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© McGraw Hill 1
 Because learning changes everything. ®

Bonus Chapter A

Working within the Legal

Environment

© 2022 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw Hill.
 Chapter Contents 1

The Case for Laws

Tort Law
Legally Protecting Ideas: Patents, Copyrights, and
Trademarks
Sales Law: The Uniform Commercial Code
Contract Law
Promoting Fair and Competitive Business Practices

© McGraw Hill 3
 Chapter Contents 2

Laws to Protect Consumers

Tax Laws
Bankruptcy Laws
Deregulation versus Regulation

© McGraw Hill 4
 Learning Objectives 1

LO A-1 Define business law, distinguish between statutory and

common law, and explain the role of administrative
agencies.
LO A-2 Define tort law and explain the role of product liability in
tort law.
LO A-3 Identify the purposes and conditions of patents,
copyrights, and trademarks.
LO A-4 Describe warranties and negotiable instruments as
covered in the Uniform Commercial Code.
LO A-5 List and describe the conditions necessary to make a
legally enforceable contract, and describe the possible
consequences if such a contract is violated.

© McGraw Hill 5
 Learning Objectives 2

LO A-6 Summarize several laws that regulate competition and

protect consumers in the United States.
LO A-7 Explain the role of tax laws in generating income for the
government and as a method of discouraging or
encouraging certain behaviors among taxpayers.
LO A-8 Distinguish among the various types of bankruptcy as
outlined by the Bankruptcy Code.
LO A-9 Explain the role of deregulation as a tool to encourage
competition.

© McGraw Hill 6
 Jerome (Jerry) Schlichter
Attorney
Schlichter earned a bachelor's degree in
business administration and then
attended law school at the University of
California.
He founded his own law firm in St. Louis
and has been a staunch defender of an
individual’s right to fair treatment.
He handled many precedent-setting
class action and mass tort cases
against excessive fees charged by the
401(k) industry.
He has been instrumental in winning
multiple judgments against railroads and
gives back to the community regularly.

© McGraw Hill Dilip Vishwanat/The New York TImes/Redux 7

 Name that Company
THESE COMPANIES WERE ORDERED to pay a
university $1.1 billion for infringing on three of its
WiFi patents.

© McGraw Hill 8
 The Case for Laws 1

Laws and Court

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 the court system.
The U.S. courts system is organized at the federal, state,
and local levels.
• Trial courts hear cases of criminal and civil law.
• Appellate courts hear appeals from the losing party at the trial court
level.

© McGraw Hill 9
 The Case for Laws 2

Types of Law
• Criminal law defines crimes, establishes punishments, and
regulates the investigation and prosecution of people accused
of committing crimes.
• Civil law proceedings cover noncriminal acts—marriage,
personal injury lawsuits, and more.
• Business law — Rules, statutes, codes, and regulations that
provide a legal framework within which business may be
conducted.

© McGraw Hill 10
 The Case for Laws 3

Statutory and Common Law

• Statutory law — State and federal constitutions,
legislative enactments, treaties of the federal government,
and ordinances; written law.
• Common law — Body of law that comes from decisions
handed down by courts; unwritten law.
• Precedent — Decisions judges have made in earlier
cases that guide the handling of new cases.

© McGraw Hill 11
 Judges and Precedent
In the U.S. judicial system,
judges are guided in their
decisions by the precepts of
common law (often called
unwritten law because it is
based on previous court
decisions). Such decisions
become precedent and
assist other judges in
making legal rulings. What
are some practical
benefits of this process?

© McGraw Hill dcdebs/Getty Images 12

 The Case for Laws 4

Administrative Agencies
Federal or state institutions and other government
organizations with delegated power to pass rules and
regulations within their mandated area of authority.
Examples include:
• Securities and Exchange Commission.
• Federal Communications Commission.
• Equal Employment Opportunity Commission.

