1. Working within the Legal Environment
BONUS CHAPTER A
Working within the Legal Environment
McGraw-Hill/Irwin
Copyright © 2015 by the McGraw-Hill Companies, Inc. All rights reserved.

2. LEARNING OBJECTIVES
Define business law, distinguish between statutory and common law, and explain the role of administrative agencies.
Define tort law and explain the role of product liability in tort law.
Identify the purposes and conditions of patents, copyrights, and trademarks.
Describe warranties and negotiable instruments as covered in the Uniform Commercial Code.
List and describe the conditions necessary to make a legally enforceable contract, and describe the possible consequences if such a contract is violated.
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3. LEARNING OBJECTIVES
Summarize several laws that regulate competition and protect consumers in the United States.
Explain the role of tax laws in generating income for the government and as a method of discouraging or encouraging certain behaviors among taxpayers.
Distinguish among the various types of bankruptcy as outlined by the Bankruptcy Code.
Explain the role of deregulation as a tool to encourage competition.
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4. EVE WRIGHT TAYLOR Miami Heat
Attended law school at the University of Indiana and worked for the LPGA before heading into the male- dominated NBA.
With the Miami Heat, Taylor may be asked for legal advice on issues regarding the stadium, marketing, sales, and player-related matters.
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5. NAME that COMPANY
As a federal government agency, we have a key role in mergers and acquisitions in the United States business community. Without our approval, mergers or acquisitions can be rejected. For example, we approved the merger of American Airlines with U.S. Airways, but rejected a merger between AT&T and T-Mobile.
Name that organization!
Companies: The FTC
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6. The NEED for LAWS
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Laws are a key part of a civilized society, but must change with the times.
Judiciary -- The branch of government chosen to oversee the legal system through a system of courts.
The U.S. courts system is organized at the federal, state, and local levels.
See Learning Objective 1: Define business law, distinguish between statutory and common law, and explain the role of administrative agencies.
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7. TYPES of COURT Trial courts hear cases of criminal and civil law.
LO A-1
Trial courts hear cases of criminal and civil law.
Appellate courts hear appeals from the losing party at the trial court level.
See Learning Objective 1: Define business law, distinguish between statutory and common law, and explain the role of administrative agencies.
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8. TYPES of LAW
LO A-1
Criminal law defines crimes, establishes punishments, and regulates the investigation and prosecution of people accused of committing crimes.
Civil law proceedings cover non-criminal acts - divorce, personal injury lawsuits and more.
Business Law -- Refers to the rules, statutes, codes and regulations that provide a legal framework for the conduct of business.
See Learning Objective 1: Define business law, distinguish between statutory and common law, and explain the role of administrative agencies.
It is important for students to understand that as business people they must have knowledge of business law. Business law provides a framework in which business must be conducted. Failure to understand the law could have dire consequences.
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9. MAJOR AREAS of LAW
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Statutory Law -- Includes state and federal constitutions, legislative enactments, treaties of the federal government and ordinances; written law.
Common Law -- The body of law that comes from decisions handed down by courts; unwritten law.
Precedent -- Decisions judges have made in previous cases to guide their handling of new cases.
See Learning Objective 1: Define business law, distinguish between statutory and common law, and explain the role of administrative agencies.
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10. ADMINISTRATIVE AGENCIES
LO A-1
Administrative Agencies -- Federal or state institutions and other government organizations with delegated power to create rules and regulations within their given area of authority.
Examples of Administrative Agencies:
The Federal Reserve Board
The Securities and Exchange Commission
The Equal Employment Opportunity Commission
The Federal Trade Commission
See Learning Objective 1: Define business law, distinguish between statutory and common law, and explain the role of administrative agencies.
In addition to following the law, businesses must also follow regulations set by administrative agencies.
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11. ADMINISTRATIVE AGENCIES
LO A-1
See Learning Objective 1: Define business law, distinguish between statutory and common law, and explain the role of administrative agencies.
In addition to following the law, businesses must also follow regulations set by administrative agencies.
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12. TEST PREP What is business law?
What is the difference between statutory and common law?
What is an administrative agency?
Business law refers to the rules, statutes, codes, and regulations that provide a legal framework for the conduct of business and that are enforceable.
Statutory law includes state and federal constitutions, legislative enactments, treaties of the federal government, and ordinances or written law. Common law is the body of law that comes from decisions handed down by courts. Common law is often referred to as precedent.
Administrative agencies are federal and state institutions and other government organizations created by Congress or state legislatures with delegated power to create rules and regulations within their given area of authority.
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13. WHAT is TORT LAW?
LO A-2
Tort -- A wrongful act that causes injury to another person’s body, property or reputation.
An intentional tort is a willful act that results in injury.
