Chapter 7: Business Torts and Product Liability

Tort: civil wrong not arising from contracts

1.Intentional
Voluntary acts that harm a protected interest
Intent is established by showing the defendant meant to do the act that caused the harm
2.Negligence
Situations in which harm is caused accidentally
Intent is absent but because of one partys carelessness, another has suffered injury
3.Strict Liability
No-fault concept where an individual or organization is responsible for harm without proof of carelessness
Unreasonably dangerous products and practices. Thus, if the product is 1) Defective and 2) Unreasonably Dangerous and someone is
hurt, strict liability may attach even though fault is not established.
Battery: Intentionally touching another in a harmful or offensive way without legal justification or the consent of that person
Assault: Intentionally causing another to reasonably believe that he or she is about to be the victim of a battery
False Imprisonment: When someone is intentionally confined against his will. His freedom of movement is restricted
Fraud: Intentional misrepresentations of facts
1.A material fact was misrepresented
2.The misrepresentation was intentional
3.The injured party relied on the misrepresentation
4.Injury resulted
Defamation:
1.A false statement
2.Harm to the victims reputation
3.Publication of the statement (The statement must reach someone other than the one being defamed)
Slander is the spoken form of the tort of defamation
Libel is defamation in print or some sort of tangible form
The laws interest here is to protect reputations
Malice generally requires a showing of actual knowledge of the falsehood or reckless disregard for the truth
Injurious Falsehood: Slander and Libel

A claim of slander requires the showing of actual harm, such as job loss, unless it is slander per se and include allegations of serious sexual
misconduct, commission of a serious crime, etc.
Libel generally does not require a showing of actual harm. It is a more permanent stain because it is written.
Truth acts as a complete defense to a defamation claim. If we tell the truth about others, we cannot be guilty of defamation, regardless of our evil
intentions.
Protected statements because of the circumstances in which they are made:
Absolute privileges: remarks by government officials in the course of their duties or by participants of a trial
Qualified privileges: includes statements to secure credit or a job

Invasion of Privacy:
Appropriation of a persons name or likeness: When an individuals name or image is used without permission for commercial purposes. Ex: using a
celebritys name without permission to imply that she has endorsed the product
Intrusion: intentional invasion of a persons solitude if it would be highly offensive to a reasonable person. Ex: opening an employees mail
Public disclosure of private facts: highly offensive to a reasonable person. Ex: sexual preferences or debt payment
False Light: when claims are published about another that have the effect of giving a false light in the public mind. The interest of being left alone. Ex:
an employees office was wrongfully searched and he was led out of the workplace in full view of others
Emotional Distress: courts require that compelling evidence of outrageous conduct causing severe emotional pain was present.
Torts against Property:
Trespass to Real Property: (Land and immovable objects) intentional entry to the land of another without consent
Trespass to Personal Property: (Moveable property) intentional interference with a persons right to enjoy his or her personal property
Conversion: more serious and extensive interference with personal property. Ex: keeping a car in a parking lot for months because the owner hasnt
paid and during that time the car suffered damage
Injurious Falsehood:
Nuisance:
Selected Intentional Tort Defenses:
Consent: If you gave permission, unless it was under mistake, fraud, or duress
Mistake: can be a good defense against events that happen rapidly. Ex: breaking up what looked like a fight.
Necessity: in emergency situations one may commit a tort and be excused. Ex: breaking into a building because it was on fire or trespassing to save
yourself.
Self-Defense: must be a threat to personal safety. You cannot set up traps to deter intruders or etc.

Product Liability:
Addresses situations in which injuries result from defective products
Product liability litigation compensates those who are harmed while applying important pressure to improve product quality
The 3 major product liability causes of action are negligence, breach of warranty, and strict liability:
Negligence: breach of the duty of due care
Failure to do what a reasonable person would do, or doing what a reasonable person would not do.
Victims of negligence can bring actions against all careless parties in the chain of production/distribution. Ex: claims against the manufacturer of a
car even though you bought the car from someone else
Negligence Test: to establish a successful negligence claim the plaintiff must meet:
1.Duty: The plaintiff must establish that the defendant owed a duty of due care (that a reasonable person acts sensibly and responsibly)
2.Breach of Duty: Must prove that the defendant did not act reasonably. Taking precautions against harms when doing so costs less than the
discounted value of the harms risked
3.Causation:
a.Actual Cause: Did the defendants breach of duty actually cause the harm? Ex: but for the defendants failure to stop at the red
light, the pedestrian would not have been struck in the crosswalk
b.Proximate Cause: are the defendants actions sufficiently connected to the plaintiffs injury
4.Injury: the plaintiff must have sustained injury (often must be physical)
Classes of Negligence Claims:
1)Manufacturing Defects: improper manufacturing of products.
Res ipsa loquitur allows the court to infer a defendants negligence even though it cannot be proven. It requires that:
1.The injury was caused under the control of the defendant
2.The accident ordinarily would not happen absent the defendants negligence
3.There is no evidence for other causes of the accident
2)Design Defects: Manufacturers must design products to anticipate and avoid customer injury
1.Risk-Utility Test: a product is negligently designed if the benefits of the products design are outweighed by the risks
2.Consumer Expectations Test: imposes on the manufacturer a duty to design its products so that they are safe for their intended use
and also for the reasonably foreseeable use.
A product would be considered defective in design only if its foreseeable risks could have been reduced or avoided by a reasonable
alternative design and if failure to include that design makes the product not reasonably safe.

