Bus Law 2 Exam 1

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Ethics can be defined as

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the study of what constitutes right or wrong behavior. Business ethics focuses on how moral and ethical principles are applied in the business context.

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Reasons for ethical problems

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One of the most pervasive reasons why ethical breaches occur is the desire to increase sales (or not lose them), thereby increasing profits (and for corporations, market value). Some people believe that a corporation’s only goal should be profit maximization. Even if this is true, executives should distinguish between short-run andlong-run profit goals and focus on maximizing profits over the long run because only long-run profit maximization is consistent with business ethics.

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Behavior of owners and managers

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Management’s commitment and behavior are essential in creating an ethical workplace. Management’s behavior, more than anything else, sets the ethical tone of a firm and influences the behavior of employees.

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Duty-based ethics

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Ethics based on religious beliefs; philosophical reasoning, such as that of Immanuel Kant; and the basic rights of human beings (the principle of rights). A potential problem for those who support this approach is deciding which rights are more important in a given situation. Management constantly faces ethical conflicts and trade-offs when considering all those affected by a business decision.

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Outcome-based ethics (utilitarianism)—

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Ethics based on philosophical reasoning, such as that of John Stuart Mill. Applying this theory requires a cost-benefit analysis, weighing the negative effects against the positive and deciding which course of conduct produces the best outcome

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Corporate social responsibility—

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A number of theories based on the idea that corporations can and should act ethically and be accountable to society for their actions. These include the stakeholder approach and corporate citizenship.

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Ethical codes—

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Most large firms have ethical codes or policies and training programs to help employees determine whether certain actions are ethical. In addition, the Sarbanes-Oxley Act requires firms to set up confidential systems so that employees and others can report suspected illegal or unethical auditing or accounting practices.

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The moral minimum—

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Lawful behavior is a moral minimum. The law has its limits, though, and some actions may be legal but not ethical. The law cannot control all business behavior (such as initially failing to prevent the backdating of stock options).

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Legal uncertainties—

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It may be difficult to predict with certainty whether particular actions are legal, given the numerous and frequent changes in the laws regulating business and the “gray areas” in the law.

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Making Ethical Business Decisions

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Although it can be difficult for businesspersons to ensure that all employees make ethical business decisions, it is crucial in today’s legal environment. Doing the right thing pays off in the long run, in terms of both increasing profits and avoiding negative publicity and the potential for bankruptcy. Each employee should be taught to evaluate her or his action using guidelines set forth by the company. A set of six guidelines for making ethical business decisions appears on pages 70 and 71.

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Business Ethics on a Global Level

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Businesses must take account of the many cultural, religious, and legal differences among nations. Notable differences relate to the role of women in society, employment laws governing workplace conditions, and the practice of giving side payments to foreign officials to secure favorable contracts.

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Patent

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A patent is a grant from the government that gives an inventor the exclusive right to make, use, and sell an invention for a period of twenty years (fourteen years for a design patent) from the date of filing the application for a patent. To be patentable, an invention (or a discovery, process, or design) must be genuine, novel, useful, and not obvious in light of current technology.

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Almost anything is patentable, except

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(1) the laws of nature, (2) natural phenomena, and (3) abstract ideas (including algorithms).

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Patent infringement

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Patent infringement occurs when one uses or sells another’s patented design, product, or process without the patent owner’s permission. The patent holder can sue the infringer in federal court and request an injunction, but must prove irreparable injury to obtain a permanent injunction against the infringer. The patent holder can also request damages and attorneys’ fees; if the infringement was willful, the court can grant treble damages.

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A copyright is

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A copyright is an intangible property right granted by federal statute to the author or originator of certain literary or artistic productions. Computer software may be copyrighted.

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Copyright infringement occurs

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Copyright infringement occurs whenever the form or expression of an idea is copied without the permission of the copyright holder. An exception applies if the copying is deemed a
“fair use.”

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Copyrights are governed by the

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Copyright Act of 1976, as amended. To protect copyrights in digital information, Congress passed the No Electronic Theft Act of 1997 and the Digital Millennium Copyright Act of 1998.

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Technology that allows (copyright)

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users to share files via the Internet on distributed networks often raises copyright infringement issues.

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The United States Supreme Court has ruled that companies that provide file-sharing software to users

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can be held liable for contributory and vicarious copyright liability if they take affirmative steps to promote copyright infringement.

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Trade secrets include

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Trade secrets include customer lists, plans, research and development, and pricing information, for example.

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Trade secrets are protected under

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Trade secrets are protected under the common law and, in some states, under statutory law against misappropriation by competitors.

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made the theft of trade secrets a federal crime (see Chapter 6).

