almost without cost and send them around the world in a blink of an eye

Copyright Ownership:

• Copyright law grants property in certain creative expressions that keeps others from reproducing it without the owner’s permission
• A work must be original, fixed in a tangible medium of expression like a book, canvas, etc., and must show some creative expression
• It is a fundamental principle that copyright doesn’t cover functional or utilitarian aspects of a product, as that is the domain of patents and trade secrets
• Copyright laws protect authors rather than investors
• Copyright laws protect authors rather than inventors
• Companies can be considered authors under copyright law
• The copyright allows the holder to control the reproduction, display, distribution, and performance of a protected work
• The U.S. government cannot own copyrights in works created by its employees within the scope of their duties

Copright Enforcement:

• To make a case of infringement, a copyright owner must establish that a defendant violated one of the owner’s exclusive rights (reproduction, creation of derivative works, distribution, performance, or display)
• Case- Skidmore v. Led Zeppelin: Skidmore filed a suit alleging that Stairway to Heaven by the Led Zeppelin band infringed the copyright in Taurus, although there was no direct evidence the bands toured together or that Led Zeppelin band members heard Spirit perform their song Taurus. The court rejected the idea of infringement in this case, because the more access a defendant has to works online, the less similarity is necessary to prove infringement. If a plaintiff claims a defendant copied part of a work that is standard for a certain kind of music, there’s no infringement
• Piracy: Large-scale copyright infringement is often referred to as piracy

Copright Fair Use:

• Fair use includes copying for “criticism, comment, news reporting, teaching,” etc.
• The assessment of fair use is made on a case-by-case basis, which can lead to uncertainty

Copyright in the Digital Age:

• International piracy of copyrighted material is a major problem, but international enforcement efforts are improving slowly

Digital Millenium Copyright Act:

• Makes illegal the effort to get around (circumvent) devices used by copyright owners to keep their works from being infringed

International Intellectual Property Rights:

• There is in fact no fully international intellectual property rights
• Local or regional law controls the creation and ownership of patents, copyrights, etc.
• Agreement on Trade-Related Aspects of Intellectual Property Rights: International treaty formed in 1994 as part of the treaty that made the WTO. The WTO and WIPO (World Intellectual Property Organization) settles disputes, and administers several international intellectual property treaties like the TRIP agreement

Conclusion:

• Article 1, Section 8 of U.S. Constitution: Assets that the purpose for Congress granting “to authors and inventors the exclusive right to their respective writings and discoveries” is to promote the progress of science and business, which society believes promotes the common good

March 27th Notes:

Patent Law:

• New invention —> legal monopoly

Types of Patents:

• Utility Patent: New, non-obvious, useful processes, machines, compositions of matter or improvements thereof
• Design Patent: New, original and ornamental design for an article of manufacture
• Plant Patent: New, variety of plant that can be produced asexually

Obtaining a Patent:

1. File application
2. Filing fee
3. Explain invention: How this invention is new and unique
4. Show difference from prior art
5. Describe patentable aspects
6. Evaluation by the patent examiner: Appointed by the PTO, examines whether the invention abides by the examination requirements, goes over all details. Businesses may hire a patent lawyer or agent to provide assistance in dealing with the patent examiner. There is a patent bar exam attorneys must take to show they have legal qualifications and understand the technicalities; they look at attorneys’ undergraduate degree and want to see a hard science/engineering degree (bachelors in chemistry, biology, etc) in order to be considered for the patent bar exam. Businesses must sign the application for the patent.

• Patent: Exclusive right to invention

Characteristics of Patents:

• Novelty

- Something new and different from the prior art

• Nonobviousness

- Ability of an invention to produce surprising or unexpected results

• Utility

- Must do something useful

Patent Enforcement:

• If someone sees a patent owner doing something seemingly unallowed by their patent (ex. Something used in the innovation was already created, or was shown on TV shows, if the invention was put for sale before the patent was filed, etc.), they can challenge their patent and the PTO has the ability to take away a patent if novelty, nonobviousness, and utility are not met
• There is a one year grace period for patents
• Patent owner can sue against infringement for injunction and damages
• Inventions can cover methods and articles that can overlap
• Overlapping rights provide an opportunity for firms to purchase patent rights and sue companies-Patent Trolls (term applied to a business that obtains the rights of one or more patents to profit, and buys many patents and sues people for infringement of their patents)
• Owning a patent does not give the right to own and import a whole product, businesses have to pay the licensing fee for parts of the product
• UGARF: gets many patents every year and own the patents for inventions made at UGA (manuals are copyrighted by the UGA, things produced by labs on campus are owned by UGARF, etc)
• Patents can also be invalid if the paperwork does not meet requirements or if the subject matter of the patent was not right at all

Subject Matter of Patents:

• If someone has discovered and not invented this doesn’t count as eligible for a patent (ex. If you take a flower, extract a new element, and create a salve, that is patentable, but just discovering the flower is not)
• Patents can not cover people
• Patents can not lockdown an entire field of discovery
• Case Example: Association for Molecular Pathology v. Myriad Genetics, Inc. 133 S.Ct.2107 (2013). Myriad created a way to treat breast cancer through using the genes BRCA-1 and 2 to reduce breast cancer. The Association for Molecular Pathology sued and stated that you cannot patent DNA. It was founded that abstract ideas, naturally occurring things, etc are not patentable. They didn’t invent, they discovered, which is not patentable. Patent law is intended to reward invention, not investment. Justice Thomas stated that if they had created an innovative method of manipulating genes, manufactured DNA, etc. then that would’ve been patentable.
• Case Example: Alice Corporation Pty. Ltd. v. CLS Bank Int’l 134 S.Ct. 2347 (2014). The Alice Corporation had several patents to mitigate risks like security trades. The patent that they had allowed computers to act as a third party to allow both parties to proceed in transactions and were sued by CLS on whether they had subject matter that was patentable. CLS claimed that they are mere abstract ideas a computer is exercising, not an invention. The Supreme Court stated that the use of a third party is beyond the scope of protection and they must examine the elements of the claim to determine if it includes a new/innovative concept and must include additional elements on top. Having an abstract idea and applying it on a computer does not allow patent eligibility unless there is some inventive element in addition to that. This was just an abstract idea. Since there was no layer of inventive act, Alice Corporation was not eligible for a patent. This court decision has made it hard for software companies to become patent eligibile.

Trademarks:

• Marks on what is produced to represent the origin of goods and services → Recognizability or distinctiveness → Protection against confusion
• UGA had issues with trademarks (™) and businesses must get permission from UGA to put their logo on objects.
• Service marks (SM): Marks associated with a service rather than a product. Used for advertising a service
• Certification marks: Used by groups to show that products meet certain standards or characteristics (like mark for gluten free, fair trade certified, etc.)
• Collective mark: Used by an organization, should only be used by the members of that particular association
• Trade Dress: The look or design of a product or service. Applies to the total image like the layout, color scheme, furniture, and distinctiveness (Chik-fil-a for example, coca-cola, heinz ketchup). Businesses can get trademarks for color, which would be a limited color and limited in their use. For example, the shade of blue used for Tiffany’s boxes only applied to jewelry stores, no other jewelry store can have bags or boxes the same shade of blue as them. Louboutons tried to sue another fashion house for making an entirely red show, but their color trade mark only included the sole being red, not entire shoes

March 29th Notes:

Sound Trademarks “Sound Marks”:

• Certain shows/channels/movies play sound marks before showing something on their channel (for example the sound mark for NBC news)

Trademark Registration:

• Usage of mark in interstate commerce is required for registration with PTO
• Can PTO deny registration?

- Same or similar to another mark

- Prohibited or reserved names or designs

- Names or likeness without permission (to use a president’s name, there has to be permission from the wife/family)

- Descriptive (like salty crackers)

- Generic

- Disparaging

- Immoral and scandalous (now off the list because of Matal and Iancu)

Matal v. Tam, 582 U.S. ___, 137 S.Ct.1744 (2017): Asks whether the Disparagement Clause in the Lanham Act is invalid under the First Amendment. This case involved a band made up of people of Asian descent, and they wanted to call themselves “The Slants,” claiming they were reclaiming a marginalized term, but the Court stated that they could not use this name because it demeans on the basis of race, gender, sex, etc. The justice at the Supreme Court decided that the disparagement clause in the Lanham Act was discriminating on the Court’s part because people should have the right to express their thoughts in regards to disparaging statements.

Iancu v. Brunetti, 588 U.S. ___, 139 S.Ct.2294 (2019). FUCT. A brand tried to use an abbreviation on t-shirts, FUCT and were sued because it seemed like immoral speech. The question of this case was whether Section 2(a) of the Lanham Act, which prohibits the federal registration of “immoral” or “scandalous acts”

- Immoral, scandalous names or symbols

Trademark Registration:

• PTO places the mark in the Official Gazaette
• Registered on the Principal Register if the mark is acceptable
• If listed on the Supplemental Register for five years and acquires a secondary meaning, a name or descriptive term can acquire full trademark status

Trademark Enforcement:

• Law protects the owner from unauthorized use of the mark
• Infringement:Civil violation of a trademark

- Remedies include damages and injunctions and orders to destroy infringing products

• Generic marks cannot be protected (a trademark becomes generic if the brand becomes synonymous in the consumer’s mind with a good or service)

Jack Daniel’s Properties Inc. v. VIP Products LLC, 599 U.S. ___ (2023). A brand made a chewable whiskey dogtoy (with dog poop on the bottle) that was designed to look exactly like the Jack Daniels whiskey bottle (stating that it was a parody). Jack Daniels didn’t want their alcohol to be associated with dog poop and that people might be confused or think that Jack Daniel had something to do with this.

Kraft Foods Group Brands LLC v. Cracker Barrel Old Country Store: Both had their individual trade marks. Kraft foods sells cheese under the name Cracker Barrel (cheddar cheese), and Cracker Barrel Old Country Store, the restaurant chain, wanted to come into the grcoery store with their own products, including ham, meet, cheese, etc. Kraft Foods stated that if they do this, people may think Cracker Barrel Old Country Store’s food is theirs and have bad thoughts against the food, and think that it was Kraft’s, resulting in people stopping buying their products. Justice Posner stated that the issue is that these products will be in the same stores and since most people buying these are poor and its harder for them to understand things, they put an injunction on Old Country Store. Cracker Barrel Old Country store was eventually allowed to be put in grocery stores, but only after they changed the branding on their products in stores saying “Old Country Store,”.

