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The Legal and Regulatory

Environment of BUSINESS

Nineteenth Edition

Marisa Anne PAGNATTARO

Josiah Meigs Distinguished Teaching Professor of Legal Studies,
University of Georgia

Daniel R. CAHOY
Professor of Business Law and Dean’s Faculty Fellow,
Pennsylvania State University

Julie Manning MAGID

Professor of Business Law and Kelley Venture Fellow, Indiana University

Peter J. SHEDD
University Professor Emeritus of Legal Studies, University of Georgia

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THE LEGAL AND REGULATORY ENVIRONMENT OF BUSINESS, NINETEENTH EDITION

Published by McGraw Hill LLC, 1325 Avenue of the Americas, New York, NY 10121. Copyright © 2022 by
McGrawHill LLC. All rights reserved. Printed in the United States of America. Previous editions © 2019, 2016,
and 2013. No part of this publication may be reproduced or distributed in any form or by any means, or stored in
a database or retrieval system, without the prior written consent of McGraw Hill LLC, including, but not limited
to, in any network or other electronic storage or transmission, or broadcast for distance learning.

Some ancillaries, including electronic and print components, may not be available to customers outside the
United States.

This book is printed on acid-free paper.

1 2 3 4 5 6 7 8 9 LWI24 23 22 21

ISBN 978-1-260-73428-7 (bound edition)

MHID 1-260-73428-5 (bound edition)
ISBN 978-1-264-12581-4 (loose-leaf edition)
MHID 1-264-12581-X (loose-leaf edition)

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All credits appearing on page or at the end of the book are considered to be an extension of the copyright page.

Library of Congress Cataloging-in-Publication Data

Names: Pagnattaro, Marisa Anne, 1961- author. | Cahoy, Daniel R., author. |
Magid, Julie Manning, author. | Reed, O. Lee (Omer Lee), author. | Shedd, Peter J., author.
Title: The legal and regulatory environment of business / Marisa Anne
Pagnattaro, Josiah Meigs, Distinguished Teaching Professor of Legal
Studies, University of Georgia; Daniel R. Cahoy, Professor of Business Law
and Dean’s Faculty Fellow, Pennsylvania State University; Julie Manning
Magid, Professor of Business Law, Indiana University; O. Lee Reed,
Emeritus Professor of Legal Studies, University of Georgia; Peter J. Shedd,
University Professor Emeritus of Legal Studies, University of Georgia.
Description: Nineteenth edition. | New York, NY : McGraw Hill LLC,
[2021] | Includes index.
Identifiers: LCCN 2020027610 (print) | LCCN 2020027611 (ebook) | ISBN 9781260734287 (hardcover) |
ISBN 1260734285 (bound edition) | ISBN 9781264125814 (loose-leaf edition) | ISBN 126412581X
(loose-leaf edition) | ISBN 9781264125838 (ebook)
Subjects: LCSH: Trade regulation--United States. | Commercial law--United States. | Industrial laws
and legislation--United States. | LCGFT: Textbooks.
Classification: LCC KF1600 .C6 2021 (print) | LCC KF1600 (ebook) | DDC 346.7307--dc23
LC record available at https://lccn.loc.gov/2020027610
LC ebook record available at https://lccn.loc.gov/2020027611

The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does
not indicate an endorsement by the authors or McGraw Hill LLC, and McGraw Hill LLC does not guarantee the
accuracy of the information presented at these sites.

mheducation.com/highered

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about the authors

Marisa Anne PAGNATTARO

Marisa Anne Pagnattaro is a Josiah Meigs Distinguished Teaching Professor of
Legal Studies in the Terry College of Business at the University of Georgia. She
received her Ph.D. in English at the University of Georgia, her J.D. from New York
Law School, and her B.A. from Colgate University. Prior to joining the Georgia fac-
ulty, Dr. Pagnattaro was a litigation attorney with Kilpatrick & Cody (now known as
Kilpatrick Townsend) in Atlanta. Dr. Pagnattaro is the recipient of numerous teach-
ing awards, and she also won the Academy of Legal Studies in Business Charles M.
Hewett Master Teacher Competition. She is the author of many scholarly articles
Simone Beasley on national and international employment law issues, as well as labor issues related
to international trade and the protection of trade secrets in China. She is an active
member of the Academy of Legal Studies in Business and is a former Editor in Chief
of the American Business Law Journal.