© McGraw Hill 13
 Figure A.1 Examples of Federal, State, and
Local Administrative Agencies
Federal Agencies
Examples
Federal Trade Commission
Food and Drug Administration
State Agencies
Examples
Public utility commissions
State licensing boards
Local Agencies
Examples
Maricopa County Planning Commission
City of Chesterfield Zoning Board
© McGraw Hill
Powers and Functions
Enforces laws and guidelines regarding unfair business practices and acts to
stop false and deceptive advertising and labeling.
Enforces laws and regulations to prevent distribution of adulterated or
misbranded foods, drugs, medical devices, cosmetics, and veterinary products,
as well as any hazardous consumer products.
Powers and Functions
Set rates that can be charged by various public utilities to prevent unfair pricing by
regulated monopolies (for example, natural gas, electric power companies).
License various trades and professions within a state (for example, state cosmetology
board, state real estate commission).
Powers and Functions
Oversees land-use proposals, long-term development objectives, and other
long-range issues in Maricopa County, Arizona.
Recommends policy regarding zoning of commercial and residential
property in the city of Chesterfield, Missouri.
14
 TESTPREP 1

• What is business law?

• What is the difference between statutory and
common law?
• What is an administrative agency?

© McGraw Hill 15
 Tort Law 1

What Is Tort Law?

• Tort — A wrongful act that causes injury to another
person’s body, property, or reputation.
• An intentional tort is a willful act that results in injury.
• Negligence — Behavior that causes unintentional harm or
injury.

© McGraw Hill 16
 Tort Law 2

Product Liability
• Holds businesses liable for harm that results from the
production, design, sale, or use of products they market.
• Strict product liability — Legal responsibility for harm or
injury caused by a product regardless of fault.

© McGraw Hill 17
 POLLING QUESTION 1

In your opinion, is strict product liability

generally positive or generally negative?
A. Positive.
B. Negative.

© McGraw Hill 18
 Figure A.2 Major Product Liability
Cases
Company Year Settlement
Ford Motor 19 78 $125 million in punitive damages awarded in the case of a 13-
Company year-old boy severely burned in a rear-end collision involving a
Ford Pinto.
A. H. Robins 19 87 Dalkon Shield intrauterine birth-control devices recalled after eight
separate punitive-damage awards. Company settled over 6,900
cases for $200 million.
Playtex Company 19 88 Suffered a $10 million damage award in the case of a toxic shock
syndrome fatality in Kansas. Forced to remove product from the
market.
Dow Corning 19 98 Reached a settlement and agreed to pay $2 billion to customers
who claimed silicone breast implants caused injury, even death.
General Motors 19 99 Suffered a $4.8 billion punitive award in a faulty fuel tank case.
Major Tobacco 2004 $130 billion sought by the federal government for smoking
Firms cessation programs.
Toyota 2010 A safety feature known as "brake to idle fail safe" was not installed
in many cars increasing the chances of an accident when the
accelerator malfunctioned. Company settled for $1.1 billion.

© McGraw Hill Sources: U.S. Department of Justice and American Trial Lawyers Association 19
 Legally Protecting Ideas: Patents,
Copyrights, and Trademarks 1

Types of Protection
• Patent — Gives inventors exclusive rights to their
inventions for 20 years.
• Copyright — Protects a creator’s rights to materials such
as books, articles, photos, and cartoons.
• A trademark is a legally protected name, symbol, or
design that identifies the goods or services of a seller.

© McGraw Hill 20
 Copyright Lawsuits
In 2011, Apple filed a lawsuit against Samsung claiming the Korean
company had infringed on copyrights originally filed for the iPhone. The
next year a U.S. court ruled in Apple’s favor and ordered Samsung to pay
$930 million in damages. The company quickly challenged the ruling and
the case was finally settled in 2018 when both sides agreed on a $539
million settlement to Apple.

© McGraw Hill Dado Ruvic/Reuters/Newscom 21

 Legally Protecting Ideas: Patents,
Copyrights, and Trademarks 2

Patent Facts
Patent applicants should seek the advice of an attorney.
Patent owners have the right to sell or license the use of
their patent to others.
• Patent trolls license patents (or buy the licensed patents) and file
infringement lawsuits against companies.