Costco v. Tiffany: Costco was using the Tiffany word to describe diamonds pronged/setted a certain way. Tiffany sued because their name was mentioned, thinking people may think that Costco’s diamonds are theirs. However, it was founded that people these are sophisticated consumers, who will be able to understand that Tiffany is a diamond setting.

• Marks can not be used in an unauthorized way
• Manufacturing and trafficking counterfeit trademarked products is a criminal violation

Trademark Dilution:

• Federal Trademark Dilution Act, 1995

- Prohibits the usage of a mark same as or similar to another’s trademark to dilute its significance, reputation, and goodwill

• Types:

- Blurring - When usage of a mark blurs distinctiveness of a famous mark

- Tarnishment - When usage of a mark creates a negative impression about the famous company

Copyright:

Copyright Ownership:

• Copyright law grants property in certain creative expressions and prohibits others from reproducing it w/o permission
• Criteria for copyright protection:

- Work must be original

- Must be fixed in a tangible medium of expression

- Must show creative expression

• Individuals: author’s life plus 70 years
• Company: 95 years from publication of 120 years from creation of the work, whichever expires first
• Public Domain Day: January 1st of each year
• As of Jan 1, 2024, works published in or before 1928 are in Public Domain

Copyright Infringement:

• The owner has to establish that defendant violates his or her exclusive rights of:

- Reproduction

- Creation of derivative works

- Distribution

- Performance

- Display

Copyright Fair Use:

• Includes copying for:

- Criticism

- Comment

- News reporting

- Teaching

- Scholarship

- Research

Andy Worhol Foundation for the Visual Arts, Inc. v. Goldsmith: Warhol was allowed to use one picture Goldsmith took of Prince in his early career for his work, but Vanity Fair tried to use different colors of paintings made by Warhol of that same picture. Warhol foundation loses.

Google LLC v. Oracle America Inc., 593 U.S. ___ (2021). Decided April 5th, 2021. Trying to determine whether java apis counted under fair use in copyright law. The Supreme Court ruled, by a 6-2 decision, that Google had not violated Oracle’s copyright by using components of Oracle’s Java programming language in Google’s Android operating system employed in most of its smartphones. SCOTUS sidestepped the issue of copyrights on Application Programming Interfaces and assumed fair use. Google loses

• Factors for “fair use” considered on case-by-case basis

April 1st-Chapter Fourteen: Business Organizations Notes:

Closely Held Businesses:

• Businesses owned and operated by a small amount of people (usually five or less) and there is a restriction on who can own shares
• Typically family businesses

Publicly Held:

• Stock is sold and owned by the public instead of investors

Forms of Business Organizations:

• Basic:

- Sole proprietorships:

- Least expensive business organization to create

- Proprietorship’s continuity is tied directly to the will of the owner

- Sole proprietor is in total control of the business’s goals and operations

- Only one owner and no formal documentation is required besides a business license

- Owner has unlimited liability for the obligations of the business organization

- Not taxed as an organization, the individual is taxed

- Examples: Home based business, Etsy, business in farmer’s markets

- Partnerships:

- Agreement between two or more persons to share a common interest in a commercial endeavour sharing profits and losses

- Easily formed compared to other business forms

- If the name of the organization is different from the partners’ names, they must file something to the government showing who they are. The state’s assumed name statute states that the name of the partners must be listed

- Each partner has an equal choice in the business’s affairs

- All partners have unlimited personal liability (no shield), and partners are generally and jointly liable for the decisions

- Disadvantages: shared profits,

- Share financial agreement

- Corporations

- Artificial and intangible entity created under the authority of a state’s law

Types:

- Domestic: Businesses made in a certain state are considered domestic to that state.

- Foreign: In states other than the state in which the business is created, the business is considered foreign. Businesses must register as foreign in states under the one they created.

-Alien: Companies that are coming from different countries and opening up in the U.S. Much more costly

• Hybrid:

- Limited partnerships

- S corporations

- Limited liability companies

- Limited liability partnerships

Factors to Consider When Selecting a Business’s Organization Form:

• Cost of creation: Legal steps in order to form a type of business organization
• Continuity of the organization
• Managerial control of decision: Who’s making the decisions and how are those decisions made.
• Owner liability
• Taxation: Some organizations are single taxed or double taxed.

Important to Continuity of a business:

Disillusion: Any change in an organization that changes their legal existence. For example, a business would need to dissolve and come back when adding more owners.

Termination: Includes the complete termination of a business.

Delaware Court of Chancery:

• Court of equity in Delaware
• Five justices, generally only take two clerks
• Nominated and elected by the governor of Delaware
• One of Delaware’s hree constitutional courts
• Can order forms of equitable relief such as specific performance or injuctions
• The nations preeminent forum for the determination of disputes regarding internal affairs

Georgia State-wide Business Court:

• Has state-wide jurisdiction to focus on complex business litigation that would otherwise land in county courts
• Judge appointed by Governor (not elected) and approved by majority vote of Senate and house judiciary committees
• Relatively new

April 3rd Notes:

Corporate Managerial Control:

Employees → Officers (Manage the daily operations and rules set by Board of Directors) → Board of Directors (Make decisions and rules) → Shareholders (elect Board of Directors)

Managerial Control:

• Proxy: An agent appointed by a shareholder for the purpose of voting shares
• Fiduciary Duties: An obligation to act in the best interest of another party; it exists when one has a special trust, confidence, or reliance on a fiduciary to exercise discretion or expertise (attorney has fiduciary duty to a client; corporate officer has fiduciary duty to shareholders)

- Directors/officers have fiduciary duties to the corporation and minority shareholders in closely held corporations

• Closely held: Have near absolute control, can pay themselves large salaries that obliterate most profit. Minority shareholders would not be left with much, however majority shareholders have fiduciary duty to the corporation and minority shareholders to act in the best interests of the corporation and minority shareholders

Derivative Suit:

• A minority shareholder who believes that a majority shareholder has acted in his or her personal interest to the detriment of the corporation may bring a derivative suit against the majority shareholder on behalf of the corporation.

Corporate Liability/Piercing the Corporate Veil:

• Notwithstanding the limited liability enjoyed by corporate shareholders, creditors of a closely held corporation may be able to reach shareholders’ personal assets in the following situations:

- The shareholders used the corporation to defraud customers and/or counterparties

- The shareholders commingled corporate and personal assets

Case Example: Alli v. U.S., 83 Fed. Cl. 250 (2008) - Focused on whether the court should pierce the corporate veil and strip away the liability protection of the Allis. Dr.Alli and Mrs.Alli bought many apartment complexes and put them under a corporation, the BSA corporation. This corporation entered into a contract with HUD, stating that they would pay BSA to have their employees stay in the apartments. However, the Allis were using the assets from BSA for their own wants, leading to the apartments being in horrible condition. HUD had to go through many government expenses to move the people out and breached the contract to have liveable housing. The BSA sued HUD, and HUD counterclaims for $2 million in damages for moving housing, costs of providing basic services, repairs, etc. It was found that BSA breached the contract because they did not provide liveable housing. The court ruled in HUD’s favor, however, due to the Allis’ price shield HUD could only get the value of BSA, which was next to nothing. The court permitted the piercing of the corporate veil, and allowed HUD to go after the Allis’ personal assets.

Limited Partnerships:

• Includes all the attributes of a partnership
• Limited partners: Not responsible for the debts of the business organziation/limited liability
• General partners: Personally liable for the organization’s debts/management control

S Corporations:

• Shareholders of certain corporations unanimously elect to have the organization treated like a partnership for income tax purposes
• Has all legal features of a corporation
• Shareholders have to account on their individual income tax returns for share of profits or losses
• Shareholders avoid having a tax assessed on the corporate income
• Cannot have more than 100 shareholders/must be individuals/must be domestic corporation

Limited Liability Organizations:

• Limited liability partnership (LLP)

- Variation of the LLC

- Have characteristics of both a partnership and a corporation

• Limited liability company (LLC)

- Treated as nontaxable entities like partnerships

- Limited liability for members like corporations

- Owners have more flexibility compared with S corporation

- Created through filings, terminology is different than in an LLP

- To form an LLC there needs to be organizers filing organization with the state (corporation needs to be stated as an LLC), there are not shareholders, there are members

Operating the Organization through Agents:

• Principal, agent, third-party, independent contractor
• Actual (the principal allows the agent to do something, like making a purchase. The principal will write, email, or call stating that they give the agent authority), implied (actions are aligned with authority and make sense), and apparent authority (A protocol in place when it comes to terminating employees is important. This would be notifying third parties the employee is no longer authorized to do business with them, changing locks, etc. If this is not done, then the agent may have apparent authority because they would still have access to company resources after being fired)
• Contractual authority: binding the principal
• Respondeat Superior/Vicarious Liability: An employer is vicariously liable for the behavior of an employee working in the scope of their employment.
• Frolic and Detour: Defenses and includes scope of employment. For example, an employee is sent to go to the bank, but stop at Chik-fil-a, going across traffic to get there, causing an accident. The employer did not authorize this frolic and detour

Trends in Management of the Organization:

• Benefit Corporations vs. B Corps
• Corporate Personhood

- Federal Communications Commission v. AT&T, Inc.