3) Inadequate Warnings: A product may be considered defective because of inadequate warnings when reasonable warnings would have reduced or
avoided the foreseeable risks

Negligence Defenses:
Comparative negligence: weighing the relative negligence of the parties. Plaintiffs recovery is reduced by the percentage that he is at
fault for
Contributory negligence: any contribution by the plaintiff in his own harm means he is barred from recovery. He will receive nothing
Assumption of the risk: a plaintiff who willingly enters a dangerous situation and is injured will be barred from recovery. He will receive
nothing
1.Knowledge of the risk
2.Voluntary assumption of the risk
Warranties: a guarantee arising out of a contract
Express Warranties: if a seller of goods states a fact or makes a promise regarding a good
Guarded by the UCC: any fact, promise, or description that becomes the affirmation for the bargain creates an express warranty. Any
sample creates an express warranty that the whole will be the same
Puffing: does not create an express warranty. It is an opinion or sales talk. Ex: this is the best TV around
Implied Warranties: when a seller enters a contract for the sale of goods an implied warranty arises by the operation of law, unless the
warranty is disclaimed by the seller.
Merchantability: a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with
respect to goods of that kind
Fitness for Particular Purpose: where the seller at the time of purchase knows the purpose for which the goods are required and that
the buyer is relying on the sellers skill, there is an implied warranty that the goods shall be fit for such purpose.
Disclaimers: AS IS or With All Faults. Or when a buyer inspects before buying or declines to inspect no implied warranty exists.

Strict Liability: focuses on the condition of the product, rather than the conduct of the parties. Therefore a seller who is free of fault may be liable
for injuries caused by a defective or unreasonably dangerous product
Defenses: Assumption of risk (the plaintiffs decision to proceed and to use the product despite the obvious dangers) and Product misuse (product
used improperly or the directions are ignored)
Tort Reform: the business community wants change in the legal system in ways that would reduce the heavy costs of personal injury claims. Ex:
reducing punitive damages

Chapter 8: Trade Regulation and Antitrust

Market Failure: in theory, government intervention in a free economy is only needed when the market is unable to serve the public interest

 Imperfect Information: because we cannot have perfect information, the government may impose regulations to improve the available information
or to diminish the unfavorable effect of inadequate information.
Monopoly: the government intervenes to reduce anticompetitive behaviors. Ex: price fixing, abuse of market dominance that results in a reduction of
open, efficient competition.
Externalities: when all the costs and benefits of a good or service are not fully absorbed, these costs or benefits fall elsewhere. Ex: pollution results in
the environment being used without charge; means the product is underpriced and the consumer does not pay the full social cost of the product.
Government regulation is considered sometimes necessary to place the full cost on those who generated it.
Public Goods: some goods and services cannot be provided by the pricing system. Ex: national defense, pollution
Regulatory Life Cycle?
Stage 1: The free market itself
Stage 2: Market failure is identified
Stage 3: Governmental regulation is imposed
Stage 4: Regulatory failure occurs
Stage 5: Regulatory reform or move to Stage 6
Stage 6: Regulation is eliminated
Philosophy and Politics
1.One view is that regulation is necessary for the protection of the public. Government intervention can stabilize the economy
2.Regulation is developed at the request of industry and is operated for the benefit of the industry. Subsidies and tax advantages are an example
3.Bureaucrats (body of officials) who perform government regulation are themselves a powerful force in maintaining and expanding that regulation
The Constitutional Foundation of Business Regulation
Supremacy Clause: When there are conflicts with state or local law this clause says that the constitution is the supreme (number 1) law.
Commerce Clause: Gives congress exclusive jurisdiction over foreign commerce. They can even regulate interstate commerce.
Too Much Federal Power?
The Commerce Clause does not give unlimited power to the government.
Congress does not have the constitutional authority to regulate guns in schools/noneconomic violent crime (under commerce clause)

State and Local Regulation of Interstate Commerce

Sates with their police power have the authority to regulate commerce within their jurisdictions for the purpose of maintaining public health, safety, and
morals.