Foreign companies are eligible to file for U.S. patents.

© McGraw Hill 22
 Patent Leaders in 2019

COMPANY NUMBER OF PATENTS HOME COUNTRY

IB M 9,262 United States

Samsung 6,469 Korea

Canon 3,548 Japan

Microsoft 3,081 United States

Intel 3,020 United States

© McGraw Hill Source: Yahoo! Finance, finance.yahoo.com, accessed March 2020. 23

 TESTPREP 2

• What is tort law?

• What is product liability? What is strict product
liability?
• How many years is a patent protected from
infringement?
• What is a copyright?

© McGraw Hill 24
 Sales Law: The Uniform Commercial
Code 1

Uniform Commercial Code (UC C)

• A comprehensive commercial law that covers sales laws
and other commercial laws.
• All states have adopted the law.
• The U C C has 11 articles that contain laws covering a
wide range of business issues.

© McGraw Hill 25
 Sales Law: The Uniform Commercial
Code 2

Warranties
• Guarantees the product sold will be acceptable for the
purpose for which the buyer intends to use it.
• Express warranties — Specific representations by the
seller that buyers rely on regarding the goods they
purchase.
• Implied warranties — Guarantees legally imposed on
the seller.
• Warranties can be full or limited.

© McGraw Hill 26
 Warranties
Would you buy a new car if
the dealer offered no
warranty? How about an
iPhone or a major kitchen
appliance? Warranties are
an important part of a
product and are generally
of major concern to
purchasers. Should
colleges offer students
warranties with their
degree programs?

© McGraw Hill Westend61/Getty Images 27

 Sales Law: The Uniform Commercial
Code 3

Negotiable Instruments
• Forms of commercial paper that are transferable among
businesses and individuals.
• Four conditions for using negotiable instruments:

1. Must be written and signed by maker or drawer.

2. Must be made payable on demand or at certain time.
3. Must be made payable to bearer.
4. Must contain unconditional promise to pay specified amount.

© McGraw Hill 28
 Contract Law 1

Contracts
• A legally enforceable agreement between two or more
parties.
• Contract law — Specifies what constitutes a legally
enforceable agreement.

© McGraw Hill 29
 Contract Law 2

Contracts continued
• A contract is legally binding when:
1. An offer is made.
2. There’s a voluntary acceptance of the offer.
3. Both parties give consideration — something of value.
4. Both parties are competent.
5. The contract covers a legal act.
6. The contract is in proper form.

© McGraw Hill 30
 Contract Law 3

Breach of Contract
• When one party fails to follow the terms of a contract.
• After a breach, the following may be ordered:

1. Specific performance.
2. Payment of damages — monetary settlement.
3. Discharge of obligation.

© McGraw Hill 31
 TESTPREP 3

• What is the purpose of the Universal

Commercial Code (UC C)?
• Compare express and implied warranties.
• What are the four elements of a negotiable
instrument specified in the U C C?
• What are the six conditions for a legally binding
contract? What could happen if a contract is
breached?

© McGraw Hill 32
 POLLING QUESTION 2

Which legislation was enacted to prohibit

exclusive dealing and tying contracts?
A. Sherman Antitrust Act of 18 90.
B. Clayton Act of 19 14.
C. Federal Trade Commission Act of 1914.
D. Robinson-Patman Act of 19 36.

© McGraw Hill 33
 Promoting Fair and Competitive
Business Practices 1

The History of Antitrust Legislation

The Sherman Antitrust Act of 18 90 prevents large
organizations from stifling the competition of smaller or
newer firms.
• It forbids:
• Contracts, combinations, or conspiracies in restraint of trade.
• Creation of actual monopolies or attempts to monopolize.

© McGraw Hill 34
 Promoting Fair and Competitive
Business Practices 2

The History of Antitrust Legislation continued

The Clayton Act of 1914 was intended to deal with price

discrimination.
• It prohibits:
• Exclusive dealing.
• Tying contracts.
• Interlocking directorates.
• Buying large amounts of stock in competing corporations.