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The Economic Espionage Act of 1996 made the theft of trade secrets a federal crime (see Chapter 6).

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A landmark agreement for international agreements provide international protection for intellectual property

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Various international agreements provide international protection for intellectual property. A landmark agreement is the 1994 agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which provides for enforcement procedures in all countries signatory to the agreement.

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The commerce clause and the necessary and proper clause give

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Congress nearly unlimited discretion to regulate and tax business. Unless a statute specifies that certain businesses are exempt, regulations apply to all since even lo- • cal (intrastate) business has been held to affect interstate business.

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States may impose regulations

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that do not conflict with federal regulations or may impose regulations in areas in which Congress gives them specific regulatory authority, but states may not impose burdens on interstate commerce. Numerous state regulatory and taxing schemes have been limited because they violate the commerce clause of the Constitution.

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The taxing power of the federal government is

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nearly unlimited.

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Taxes may be used for purposes

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other than just to raise revenues. They may be used to regulate and may be punitive in nature. The Supreme Court rarely questions the taxing schemes of Congress.

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State taxing schemes may not

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discriminate against inter- state or international commerce.

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Commercial speech is

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is afforded a high level of First Amendment protection.

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Businesses have the right

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to participate in political discussion whether or not it concerns an issue that directly affects business.

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Restrictions on commercial speech are

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subject to constitutional guidelines concerning strong public necessity.

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Truthful speech about lawful activities may be regulated

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only if the regulation would advance a substantial governmental interest and the regulation is no more extensive than is necessary.

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Since companies have Fourth Amendment guarantees against unreasonable searches and seizures,

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law enforcement authorities can be required to obtain warrants for most inspections.

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The main exception (to 4th amendment) for businesses is

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is in the case of closely regulated industries. The business sensibility of requiring an inspector to obtain a warrant for a routine inspection is dubious.

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Companies may not withhold

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documents or testimony requested by prosecutors on the grounds that the evidence might incriminate the company; only individuals may invoke that Fifth Amendment right.

Efforts to evade the requirement to testify by holding corporate evidence out of the country will not necessarily work.

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When government agencies prevent property from being used in a legitimate manner because of long, unjustified procedural delays, or if agencies impose rules that substantially change the property value,

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compensation may be sought under the just compensation clause of the Fifth Amendment.

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The Supreme Court has held that large damage awards—(including punitive damages)—by juries against businesses

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do not violate the Eighth Amendment protection against excessive fines, nor do they violate Fourteenth Amendment due process clause protections of fair play and substantial justice.

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The due process clause of the

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Fourteenth Amendment

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The due process clause of the Fourteenth Amendment has been used to extend

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constitutional protections to matters subject to state regulation.

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(Fourteenth Amendment) Economic regulations must be shown to be related

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to a legitimate government interest, such as public safety. The clause is also used to ensure fairness in law enforcement procedures.

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The equal protection clause of the

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Fourteenth Amendment

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The equal protection clause of the Fourteenth Amendment

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is used to protect individuals from suffering a loss of freedom from state laws that discriminate against a particular class of persons, when there is no compelling governmental inter- est in the law, such as public health or safety.

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Civil law—

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Spells out the duties that exist between persons or between citizens and their governments, excluding the duty not to commit crimes.

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Criminal law—

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Has to do with crimes, which are defined as wrongs against society proclaimed in statutes and punishable by society through fines and/or imprisonment—and, in some cases, death. Because crimes are offenses against society as a whole, they are prosecuted by a public official, not by victims.

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Key differences between civil and criminal law

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An important difference between civil and criminal law is that the standard of proof is higher in criminal cases. See Exhibit 6–1 on page 125 for other differences between civil and criminal law.

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Civil liability for criminal acts—

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A criminal act may give rise to both criminal liability and tort liability. See Exhibit 6–2 on page 126 for an example of criminal and tort liability for the same act.

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Guilty act

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—In general, some form of harmful act must be committed for a crime to exist.

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Intent—

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An intent to commit a crime, or a wrongful mental state, is generally required for a crime to exist.

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Liability of corporations—

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Corporations normally are liable for the crimes committed by their agents and employees within the course and scope of their employment. Corporations cannot be imprisoned, but they can be fined or denied certain legal privileges.

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Liability of corporate officers and directors—

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Corporate directors and officers are personally liable for the crimes they commit and may be held liable for the actions of employees under their supervision.

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Crimes fall into five general categories:

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violent crime, property crime, public order crime, white-collar crime, and organized crime. See Exhibit 6–3 on page 133 for definitions and examples of
these categories.