Intrastate commerce (having no significant effect on interstate commerce) is regulated by the states
Interstate commerce can be regulated both by the government and the states (this can cause conflicts)
The government has exclusive power over foreign commerce
The states are primarily responsible for regulating the insurance industry, heavily involved in regulating banking, securities, and liquor sales.

Licensure: Local regulation (which is much less economically significant than state regulation) requires various licenses. You must obtain one locally and some
people argue that it increases prices and decreases services. The benefits are supposed to be that it will protect the public from unsafe and unhealthful
services and goods.

Federalism and Free Trade

Americas political structure is built on the federalist principle of a careful balance between local, state and federal governments. We prefer local control
because we believe those closest to the problem can better resolve it. We also believe that we cannot have a unified nation without central control. The
commerce clause prevents states from imposing laws that benefit the state alone and thus helps prevent an economic fracturing of the US.
Globalism versus Nationalism
Rules are much more common in Europe. We believe these rules cause a slower and less competitive economy.
European commission taking legal steps to more firmly enforce single market rules.
The Federal Agencies: starting your own business will be greatly controlled by the government in every aspect. Rules are enforced by administrative agencies
agency: any government unit other than the legislature and the courts
the administrative law: governing those agencies addresses the entire executive branch of government (the executive branch of government is charged with
the execution and enforcement of laws and policies and the administration of public affairs)
ICC 1887 Interstate Commerce Commission: the first federal regulatory agency (regulated railroad routes and rates)
FDA 1907 the Food and Drug Administration: FTC 1914 Federal Trade Commission
The federal regulation only became spread throughout in response to the Great Depression of the 1930s. Directed toward economic problems and
controlling entire industries such as the transportation or communication industry
SEC 1934 Securities and Exchange Commission
FCC 1934 Federal Communications Commission
1960s and 1970s: next major burst of regulatory agencies that were directed to social, as opposed to economic reform
EPA 1970 Environmental Protection Agency
1980s: strong efforts to deregulate the economy and reduce the influence of the federal agencies and the government
Present: great respect for the free market but we believe there should be some government oversight

Creating the Agencies

Enabling Legislation: agencies were created by congress via these statutes
In creating an agency, the government gives a portion of its authority to that agency. The president (with the help of the Senate) appoints the
administrator or commissioners
In effect, congress has created a 4th branch of government because they dont have the expertise or time to deal with problems such as nuclear
power, product safety, etc.
Agency Duties
1. Control of Supply: The market alone cannot adequately protect the public interest. EX: FDA controls which drugs enter the market. FCC grants radio and
TV signals.
2. Control of rates: Historically the federal agencies controlled utilities and carriers. Government rate setting remains important at the state level, but at the
federal level the deregulation movement resulted in a general decline in agency rate setting.
3. Control of Conduct
a) Information: agencies make companies disclose consumer information that otherwise would be private. Ex: warning labels
b) Standards: the government may establish minimum standards
c) Product Banishments: in rare occurrences products can be removed from the market
Operating the Agencies
Executive Functions: to implement the policy. The protection of the public by ensuring compliance with laws and regulations
Legislative Functions: agencies create rules that in effect, are laws.
Rules:
1. Procedural: the agencys internal operating structure and methods
2. Interpretive: how the agency views the meaning of those statutes for which the agency has responsibility. EX: IRS regulations
3. Legislative: policy expressions having the effect of laws
The Rule Making Process: informal and formal proposals. Hybrid rule making (by compromise)

Judicial Functions: agencies must often turn to judicial proceedings to enforce agency rules
consent order: effort made to reach a settlement in which the party being investigated agrees to steps suitable to the agency, but does not admit guilt

ALJ Administrative Law Judge: decides all questions of law and fact for problems with agencies. The party has no right to a jury trial. It can move to the
federal court system if appealed.
Controlling the Agencies
Executive Constraints: the president appoints the top administrators and has a great influence in the budget process
Congressional Constraints: congress creates and can dissolve the agencies; it also controls their budgets, and passes laws to make the agencies take specific
actions
Judicial Review: narrow approach to judicial review. Usually the agencys decision is right but steps can be taken if it is completely out of line
The FCC and Indecency Today: Indecent programming can lead to fines. Ex: Janet Jacksons boob was shown on national TV that was non-satellite and
noncable between 10am and 6pm when children are prone to watch. FCC charged CBS for this, but it was reversed.
Howard Stern with his vivid sexual talks on radio has now moved to satellite radio because of the FCC
Criticisms:
Excessive Regulation: government rules reduce business efficiency, curb freedom, and unjustly redistribute resources
Insufficient Regulation: Changes in society calls for a new government regulation. Ex: Congress seems likely to provide financial relief to the many troubled
borrowers and lenders.
Ineffective Regulation: Productivity is low and policy enforcement is weak and ineffective.