© McGraw Hill 35
 Promoting Fair and Competitive
Business Practices 3

The History of Antitrust Legislation continued

• The Federal Trade Commission Act of 1914 created the
F T C and prohibits unfair methods of competition in
commerce.
• The Wheeler-Lea Amendment of 1938 gave the F T C
additional control over false or misleading ads.
• The Robinson-Patman Act of 19 36 prohibits price
discrimination and applies to both buyers and sellers.

© McGraw Hill 36
 Figure A.3 History of High-Profile
Antitrust Cases
Case
United States v. Standard Oil,
19 11
United States v. American
Tobacco, 19 11
United States v. E. I. du Pont
de Nemours, 19 61
United States v. AT&T, 19 82
United States v. Microsoft,
2000
© McGraw Hill
Outcome
Standard Oil broken up into 34 companies;
Amoco, Chevron, and ExxonMobil are
results of the breakup.
American Tobacco split into 16 companies;
British Tobacco and R.J. Reynolds are
results of the breakup.
DuPont ordered to divest its 23 percent
ownership stake in General Motors.
Settled after Ma Bell agreed to spin off its
local telephone operations into seven
regional operating companies.
Microsoft ordered to halt prior
anticompetitive practices.
Source: U.S. Department of Justice 37
 The Revolution of Anti-Trust Laws
Elizabeth Holmes founded the
medical start-up Theranos in 2003
after claiming she developed a
revolutionary new way to conduct
blood tests. She eventually
became one of Silicon Valley’s
brightest stars as the company
began to earn multibillion-dollar
valuations. But when an
investigation found that
Theranos’s testing process did not
work as advertised, Holmes’s net
worth quickly plummeted from $4
billion to zero.

© McGraw Hill Justin Sullivan/Getty Images 38

 Laws to Protect Consumers
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.

© McGraw Hill 39
 Figure A.4 Consumer Protection Laws 1

Law
Fair Packaging and Labeling
Act (19 66)
Child Protection Act (19 66)
Truth-in-Lending Act (19 68)
Child Protection and Toy
Safety Act (19 69)
Fair Credit Reporting Act (19 70) Requires that consumer credit reports contain only
Consumer Product Safety Act
(19 72)
Protections
Makes unfair or deceptive packaging or labeling of
certain consumer commodities illegal.
Removes from sale potentially harmful toys and allows
the F D A to pull dangerous products from the market.
Requires full disclosure of all finance charges on
consumer credit agreements and in advertisements of
credit plans.
Protects children from toys and other products that
contain thermal, electrical, or mechanical hazards.
accurate, relevant, and recent information and are
confidential unless a proper party requests them for an
appropriate reason.
Created an independent agency to protect consumers
from unreasonable risk of injury arising from consumer
products and to set safety standards.

© McGraw Hill 40
 Figure A.4 Consumer Protection Laws
Law
Magnuson Moss
Warranty–Federal Trade
Commission Improvements
Act (19 75)
Alcohol Labeling Legislation
(19 88)
Nutrition Labeling and
Education Act (19 90)
Consumer Credit Reporting
Reform Act (19 97)
© McGraw Hill
2
Protections
Provides for minimum disclosure standards for
written consumer product warranties and allows
the F T C to prescribe interpretive rules and policy
statements regarding unfair or deceptive practices.
Provides for warning labels on liquor saying that
women shouldn’t drink when pregnant and that
alcohol impairs a person’s abilities.
Requires truthful and uniform nutritional labeling on
every food the F D A regulates.
Increases responsibility of credit issuers for
accurate credit data and requires creditors to verify
that disputed data are accurate; consumer
notification is necessary before reinstating the data.
41
 Figure A.4 Consumer Protection Laws 3

Law
Children’s Online Privacy
Protection Act (2000)
Country of Origin Labeling
Law (2009)
Credit Card Accountability,
Responsibility, and
Disclosure (C A R D) Act (2009)
Protections
Gives parents control over what
information is collected online from their
children under age 13; requires website
operators to maintain the confidentiality,
security, and integrity of the personal
information collected from children.
Requires that the product label on most
food products sold in U.S. supermarkets
gives the product’s country of origin.
Designed to protect consumers from
unfair credit card practices.