Chapter 14 Notes:

Forms of Business Organizations:

• The law recognizes three basic forms and several hybrid forms that contain attributes of two or more basic forms
• The three basic forms are: sole proprietorships, general partnerships, corporations
• The hybrid forms are: limited partnerships, S corporations, limited liability companies, and limited liability partnerships
• Some organizations are only owned by a few persons, and are known as closely held
• The issue of which organizational form is best usually involves closely held businesses; publicly held businesses typically are corporations
• The decision of selecting an appropriate organizational form usually is limited to those situations involving the few owners of a closely held business. The reason for this corporate form being used is that shareholders can transfer their ownership without interfering with the organization’s management

Factors to Consider When Selecting a Business’s Organizational Form:

Significant factors to consider in selecting the best organizational form for a particular business activity include-

• The cost of creating the organization
• The continuity or stability of the organization
• The control of decisions
• The personal liability of the owners
• The taxation of the organization’s earnings and its distribution of profits to the owners

In these sections, each of these factors is defined so that it is more easily applicable to their meaning for business structures:

Creation-

• The legal steps necessary to form a particular business organization
• The issues when considering methods of creating business organizations usually are time and money
• Usually the cost of creation is not a major factor in considering which form of business organization a person will choose to operate a business

Continuity-

• This becomes associated with the stability or durability of the organization
• The crucial issue with this continuity factor is the method by which a business organization can be dissolved
• A dissolution is any change in the ownership of an organization that changes the legal existence of the organization
• The death, retirement, or withdrawal of an owner creates issues of whether an organization and its business will continue

Managerial Control-

• The factor of control concerns who is managing the business organization
• The egos of businesspeople can cause them to insist on equal voices in management
• Usually when people are excited about getting started in a business opportunity, no one takes time to discuss methods of resolving potential deadlocks
• The failure to consider how to overcome disputes involving managerial control can cause business activities to suffer and the organization to fail
• Voice in management can be decided between co-owners

Liability-

• Always examine how liability passes from the organization to the owner
• Generally, businesspeople want to limit their personal liability. Although there are organizations that appear to accomplish this goal, you will see that such appearances might be misleading when actually conducting business transactions

Taxation-

• Remember a single tax is not always better than a double tax
• Some say that the double taxation of corporate income should be avoided by selecting a different form of organization

Selecting the Best Organizational Form:

• Sole Proprietorship: No formal documentation–business licenses only
• General Partnership: Automatic based on business conduct; modified by agreement
• Corporation: Incorporators apply for state charter with articles of incorporation
• Limited Partnership: Partnership agreement and certificate filed in public office where business is conducted
• S Corporation: Incorporators apply for state charter with articles of incorporation
• Limited Liability Company for Partnership: Organizers file artles of organization with state official
• Non-Profit Corporation: Incorporators apply for state charter with articles of incorporation

Sole Proprietorships:

• Creation: A sole proprietorship is the easiest and least expensive business organizataion to create. Legally, no formal documentation is needed
• Continuity: A proprietorship’s continuity is tied directly to the will of the proprietor. The proprietor may dissolve his or her organization at any time by changing the organization or terminating the business activity. Ownership of a sole proprietorship cannot be transferred.
• Managerial Control: The sole proprietor is in total control of his or her business’s goals and operations. While the proprietor has complete responsibility for the business’s success or failure, the owners of all organizational forms usually share control to some degree
• Liability: A sole proprietor is personally obligated for the debt of the proprietorship. The desire to avoid the potentially high risk of personal liability is an important reason other organizational firms might be viewed as preferable to the proprietorship. A sole proprietorship may appear to have many advantages; sharing responsibility and liability with others are not among them
• Taxation: A sole proprietorship is not taxed as an organization. All the proprietorship’s income subject to taxation is attributed to the proprietor. The initial appearance of this tax treatment may appear favorable because the business organization is not taxed. However, the individual proprietor must pay a tax rate based on their income

Partnerships:

• Agreement between two or more persons to share a common interest in a commercial endavor and to share profits and losses
• Creation: A partnership is easily formed. The key to a partnership’s existence is satisfying the elements of its definition- two or more persons, a common interest in business, and sharing profits and losses
• Continuity: A general partnership is dissolved any time there is a change in the partners. If a partner dies, retires, or withdraws, the partnership is dissolved. If a person is added as a new partner, there is a technical dissolution of the organization/ Dissolution is simply the legal form of organization no longer exists
• Managerial Control: In a general partnership, unless the agreement provides to the contrary, each partner has an equal voice in the firm’s affairs. Partners may agree to divide control in such a way as to make controlling partners and minority partners. A written partnership agreement should provide specific language governing managerial control
• Liability: All partners in a general partnership have unlimited liability for their organization’s debts. Partners are jointly and severally liable for the partnership’s obligations. Example: Assume that a general partnership has three partners that it owes a creditor $300,000. As an alternative, the creditor can sue any one partner or any combination of two for the entire $300,000
• Taxation: Like proprietorships, partnerships are not a taxable entity. A partnership files an information return that allocates to each partner his or her proportionate share of profits or losses from operations, dividend income, capital gains or losses, and other items that would affect the income tax owed by a partner. A partnership does not pay taxes, this may be a benefit or detriment to the partners depending on whether the organization makes or loses money and whether it distributes or retains any profits made

Corporations:

• A corporation is an artificial, intangible entity created under the authority of a state’s law. A corporation is known as a domestic corporation in the state in which it is incorporated. In all other states, this corporation is called a foreign corporation. A corporation created under a foreign country is an alien corporation
• Creation: A corporation is created by a state issuing a charter upon the application of individuals known as incorporators. Among the costs of incorporation are filing fees, license fees, franchise taxes, attorneys’ fees, and the cost of supplies
• If a corporation wants to conduct business in states other than the state of incorporation, they must be licensed in these foreign states
• Continuity: A corporation usually has perpetual existence. It is distinct from its owners’ status as shareholders. A shareholder’s death or sale of her or his stock doesn’t affect the organizational structure of a corporation
• Managerial Control: The shareholders elect the members of the board of directors. These directors set the objectives or goals of the corporation, and they appoint the officers. These officers are charged with managing the daily operations of a corporation.
• Publicly Held Corporations: In large corporations, control by management is maintained with a small percentage of stock ownership through the use of corporate records and funds to solicit proxies
• Closely Held Corporations: Shareholders with the largest amount of stock are often elected to this board of directors. In order to prevent fraud by majority shareholders, minority shareholders can file a derivative suit, seeking to enjoin the unlawful activity or to collect damages on behalf of the corporation
• Liability: The legal ability to separate a corporation’s shareholders from its mamagers means owners are liable for the debts of the corporation only to the extent of those shareholders’ investment in the cost of the stock (corporate shareholders, for example, have limited personal liability). Shareholders will usually be required to add their own individual liability as security for borrowing

- Piercing the corporate veil: When courts find the corporate organization is being misued, the corporate entity can be disregarded

- Alter ego theory: The corporate veil can be pierced through this, and may also be used to impose personal liability upon corporate officers, directors, and stockholders. If the corporate entity is disregarded by these officials themselves, so that there is such a unity of ownership and interest that seperateness of the corporation has ceased to exist, the alter-ego theory will be followed and the corporate veil will be pierced

Case example: Alli v. U.S. The Allis owned several apartments in bad condition and were sued by the US Department of Housing and Urban Development for failing to pay housing assistance for residents of three apartment complexes. They pierced the corporate veil in this situation because the Allis had been embezzling money to the point where their corporation was worth nothing and HUD could come after their personal assets

• Taxation: Corporations must pay income taxes on their earnings. They can also have tax disadvantages, like if a corporation suffers a loss during a given tax year. A double tax is teh existence of a second tax for selecting the best organizational form for a business
• Avoiding Double Taxation: Corporations have employed a variety of techniques for avoiding the double taxation of corporate income. Reasonable salaries paid to corporate officials may be deducted in computing the taxable income of the business. Corporations provide expense accounts for many employees, including shareholder employees. The capital structure of the corporation may include both common stock and interest-bearing loans from shareholders. Another technique for double taxation includes not paying dividends in order to accumulate the earnings.
• Limited Partnerships: A limited partnership has all the attributes of a partnership except that one or more of the partners are designated as limited partners. The management is left in the hands of one or more general partners who remain personally liable for the organization’s debts
• Creation: A limited partnership is created by agreement. The amount of cash or the agreed value of property to be contributed by each partner, and the share of profit or compensation each limited partner should receive
• Continuity: The principles guiding partnerships also apply to limited partnerships if there is a change in the general partners
• Managerial Control: In a limited partnership, the general partners are in control. Limited partners have no right to participate in management
• Liability: The true nature of the limited partnership being a hybrid is in the area of owner’s liability. Revised Uniform Limited Partnership Act: A limited partner’s surname may not be used in the partnership’s name unless there’s a general partner with the same name

S Corporations:

• Beginning in 1958, the federal government permitted shareholders of certain corporations to unanimously elect to have their organization treated like a partnership for income tax purposes.
• An S corporation has all the legal characteristics a corporation typically has, with the exception that shareholders in the S corporation are responsible for accounting on their individual income tax returns for their respective shares of their organization’s profits or losses

Limited Liability Organizations:

• The limited liability company is an increasingly popular organizational alternative
• Over the past two decades, the growth of LLPs and LLCs has made organizational forms popular for closely held businesses
• A variation of the LLC is known as the limited liability partnership
• Creation: An LLC is created through filings much like those used when creating a corporation. Articles of organization are filed with a state official, usually the secretary of state. Instead of incorporators, the term organizers is used
• Contunity: The owners of LLCs are called members rather than shareholders or partners
• Managerial Control: The managerial control of an LLC is vested in its members, unless the articles of organization provide for one or more managers. A dissenting member has the right to sell the membership interest to the other members of the LLC
• Liability: Members act as agents of their LLC for liability purposes.
• Taxation: State laws and the IRS recognize LLCs as nontaxable entities

Non-Profits:

• State law dictates what organizations are permissible, the necessary filings, and the governance structure
• An important part of any non-profit administration is the avoidance of conflicts of interest between the non-profit and board members

Making the Decision:

• The criteria used to select a form of organization needs to be reviewed periodically and is often done with attorneys, accountants, insurers, etc

Operating the Organization through Agents:

• Terminology: First, a principal interacts with someone for the purpose of obtaining the second party’s assistance. The second party is the agent. A principal may hire an independent contractor to perform a task

Contractual Liability from an Agent’s Acts:

Contractual authority can take the following forms-

• Actual authority: Specific instructions, whether spoken or written, given by an employer to an employee to create actual authority. For example, you write a note to your friend Terry, the manager of the local grocery store, giving authority to your employee, Alex, to charge $100 worth of coffee to the restaurant.
• Implied authority: Can be inferred from the acts of an agent who holds a position of authority or who had actual authority in previous situations. For example, Alex is in charge of the restaurant for an evening. He notices the tuna salad is in short supply, so he goes to Terry’s grocery store and buys tuna charging the restaurant.
• Apparent authority: Seemingly having authority. Example: Terminating Alex’s employment, and in retaliation, he goes to Terry’s and charges a variety of groceries, making the restaurant liable for the bill because you did not notify Terry that Alex had been terminated. A partner in a trading partnership(one that is engaged in the business of buying and selling commodities) has the implied authority to borrow money in the usual course of business. A partner in a nontrading partnership has no implied power to borrow money
• Ratification: Occurs when a principal voluntarily decides to honor an agreement

Tort Liability from an Agent’s Acts:

• The reason for respondeat superior is that the employee is advancing the interests of the employer when the tortious act occurs. If the employee is not doing the work, the employer would have to do it.
• Some respondeat superior cases involve employee negligence.
• Usually the only defense the employer has to the strict liability of respondeat superior is that the employee was outside the scope of employment
• Sometimes a defense is made using frolic and detour. An employee who is on a frolic or detour i sno longer acting for the employer. An employer who must pay for an employee’s tort under respondeat superior may legally sue the employees for reimbursement
• Each partner is in effect both an agent of the partnership and a principal, being capable of creating both contract and tort liability for the firm and for copartners and likewise being responsible for acts of copartners

Criminal Liability:

• Agents can impose criminal liability on business organizations.