Pennsylvania State University
Daniel R. CAHOY
Dan Cahoy is a Professor of Business Law, Dean’s Faculty Fellow and Research
Director of the Center for the Business of Sustainability in the Smeal College of
Business at The Pennsylvania State University. He is a registered patent attorney,
with a J.D. from the University of New Hampshire School of Law and a B.A. from
the University of Iowa. Prior to joining Penn State, Professor Cahoy was a litigator
at an intellectual property firm in New York City, where he specialized in pharma-
ceutical and biotechnology cases. He is the author of numerous scholarly articles
on technology law, regulatory policy, and sustainability, and he received a Fulbright
Scholarship in 2009 to serve as the Visiting Chair in International Humanitarian
Law at the University of Ottawa. Professor Cahoy is a former Editor in Chief of the
American Business Law Journal and IDEA: The Journal of Law and Technology. He
has also held various leadership positions in academic organizations including serv-
ing as the President of the Academy of Legal Studies in Business.

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Julie Manning MAGID

Julie Manning Magid is a Professor of Business Law and Kelley Venture Fellow
in the Kelley School of Business at Indiana University. She also is the Director of
the Randall L. Tobias Center for Leadership Excellence at Indiana University. She
received her J.D. from the University of Michigan Law School and her A.B. from
Georgetown University. Prior to joining the Kelley School faculty, Professor Magid
was a litigation attorney specializing in employment and business litigation. Profes-
sor Magid is recognized for her teaching in the undergraduate, graduate, specialized
graduate, and online teaching environments, with numerous teaching awards, includ-
ing the Kelley School of Business MBA Teaching Excellence Award and the Schuy- Indiana University
ler F. Otteson Undergraduate Teaching Excellence Award. Her teaching received
international recognition from the Academy of Legal Studies in Business as the over-
all winner of the Charles M. Hewitt Master Teacher Award. Professor Magid is the
author of numerous scholarly articles and book chapters focused on public policy
related to health care, diversity and inclusion, innovation, and privacy. She is a Life
Sciences Research Fellow with the Center for the Business of Life Science and for-
mer Editor in Chief of the American Business Law Journal.

Peter J. SHEDD
Peter Shedd is the University Professor Emeritus of Legal Studies in the Terry Col-
lege of Business at the University of Georgia where he received his B.B.A. and J.D.
degrees. He also has been a Visiting Professor in the Ross School of Business at
the University of Michigan and the Warrington College of Business at the Univer- Peter Shedd
sity of Florida. Professor Shedd has extensive experience as a teacher, researcher,
administrator, and author of business-related texts. His teaching of undergraduate
and MBA courses has earned Professor Shedd numerous teaching awards including
being named a Josiah Meigs Distinguished Teaching Professor. Professor Shedd is a
member of the Academy of Legal Studies in Business and its Southeastern Regional.
He served as national president during 1999–2000. Professor Shedd is a member
of the State Bar of Georgia and is an experienced arbitrator and mediator. In 2020,
Professor Shedd was honored by the University of Georgia Alumni Association with
their Faculty Service Award.

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preface

T
his nineteenth edition continues the long, rich tradition of our commitment
to presenting timely examples and cases that underscore the relevance of the
law for business. We are passionate about helping students understand the
importance of the legal and regulatory environment of business. Our goal is to make
this text accessible, and we hope that they will embrace the study of the law with
enthusiasm. In this preface, we strive to highlight themes, additions, and pedagogical
devices—including important electronic features—that are key to this edition.