© McGraw Hill 42
 Number of Identity Theft
Complaints

Access the text alternative for slide images.

© McGraw Hill Source: Federal Trade Commission, ftc.gov/reports/consumer-sentinel-network-data-book-2019, accessed August 2020. 43
 Protecting America’s Consumers

Access the text alternative for slide images.

© McGraw Hill Source: Federal Trade Commission, ftc.gov/reports/consumer-sentinel-network-data-book-2019, accessed August 2020. 44
 Tax Laws
Taxes
How the government (federal, state, and local) raises money.
Taxes are primarily used as a source of funding for
government operations and programs.
Taxes can be used to raise revenue or adjust behavior.
• Sin taxes raise the cost on undesirable items, such as cigarettes and
liquor.
• Tax credit is an amount deducted from tax bill.

© McGraw Hill 45
 Figure A.5 Types of Taxes
Type Purpose
Income taxes Taxes paid on the income received by businesses and individuals.
Income taxes are the largest source of tax income received by the
federal government.
Property taxes Taxes paid on real and personal property. Real property is real estate
owned by individuals and businesses. Personal property is a broader
category that includes any movable property such as tangible items
(wedding rings, equipment, etc.) or intangible items (stocks, checks,
mortgages, etc.). Taxes are based on their assessed value.
Sales taxes Taxes paid on merchandise sold at the retail level.
Excise taxes Taxes paid on selected items such as tobacco, alcoholic beverages,
airline travel, gasoline, and firearms. These are often referred to as
sin taxes. Income generated from the tax goes toward a specifically
designated purpose. For example, gasoline taxes often help the
federal government and state governments pay for highway
construction or improvements.

© McGraw Hill 46
 Sin Taxes
State Tax Rates per Pack of Cigarettes

STATE RATE PER PACK

New York and Connecticut $4.35
Rhode Island $4.25
Massachusetts $3.51
Hawaii $3.20
Vermont $3.08
Minnesota $3.04
Washington $3.025

© McGraw Hill Source: Tax Foundation, taxfoundation.org, accessed March 2020. 47

 Do the Rich Pay Taxes?

TAXPAYERS PERCENT OF TOTAL TAXES

Top 1 percent 40 percent of total taxes
Top 5 percent 60 percent of total taxes
Top 25 percent 86 percent of total taxes
Top 50 percent 97 percent of total taxes
Bottom 50 percent 3 percent of total taxes

© McGraw Hill Source: Internal Revenue Service, irs.gov, accessed March 2020. 48
 Bankruptcy Laws 1

Bankruptcy
Legal process by which a person, business, or government
entity unable to meet financial obligations is relieved of
those obligations by a court that divides any assets among
creditors.
• Voluntary — Debtor initiates proceedings.
• Involuntary —Debtor’s creditors initiate proceedings.

While high-profile bankruptcies of businesses (Sears, Toys

“R” Us, and Payless ShoeSource) dominate the news, 97
percent of bankruptcy filings each year are by individuals.

© McGraw Hill 49
 Stores in Bankruptcy
Toys"R"Us, once the
largest toy retailer in the
nation, filed for bankruptcy
in 2017 and soon ceased
operations altogether.
Before liquidating, the
chain operated nearly
1,600 stores and
employed more than
64,000 people. Do you
know of any other
companies that have
been forced into
bankruptcy?
© McGraw Hill Jim Steinfeldt/Michael Ochs Archives/Getty Images 50
 Going, Going, Gone
Big Bankruptcies of 2020

Stein Mart.
GN C.
J.C. Penney.
Neiman Marcus.
J. Crew.
Pier 1.

© McGraw Hill 51
 Bankruptcy Laws 2

Options for Declaring Bankruptcy

• Chapter 7 — “Straight bankruptcy” or liquidation (used by
businesses and individuals).
• Chapter 11 — Reorganization (used almost exclusively by
businesses).
• Chapter 13 — Repayment (used by individuals).