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Defenses to criminal liability include

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infancy, intoxication, insanity, mistake, consent, duress, justifiable use of force, entrapment, and the statute of limitations. Also, in some cases defendants may be relieved of criminal liability, at least in part, if they are given immunity.

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Fourth Amendment

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Provides protection against unreasonable searches and seizures and requires that probable cause exist before a warrant for a search or an arrest can be issued.

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Fifth Amendment—

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Requires due process of law, prohibits double jeopardy, and protects against self-incrimination.

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Sixth Amendment—

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Provides guarantees of a speedy trial, a trial by jury, a public trial, the right to confront witnesses, and the right to counsel.

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Eighth Amendment—

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Prohibits excessive bail and fines, and cruel and unusual punishment.

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Exclusionary rule—

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A rule of criminal procedure that prohibits the introduction at trial of all evidence obtained in violation of constitutional rights, as well as any evidence derived from the illegally obtained evidence.

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Miranda rule—

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A rule set forth by the Supreme Court in Miranda v. Arizona holding that individuals who are arrested must be informed of certain constitutional rights, including their right to counsel.

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Arrest, indictment, and trial—

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Procedures governing arrest, indictment, and trial for a crime are designed to safeguard the rights of the individual against the state. See Exhibit 6–4 on page 140 for a summary of the procedural steps involved in prosecuting a criminal case.

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Sentencing guidelines—

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The federal government has established sentencing laws or guidelines. The federal sentencing guidelines indicate a range of penalties for each federal crime; federal judges consider these guidelines when imposing sentences on those convicted of federal crimes.

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Cyber crime occurs in cyberspace. Examples include

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cyber theft (financial crimes committed with the aid of computers, as well as identity theft), hacking, and cyberterrorism.

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The Computer Fraud and Abuse Act of 1984, as amended by the National Information Infrastructure Protection Act of 1996,

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is a significant federal statute that addresses cyber crime.

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enabling legislation

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To create an administrative agency, Congress passes enabling legislation, which specifies the name, purposes, functions, and powers of the agency being created. Federal administrative agencies can exercise only those powers that Congress has del- egated to them in enabling legislation.

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Independent regulatory agencies

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are outside the federal executive departments (those headed by a cabinet secretary). Examples of independent agen- cies include the Federal Trade Commission and the Securities and Exchange Commission (SEC). Rather than having a single person as its head, an inde- pendent agency usually is run by a commission or board made up of several members, one of whom serves as the agency’s chair. Commissioners or board members typically serve for fixed terms and cannot be removed without just cause.

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Federal execu- tive agencies

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include the cabinet departments of the executive branch, which were formed to assist the president in carrying out executive functions, and the subagencies within the cabinet departments. The Occupational Safety and Health Administration, for example, is a subagency within the U.S. Department of Labor. Executive agencies usually have a single administrator, director, or secretary who is appointed by the president to oversee the agency and can be removed by the president at any time.

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agencies’ powers include functions associated with the

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legislature (rulemaking), the executive branch (enforcement), and the courts (adjudication).

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legislative rules, or substantive rules

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Yet admin- istrative agencies, to which the Constitution does not specifically refer, can make legislative rules, or substantive rules, that are as legally bind- ing as laws that Congress passes.

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interpretive rules

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(Administrative agencies also issue interpretive rules, which simply declare policy and do not affect legal rights or obligations.)

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delegation doctrine

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Article I, Section 8, gives Congress the power to make all laws necessary for executing its specified powers. The courts interpret these passages, under what is known as the delegation doctrine, as grant- ing Congress the power to establish administrative agencies that can create rules for implementing those laws.

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bureaucracy

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The three branches of government exercise cer- tain controls over agency powers and functions, as discussed next, but in many ways administra- tive agencies function independently. For this rea- son, administrative agencies, which constitute the bureaucracy, are sometimes referred to as the “fourth branch” of the U.S. government.

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The Exhaustion Doctrine

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The party seeking court review must first exhaust all of his or her administrative remedies under what is called the exhaustion doctrine

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The Ripeness Doctrine.

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In addition, under what is known as the ripeness doctrine, a court will not review an administrative agency’s decision until the case is “ripe for review.”

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The Ripeness Doctrine Requirements

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For example, the party bringing the action must have standing to sue the agency (the party must have a direct stake in the outcome of the judicial proceeding, as discussed in Chapter 2), and there must be an actual controversy at issue. A court can dismiss the action if the adminis- trative agency has not yet issued a decision or if the party lacks standing.