Deregulation: In cases where government regulation cannot be eliminated they say that fines should be used. Use the cost-benefit analysis when
implementing new rules

Lower Prices
More innovation
More business: Falling prices create a demand for new products
Improved lives

Telecommunications: lowered long distance but local cable and phone prices have been rising
Electricity: prices climbed in deregulated states a lot more than regulated states
Transportation
Financial Services

Further Deregulation or Regulation?

Government regulation often arises from actual problems
The rules are less painful than in some nations
USA is one of the least regulated and most efficient economies in the world
Rules can be helpful if efficient but disastrous if excessive

Chapter 11: Antitrust Law- Monopolies and Mergers

Microsoft CaseMonopoly? : Microsoft got sued by state governments and companies in 2000 not because it was a monopoly or it was too large, but
because Microsoft violated antitrust laws by:
bullying the rivals
maintaining 95% of the market share in operating systems through anticompetitive ways
As a result, Microsoft spent billions on settlements with other companies (outside of court settlements)
This case relates to the governments role in the free market without government intervention, power gap will be filled by a monopoly in a free mkt
system
Monopoly: a situation in which one firm holds the power to control prices or exclude competition in a particular market
Test for monopoly:
1.The possession of monopoly power in the relevant market, and
2.The willful acquisition or maintenance of that power, as distinguished from growth or development as a consequence of a superior
product/historic accident
The critical part to understand is that a monopoly is determined by the % of the market held by alleged monopolists and the behavior that
produced that market share. Antitrust law does not punish efficient companies who earn their large market shares legitimately

Principal Legislation: Sherman Act section 2: any person who attempts to monopolize shall be deemed guilty of a felony punishable by a fine

Federal Trade Commission Act: also applies to most antitrust violations

Oligopoly: a few firms sharing monopoly power. Ex: car, tobacco, accounting industries

Monopolization Analysis: usually monopolies are determined on case by case basis (case law)

Product Market: where the products compete. The fundamental test is interchangeability as determined by price, use, and quality of product. A
matter of elasticity
Geographic Market: where the product can be purchased
Market Power: does the market share held by the defendant threaten competition? How large that share is depends on many considerations.
Market share ALONE does not establish monopoly power
Intent: need for proof of intent to monopolize. Monopoly power that was earned wrongfully.
Defenses: the defendant may prevail of he proves that the monopoly was earned innocently

Mergers

We are in the middle of a merger boom

A merger involves two or more companies where the property of all is transferred to the one remaining firm

Mergers are addressed by the Sherman Act, Section 1; but the Clayton Act, Section 7, offers the primary legislative oversight:
That no person engaged in commerce shall acquire the whole or any part of the stock or the assets of another person engaged also in commerce where the
effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.
Antitrust law embraces all situations in which previously independent business entities are unitedwhether by acquisition of stock, purchase of physical
assets, and creation of holding companies, consolidation, or merger.

Horizontal Merger: involves firms that are in direct competition and occupy the same product and geographic markets. Ex: a merger of vodka companies in
same geographic market

1. Market Power: Broadly the guidelines are designed to identify mergers that result in market power, meaning, the ability of a seller profitably to maintain
prices above competitive levels for a significant period of time
2. Anticompetitive Effects: government worries that the merger may permit monopoly behavior in the merged firms market
3. Ease of Entry: if it is easy for new companies to enter the post-merger market, the existing firms will be forced to charge competitive prices
4. Defenses: an unacceptable merger may be saved by certain defenses. The failing company doctrine allows a merger to preserve the assets of a firm that
would be lost

Vertical Merger: two or more firms at different levels of the same channel of distribution. Ex: a furniture manufacturer and a fabric supplier

Conglomerate Merger: involves firms with unrelated products. Ex: a pet food manufacturer acquired by a book publisher
Hart-Scott-Radino Antitrust Improvements Act (HSR): mergers and acquisitions must be reported to the Federal Trade Commission and the Justice
Department if they affect the gross national product

U.S. Antitrust laws are applicable to foreign firms doing business here. Sherman/Clayton/FTC are applicable to American business abroad.
STATUTES:
Sherman Act: applies to the conduct of the American business abroad when that business has a direct effect on American commerce. That the business was
conducted entirely abroad or that the agreement was entered into in another country does not excuse American firms from the reach of the Sherman Act
(assuming that American courts can achieve the necessary jurisdiction)
Clayton Act: Section 7 is applicable to acquisitions combining domestic and foreign firms and is potentially applicable to acquisitions not involving American
firms if the effect would harm competition in the American market.
Federal Trade Commission Act: the FTC shares antitrust enforcement authority with the Justice Department and Section 5 of the act strengthens Clayton 7.