The Nineteenth Edition: Themes and New Additions

With each new edition, we endeavor to maintain the reputation of this text as being the
most up-to-date on the latest important developments in the law for business. As we
prepare each new edition, we consider the events that affect the business environment
and discuss how to incorporate them into the text. The nineteenth edition includes
a new focus on sustainability and innovation, including the ethical issues. Because
we were in the midst of revising the text during COVID-19, issues related to the pan-
demic are also incorporated throughout this edition. We also continue to highlight
ongoing legal fallout from the 2008 financial crisis. In this edition, we spotlight the
U.S. Supreme Court case Iancu v. Brunetti, which addresses issues at the intersection
of business and the law related to the protection (trademarks) and the First Amend-
ment. We also added a number of recent federal cases and Supreme Court decisions.
Each chapter includes a range of relevant examples and case opinions, with
key points noted for each case. Sidebars within each chapter provide students and
instructors with opportunities to learn about topics that illustrate the principles dis-
cussed within the text. Margin comments also reinforce key themes and points of
emphasis. We hope that that this layering of the law with examples reinforces each
student’s understanding of the law for business.
We believe that this text is well suited for both legal environment and business
law classes. The fundamental message we wish our readers to grasp is that the law
is at the core of private enterprise. The law determines ownership and protects busi-
ness and individual ownership interests, which is why property law is at the heart
of this text. Law defines property, enforces property rights, resolves disputes about
where the boundaries of property lie, and recognizes that compensation is appropri-
ate when one person infringes across the boundary of what is owned by another.
Nations enforcing property rights under the rule of law establish conditions for cre-
ating prosperous, diversified economies, which are crucial for businesses to thrive.
All of the current examples and sidebars are designed to teach business students
the relevance of the law for business and to prepare them to make informed decisions
about how the law can be used strategically to protect their rights and business interests.

Organization of the Nineteenth Edition

This edition consists of 22 chapters, divided into four parts. Part One introduces
students to the legal foundations for business. The first chapter in this section under-
scores the importance of the legal environment of business to appreciate the role
of law as the foundation for business in the private market system. This section
also includes a chapter on ethics, as well as three chapters pertaining to dispute
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resolution: courts, litigation, and alternative dispute resolution. Lastly, this first part
includes a chapter on the U.S. Constitution (including the Commerce Clause) and
its fundamental role in the legal system for business.
Part Two consists of basic legal principles, incorporating eight chapters: property,
contract formation, contractual performance, torts, intellectual property, international
law, criminal law, and business organizations. These chapters are designed to help stu-
dents learn basic legal principles, as well as how to identify them in business contexts.
Part Three details the regulatory landscape for business. Five chapters cover
essential regulatory aspects of business: the regulatory process, antitrust, financial and
securities regulation, privacy and consumer protection, and environmental regulation.
The final section, Part Four, contains three chapters pertaining to the employer–
employee relationship: discrimination, employment laws (including agency), and the
labor–management relationship.
Taken together, these chapters should provide students with a comprehensive,
yet accessible, sense of the laws and regulations crucial for companies doing busi-
ness in the United States.