Trends in Managing the Organization:

• Generally, the business judgement rule provides a significant degree of protection for the decisions of directors by presuming they are in the interests of the firm
• Trend:To avoid concerns of diverging shareholder and director interests, some recommend organizing the firm from the outset as a benefit corporation
• B-Corp: A private certification rather than a legal business structure
• Creating the benefit corporation structure comes from the perception that traditional corporate forms place too much emphasis on profit maximization. However, traditional corporations aren’t legally or functionally precluded from offering essentially the same social benefits due to the flexibility in corporate governance (yjos was made clear in Burwell v. Hobby Lobby Stores)
• As the effect of climate change and other sustainability issues become more impactful on a firm’s bottom line, one could argue that not addressing them is actually a breach of fiduciary duty

Marchand v. Barnhill: Bluebell Creameries, a Delaware corporation founded in Texas selling ice cream had ice cream contaminated with Listeria produced in their factories. This led to the poisoning and deaths of three customers. Marchand, a shareholder in Blue Bell sued the company. It was found that although the corporate directors are given significant deterrence in their decision making, when confronted with risks that can impact “essential and mission critical” operations, a court may apply more scrutiny. The court determined that the plaintiff alleged sufficient facts to make the case that the Blue Bell directors did not take food safety risks seriously enough

• Second trend: The continued definition of the nature of corporate personhood
• The U.S. Code explicitly states that the words “person” and “whoever” include corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals. Corporations and individuals reasonably have a largely equal claim to rights and protections under the law.
• In Citizens United v. Federal Election Commission, 558 U.S. 310 (2010), the Supreme Court affirmed a corporation’s speech protections under the Constitution’s First Amendment by striking down a federal law that limited spending on political advertising
• In Burwell v. Hobby Lobby Stores, Inc. (2014), the Supreme Court was compelled to determine whether for-profit corporations are “persons” within teh meaning of the Religious Freedom Restoration Act
• Third Trend: The evolving role of flexible workplaces and online customer interactions in business operations and governance
• The business work has been on the path toward substituting remote interactions for in-person activities for many years. Some businesses have shifted much of their work force to some form of telecommuting. However, this trend greatly accelerated in the wake of the 2020 Covid-19 pandemic
• In some parts of the United States, pickup or home delivery became the only option for maintaining a retail presence. The extent to which the shift to more online interactions becomes a permanent reality may not be fully determined for years, and it may differ by industrial sector.

April 5th Notes:

• Benefit Corporations vs. B Corps
• Corporate Personhood:

Federal Communications Commission v. AT&T Inc. 131 S.Ct. 1177 (2011). There is an investigation by the FCC on AT&T because of the possibility that the government overpaid AT&T. AT&T voluntarily turned over documents to the federal government and it paid back what was due. After this, AT&T competitors made a FOIA (requires the government to hand over federal documents) request, wanting AT&T’s documents for their use. AT&T argued back using Section 7c, that stated that businesses can not request personal documents. The court determined that businesses do not have personal private rights under Section 7c because a business does not include personal privacy, however, under other sections of FOIA, AT&T has privacy rights

• Director Liability

Marchand v. Barnhill, 212 A.3d 805 (Del.2019). Did Blue Bell Creameries Board breach their fiduciary duties by disregarding the contamination risks? Blue Bell Creameries ice cream was contaminated with listeria, leading to three people’s deaths from the contamination. A shareholder, Jack Merchand, sued Blue Bell Creameries saying they failed to follow appropriate food safety protocols. Amounts of bacteria over legal limits appeared in tests in January 2015 and spread to Blue Bell products by February, and the outbreak spiraled out of control. The directors moved to dismiss, claiming Marchand had not alleged anything showing bad faith, a prerequisite to holding directors liable. The judge dismissed the claims against the directors. Marchand appealed.Chief Justine Strine expressed the Delaware Supreme Court’s view that to avoid liability under Caremark, boards must demonstrate that they have instituted and supervised a board-level process to oversee and monitor a system of compliance that addresses the company’s mission-critical risks.

Chapter 15-The Regulatory Process Lecture Notes:

Administrative Agencies:

• Board, bureaus, commisions, and organizations that make up the governmental bureaucracy
• Types of regulatory authority

- Quasi-legislative

- Quasi-judicial

• Create and enforce laws constituting the legal environment of business

The Station Nightclub Fire: This was the fourth deadliest nightclub fire in the U.S. It occured in New England in 2003. The fire was started from proximate audience pyrotechnics (pyrotechnics that can be used inside) by the band playing at a club. Most people went through exits that they came in through, all trying to go to through the same door. People sued the government stating that they should have not allowed this to occur, and there should have been more requirements.

Reasons for Agencies:

• Provide Specificity
• Provide Expertise
• Provide Protection: Agencies are made to protect people, so they are primarily regulating businesses. When a government program for protection is made by law, they must create proper administrative agencies that have the correct authority, consistencies, and responsibilities, or they work with already made agencies to regulate in the right area.
• Provide Regulation
• Provide Services

Functions of Agencies:

• Rule making: An agencies quasi-legislative powers, an agency can make rules that can be enforced by law. This can be general practices, or made specifically. The agencies publish guidelines to supplement and explain rules. These are not necessarily law, and are more like an annotation to help people understand the rules
• Adjudicating: Involves fact-finding and applying law to the facts
• Advising: Agencies can propose new legislation to Congress, report information to the general public and publish advisory opinions to aid businesses to deal with issues. An advisory opinion is a unique device used by administrative agencies, generally not available in the court system. Agencies send out a hypothetical example, businesses ask about their situation, and agencies send back out an advisory opinion. These are not binding and are more of a vuideline. This is unique to the administrative agency process and not to the courts.
• Investigating: Agencies have subpoena power, they can take businesses to court, make decisions. Agencies can send out cease and desist orders to companies, however companies often enter into consenting orders to avoid this.

April 8th Notes:

Organization of Agencies:

• Consist of five to seven members

- One member is appointed as chairperson

- No more than half can be majority one political party

• Appointments require Senate confirmation
• Removal by president only, by cause
• One named a chair by the president, have equal voting
• Secretary: keeps meeting minutes, signs all orders, deals with everything on the federal register
• Chief calice can sometimes hav eto be approved by the senate, seen as extremely powerful
• Appointees are not permitted to engage in other employment during the terms
• Agencies have distinctive organizational structure to meet its responsibilities

Free Enterprise Fund v. Public Company Accounting Ocersight Board, 561 U.S. 477, 130 S.Ct. 3138 (2010): In 2002, Congress enacted the Sarbanes-Oxley Act (SOX), which added on to the SEC with the goal of regulating private accounting firms. It created a new board, PCAOB to regulate private accounting firms and were appointed by the SEC. They were not employed by the government and were modeled by private industries, hoping people would feel more secure. People challenged the PCAOB because of the dual “for cause” ability of the president and SEC to remove members was a separation of powers violation. The dual for cause limitation on the removal of SEC and PCAOB members violates the separation of powers but this decision can be severed, and SOX can stay.

• SOX is not unconstitutional, the dual for clause limitation was the main issue that violated the separation of powers.
• Congress creates sox to regulate accounting firms, an agency under the SEC called PCAOB
• Since not appointed by president it allows for recruitment outside the government but not limited to government rules
• No appointment clause violation
• Seperation of powers issue

The Federal Register:

• Published everyday
• Gets involved right then
• File any proposed rules
• The secretary has the responsibility to explain why information is published in the register
• This is where the FTC secretary puts all rules that are proposed or want to be passed, as well as public notices.
• PTO: Uses the principal gazette, supplemental register
• The burden of the Federal Register on the U.S. population is $1.9 trillion
• President Truman cut the number of the pages in the 60s to 9,000 papers
• The average cost per employee of the Federal Register is $17,000 and for smaller companies it is $35,000
• General Counsel: The agencies’ chief legal council

Free Lucia v. SEC, 585 U.S.___, 138 S.Ct. 2044 (2018). Lucia brought up this issue regarding whether the commissioner’s ALJ (administrative law judges) is an “employee” or “officers of the United States” because staff of the SEC was interviewing and hiring these judges. This Court stated the commissioner’s ALJs are officers of the U.S. government and thgey are subject to government regulations and laws because they regulate hearings, administer courts, have the power to draw legal conclusions, give remedies, and their decision can become binding. Therefore, there should be the head of a department that hires them. The holding is that ALJs are officers of the United States and must be properly appointed. The appoinbting of these officers became much more strict.

ALJs had too much discretion and power to be mere employees, so they must be officers of the United States. The Supreme Court is hearing this case again currently.

Influencing Agencies:

• Agencies give public notice of proposed rules and hold public hearings
• Interested parties present evidence in support of opposition to the regulation
• Agencies react to the force of public opinion
• Each branch of government has control over the administrative process

Judicial Review of Agency Decisions:

• Standing to Sue

- Reviewability

- Aggrieved Party

• Review of Rule Making

- Is delegation valid? 2 basic issues that need to be examined: Was the authority valid, and has the authority exceeded authority. They are subject to two constitutional limits: The delegation’s authority must be definite an limited to areas that are certain. Courts must give deference to federal agencies.