© McGraw Hill 52
 Bankruptcy Laws 3

Chapter 7 Bankruptcy
• 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, or commissions owed.
4. Contributions to employee benefits.
5. Refunds to consumers for products not delivered.
6. Federal and state taxes.

© McGraw Hill 53
 Figure A.6 How Assets Are Divided
in Bankruptcy

Access the text alternative for slide images.

© McGraw Hill 54
 Bankruptcy Laws 4

Chapter 11 Bankruptcy
• A company sued by creditors continues to operate under
court protection while it tries to work out a plan for paying
off its debts.
• The Bankruptcy Reform Act of 19 94 provides a fast-track
procedure for small businesses filing under Chapter 11.

© McGraw Hill 55
 Bankruptcy Laws 5

Chapter 13 Bankruptcy
• Permits individuals, including small-business owners, to
pay back creditors over three to five years.
• It is less complicated and less expensive than Chapter 7.
• The debtor pays a court-appointed trustee in monthly
installments.

© McGraw Hill 56
 Deregulation versus Regulation 1

Deregulating Commerce
Deregulation — Government withdrawal of certain laws and
regulations that seem to hinder competition.
Deregulation efforts were active in:
• Airline industry.
• Telecommunications.
• Some public utilities.

© McGraw Hill 57
 Deregulation versus Regulation 2

Regulating Commerce
• The Patient Protection and Affordable Care Act increased
government regulation of the insurance industry.
• Most agree some regulation is necessary to ensure fair
and honest dealings.

© McGraw Hill 58
 TESTPREP 4

• 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.

© McGraw Hill 59
 Because learning changes everything. ®

www.mheducation.com

© 2022 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw Hill.
 Accessibility Content: Text Alternatives for Images

© McGraw Hill 61
 Number of Identity Theft Complaints –
Text Alternative
Return to parent-slide containing images.

This image shows a graph of number of identity theft complaints.

In this visual representation, a line is graphed on the x y
coordinate plane. 0, 1,00,000, 2,00,000, 3,00,000, 4,00,000,
5,00,000, 6,00,000, and 7,00,000 are marked on y axis. 2005,
2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015,
2016, 2017, 2018, and 2019 are marked on x axis. 2005, 2,55,
687. 2006, 2,46,214. 2007, 2,59,314. 2008, 3,14,484. 2009,
2,78,078. 2010, 2,50,854. 2011, 2,79,156. 2012, 3,69, 132. 2013,
2,90,056. 2014, 3,22,646. 2015, 4,90,220. 2016, 3,99,225. 2017,
3,71,000. 2018, 4,44,602. 2019, 6,50,572.

Return to parent-slide containing

images.
© McGraw Hill 62
 Protecting America’s Consumers – Text
Alternative
Return to parent-slide containing images.

A graphic from Consumer Sentinel Network (data book

2019) states that the FTC received 3.2 million reports
primarily in identity theft, imposter scams, and telephone
and mobile services. This includes 1.7 million fraud
reports of which 23% reported a loss. $1.9 billion total
fraud losses with a median loss of $320.

Return to parent-slide containing

images.
© McGraw Hill 63
 Figure A.6 How Assets Are Divided in
Bankruptcy – Text Alternative
Return to parent-slide containing images.

In voluntary bankruptcy, the debtor petitions the bankruptcy court for

bankrupt status. Then the creditors elect a trustee, the trustee converts
assets to cash, the necessary expenses and priority claims are paid, and
the remaining cash is divided among unsecured creditors.
In involuntary bankruptcy, the creditors start legal action against a debtor
and the debtor must answer the creditors’ charges. At this point the case
may be dismissed due to lack of evidence. If the case continues,
creditors elect a trustee, the trustee converts assets to cash, the
necessary expenses and priority claims are paid, and the remaining
cash is divided among unsecured creditors.

Return to parent-slide containing

images.
© McGraw Hill 64