International Antitrust Enforcement: American officials are encouraging stricter antitrust enforcement by other nations, US enforcers are willing to
aggressively assert American laws globally
Extraterritoriality: Justice Departmentgeneral idea is to sue foreign firms that violate US antitrust laws even when the actions take place entirely overseas.
The Justice Dept. files suit in US courts against foreign companies operating in the USA if those companies are taking actions abroad that 1) harm

competition in USA or 2) limit American access to markets in other nations

European Union: seems to be practicing a more aggressive attitude towards possible corporate market abuse

Chapter 12: Employment Law I: Employee Rights

Selection (Hiring): a business must provide unemployment insurance, workers compensation, minimum wages, to employees but generally would not need
to do that for independent contractors. Employers are not liable for discrimination claims by independent contractors or liable for most torts committed by
independent contractors
Employees are protected by Fair Labor Standards Act where as independent contractors are not.
Inappropriate Questions: Questions like How old are you? Or Are you married? Are not illegal under federal law but discrimination based on the answers
would be
Employees can be forced to sign non-compete agreements, nondisclosure agreements, and arbitration agreements that are fully enforceable
References: concerns of defamation (requires a false statement, published to a third party, employer must be responsible for the publication, the plaintiffs
reputation must be harmed)

Liability: employers have legal responsibility for their employees actions/accidents/wrongs

Scope of Employment: on the job, the employer would be responsible
1. The employee was subject to the employers supervision
2. The employee was motivated, in part, to serve the employers business interest
3. The problem was during normal working hours and in a work location
4. The act in question was of the general kind the employee was hired to perform

Negligence in Hiring/Retention/Training/Supervision: employers may be liable for hiring an employee who causes harm to a third party or for careless
training or supervision.
Liable if the employer knew they were hiring a dangerous/dishonest employee

Fair Labor Standards Act (FLSA):

1. Established minimum wage- $7.25 federal and many communities made their own standards. Overtime pay established but certain classes are
exempt from overtime (ex: managers)
2. Ceiling on hours worked weekly
3. Child labor protection
4. Equal pay for equal work regardless of gender
OHSA Occupational Safety and Health Administration: responsible for ensuring safe workplaces
The 1970 Occupational Safety and Health Act imposes a general duty on most employers to provide a workplace free of hazard causing death
or serious harm
Standards: enforces health and safety standards. Ex: cancer-causing agents. Employers must also pay for all personal protective equipment.
Ex: goggles, clothing, creams
Ergonomics: The science of fitting the job to the worker. Ex: changing the height of the workstation to the workers height. These are
recommended by OSHA, not enforced.
Variances (Exceptions): employers may seek temporary or permanent exceptions from OSHA standards, only if the workplace will be as safe
as if the standards were used
Violence: Going Postal means violence in the workplace
Right to Know: employers must educate their employees about the chemicals they produce and have everything labeled
Records: Business must maintain records listing injuries/deaths/any citations
Enforcement: unannounced on-site inspection
Workers Compensation: Normally, when an employee is injured or dies on the job, the employee or the estate may not sue for damages. Recovery is limited
to the fixed sum provided by the workers compensation statute, regardless of fault.

Some states have exceptions that if the company was being negligent and that was the cause of death, then they can be sued.
If workers comp. is issued they are barred from suing
Medical and rehab expenses are covered along with partial income replacement
Injuries/deaths must: arise out of the employment and arose in the course of employment

Employee Privacy:
Up to the states and employers for dress codes or what they require

 Drug testing is optional but has proven to increase productivity

Companies that have contracts of $100,000 or more with the government or receive aid must develop antidrug policy. They must provide awareness
programs and assistance to those with drug problems while warning them of the penalties in violation of the policy
Drug Testing in Law and Practice
Guarded by state law
Lawful in:
o Pre-employment testing
o In association with periodic physical exams
o If there is probable cause
o Post-accident testing
o Follow-up testing for those returning from rehab
Random testing can cause legal problems
Monitoring: in general, employers can monitor attendance, performance, email, internet use
Family Leave: 12 weeks per year. They must be reinstated to the same or equivalent job
Pensions: many companies revise or terminate them
Termination: Protection from Wrongful Discharge
At-will employee: not under a contract, can be fired anytime. Usually can be fired for good bad or no reason. (Except for
discrimination/unions)
At-Will Principles:
Express or implied employment contracts: courts may decide that a contract exists based on such things such as handbooks and good
performance
Implied covenant of good faith and fair dealing
Public policy: states saying that it is wrong to dismiss when the employee is good