- Authority exceeded

• Procedural Aspects

- Exhaustion of Remedies

- Primary Jurisdiction

• Review of Factual Determinations

April 10th Notes:

Review-

• Not all agents are employees, but all employees are agents (agents make contracts)
• Frolic and detour: Stopping somewhere not authorized vs vicarious liability (part of respondeat superior) where you were completing a task for your employer and an accident occurs
• Google v. Oracle: Java API was fair use by google and a copyright issue
• Cracker Barrel
• Alli v us: piercing the corporate veil for BSA
• PCAOB: separation of powers problem
• Final: 22 questions from chapter 20 and 21, 100 questions

Chevron defense:

2 limitations

• Defendant-clearly and they know the extent of the agency power, less likely for something wrong to happen
• Limited-the creation of agency must be limited to the scope of what the agency can do

Food and Drug Administration v. Brown and Williamson Tobacco Corporation, 120 S. Ct. 1291 (2000):

• Fill suit about regulations
• Administration cant exceed its delegation power given to Congress
• Congress choose to control tobacco separability
• FDA exceeded its authority congress gave to it by regulation of tobacco, law was ambiguous, FDA can’t regulate tobacco
• FDA made regulations regarding tobacco products. In 1996, the FDA decided to regulate tobacco to reduce addiction in children and adolescents. The tobacco industry sued due to regulations, saying the FDA did not have the authority to regulate it. The government backed the companies, Congress was protecting tobacco companies for the economy. The FDA was exceeding their authority in regulating tobacco. In 2009, Congress backed on their previous decision, creating a new law where FDA regulated tobacco. Exceeding by the agency that they will get on top of. Two limitations to delegation of congress power: has to be definite and limited (has to stay in their box)

Criticism of Administrative Agencies:

• Costs to track the agencies and their new rules, what they want, whether they want o comply
• Administrative agencies created more rules than congress and courts combined
• Increases the cost of doing business
• Relating to personnel

- Difficulty in hiring and retaining the best-qualified people

- Difficult to discharge unsatisfactory employees

- Personnel in top positions are selected for political reasons

• Relating to procedures

- Delay in the decision making process

- Administrative process is overwhelmed with paperwork and meetings

- Rules and regulations are written in complex legal language

- Dictatorial in nature

• Relating to substance

- Rules and regulations overlap and conflict

- Action for illegal conduct and only with consent orders

- Enforcements of law varies over time

Inflencing Agencies:

• Agencies give notice of proposed rules and hold public hearings
• Interested parties present evidence in support or opposition to the regulation
• Agencies react to the force of public opinion
• Each branch of government has control over the administrative process

Judicial Review of Agency Decisions:

• Standing to Sue

- Reviewability

- Aggrieved Party

• Review of Rule Making

- Is delegation valid?

- Authority exceeded?

• Procedural Aspects
• Review of Factual Determinations

Criticisms of Administrative Agencies:

• Relating to personnel

- Difficulty in hiring and retaining the best-qualified people

- Difficult to discharge unsatisfactory employees

- Personnel in top positions are selected for political reasons

• Relating to procedures

- Delay in the decision-making process

- Administrative process is overwhelmed with paperwork and meetings

- Rules and regulations are written in complex legal language

- Dictatorial in nature

• Relating to substance

- Rules and regulations overlap and conflict

- Actions for illegal conduct and only with consent orders

- Enforcement of laws varies over time

- Public: Guidelines aren’t law

Anaiontion of what the rule is

• Adjudicating:

- Right to conduct fact finding, and provide fact to law, like a court

- Cease and desist: stop and refrain

- Consent order: settlement and no judicial review, no saying they did anything wrong, but if we did we will stop doing it

• Advising:

- Provide information to congress and president, general public

- Advisers oppositions: not binding not rule but can be helpful

- Unique devise, they answer “what if” but not binding

• Investigating

- Speech powers, come to court, investigation power, witness

Chapter 15 Notes:

Regulatory Process–Administrative Agencies:

• The term administrative agencies describes the boards, bureaus, commissions, and organizations that make up the governmental bureaucracy
• Quasi-legislative: An agency can issue rules (regulations) that have the impact of laws
• Quasi-judicial: Agencies can make decisions like a court
• The direct day-to-day legal impact on business of the rules and regulations adopted and enforced by these agencies is probably greater than the impact of the courts or other branches of government
• Administrative agencies create and enforce the majority of all laws constituting the legal environment of business
• The regulatory process involves agencies at all levels of government
• State workers’ compensation boards hear cases involving industrial accidents and injuries to employees, and most local governments have zoning boards that make reccomendations that impact business activities

Reasons for Agencies:

• Administrative agencies are needed to provide specificity, expertise, protection, regulation, and services
• Almost every governmental agency exists because of a recognized problem in society and the expectation that the agency may be able to help solve the problem

Providing Specificity-

• Legislative branches often cannot legislate in sufficient detail to cover all aspects of many problems
• The Internal Revenue Service (IRS) implements federal tax policy
• Congress cannot possibly legislate in minute detail, so it uses more and more general language in stating its regulatory aims and purposes
• Congress cannot enact a securities law that covers every possible issue that might arise
• Courts cannot handle all disputes and controversies that may arise. Therefore, workers’ compensation boards decide such claims.

Providing Expertise-

• A reason many agencies are created is to refer a problem or area to experts for solution and management
• The Federal Reserve Board, the Nuclear Regulatory Commission, and the Food and Drug Administration are examples of agencies will expertise beyond that of Congress or the executive branch
• Administrative agencies often provide needed continuity and consistency in the formulation, application, and enforcement of rules and regulations governing business

Providing Protection-

• Zoning and planning boards are local agencies that provide specificity, expertise, and protection
• Business often fails to regulate itself, and the lack of self-regulation is contrary to the public interest
• The failure of business to voluntarily refrain from polluting many streams and rivers as well as the air led to the creation of the EPA
• The sale of worthless securities to the investing public was a major reason for the creation of the SEC
• The manufacture and sale of dangerous products led to the creation of the Consumer Product Safety Commission
• Americans tend to turn to a governmental agency for assistance whenever a business or business practice may injure significant numbers of the general public

Providing Regulation-

• Agencies often replace competition with regulation
• Electrict utility companies are usually given a monopoly in the geographic area which they serve
• A state agency such as a public service commission then has the power to set the rate structure for the utility
• Regulation is often a substitute for competition

Providing Services-

• Many agencies arise simply out of necessity
• Welfare programs require government personnel to administer them
• The mere existence of most government programs automatically creates a new agency or expands the functions of an existing one
• The Affordable Care Act created and authorized dozens of new entities to implement the legislation, providing a recent example of how Congress relies on regulatory bodies to fulfill legislative mandates

Functions of Agencies:

• Administrative agencies tend to possess functions of the other three branches of government, including:

- Rule making

- Adjudicating

- Advising

- Investigating

• These functions don’t concern all administrative agencies to the same degree
• Most agencies perform all these functions to some degree

Rule Making-

• Agencies exercise their quasi-legislative power by issuing rules and regulations that have the force and effect of law
• Rules and regulations may apply to a business practice irrespective of theh industry involved, or they may apply only to an industry. For example, Occupational Safety and Health Administrative (OSHA) rules may cover anyone’s workplace, or a rule may be drafted so that its coverage is limited to an industry such as drug manufacturing
• The Federal Trade Commission and the Justice Department have guidelines to help determine which mergers are legal and which ones are likely to be challenged as illegal
• Guidelines are also issues by agencies to supplement rules
• Guidelines are administrative interpretations of the statutes that an agency is responsible for enforcing
• While guidelines can be helpful in understanding an agency’s policy, these guidelines do not have the same force of law as rules and regulations do

Adjudicating-

• The quasi-judicial function involves both fact-finding and applying law to the facts
• An agency may order that a violator stop the objectionable activity and refrain from any further similar violations
• Many cases before agencies are settled by agreement before a final decision, just as most lawsuits are settled. These settlement results are done through the issuance of a consent order, which requires that the organization or individual accused admit to the jurisdiction of the agency and waive all rights to seek a judicial review

Advising-

• The advisory function of an administrative agency may be accomplished by making resorts to the president or to Congress
• An agency may propose new legislation to Congress, or it may inform the attorney general of the need for judicial action due to violations
• Agencies report information to the public that should be of public interest
• Agencies also give advice through advisory opinions, which are not as binding as formal rulings, but give businesses an indication of the agency’s view
• The advisory opinion is a unique device generally not available in the judicial system, as courts deal only with actual cases and controversies

Investigating-

• One of the major functions of all agencies is to investigate activities and practices that may be illegal
• Agencies can gather and compile information concerning the organization and business practices of any corporation or industry engaged in commerce to determine whether there has been a violation of any law
• A person may be guilty of a violation without proof that he or she had knowledge that the matter was within the jurisdiction of a federal agency
• Information furnished to a federal agency must be truthful

Organization of Agencies-

• Administrative agencies, boards, or commissions usually consist of five to seven members, one of whom is appointed as chair
• Appointments at the federal level require Senate confirmation, and appointees are not permitted to engage in any other business or employment in their terms
• They may be removed from office by the president only for inefficiency, neglect of duty, or malfeasance in office
• Regulatory agencies require staffs to carry out their duties
• Because agencies have quasi-legislative and quasi-judicial functions as well as the usual executive ones, the organizational chart of an agency usually embraces the full range of governmental duties

In General-

• The chairperson is designated as such at the time of nomination by the president and is the presiding officer at agency meetings
• The chairperson usually belonds to the same political party as the president, and, while an equal in voting, is more important than the other agency members because of visibility and the power to appoint staff
• The secretary is responsible for the minutes of agency meetings and is the legal custodian of its records
• The secretary usually signs orders and official correspondence, as well as is responsible for publication of all actions in the Federal Register
• The office of general counsel is the chief law officer and legal advisor. They represent the agency in court and often makes the decision to file suit or pursue other remedies
• Advisory councils are persons not employed by the agency but interested in its mission. They are usually selected because of their expertise
• Example: The Consumer Product Safety Commission has an advisory council on poison prevention packaging and other flammable fabrics
• All the staff of an administrative agency are employees of the appointed commissioners or board members
• The duties and suborganization of the director of operations vary greatly from agency to agency
• Regional offices investigate alleged violations of the law. Many regional offices have their own administrative law judges and special legal counsel

Quasi-Judicial Staff:

• Administrative law judges perform the adjudicative fact-finding functions
• Administrative law judges are protected from liability for damages on their decisions (immunity)
• They hear cases of alleged law violations and apply the law to the facts
• Because even the administrative law judges work for the appointed agency leaders who hear appeals of the decision made, there is a clear appearance of bias that must be overcome to maintain the confidence of the parties regulated
• Historically, administrative law judges and all other personnel involved in a quasi-judicial hearing have been employees of the administrative agency bringing the complaint.
• They have been accused of being biased towards their employer (the agency)