Negligence – Behavior that causes unintentional harm or injury.
See Learning Objective 2: Define tort law and explain the role of product liability in tort law.
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14. PRODUCT LIABILITY LAWS
LO A-2
Product Liability -- Holds businesses liable for harm that results from the production, design, or inadequate warnings of products they market.
Strict Product Liability -- Liability without regard to fault; a company can be held liable for a defective product even if they didn’t know of the defect.
See Learning Objective 2: Define tort law and explain the role of product liability in tort law.
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15. MAJOR PRODUCT LIABILITY CASES
LO A-2
See Learning Objective 2: Define tort law and explain the role of product liability in tort law.
This slide is based on Figure A.2.
This slide outlines major product liability cases with large settlements from well known companies. If time allows, have students research the details of these settlements or have them find other large settlements and share their findings with the class.
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16. PATENTS, COPYRIGHTS, and TRADEMARKS
LO A-3
Patent -- A document that gives inventors exclusive rights to their inventions for 20 years.
Copyright -- Protects a creator’s rights to materials such as books, articles, photos, paintings, and cartoons.
A trademark is a legally protected name, symbol, or design that identifies the goods or services of a seller.
See Learning Objective 3: Identify the purposes and conditions of patents, copyrights, and trademarks.
Copyright law is becoming more and more important with the increase in publication using various media.
Copyrighted material is sometimes referred to as intellectual property.
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17. PATENT FACTS Patent applicants should seek the advice of a lawyer.
LO A-3
Patent applicants should seek the advice of a lawyer.
Foreign applicants are eligible to file for U.S. patents.
Patent owners have the right to sell or license the use of their patent to others.
See Learning Objective 3: Identify the purposes and conditions of patents, copyrights, and trademarks.
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18. PATENT LEADERS in 2013 Company # of Patents Home Country IBM 6,809 USA
LO A-3
Company
# of Patents
Home Country
IBM
6,809
USA
Samsung
4,676
Korea
Canon
3,825
Japan
Sony
3,098
Microsoft
2,660
See Learning Objective 3: Identify the purposes and conditions of patents, copyrights, and trademarks.
This slide presents the top patent recipient companies in 2013.
IBM, for the 21st straight year, was the top company granted the most patents by the U.S. Patent and Trademark Office.
Source: IFI Patent Intelligence, accessed November 2014.
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19. TEST PREP What is tort law?
What is product liability? What is strict product liability?
How many years is a patent protected from infringement?
What is a copyright?
Tort law is a wrongful act that causes injury to another person’s body, property, or reputation.
Product liability holds businesses liable for harm that results from production, design, or inadequate warnings of products they market. Strict product liability means having liability without regard to fault.
A patent is protected from infringements for 20 years.
A copyright protects a creator’s rights to materials, such as books, articles, photos, paintings, and cartoons.
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20. WHAT is the UNIFORM COMMERCIAL CODE?
LO A-4
Uniform Commercial Code (UCC) -- A comprehensive commercial law that covers sales laws and other commercial laws.
The UCC has 11 articles that contain laws covering a wide range of business issues.
See Learning Objective 4: Describe warranties and negotiable instruments as covered in the Uniform Commercial Code.
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21. UNDERSTANDING WARRANTIES
LO A-4
A warranty guarantees that the product sold will be acceptable for the purpose for which the buyer intends to use it.
Express Warranties -- Specific representations made by the seller that buyers rely on regarding the goods they purchase.
Implied Warranties -- Legally imposed on the seller, who implies that a product will conform to the standards of trade.
See Learning Objective 4: Describe warranties and negotiable instruments as covered in the Uniform Commercial Code.
Warranties can be full or limited.
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22. NEGOTIABLE INSTRUMENTS
LO A-4
Negotiable Instruments -- Forms of commercial paper that are transferable among businesses and individuals.
Four conditions for using negotiable instruments:
They must be written and signed by the maker or drawer.
Be made payable on demand or at a certain time.
Be made payable to the bearer.
Contain an unconditional promise to pay a specified amount.
See Learning Objective 4: Describe warranties and negotiable instruments as covered in the Uniform Commercial Code.
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23. CONTRACT LAW
LO A-5
Contract -- A legally enforceable agreement between two or more parties.
Contract Law -- Specifies what constitutes a legally enforceable agreement.
Breach of Contract -- When one party fails to follow the terms of a contract.
See Learning Objective 5: List and describe the conditions necessary to make a legally enforceable contract, and describe the possible consequences if such a contract is violated.