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The Arbitrary and Capricious Test

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One of Congress’s goals in enacting the APA was to provide for more judicial control over administra- tive agencies. To that end, the APA provides that courts should “hold unlawful and set aside” agency actions found to be “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”5 Under this standard, parties can challenge regulations as contrary to law or so irrational as to be arbitrary and capricious.

1. Failed to provide a rational explanation for its decision.
2. Changed its prior policy without justification.
3. Considered legally inappropriate factors.
4. Entirely failed to consider a relevant factor.
5. Rendered a decision plainly contrary to the
evidence.

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rulemaking

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Today, the major function of an administrative agency is rulemaking—the formulation of new regulations, or rules.

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Agency Deference

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When asked to review agency decisions, courts his- torically granted some deference (significant weight) to the agency’s judgment, often citing the agency’s great expertise in the subject area of the regulation. This deference seems especially appropriate when applied to an agency’s analysis of factual questions, but should it also extend to an agency’s interpreta- tion of its own legal authority?

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subpoena ad testificandum (“to testify”)

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is an ordinary subpoena. It is a writ, or order, compelling a witness to appear at an agency hearing.

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The sub- poena duces tecum12 (“bring it with you”)

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compels an individual or organization to hand over books, papers, records, or documents to the agency. An administrative agency may use either type of sub- poena to obtain testimony or documents.

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There are limits on the information that an agency can demand. To determine whether an agency is abusing its discretion in its pursuit of information as part of an investigation, a court may consider such factors as the following:

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1. The purpose of the investigation. An investigation must have a legitimate purpose. Harassment is an example of an improper purpose. An agency may not issue an administrative subpoena to inspect business records if the agency’s motive is to harass or pressure the business into settling an unrelated matter.
2. The relevance of the information being sought. Information is relevant if it reveals that the law is being violated or if it assures the agency that the law is not being violated.
3. The specificity of the demand for testimony or docu- ments. A subpoena must, for example, adequately describe the material being sought.
4. The burden of the demand on the party from whom the information is sought. In responding to a request for information, a party must bear the costs of, for example, copying the documents that must be handed over. A business generally is not required to reveal its trade secrets, however.

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adjudication

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the process of resolving a dispute by presenting evidence and arguments before a neutral third party decision maker

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administrative law judge (ALJ)

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Agency adjudication may involve a trial-like arbi- tration procedure before an administrative law judge (ALJ)

ALJ presides over the hearing and has the power to administer oaths, take testimony, rule on questions of evidence, and make determinations of fact. The law requires an ALJ to be an unbiased adjudicator (judge), even though the ALJ actually works for the agency prosecuting the case (in our example, the EPA). There are no juries in administrative hearings; the ALJ assumes the role of a judge and jury in a trial.

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initial order

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Following a hearing, the ALJ ren- ders an initial order, or decision, on the case. Either party can appeal the ALJ’s decision to the board or commission that governs the agency.

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final order

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If no party appeals the case, the ALJ’s deci- sion becomes the final order of the agency. The ALJ’s decision also becomes final if a party appeals and the commission and the court decline to review the case

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Freedom of Information Act

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Enacted in 1966, the Freedom of Information Act (FOIA)14 requires the federal government to disclose certain records to any person or entity on written request, even if no reason is given for the request. The FOIA exempts certain types of records, such as those pertaining to national security and those con- taining information that is confidential or personal.

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Small Business Regulatory Enforcement Fairness Act

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The Small Business Regulatory Enforcement Fairness Act (SBREFA) of 199617 allows Congress to review new federal regulations for at least sixty days before they take effect. This period gives opponents of the rules time to present their argu- ments to Congress.

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The “Fair Use” Exception

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An exception to liability for copyright infringement is made under the “fair use” doctrine. In certain circumstances, a person or organization can repro- duce copyrighted material without paying royalties

purposes such as criticism, com- ment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright.

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;
(2) the nature of the copyrighted work;
(3) the amount and substantiality of the portion used
in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or
value of the copyrighted work.

often considered the fourth factor to be the most important.

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Was Leadsinger’s real-time display of lyrics in a karaoke device educational and therefore not copyright infringement under the fair use exception?

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No. The U.S. Court of Appeals for the Ninth Circuit affirmed the district court’s decision dismissing Leadsinger’s request for a declaratory judgment. Leadsinger did not have a right under the fair use doctrine to display lyrics in real time with music without first obtaining a license to do so from the copyright holder.

The court reasoned that a copyright holder has a right to control “the synchronization of musical compositions with the content of audiovisual works.” Consequently, courts have required parties to obtain synchronization licenses from copyright holders. Moreover, “lyrics are copyrightable as a literary work and, therefore, enjoy separate protection under the Copyright Act.”