WHAT’S NEW
PART ONE
Chapter 1 Law as Foundation for Business
• Edited the Introduction to incorporate new themes for the text, including sus-
tainability, integrity, and corporate social responsibility.
• Updated Sidebar 1.1, adding information about Wells Fargo to underscore the
kind of liability that can result from a lack of integrity.
• Added new Sidebar 1.2 about the importance of lawyers in the boardroom.
• Updated Sidebar 1.3 with information from the AmCham China 2019 Climate Survey.
• Updated Sidebar 1.4 with a new example involving a $1 billion scandal at Gold-
man Sachs.
• Replaced Sidebar 1.5 with a new topic about the enforceability of corporate
social responsibility.
Chapter 2 Ethics in Decision Making
• Added discussion in introduction about the Business Roundtable Statement
calling for fair and ethical treatment of suppliers.
• Added new Learning Objective 2-1 about ethical challenges facing business in
the 21st century.
• Added new subsection “Modern Ethical Challenges in Innovation and Technol-
ogy” addressing artificial intelligence.
• Added information about FTC fine for violations of user privacy against Facebook.
• Added 2018 National Business Ethics Survey results.
• Added new Sidebar 2.3 “Facebook Tackles Fake News.”
• Updated Hertz standards of business conduct.
• Updated Sidebar 2.7 with Boeing Code of Conduct.
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Chapter 3 Courts
• Updated the federal caseload statistics in Sidebar 3.1.
• Updated Sidebar 3.3 with new examples.
• Sidebar 3.4 updated with the 2018 term stats.
• Updated the statistics in Sidebar 3.5 and added information about 5-4 Supreme
Court decisions.
• Revised Sidebar 3.6, adding information about the role of the chief justice.
• Updated Sidebar 3.7 with information about the process of selection of a
Supreme Court justice.
• Updated Sidebar 3.8 with new information about how business fares in the Rob-
erts Court.
• Updated Sidebar 3.9.
• Updated Sidebar 3.11 with new information about the Supreme Court justices.
• Added new Case 3.1 Iancu v. Brunetti and commentary in the text, replacing
Spokeo, Inc. v. Robins. The corresponding Case Briefing in Appendix I has
been updated as well.
Chapter 4 Litigation
• Added a new Case 4.1 Juliana v. United States regarding standing to sue related
to climate change.
• Updated Sidebar 4.3 adding information about Paul Ceglia.
• Added a new example to Sidebar 4.4 about allegations regarding Apple and throttling.
• Updated Sidebar 4.5 with new cases including major securities-related class
action cases, Facebook litigation, and a class action related to a data breach.
• Revised Sidebar 4.7 with a new example related to discovery abuse.
• Updated Sidebar 4.8 adding commentary about big data being used to predict lawsuits.
• New Sidebar 4.10 with examples of frivolous lawsuits.
• Added new examples to Sidebar 4.11 about social media and jurors.
• Updated Sidebar 4.15 with new information about cameras in the courtroom,
including Congressional testimony by Justices Kagen and Alito.
Chapter 5 Alternative Dispute Resolution
• Updated conflict example to reflect modern global office culture.
• Updated marginalia concerning number of tort cases settled out of court.
• Replaced Sidebar 5.4 referencing trends in arbitration including #MeToo and
Uber agreement examples.
• Replaced Sidebar 5.11 with a summary of four recent Supreme Court rulings
developing arbitration law.
Chapter 6 The Constitution
• Added a new Sidebar 6.3 with the case involving the sale of wine and spirits in
Tennessee as an example of litigation related to the Commerce Clause.

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• Updated Sidebar 6.4 with information about the kinds of acts that can jeopar-
dize tax-exempt status.
• Updated Sidebar 6.7 with an example from the 2020 Superbowl and a FCC fine
involving Jimmy Kimmel.
• Updated Sidebar 6.9 with a new case involving the First Amendment and a rap artist.
• Updated Sidebar 6.10 with new 2020 label on cigarette packaging and issues
related to vaping.
• Updated Sidebar 6.12 regarding the Second Amendment.
• Updated information about the Oberfeld case.
• Clarified information about the levels of scrutiny.
PART TWO
Chapter 7 Property
• Updated Sidebar 7.4 to address recent Supreme Court case on intangible
property.
• Updated Sidebar 7.5 to address current drone use and include current references.
• Added new Case 7.1 Briggs v. Southwestern Energy Prod. Co. and commentary
in the text, replacing Coastal Oil v. Garza.
• Added Sidebar 7.9 on property rights impact of light, odor and noise.
• Added Sidebar 7.10 discussing how property restrictions contribute to sustainability.
Chapter 8 Contract Formation
• Added Sidebar 8.7, Overcharging into Invalidity to address contractual issues
related to price gouging.
• Updated Sidebar 8.8 to reflect new legislation regarding non-compete covenants.
• Added Sidebar 8.9 to address truth in sustainability advertising and greenwashing.
Chapter 9 Contract Performance and Breach
• Replaced Sidebar 9.1 to more broadly address the judge’s role in interpreting
contracts and highlight recent case.
• Added section on Force Majeure clauses as excuses for non-performance.
• Added Sidebar 9.4 to address when a global pandemic will be considered a
Force Majeure.
Chapter 10 Torts
• Added a definition for business invitee.
• Revised Trespass section to distinguish trespass from business invitee.
• Added new marginalia about defamation on web pages that allow comments.
• Added new marginalia describing 2019 defamation claim filed against Amazon’s
Jeff Bezos.
• New Sidebar 10.2 addressing Section 230 of the Communications Decency Act
and Trump Administration Executive Order.

