Bonus Chapter A Working within the Legal Environment McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc All rights reserved Bonus Chapter A LEARNING GOALS 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 A-2 Bonus Chapter A LEARNING GOALS 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 A-3 Profile KENNETH FRAZIER Merck • Frazier started as Merck’s general counsel in 1999 • Greatest challenge was a sea of lawsuits involving Vioxx - arthritis drug caused heart attacks and strokes • Frazier won 11 of 16 lawsuits at trial before agreeing to a settlement fund A-4 Bonus Chapter A NAME that COMPANY This automaker sells more cars in the United States than any other auto producer In 20102011, however, the company was forced to recall million cars due to sudden accelerator incidents It’s likely the company will face years of litigation from customers that were affected by the product problem Name that company! A-5 The Case for Laws The NEED for LAWS LG1 • 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 A-6 The Case for Laws TYPES of COURT LG1 • Trial courts hear cases of criminal and civil law • Appellate courts hear appeals from the losing party at the trial court level A-7 The Case for Laws TYPES of LAW LG1 • 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 A-8 Statutory and Common Law MAJOR AREAS of LAW LG1 • 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 A-9 Administrative Agencies ADMINISTRATIVE AGENCIES LG1 • 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 A-10 The History of Antitrust Legislation The CLAYTON ACT of 1914 LG6 The Clayton Act prohibits: - Exclusive dealing - Tying contracts - Interlocking directorates A-26 The History of Antitrust Legislation ANTITRUST LEGISLATION LG6 • The Federal Trade Commission Act of 1914 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 A-27 The History of Antitrust Legislation LG6 HISTORY of HIGH PROFILE ANTITRUST CASES Case Year Outcome U.S v Standard Oil 1911 Standard Oil broken into 34 companies U.S v American Tobacco 1911 American Tobacco split into 16 companies U.S v E I du Pont de Nemours 1961 DuPont ordered to divest its 23% ownership in General Motors U.S v AT&T 1982 Settled after Ma Bell spun off into regional companies U.S v Microsoft 2000 Microsoft ordered to halt prior anticompetitive practices A-28 Laws to Protect Consumers CONSUMER PROTECTIONS LG6 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 A-29 Laws to Protect Consumers LG6 NUMBER of IDENTITY THEFT COMPLAINTS A-30 Tax Laws TAXES LG7 Taxes The way federal, state, and local governments raise money •Some forms of taxes: - Income taxes - Property taxes - Sales taxes - Excise taxes A-31 Tax Laws SIN TAXES State Tax Rates per Pack of Cigarettes LG7 States Rate per Pack 2011 vs 2014 New York $4.35 $4.35 Rhode Island $3.46 $3.50 Washington $3.02 $3.03 Connecticut & Hawaii $3.00 $3.40 & $3.20 New Jersey $2.70 $2.70 Wisconsin $2.52 $2.52 Massachusetts $2.51 $3.51 Source: National Conference of State Legislators, www.ncsl.org, accessed July 2011 and State Excise Tax Rates www.taxadmin.org/fta/rate/cigarette.pdf April 2014 A-32 are paid to filers even when they don't owe any tax Tax Laws DO the RICH PAY TAXES? LG7 A-33 Bankruptcy Laws BANKRUPTCY LAWS LG8 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 A-34 Bankruptcy Laws CHAPTER BANKRUPTCY LG8 • Creditors with secured claims receive their collateral or repossess the asset • Unsecured claims are paid in this order: 1) Costs of the bankruptcy case 2) Any business costs after filing 3) Wages, salaries, commissions 4) Contributions to employee benefits 5) Refunds to consumers for products not delivered 6) Federal and state taxes A-35 Bankruptcy Laws LG8 How ASSETS are DIVIDED in BANKRUPTCY A-36 Bankruptcy Laws GOING, GOING, GONE Largest Bankruptcies of 2014 LG8 Bankrupty Date Industry Pre-Petition Assets USEC Inc 03/05/14 Energy $2,266,400,000 First Mariner Bancorp 02/10/14 Bank Holding $1,377,529,000 James River Coal Company 04/07/14 Coal $1,204,121,000 Sorenson Communications, Inc 03/03/14 Telecom $645,000,000 Tuscany International Drilling Inc 02/02/14 Oil Svcs $645,000,000 MModal Holdings, Inc 03/20/14 Health Data $626,811,000 Global Geophysical Services, Inc 03/25/14 Seismic Data $552,875,000 Dolan Company, The 03/23/14 Prof Svcs $449,540,000 Brookstone, Inc 04/03/14 Retailer $406,111,000 DynaVox Inc 04/07/14 Software $34,941,000 Company   A-37 Deregulation vs Regulation DEREGULATING COMMERCE LG9 Deregulation The government withdraws certain laws and regulations that seem to hinder competition • Areas that have been deregulated: - The airline industry - Telecommunication • Deregulation efforts continue to be pursued in: - Some public utilities A-38 Deregulation vs Regulation HAMBURGER REGULATIONS LG9 A-39 Progress Assessment PROGRESS ASSESSMENT • 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 A-40 ... commercial laws •The UCC has articles that contain laws covering a wide range of business issues A- 19 Warranties UNDERSTANDING WARRANTIES LG4 A Warranty guarantees the product sold will be acceptable... rules, statutes, codes and regulations that provide a legal framework for the conduct of business A- 8 Statutory and Common Law MAJOR AREAS of LAW LG1 • Statutory Law Includes state and federal constitutions,... necessary to make a legally enforceable contract, and describe the possible consequences if such a contract is violated A- 2 Bonus Chapter A LEARNING GOALS Summarize several laws that regulate competition