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Did the marketing of products called Koke and Dope by the Koke Company of America and other firms constitute an unauthorized use of Coca-Cola’s trademark?

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Yes for Koke, but no for Dope. The Court enjoined (prevented) the competing beverage companies from calling their products Koke but did not prevent them from calling their products Dope.

Coca-Cola was a widely popular drink “to be had at almost any soda fountain.” Because of the public’s widespread familiarity with Coca-Cola, the retention of the name of the beverage (referring to coca leaves and kola nuts) was not misleading:

name “Coke” was found to be so common a term for the trademarked product Coca-Cola that the defendants’ use of the similar-sounding “Koke” as a name for their beverages was disallowed.

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Trademark Dilution

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In 1995, Congress amended the Lanham Act by passing the Federal Trademark Dilution Act,2 which extended the protection available to trademark owners by allowing them to bring a suit in federal court for trademark dilution.

Until the passage of this amendment, federal trademark law prohibited only the unauthorized use of the same mark on competing—or on noncompeting but “related”—goods or services when such use would likely con- fuse consumers as to the origin of those goods and services.

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Strong Marks

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Fanciful, arbitrary, or suggestive trademarks are generally considered to be the most distinctive (strongest) trademarks because they are normally taken from outside the context of the particular product and thus provide the best means of distinguishing one product from another.

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Secondary Meaning

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Descriptive terms, geographic terms, and personal names are not inherently distinctive and do not receive protection under the law until they acquire a second- ary meaning. A secondary meaning may arise when cus- tomers begin to associate a specific term or phrase, such as “London Fog,” with specific trademarked items (coats with “London Fog” labels).

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certification mark

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certification mark s A mark used by one or more persons, other than the owner, to certify the region, materials, mode of manufac- ture, quality, or other characteristic of specific goods or services.

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collective mark

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s A mark used by members of a cooperative, asso- ciation, union, or other organization to certify the region, materi- als, mode of manufacture, quality, or other characteristic of spe- cific goods or services.

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cybersquatting

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cybersquatting s The act of registering a domain name that is the same as, or confusingly similar to, the trademark of another and then offering to sell that domain name back to the trademark owner.

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distributed network \

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s A network that can be used by persons located (distributed) around the country or the globe to share com- puter files.

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license s

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A revocable right or privilege of a person to come onto another person’s land. In the context of intellectual property law, an agreement permitting the use of a trademark, copyright, patent, or trade secret for certain limited purposes.

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service mark

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s A mark used in the sale or the advertising of ser- vices to distinguish the services of one person from those of others. Titles, character names, and other distinctive features of radio and television programs may be registered as service marks.

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Counterfeit Goods

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Counterfeit goods copy or otherwise imitate trademarked goods but are not genuine. The importation of goods that bear a counterfeit (fake) trademark poses a growing problem for U.S. businesses, consumers, and law enforcement. In addition to having negative financial effects on legitimate businesses, sales of certain counterfeit goods, such as phar- maceuticals and nutritional supplements, can present serious public health risks.

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5.4 Patent Infringement. As a cattle rancher in Nebraska, Gerald Gohl used handheld searchlights to find and help calving animals (animals giving birth) in harsh blizzard conditions. Gohl thought that it would be more helpful to have a portable searchlight mounted on the outside of a vehicle and remotely controlled. He and Al Gebhardt developed and patented practical applications of this idea—the Golight and the wireless, remote-controlled Radio Ray, which could rotate 360 degrees—and formed Golight, Inc., to make and market these products. In 1997, Wal-Mart Stores, Inc., began selling a portable, wireless, remote-controlled searchlight that was identical to the Radio Ray except for a stop piece that pre- vented the light from rotating more than 351 degrees. Golight sent Wal-Mart a letter, claiming that its device infringed Golight’s patent. Wal-Mart sold its remaining inventory of the devices and stopped carrying the product. Golight filed a suit in a federal district court against Wal- Mart, alleging patent infringement. How should the court rule? Explain. [Golight, Inc. v. Wal-Mart Stores, Inc., 355 F.3d 1327 (Fed. Cir. 2004)]

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• The court should rule in the favor of Gohl. Walmart should grant him royalties from the sales and pay for his legal fees.
o According to the book, patent infringement occurs when “a firm makes, uses, or sells another’s patented design, product, or process without the patent owner’s permission.”
o Additionally, “infringement may occur even though the patent owner has not put the patented product in commerce. Patent infringement may also occur even though not all features or parts of an invention are copied.”
o In this case, Gohl held the patent, and although it was not in stores yet, they had the right to produce it. Also, even though the 360-degree feature was only 351-degrees on the Walmart version, it is still an infringement of the patent.