Chapter 15: Consumer Protection

In recent years, legislatures, courts and administrative agencies have developed laws to protect us where the market has failed to protect us

Common Law Consumer Protection (Judge-made law)

Fraud and Innocent Misrepresentation: buyer must be able to rely on the truth of the seller, but untruths are common in American commerce.
A victim of fraud can cancel the contract and seek damages (including punitive in cases of malice/desire to inflict injury or harm)
Fraud exists if there is:
1. Misrepresentation of a material fact
2. The misrepresentation was intentional
3. The injured party justifiably relied on the misrepresentation
4. Injury resulted
Expressions of opinion are not fraud
Sales Puffing: is lawful This baby is the greatest little car youre ever gonna drive
If the wrongdoer believed that the statement was true, it is not fraud, but the contract could be canceled. No damages awarded.
Unconscionable Contracts (Not right or reasonable contracts): emerged from court decisions that concluded that some contracts are so unfair that they
needed intervention.
Also included in the UCC
Two forms of Unconscionability:
1. Procedural Unconscionability: the bargaining power of the 2 parties was so unequal that the agreement was not freely entered. Usually arises from
lack of knowledge (ex: fine print) or lack of choice (ex: urgent circumstances)
2. Substantive Unconscionability: the contract in question was so one-sided/oppressive that it shocked the court. Ex: a contract that doesnt provide a
remedy for a breach or contract terms completely out of line
State Laws
Lemon Laws: new car purchases are covered by warranty laws. In addition, state laws provide recourse for consumers whose cars turn out to be
defective and cannot be repaired
Cover 1 to 2 years or up to 24000 miles.
Each state has different Lemon laws
Typically, state laws say that the vehicle must have been returned to the dealer for repair 3-4 times for the same defect and that defect must
substantially impair the value or safety of the car OR the vehicle must have been unavailable to the customer for a total of 30 days in a 12 month
period. Such vehicle is a Lemon and the consumer is entitled a replacement or full refund of the purchase price.
In some states, used cars can also be treated as lemons
Whether a car is a lemon is determined by arbitration. If dissatisfied with the ruling, you may file a suit.

Federal Laws and Consumer Protection Agencies

The Federal Trade Commission (FTC): created to prevent unfair methods of competition and unfair acts or practices affecting commerce. Acts as a miniature
government with extensive and powerful roles
Rule Making: issuing trade regulation rules, specifies particular acts or practices that the commission deems deceptive
The FTCs quasi-legislative (rule making) power is extensive: Example: The Federal Trade Commissions Do Not Call list. Companies were fined that
violated that list. FTC charges against online companies sending emails with deceptive subjects that were not true but made you open the email.
On its own, or as a result of a citizens complaint the FTC may drop the proceeding, settle the manner, or issue a formal complaint.
If a formal complaint is issued, the matter goes as a trial
The FTC has no authority to impose criminal sanctions
Fraud and Deception
An unfair trade practice is forbidden under FTC Act. An unfair trade practice
1.Must be likely to cause injury to consumers
2.Must not be reasonably avoidable by consumers
3.Must not be outweighed by offsetting benefits to consumers or to competition
The FTC test for deception requires that the claim is:
1.False or likely to mislead the reasonable consumer
2.Material to the consumers decision making
Quality Claims: Fewer calories faster acting more effective are claims that lead to deception unless they are supported by facts
Advertisers are engaging in unfair and deceptive practices if they make product claims without facts
Pricing: bait and switch practice where the product is advertised at a very low price but the seller has no intention of selling at that price. Once the customer
takes the bait the goal is to switch the attention to another higher-priced product.
Another problem is inflating the price so that it is marked down for sale. FTC has guidelines for proving that the former price was genuine, but the
problem has been largely to the states to decide.
The Consumer Product Safety Commission (CPSC): a federal agency in charge of protecting us from risks of injury and death from consumer products
Ex: recalled lead toys in 2007
Reducing Risk:
The CPSC pursues product safety by collecting data and issuing rules.
They do research and issues mandatory consumer product safety, performance, and labeling standards
CPSC holds both compliance and enforcement powers
o Manufacturers must certify before distribution that their product meets federal safety standards
o Manufacturing sites may be inspected