Free Lucia vs. SEC: Raymond Lucia and his investment company marketed a retirement savings strategy called “Buckets of Money”. They were investigated by ALJs for using misleading slideshow presentations to deceive prospective clients. ALJ judge Elliot concluded that they had violated the Investment Advisers Act and imposed civil penalties of $300,00 and a lifetime bar from the investment industry. Lcuia appealed the actual legality of their decision because the judge had not been constitutionally appointed and based on how ALJS have too much power to just be considered “employees” and their decisions may be biased to their agencies because of their “employee” status. It was founded in this S.C. case that ALJS are “officers of the United States” and not “employees” due to their abilities to make binding legal decisions. SEC’s ALJs have significant authority to ensure fair and orderly hearings, including taking testimony, conducting trials and deciding issues about the evidence presented

Influencing Agency Decisions-

• Agencies adopt rules and regulations
• Due process of law requires that before a rule or regulation may be adopted by an agency, interested parties must be given notice of the proposed rules and an opportunity to express their views on them
• Agencies give public notice of proposed rules and hold public hearing on them
• Agencies are not politically responsible, in the sense that they are elected by the people. Example: The SEC consistently garners media attention as it strives to investigate, adopt rules, and assess fines covering corporate scandals
• At some times an agency may find itself bombarded with official congressional inquiries into its activities. Investigations may result in either budget cutbacks or increases
• Each branch of government has control over the administrative process, and the executive branch normally appoints the top officials as well as makes budget recommendations to the legislature and has veto power
• Checks and balances are supposed to keep agencies from becoming too political

Judicial Review of Agency Decisions:

Standing to Sue-

• Any party seeking the judicial review of any administrative agency’s decision must be able to prove standing to sue. To establish standing, the challenging party must address two issues

Reviewability-

• The action or decision of the agency subject to judicial review and not all administrative decisions are reviewable
• The Federal Administrative Procedure Act provides for judicial review except where statutes preclude judicial review, and preclusion of judicial review by inference is rare

Aggrieved Party-

• Generally the plaintiff must have been harmed by an administrative action or decision to have standing
• People who may suffer economic loss due to an agency’s action have standing to sue

Review of Rule Making-

• The rule-making function in the administrative process is essentially legislative in character
• Legislatures usually create administrative agencies or quasi-legislative power to the agency
• Once courts decide that an act of the legislature is constitutional or a rule of an agency is authorized, the courts will not inquire into its wisdom of effectiveness
• There are two basic issues in litigation challenging the validity of a rule made by an administrative agency. First, is the delegation valid? Second, has the agency exceeded its authority?

- Is Delegation Valid: Delegation of quasi-legislative authority to administrative agencies is subject to two constitutional limitations: it must be definite, or it must be limited

- The term unfair methods of competition, for example, is sufficiently definite to meet the requirements of due process and validate the delegation of this authority to the Federal Trade Commission (FTC)

- The delegation of authority must provide that the agency’s power to act is limited to areas that are certain, even if these areas are not specifically defined

- State and local agencies may regulate areas of business that are not subject to federal regulation

- Courts cannot interfere with the discretion given to the agency and cannot substitute their judgement

-Authority Exceeded: Courts wil hold that an agency exceeds its authority if an analysis of legislative intent confirms the view that the agency has gone beyond that intent, however noble its purpose may be

- Food and Drug Administration v. Brown & Williamson Tobacco Corrporation: In 1996, the FDA, after having expressly disavowed any authority since its inception, asserted jurisdiction to regulate tobacco products. The FDA concluded that nicotine is a “drug” within the meaning of the Food, Drug, and Cosmetic Act, and that cigarettes and smokeless tobacco are “combination products” that deliver nicotine to the body. The agency believed that most tobacco users began their use before turning 18, so decreasing the use of tobacco with minors could substantially reduce addiction in future generations. A group of tobacco manufacturers, retailers, and advertisers filed suit challenging the regulations. Based on how the FDA claimed that “tobacco products are unsafe,” “presents extraordinary health risks, and are “the single leading cause of preventable death in the United States,” if tobacco products were “devices” under the FDCA, the FDA would be required to remove them from the market. However, Congress had foreclosed the removal of tobacco products from the market. Congress generally regulated the labeling and advertisement of tobacco products expressly providing that it is the policy of Congress that “commerce and the national economy may be … protected to the maximum extent…” The Court could not give deference to an administrative agency’s interpretation of the law it is responsible for adminsirating. An administrative agency’s ability to enforce laws through the executive branch must derive its authority from Congress. In this case, Congress has chosen to control tobacco products separately from other similar products within FDA’s review

- 2009: Congress passed the Family Smoking Prevention and Tobacco Control Act. This legislation increased the FDA’s authority beyond that discussed in the case above.

Review of Adjudications: Procedural Aspects-

• Judicial review of agencies’ adjudications by its very nature is quite limited
• Legislatures have delegated authority to agencies because of their expertise and knowledge, and courts usually exercise restraint and resolve doubtful issues in favor of an agency
• Agencies cannot refuse to permit any cross-examination or unduly limit it. Because an agency is frequently the “accuser, the prosecutor, the judge and the jury,” it must remain alert to observe accepted standards of fairness
• The principle that federal administrative agencies should be free to fashion their own rules of procedure and pursue methods of inquiry permitting them to discharge their duties grows out the view that administrative agencies and administrators will be familiar with the industries they regulate
• Due process usually requires a hearing by an agency. Example: A judge hearing a case involving a dispute over licensing requirements for a nuclear power plant likely would refer this case to the Nuclear Regulatory Commission. Two doctrines guide courts in the judicial review of agency adjudications:

- Exhaustion of Remedies: A court-created rule that limits when courts can review administrative decisions. Courts refuse to review administrative actions until a complaining party has exhausted all of the administrative remedies and procedures available to them for redress. The doctrine is not an absolute principle. Courts do not allow parties to litigate prior to exhausting administrative remedies. Applies when a claim must go in the first instance to an administrative agency alone.

- Primary Jurisdiction: Applied when a claim is originally filed in courts. Comes into play whenever enforcement of the claim requires the resolution of issues that, under a regulatory scheme, have been placed within the special competence of an administrative body. Primary jurisdiction ensures uniformity and consistency in dealing with matters entrusted to an administrative body.

Review of Factual Determinations-

• A court of review examines the evidence by analyzing the record of the agency’s proceedings. It upholds the agency’s findings and conclusions on questions of fact if they are supported by substantial evidence in the record. The record must contain material evidence from which a reasonable person might reach the same conclusion as did the agency. The determination of credibility of how the witnesses who testify in quasi-judicial proceedings is for the agency to determine and not the courts
• Courts do not outweigh the evidence, make independent determinations of fact, or substitute their view of the evidence for that of the agency. However, courts do not determine if there is substantial evidence to support the action taken. Substantial evidence is that which a reasonable mind might accept as adequate to support the conclusion

Criticism of Administrative Agencies:

• Administrative agencies and the regulatory process face many problems and much criticism.
• Relating to personnel: The government has difficulty in hiring and retaining the best-qualified people. The reward system usually doesn’t make a significant distinction between excellent, mediocre, and poor performances. It is very difficult to discharge unsatisfactory employees
• Relating to Procedures: delay in the decision making process is common, the administrative process is overwhelmed with paperwork, rules are written in complex language, there is lack of enforcement, and the process can be dictatorial
• Relating to Substance: There are so many agencies making rules and regulations directed at the business community that some overlap, some agcnies are accused of favoring industries, many illegal actions end with consent orders, the volume of rules adopted by agencies is beyond the ability of the business community to keep up with, and enforcement of some laws varies over time

The Costs to Business-

• Attempts to comply with administrative agencies can cause businesses to become more and more bureaucratic
• The existence of a governmental agency usually forces a business subject to the agency’s juridiction to create some way to monitor compliance
• Regulation tends to protect “cozy competition” to the extent that the parties that object the most to deregulation are the businesses being regulated

The Costs to Society-

• Historically, there was little or no cost-benefit analysis when new rules and regulations were proposed
• The public, and especially consumers, has frequently been forced to pay for many things it did not want or need in the sense that the cost far exceeded the benefits
• A greater cost to each of us occurs when the regulatory process causes inefficiencies. It can be so cumbersome that even they administrative agency involved becomes less effective
• At the federal level, all agencies are required to publish guidelines and rules in their proposed and final versions
• Reading the Federal Register is more than a full time job, there simply is nothing like a state or local version of the Federal Register
• To keep track of regulations of all levels requires personnel beyond that which businesses can afford

Chapter 17 Notes:

• Corporate governance: Relates to government regulation of the ownership of business organizations
• Regulation of securities began as part of the program to help the United States overcome the great depression of the early 1930s

Security-

• Any note, stock, treasury stock, bond, debenture, evidence of indebted-ness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, voting-trust certificate, certificate of deposit for a security, or any interest or instrument contract
• Security exists when one person invests money and looks to others to manage the money for profit
• Howey Case: Howey-in-the-Hills Services Company offered buyers of trees a management service contract whereby Howey provided care for the trees and harvesting of the fruit. When the investors did not receive the return they expected, Howey was liable for failing to comply with securities laws

Securities and Exchange Commission-

• An administrative agency created in 1934 that is responsible for administering the federal securities laws
• Has both quasi-legislative and quasi-judicial powers. As for quasi-legislative, it has adopted rules and regulations relating to financial and other information that must be furnished to the Commission

The Securities Act of 1933:

• A disclosure law with respect to the initial sale of securities to the public. Makes it illegal to use the mails or any other means of interstate communication or transportation to sell securities without disclosing certain financial information to potential investors
• If information isn’t accurate, liability is imposed upon those responsible
• Three sanctions for violations: criminal punishment, civil liability, and equitable remedy of an injuction

Parties Regulated-

• Parties subject to the 1933 act include issuers, underwriters, controlling persons, and sellers
• An issuer is the individual or business organization offering a security for sale
• An underwriter is anyone who participates in the original distribution of securities by selling such securities for the issuer or by guaranteeing their sale
• A controlling person is one who controls or is controlled by the issuer, such as a major stockholder of a corporation
• A seller is anyone who contracts with a purchaser or who is a motivating influence that causes the purchase transaction to occur

Documents Involved-

• In regulating the initial sale of securities, the Securities Act of 1933 is viewed as a disclosure law
• An issuer of securities who complies with the federal law must prepare a registration statement and a prospectus
• Registration statement: A detailed disclosure of financial information about the issuer and the controlling individuals involved in the offering of securities for sale to the public
• The law describes selling activities permitted at the various stages of the registration processs: there is the prefiling period (issuer of a security can engage in preliminary negotiations and agreements with underwriters), the waiting period (the SEC investigates the accuracy of the registration, many solicitations are made during the waiting period through advertisements called tombstone ads), and the posteffective period (the end of the waiting period where contracts to buy and sell securities are finalized

Prospectus-

• Securities may be sold during the posteffective period. The prospectus contains financial information related to the issuer and controlling persons.
• The SEC has adopted rules detailing requirements of the prospectus, including balance sheets and statements of operations of the issuer
• Any security may be sold under the act, provided the issuer and others follow the law and the rules and regulations enacted under it are followed
• Rule 144A: SEC approved regulation allowing sale of securities to investors such as pension funds.