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24. CONTRACT REQUIREMENTS
LO A-5
A contract is legal and binding when:
An offer is made
There’s a voluntary acceptance of the offer
Both parties give consideration
Both parties are competent
The contract covers a legal act
The contract is in the proper form
See Learning Objective 5: List and describe the conditions necessary to make a legally enforceable contract, and describe the possible consequences if such a contract is violated.
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25. BREACHED CONTRACTS
LO A-5
If a contract is breached the following may be ordered:
Specific performance
Payment of damages
Discharge of obligation
See Learning Objective 5: List and describe the conditions necessary to make a legally enforceable contract, and describe the possible consequences if such a contract is violated.
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26. TEST PREP What Is the purpose of the Uniform Commercial Code (UCC)?
Compare express and implied warranties.
What are the four elements of a negotiable instrument specified in the UCC?
What are the six conditions for a legally binding contract? What could happen if it’s breached?
UCC is a comprehensive commercial law that covers sales laws and other commercial laws. The goal of the UCC is to simplify commercial transactions across state lines.
Express warranties are specific representations by the seller that buyers rely on regarding the goods they purchase. The warranty you receive in the box when you buy a new TV or mobile phone is an express warranty. Implied warranties are legally imposed on the seller, who implies that a product will conform to the customary standards of the trade or industry in which it competes.
The four elements of a negotiable instrument specified in the UCC are: (1) be written and signed by the maker or drawer, (2) be made payable on demand or at a certain time, (3) be made payable to the bearer to specific order, and (4) contain an unconditional promise to pay a specified amount of money.
The six conditions for a legally binding contract are: (1) an offer is made, (2) there is voluntary acceptance of the offer, (3) both parties give consideration, (4) both parties are competent, (5) the contract covers a legal act, and (6) the contract must be in proper form. If the contract is breached specific performance may be required, payment of damages or discharge of the obligation may be ordered.
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27. The CLAYTON ACT of 1914 The Clayton Act prohibits: Exclusive dealing
LO A-6
The Clayton Act prohibits:
Exclusive dealing
Tying contracts
Interlocking directorates
See Learning Objective 6: Summarize several laws that regulate competition and protect consumers in the United States.
The Clayton Act of 1914 was intended to deal with price discrimination.
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28. ANTITRUST LEGISLATION
LO A-6
The Federal Trade Commission Act of created the FTC and prohibits unfair methods of competition in commerce.
The Wheeler Lea Amendment of 1938 gave the FTC additional control over false and misleading ads.
The Robinson-Patman Act of 1936 prohibits price discrimination and applies to buyers and sellers.
See Learning Objective 6: Summarize several laws that regulate competition and protect consumers in the United States.
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29. HISTORY of HIGH PROFILE ANTITRUST CASES
LO A-6
See Learning Objective 6: Summarize several laws that regulate competition and protect consumers in the United States.
This slide is based on Figure A.3.
The NASDAQ OMX and Intercontinental Exchange Inc., for example, withdrew their bid for the NYSE Euronext when the Justice Department threatened an antitrust lawsuit in 2011.
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30. CONSUMER PROTECTIONS
LO A-6
Consumerism -- A social movement that seeks to increase and strengthen the rights and powers of buyers in relations to sellers.
The collapse of the real estate market and crisis in the banking industry led to the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Dodd-Frank created the Consumer Financial Protection Bureau.
See Learning Objective 6: Summarize several laws that regulate competition and protect consumers in the United States.
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31. NUMBER of IDENTITY THEFT COMPLAINTS
LO A-6
See Learning Objective 6: Summarize several laws that regulate competition and protect consumers in the United States.
This slide highlights the rise in the number of identity theft complaints according to the Federal Trade Commission.
Ask students: What has given rise to the growing number of identity theft complaints? Do you know anyone who has experienced identity theft?
If you believe you have been a victim of identity theft the Federal Trade Commission advises you to do the following:
File a police report
Check your credit reports
Notify creditors and dispute any unauthorized transactions
Source: Federal Trade Commission, accessed July 2011.
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32. TAXES
LO A-7
Taxes -- The way federal, state, and local governments raise money.
Some forms of taxes:
Income taxes
Property taxes
Sales taxes
Excise taxes
See Learning Objective 7: Explain the role of tax laws in generating income for the government and as a method of discouraging or encouraging certain behaviors among taxpayers.
Taxes can be used to raise revenue or adjust behavior.
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33. SIN TAXES State Tax Rates per Pack of Cigarettes
LO A-7
State(s)
Rate per Pack
New York
$4.35
Massachusetts
$3.51
Rhode Island
$3.50
Connecticut
$3.40
Hawaii
$3.20
Washington
$3.025
Minnesota
$2.83
See Learning Objective 7: Explain the role of tax laws in generating income for the government and as a method of discouraging or encouraging certain behaviors among taxpayers.