o Specific product testing may be

CPSC can enforce its decisions by seeking court order to remove a product from the shelves
The Food and Drug Administration (FDA): vital role in the health and welfare of America
Consumers are not confident in the FDA. Ex: pain killers were taken off the market because they caused heart attacks, but consumers were
wondering why they allowed them on the market in the first place
U.S Supreme court 2008 ruling says that patients injured by medical devices that passed FDAs testing cannot sue for damages
Doubts about the agencys ability to monitor drugs because of their processes, underfunding, and etc.
Consumer Privacy
Identity theft scandals have critics calling for government intervention in the lightly regulated information industry, but that will costs us money/higher
prices.
Credit Regulations
Truth in Lending Act (TILA): as we turned to credit financing consumers did not understand the full cost of the product
TILAs applicability:
1.The debtor has to be a natural person not an organization
2.The creditor must be regularly engaged in giving credit and the person who the debt is initially paid to
3.Purpose of the credit must be for personal use and not exceed $25,000. However, home purchases are covered by TILA
4.The credit must be subject to a finance charge, or payable in more than 4 installments
Congress presumed that increased information would stimulate competition in the finance industry.
The Act requires disclosure of the amount financed, the finance charge in dollars, the annual percentage rate APR, and the number of payments
TILA covers consumer loans generally, including credit cards and car purchases
Credit and Charge Cards
TILA provides that credit cards cannot be issued unless requested
Lost or stolen card liability cannot exceed $50
Cardholder bears o liability after notifying the issuer about the missing card
The Fair Credit and Charge Card Disclosure Act makes issuers disclose key cost features, APR, annual membership fee, min. finance charges, late
payment fees, etc.
Consumer Credit Reports: Three major national credit info giants Equifax Experian and TransUnion as well as local credit bureaus provide companies with
consumers credit histories.
The federal Fair Credit Reporting Act (FCRA):
Anyone using info about you from a reporting agency to deny you a credit/job/insurance/etc. must notify you and tell you where they got the
information

At your request, a credit reporting agency must show you your file and a list of people that recently looked at your info
If you claim that your file is inaccurate, the CRA must investigate and give you a written report
All inaccurate info must be corrected or removed within 30 days
In most cases, negative information more than 7 years old must not be reported
You must provide a written consent before a CRA can provide info to employers
You can sue for damages if your rights are violated under the act

Fair Credit Billing Act (FCBA): provides a mechanism to deal with billing errors
If you receive a wrong bill must complain in writing to the creditor within 60 days
The creditor cannot threaten a consumers credit rating
Electronic Fund Transfers: The Electronic Fund Transfer Act (EFTA) provides remedies for consumers with electronic banking problems
Debit card losses are less protected than credit cards
Equal Credit Opportunity: The Equal Credit Opportunity Act combats bias in lending
No credit bias based on sex/age/race/religion/etc, or bias for food stamps
Debtor Protection
Debt Collection Law: The federal Fair Debt Collection Practices Act (FDCPA) shields debtors from unfair debt collection tactics by debt collection agencies
The act does not extend to creditors who are trying to recover debt owed to them
The FDCPA forbids:
o Use of bad words, contact with third parties, use of threats, contact during inconvenient hours, repeated harassing phone calls
The Federal Trade Commission is responsible for the FDCPA
Bankruptcy
The Reform Law: forces some filers to file under Chapter 13 and not Chapter 7. Those with income above their states median who can pay $6000 in 5 years.
Bankruptcy Rules: Bankruptcy governed by federal law
1.Liquidation (Chapter 7): most debts are forgiven and all assets except exemptions are distributed to creditors
2.Reorganization (Chapter 13): creditors are kept from the debtors assets. The debtor, under the supervision of the court, works out a plan to pay
creditors
3.Adjustment of Debts: of an individual with regular income, in which individuals with limited debts are protected from creditors while paying debt in
installments

Chapter 16: International Ethics and Law

World Trade Organization (WTO): 151 countries have joined

 Reduces tariffs and barriers to trade, that will contribute to raising standards of living and ensuring full employment, growing volume of real income
The value of reducing trade barriers is a widely shared belief in the international community
WTO talks based on consensus (general agreement) not on votes
Globalization is not uniformly beneficial: promotion of free trade could be problematic. Protection of historical/social/cultural values. Public support of
immigration restrictions
Ethics: Understanding cultural differences
Language: obvious cultural difference
Religion: often provides the foundation of a cultures ethical structure
Different countries believe in different rights, some based on their religion
Social Responsibility in Host Country
comparative advantage: that developing countries typically have a comparative competitive advantage in cheap labor, while developed countries have an
advantage in such things such as an educated work force/manufacturing expertise
Child labor Ex: Puma/Nikes production of soccer balls with child laborthey made a statement that they will not allow child labor in their foreign
production
Corporate responsibility reports
Social Responsibility in Home Country
Includes exporting your home countrys values
Foreign Corrupt Practices Act (FCPA): forbids bribery
some argue that it is not right for the USA to try to impose its sense of morality on others via foreign trade