Liability-

• Both criminal and civil liability may be imposed for violations
• Civil liability under the 1933 Act usually involves a buyer of securities suing for a refund of the investment.

- Section 11-Registration Statement: Liability is imposed on people who have signed the registration statement, every director of the corporation or partner in the partnership issuing the security, every person who is named in the registration statement, etc. The issuer and experts assisting must make sure the registration materials are truthful and not misleading.

- Section 12-Prospetus and other Communications: Imposes liability on sellers who use a prospectus or make communications that contain an untrue statement of material facts required to be stated or necessary to make statements not misleading. Plaintiffs can recover for harm done by false or misleading information in a prospectus even if the prospectus is not read or reviewed

- Section 17-Fradulent Transactions: Prohibits the use of any instrument of interstate communication in the offer or sale of any securities when the result is to defraud, obtain money or property in a misleading way, or to engage in a business transaction that may operate to defraud a purchaser

Defenses-

• Materiality: A defendant may argue that false or misleading information is not material and thus shouldn’t have had an impact on the purchaser’s decision making process. A material fact is one that if correctly stated or disclosed
• Statute of Limitations: The statute of limitations is a defense for both civil and criminal liability. A defense similar to the statute of limitations is also provided. The 1933 Act provides that if the person acquiring the security does so after the issuer has made generally available an earnings statement covering at least 12 months after the effective date of the registration statement, then this person must prove actual reliance on the registration statement
• Due Deligence: An expert must prove that a reasonable investigation of the financial statements of the issuer and controlling persons was conducted. The law provides that the standard of reasonableness is that required of a prudent person in the management of their property

Securities Exchange Act of 1934-Being Public:

• The Securities Exchange Act of 1934 regulates transfers of securities after the initial sale
• Makes it illegal to sell a security on a national exchange unless a resgiration is effective for the security
• Provisions relating to stockbrokers and dealers prohibit the use of the mails or any other instrumentality of interstate commerce to sell securities unless the broker or the dealer is registered
• The SEC requires that issuers of registered securities file periodic reports that would affect the value of the security
• Public Company Accounting Oversight Board: SEC regulations are of paramount significance to all persons concerned with the financial aspects of business

Section 10(B) and Rule 10B-5-

• Most of the litigation under the Securities Exchange Act of 1934 is promulgated by the SEC pursuant to the act
• It is unlawful to use the mails or any instrumentality of interstate commerce or any national securities exchange to defraud anyone in connection with purchase or sale of any security

Liability-

• Parties directly connected to a fraudulent scheme are liable

Damages-

• Out of pocket losses
• Francis v. Lorenzo v. Securities and Exchange Commission: Lorenzo, the director of investment banking at Charles Vista, was found to have been sending false and misleading statements to investors with the intent to defraud, however, Lorenzo appealed, stating he had no intent to cause a violation
• Dissemination of false or misleading statements with intent to defraud can fall within the scope of subsections Rule 10b-5, as well as the relevant statutory provisions. The Supreme Court held that anyone who knowingly or recklessly disseminates material misstatements to potential investors are primarily liable under 10b-5

Materiality-

• The concept of fraud under Section 10(b) encompasses not only untrue statements of material facts but also the failure to state material facts necessary to prevent statements actually made from being misleading

International Application-

• Depends on the nationality of the purchaser and seller of the securities as well as the location of the actual sales transaction
• Morrison v. National Australia Bank LTD: The NTLD is th largest bank in Australia, and its common shares include other foreign securities exchanges, but this stock is not listed for sale on any exchange in the United States. In 2008, NTLD purchased a Florida corporation, HomeSide. They were accused of misprepresenting the corporation’s value by not considering the reduced income from early payoff. The Court conluded that Section 10(b) does not include extraterritorial application in light of the limited provision for such jurisdiction in the Exchange Act

Insider Transactions-

• The SEC defines an officer for insider trading purposes as the executive officers, accounting officers, chief financial officers, and controllers
• Section 16 and SEC regulations require that insiders file, at the time of the regulation or within 10 days after becoming an insider, a statement of the amount of such issues of which they are owners
• Short-swing profits: Any profit made within a six-moonth time period is illegal
• While the SEC enforces the requirements of Section 16 that insiders file certain documents, the SEC doesn’t enforce the provision that prohibits insiders from engaging in short-swing profits

Nonpublic Information-

• A tippee is a person who learns of nonpublic information from an insider, and in essence is viewed as a temporary insider
• The use of nonpublic information for financial gain has not been prohibited entirely. In one case, a financial printer had been hired to print corporate takeover bids
• Misappropriation theory: The SEC has successfully argued that a person should be considered to be a temporary insider if that person conveys nonpublic information that was to have been kept confidential
• United States v. O’Hagan: O’Hagen was a partner in a law firm in Minnesota, which was hired as local counsel to represent Grand Met regarding a potential tender offer for the common stock of Pilsbury Company. His purchased around 5,000 shares and sold them for a profit of more than $4.3 million, leading to an investigation by the SEC of security fraud. The “traditional” or “classical theory” of insider trading is complemented by the “misappropriation theory” because each targets different sources that undermine the integrity of the purchase or sale of securities
• Securities Fraud Enforcement Act of 1988: Increased penalties to their current levels

Additional Civil Liability-

• Section 18 of the SEC Act of 1934: Imposes liability on a theory of fraud on any person who shall make or cause to be made any false and misleading statements of material fact in any application, report, or document filed under the act. Good faith can be a defense
• Sarbanes-Oxley Act: Extends the statute of limitations for civil actions under the 1934 Act.

Criminal Liability-

• The 1934 Act provides for criminal sanctions for willfull violations of its provisions or the rules adopted under it

Private Securities Litigation Reform Act of 1995-

• Made it clear the Court’s decision would not be expanded and set up other hurdles to limit the number of class-action claims under federal securities law
• Halliburton Co. v. Erica P. John Fund, Inc: Erica filed a class action against Haliburton for violations of Section 10(b) of the SEC Act of 1934. The “fraud-on-the-market” theory holds that the price of shares that are traded on developed markets reflect all publicly available information about the corporation, including any material misrepresentation to bring a Rule 10b-5 action. The Haliburton decision maintains the use of the Basic presumption of reliance on material representations
• Congress, through the PSLRA, limits the amount of damages private plaintiffs can recover and restricts attorney fees

State Blue Sky Laws-

• State regulations regarding securities laws commonly have been referred to this
• Intended to protect they potential investor from buying “a piece of the blue sky” (worthless or risky securities)

Registration Requirements-

• Some states require registration by notification, while others require registration by qualification
• Registration by qualification is required by those issuers who do not have a proven record and who are not subject to the securities Act of 1933

Exemptions-

• For an isolated transaction
• For an offer or sale to a limited number of offerees or purchasers
• For a private offering
• For a sale if the number of holders after the sale doesn’t exceed a specified number

Sarbanes-Oxley Act of 2002:

• Applies to all public companies in the U.S. and international companies if they are registered with the SEC
• Revitalization of SEC: The Act was in response to corporate scandals and included Congress increasing the authority it delegated to the SEC by increasing its budget by more than 75 percent throughout a few years
• Accounting Reforms: The act created the Public Company Accounting Oversight Board, which consists of five members that view accounting firms as a major contributor to the corporate scandals involving Enron, WorldCom, HealthSouth, Tyco, etc. It was given oversight of accounting firms that audit public companies
• Corporate Governance: The act focused on increasing the independence of the auditors. At least one member of the audit committee ahs to be a financial expert. To qualify as one, it must be shown that through experience or education this person has an understanding of generally accepted accounting practices, financial statements, etc.
• Financial Statements and Controls: The certification of internal financial controls is mandated by Section 404 of Sarbanes-Oxley. During 2007, there were fewer restatements than in 2006. The act emphasizes the importance of accurate financial records
• Whistleblower Protection: Includes the protection so individuals are more willing to report corruption

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010:

This Act authorized the creation of many new administrative organizations in order to meet certain goals for consumer protection. Some of these goals include:

• Enhanced consumer protection through the Consumer Financial Protection Bureau
• Reformed the Federal Reserve
• Created mortgage forms
• Limited U.S. loans
• Financial reforms: Congress feels responsibility to react or respond to crises when they arise

JOBS Act of 2012:

• Allows infividuals to invest in start-ups through relaxed rules for some initial public offerings

April 15th Notes:

Chapter 17 Lecture Notes:

What is a Security?

• Any interest or instrument that offers the right to subscribe to or purchase stock, bond, or any certificate of interest
• Security includes more than corporate stock
• Investment in a common enterprise with profits to come solely from the efforts of persons other than the investor
• Government creates laws and regulations in order to protect investors

The Court will ask these questions to consider whether something is a sale of securities:

• Is an investment a plausible business activity? Does the business have a reasonable set of profits? Will these profits be given to someone other than the investors?
• SEC v. Howey Co., 328 U.S. 293 (1946): Gave contracts to buyers who were buying orange trees in Florida. However, these buyers were non-residents of Florida and did not know how to manage these orange trees. These buyers were expecting farmers in Florida to take care of their trees after buying them, meaning they would get a profit for not dong anything. When they did not get their wanted profit, they sued to get their money back saying this was a sale of securities issue. The Court found that this was in fact a sale of securities, and since Howey and the Hills did not register their sale, they were in violation of the law, and needed to give the investors their money back. Howey was held liable for not participating within the sale of securities law.
• Landrith Timber Company Case: Two men, Dennis and Bolton invest in the Landrith Timber Company. They did not make the money they expected to make, and therefore sued Landrith. It was found that since Dennis and Bolton were investors in the business and involved in sales, Landrith should have registered the business, therefore this is a violation of the sale of securities act.