This slide highlights the highest state tax rates per pack on cigarettes.
Since the recent financial crisis, increasing sin taxes has become a popular way for cash-starved states to raise revenue.
Ask students: How do high taxes on certain items, such as packs of cigarettes, discourage people from purchasing them? Do you think this is an effective way to get people to stop buying these products?
Have students investigate sin taxes in their own states. How much tax is charged for a pack of cigarettes, alcohol, etc.? Have sales been affected by the increase in these taxes?
Source: Tobacco Free Kids, accessed November 2014.
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34. DO the RICH PAY TAXES? Taxpayers % of Total Taxes Top 1%
LO A-7
Taxpayers
% of Total Taxes
Top 1%
40% of total taxes
Top 5%
60% of total taxes
Top 25%
86% of total taxes
Top 50%
97% of total taxes
Bottom 50%
3% of total taxes
See Learning Objective 7: Explain the role of tax laws in generating income for the government and as a method of discouraging or encouraging certain behaviors among taxpayers.
This slide illustrates the tax burden on various earnings groups.
Most students will be surprised to learn that 97 percent of total taxes are paid by the top 50 percent of taxpayers; in fact, the top 5 percent pay more than half the total taxes.
Ask students: Should the rich pay more or less than they do now? Why? Should there be a flat tax rate, where all earners pay the same percentage of income regardless of how much money they earn overall? (These questions should start a healthy debate among class members)
Source: IRS, Statistics of Income, accessed November 2014.
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35. BANKRUPTCY LAWS
LO A-8
Bankruptcy -- The legal process by which a person, business, or government entity, unable to meet financial obligations, is relieved of those debts by a court.
Options of declaring bankruptcy:
Chapter 7: Straight bankruptcy
Chapter 11: Reorganization
Chapter 13: Repayment plan
See Learning Objective 8: Distinguish among the various types of bankruptcy as outlined by the Bankruptcy Code.
Chapter 7 is the most popular form of bankruptcy among individuals.
The recent financial crisis has pushed the number of bankruptcies to over a million. Bankruptcies are expected to reach almost 1.5 million in 2011.
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36. CHAPTER 7 BANKRUPTCY
LO A-8
Creditors with secured claims receive their collateral or repossess the asset.
Unsecured claims are paid in this order:
Costs of the bankruptcy case
Any business costs after filing
Wages, salaries, commissions
Contributions to employee benefits
Refunds to consumers for products not delivered
Federal and state taxes
See Learning Objective 8: Distinguish among the various types of bankruptcy as outlined by the Bankruptcy Code.
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37. How ASSETS are DIVIDED in BANKRUPTCY
LO A-8
See Learning Objective 8: Distinguish among the various types of bankruptcy as outlined by the Bankruptcy Code.
This slide is based on Figure A.6.
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38. GOING, GOING, GONE Big Bankruptcies of 2008-2014
LO A-8
Circuit City
KB Toys
Linens N Things
Borders
City of Detroit
See Learning Objective 8: Distinguish among the various types of bankruptcy as outlined by the Bankruptcy Code.
This slide profiles the bankruptcies of
Have students research the companies listed in the slide. Why did these businesses go bankrupt instead of their competitors?
Ask students: Is there a pattern of why businesses survive or go bankrupt? What mistakes do failed businesses make that others do not? What are the effects on the consumer when businesses fail? What are the effects on the economy as a whole?
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39. DEREGULATING COMMERCE
LO A-9
Deregulation -- The government withdraws certain laws and regulations that seem to hinder competition.
Deregulation efforts were active in:
The airline industry
Telecommunication
Some public utilities
See Learning Objective 8: Distinguish among the various types of bankruptcy as outlined by the Bankruptcy Code.
Today some believe the airline industry could use more government regulation since passenger services have decreased, delays and flight cancellations have increased, and charges such as bag fees have become common.
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40. HAMBURGER REGULATIONS
LO A-9
See Learning Objective 9: Explain the role of deregulation as a tool to encourage competition.
This slide is based on Figure A.7.
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41. TEST PREP What is the primary purpose of antitrust law?
Describe the different bankruptcy provisions under Chapters 7, 11, and 13.
What is deregulation? Give examples of successful and unsuccessful deregulation.
1. The purpose of antitrust law is to foster competition in the free market.
2. Chapter 7 - liquidation of nonexempt assets used by business and individuals.
Chapter reorganization of firms assets used by businesses
Chapter 13 - allows small businesses and individuals to pay back creditors over a 3 to 5 year time period.
3. Deregulation occurs when the government withdraws certain laws and regulations that seem to hinder competition. Examples of deregulation include telecommunications and the airline industry. Deregulation of the banking and investment industries has not been successful.
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