Chapter 17: Environmental Protection

The Global Picture: air pollution and emissions are high, ice caps melting, dead zones in water
China: hot topic with its environmental problems. 20 of the 30 most polluted cities are in China
Chinas economic growth is big, but the environment paid for it

Market Failure?
The market has failed to protect us from pollution and rules are necessary
Market Incentives: sometimes dictating standards isnt as effective as free market tactics like incentives
Pollution Credits: USA set a cap on the number of tons of pollutants to be emitted. You either had to reduce to meet the cap or buy credits from
other businesses that had reduced and had some left over
Taxes: tax incentives to encourage behavior or additional taxes to discourage other behavior. Ex: income tax credit for buying a hybrid car.
Global Examples: European Commission set targets for 2020 to reduce emissions and any country that could not meet the target will be fined. Other
countries set fishing quotas to prevent overfishing. Some tax shopping bags so people would bring their own cloth bags.
Ethical Business Decision Making
Why are corporate giants voluntarily doing now what they havent done in the past?
Being sees as Green by consumers and investors will improve the bottom line
Manager may believe what they are doing now for social responsibility may lessen the likelihood of future regulation on an issue that is becoming
increasingly visible (Pay-now-or-pay-later management analysis). Managers may take a more socially responsible approach to the environmental
issue now because they think the future cost of not doing so will be larger
Strong relationship between environmental high performance and high profitability
Laws and Regulations
Cost-benefit analysis: Environmental protection can be expensive. How do we value human life? How do we value the costs of reduced pollution?
Impact on future generations: When performing cost-benefit analysis how do we deal with the cost to future generations of our not taking action?
Proving causation: In the environmental area, issues of coincidence, correlation, and causation may be very difficult to determine. If it is not causing, we may
be wasting our money on something.
Who pays? NIMBY: yes its necessary, but not in my backyard!
The impact of politics: an administration has considerable impact on the enforcement on our environmental laws

The Federal Role

National Environmental Policy Act (NEPA): established a strong federal presence in the promotion of a clean and healthy environment.
Established the Council on Environmental Quality (CEQ) which serves as an adviser to the president. It is required to conduct studies and collect
information about the state of the environment. Then it develops policy and legislative proposals for the president and Congress.
NEPAs primary influence: Environmental Impact Statement (EIS) requirements. Proposals affecting the human environment must be accompanied by
an EIS explaining the impact on the environment and detailing reasonable alternatives. Ex: highway, dam, nuclear projects
Federal actions need an EIS. Private companies that receive federal contracts/funding/licenses may need EIS too.

Environmental Protection Agency (EPA): The private sector was not left without regulation
Gathering information, by surveying pollution problems
Conducting research on pollution problems
Assisting state and local pollution control efforts
Administering many of the federal laws directed to environmental concerns
Regulation of Air Pollution
Clean Air Act of 1990 (CAA): Early clean air legislation in 1963 and 1965 gave the government limited authority. Amendments of 1970 and 1977 gave the EPA
the power to set air quality standards and to ensure those standards were achieved according to a timetable.
The NEW Clean Air Act of 1990 had tougher auto emissions standards, cleaner-burning gasoline, new equipment to capture industrial and business
pollution
Under CAA, air quality standards are set federally but the states are required to establish implementation plans to achieve these standards
Motor Vehicle Emission Standards: US Department of Transportation (DOT) is responsible for setting fuel economy standards for new motor vehicles.
Regulation of Water Pollution
The waste from production has commonly been disposed of in the water at a cost beneath that required to dispose of the waste in an ecological way.
Runoff: lawn fertilizer, pet waste, oil, and anything else from our modern lives pollutes surface water. It is easier to track pollution from large facilities but
runoff polluted water comes from roads, farms and other places harder to track.
Beaches: closings related to sewage, debris and other carried to the beaches from runoff

Federal Policy:
The Clean Water Act (CWA): designed to restore and maintain the chemical, physical, and biological integrity of the nations waters.
Goals are:
1.Achieving water quality sufficient for the protection of fish, shellfish, and wildlife and for recreation in and on the water
2.Eliminating the discharge of pollutants into navigable waters
The states have the primary responsibility for enforcing the CWA, but the federal government, via the Environmental Protection Agency, is empowered to
assume enforcement authority if necessary
The goals of the CWA are implemented by imposing limits on the amount of pollutants that may lawfully enter the water of USA from any source

 The National Pollutant Discharge Elimination System (NPDES) requires all pollutant discharges to secure an EPA permit before pouring fluids into a
navigable system
Regulation of Land Pollution
Toxic Substances Control Act (TSCA): to control dangerous chemicals
Resource Conservation and Recovery Act (RCRA): solid and hazardous wastes. Report the waste site and activities to the government

Chapter 18