Securities and Exchange Commission (SEC):

• Responsible for administering the federal securities laws
• Consists of five commissioners
• Possess quasi-lesgislative and quasi-judicial powers

Securities Act of 1933:

• Requires the disclosure of information to the potential investors
• Often called the truth and securities law
• Applies to the initial sale of the security
• Information must not be untrue or misleading; “truth in securities” law
• Regulates ANYONE who is involved with or promotes the initial sale of securities; especially the following four: issuer; underwriter; controlling person; and seller
• A disclosure law
• Disclosure of certain private information in order to allow investors to make informed decisions. Investors who have bought securities and suffered a loss, they can go to court or go through SEC investigations in order to get their money back
• The SEC can look at mail in order to figure out if there have been violations
• Information must not be untrue or misleading
• Sanctions for violations

- Criminal punishment

- Civil liability

- Equitable remedy of an injunction

1933 Act Documents:

• Registration statement: Detailed disclosure of financial information about the issuer and controlling individuals
• Three time periods involved in the registration process:

- Prefiling period: Engaging with an underwriter to file documents for registration

- Waiting period: Waiting while the SEC goes over the documents, usually lasts around 20 days (during this time businesses can not sell any securities, but they can solicit offers that can be accepted later)

- Posteffective period: Securities can be sold and offers can be accepted and finalized

• Prospectus: Sets forth the key information contained in a company’s registration statement
• Four agents that can be sued if there is an issue: issuer, underwriter, controlling person, seller

- Provided to interested investor

- Must conform to the statutory requirements

- As long as everything is out in the open, the SEC is not guaranteeing that people will make money, if there is a securities issue, than they will investigate. They will not investigate if it is an issue of money noty being made.

1933 Act Liability:

• Sanctions for violations

- Criminal punishment

- Civil liability

- Equitable remedy of an injuction

• Section 11: false or misleading reg. Statement
• Section 12: No regular statement; false or misleading prospectus
• Section 17: Device, scheme, fraud, omission, deceit

Securities Exchange Act of 1934:

• Regulates transfers of securities after the initial sale
• Created the Securities and Exchange commission (SEC)
• Illegal to sell unreistered securities on national exchange
• Registration requires filing prescribed forms with stock exchange and SEC

Rule 10b-5:

• “Employment of Manipulative and Deceptive Practicies,”. Parties directly involved in the sale of securities will be liable. It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange. Covers omissions, to employ any device, scheme, or artifice to defraud, make any untrue statement or omit a state of material fact, and to engage in any act, practice, or course of the business which operates or would operate as a fraud or deceit upon any person
• The principal antifraud rule relating to the secondary distribution of securities
• Rule 10b-5 provides that a civil action for damages may be brought by any private investor damages may be brought by any private investor who purchased or sold a security and was injured because of false, misleading, or undisclosed information
• Rule 10b-5 applies to all securities, whether registered or not, as long as use is made of the mail, interstate commerce, or a national stock exchange

Private Securities Litigation Reform Act (PSLRA) of 1995:

• SEC can pursue claims against third parties not directly responsible for the securities law violation
• Requires private plaintiff to allege with specificity when filing a claim under Section 10(b) and Rule 10b-5 (SLUSA)

- Prevents abusive securities fraud litigation in state courts

State Blue Sky Laws:

• State regulations regarding securities laws
• Protect the potential investor from buying risky securities subject to federal laws and securities exempt from federal statutes
• Uniform Securities Act, 1956

- Provides a model for blue sky laws

Sarbanes-Oxley Act (SOX) of 2002:

• Applies to all public companies in the U.S. and international companies registered with the SEC
• Revitalization of SEC

- Increased power over governance issues

- Congress empowered the SEC to increase corporate accountability

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010:

• Addresses many issues of financial reform
• Congress authorized the creation of new administrative agencies to achieve the goals of Dodd-Frank Act:

- Financial Stability Overnight Council (FSOC)

- Federal Insurance Office (FSOC)

- Office of Housing Counseling (HUD)

- Office of Credit Ratings (SEC)

- Investment Advisory Committee (SEC)

- Office of Investor ADvocate (SEC)

Review:

• Proxy: Someone a shareholder chooses to sign in their name; someone is chosen to vote on another’s shares
• McNeil: McNeil filed a claim with the HSS. He did not file correctly and exhaust all his options before going to court.
• Know the difference between primary jurisdiction and exhaustion of remedies
• Steps for obtaining a patent: Attorneys have to have taken the patent bar in order to represent people in front of the PTO. Although the PTO can make a patent, that does not mean that they are patent eligible, because the court makes all final decisions
• Not patent eligible: Math algorithms, mere abstract ideas, Myriad Genetics: Found a flower grown in a field no one had ever seen before, this was not an inventive act, but a discovery. The court does not award investment, they award invention

Alice Corporation: Alice had patents, then CLS stated that this was just an abstract idea and nothing more. If it is a mere abstract idea with nothing to add, it is not patent eligible

• Design Patent: Lasts 15 years
• Utility and Plant: Lasts 20 years
• Pyrotechnics Case: There is registration at all levels (federal, state, and local)
• A court’s ability to review an agency is limited
• Howey Company: Didn’t register with the SEC because they did not think their business was a sale of securities (the SEC doesn’t care about intent)
• Section 10b-5 (antifraud provision, can get you eben if this is unregi Most litigated section in the 34 Act, it is the antifraud inclusion. If you used interstate commerce or the national exchange, the SEC can still come after you. Congress wrote Section 10b and the SEC added 10b-5, which authorized the SEC to use this rule. The agency has to be able to refer back to this law to make rules and regulations

Types of Marks:

• Certification mark: Anyone allowed by the patent owner can use the mark
• Collective mark: Only used by members of a group (dentists, doctors, etc.)
• Trademark
• Trade dress
• Service mark

Andy Warhol Case: Copyright issue, Andy Warhol foundation lost because when they look at the elements, they cut right into the newspaper writer’s profits

Google v. Oracle: Copyright issue, question whether the java apis was fair sue by google

LLCs: Members not shareholders, organizers file articles of organization to be an llc

Corporation: Shareholders formed by incorporators filing

Color Mark: Functional to the industry (ex. Tiffany can only stop other jewelers from using the same robinegg blue

10b-5 in the 34 act: It provides that a civil action for damages may be brought (it doesn’t matter whether it is registered)

Enron:Sherron Watkins was the whistleblower; Bethany Mclean was the reporter.

• Shareholder in a corporation has personal liability
• LLCs have limited liability for their members (but people can bring derivative suits for LLCs and corporations)
• Limited partnerships: has personal liability as long as they are silent
• General partners: do not have personal liability, most people fall into a general partnership not knowing they’re in one.
• LLPS: Preferred by licensed professionals (doctors, lawyers, engineers). Partners have limited liability ( do not need to worry if their partner commits something wrong)

Barber and Egil

• LLCs: Has members
• S Corp: Corporation formed by incorporators; has shareholders
• Sole r
• FOIA: SEC pursuant to information asks for documents from AT&T, and a competitor for AT&T requests they should be able to get these documents. AT&T did not have personal privacy, so the competitor could take the documents
• Hobby Lobby Case: Said they should have freedom of religion, and the Court said they are a closely held corporation, so theerefore they do
• Partnership: If they don’t use their actual names they need to file under the state assumed name statute (ex. Whos makin the choices of Shiny Bicuit Girl)
• Secretary: Person within the agency that needs to file everything in the Federal Register
• FTC: Proposed a new rule in the federal register

Supplemental Register:

Principal Register:

Public Domain Day: Set day that anything made in january 2024, anything made on or before 1928 is public domain

Enron: Focuses on the people (know the reporter, the two main guys the whistleblower). Part of SOX. Andrew Fastow: Was hiding the debt while making money on the side from this

April 17th Notes:

Insider Training:

Insider-

• A person who owns more than 10% of any security
• A director or officer of the issuer of the security
• The SEC monitors people’s functions in the company, not just whether they have an officer title or not to determine who is an insider
• Any short-swing profit made within a six month period is illegal (insiders must return any profits made if transactions occur and they take advantage of certain information)

Tipper-Tippeee Liability:

• Tipper: A person who discloses material non-public information to another person
• Tippee: The person who receives material non-public information from a tipper

Salman v. United States: The idea of personal gain. A tipper telling information to close friends and family is not necessarily a violation. Insiders should not take advantage of the information they are privy to.

Private Securities Litigation Reform Act (PSLRA) of 1995:

• SEC can pursue claims against third parties not directly responsible for the securities law violation
• Requires private plaintiff to allege with specificity when filing a claim under Section 10(b) and Rule 10b-5
• Securities Litigation Uniform Standards Act of 1998 (SLUSA)

- Prevents abusive securities fraud litigation in state courts

State Blue Sky Kaws:

• State statutes designed to protect the public from the sale of fraudulent stocks and bonds
• Protect the potential investor from buying risky securities without financial and other information
• Apply to securities subject to federal laws and securities exempt from federal statutes
• Uniform Securities Act, 1956 (if federal is not regulating, states can regulate, goal is more securities laws). No preemption

- Provides a model for blue sky laws, but state laws still vary a lot as for regulating securities

Sarbanes-Oxley Act of 2002:

• Applies to all public companies in the U.S. and international companies registered with the SEC
• Revitalization of SEC

– Increased power over governance issues

– Congress empowered the SEC to increase corporate accountability

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010:

• Addresses many issues of financial reform
• Congress authorized the creation of MANY new administrative agencies to achieve the goals of Dodd-Frank Act
• Seeking to avoid future tax-payer bailouts, predatory mortgage ending, and much more

Aiding Whistleblowers-

• Dodd-Frank strengthened and expanded the existing whistleblower program promulgated by the Sarbanes-Oxley Act (SOX). Specifically, the Act:

- Established a mandatory bounty program under which whistleblowers receive from 10-30% of what was made

Economic Growth, Regulatory Relief, and Consumer Protection Act-

• Did not repeal Dodd-Frank; instead provided certain limited amendments and modifications
• Considered most significant change to US banking regulations since Dodd-Frank
• Eased regulations on “small banks”

Jumpstart Our Business Startups (JOBS) Act of 2012:

• Goals:

- Ease burdensome of federal regulations

- Allow individuals to invest in start-ups through relaxed rules

• Title II

- Allows companies to advertise that they are seeking investments

- Title III

- Allows a company to raise up to $1 million by selling securities