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• Included discussion about manipulation of audio or visual files as potential mis-

appropriation concern.
• Revised Sidebar 10.6 updating medical malpractice claims.
• Condensed Case 10.4 for readability.
• Replaced Sidebar 10.11 describing the increase in billion dollar jury verdicts.

Chapter 11 Intellectual Property

• Revised Sidebar 11.1 to include discussion of 2018 Nobel Prize winner Paul
Romer’s work.
• Added Sidebar 11.3 on the role of trade secrets in international trade relations,
particularly with China.
• Updated text on trade secrets to include current UTSA adoptions.
• Added Sidebar 11.6 to address whether artificial intelligence (AI) can be an
inventor on a patent.
• Added Sidebar 11.8 to discuss sharing intellectual property related to the
COVID-19 pandemic as an emergency response.
• Revised Sidebar 11.10 to address Matal v. Tam and Iancu v. Brunetti cases and
cross reference Case 3.1.
• Added Sidebar 11.13 to discuss Public Domain Day and the expiration of copy-
right on a new set of works.
• Added new Case 11.4 Skidmore v. Led Zeppelin and commentary in the text,
replacing Campbell v. Acuff Rose.
• Added Sidebar 11.14 concerning two recent Supreme Court cases that address
state copyright ownership and infringement.

Chapter 12 International Law

• Updated Figure 12.1, Top Ten Trading Partners, with 2019 year-end data.
• Updated Sidebar 12.1 with current information from Transparency Interna-
tional, including new commentary about corruption and inequality.
• Updated Sidebar 12.3 with new FCPA prosecutions.
• Updated marginalia with new information about export controls.
• Added a new example of a $1 billion fraud scheme involving fraudulently
obtained funds and money laundering.
• Updated the text and Table 12.2 to reflect the withdrawal of the United King-
dom from the EU (Brexit).
• Updated Sidebar 12.4 to focus on export violations.
• Updated Sidebar 12.5 with new information about pirate attacks.
• Updated all information about NAFTA, now known as USMCA.
• Updated Sidebar 12.9 about the top international franchises.
• Updated Sidebar 12.10 regarding Chiquita’s liability for alleged acts in Colombia.
• Updated Sidebar 12.12 regarding Chevron and Texaco’s liability for alleged acts
in Ecuador.
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Chapter 13 Criminal Law

• Made general chapter updates, including the chapter introduction. Updates
include the Wells Fargo $3 billion criminal fine and marginalia regarding incar-
ceration in the United States.
• Revised Sidebar 13.1 to add potential fraud related to COVID-19.
• Updated information about the grand jury process.
• Updated Sidebar 13.2 with additional information regarding the death of Bernard
Ebbers who was incarcerated for fraud at WorldCom.
• Added new material to Sidebar 13.5 about checking identification and the case
Kansas v. Glover.
• Updated Sidebar 13.6 with additional information about Bernie Madoff.
• Updated Sidebar 13.7 and added more examples of fraud schemes.
• Case 13.1 added a note about Carpenter v. U.S. involving searches and cell phones.
• Case 13.2 added updated information about Jeffrey Skilling.
• Updated Sidebar 13.8 with new information about preventing identity theft.
• Updated Sidebar 13.9 with new information about the Department of Justice
priorities related to false claims act cases
• Updated Sidebar 13.12 with new information about the post-prison life of Don
Blankenship.
• Replaced Sidebar 13.13 with a new example involving the prosecution of execu-
tives at the New England Compounding Center.
Chapter 14 Business Organizations
• Revised Taxation overview to include information about the 2017 Tax Cuts and
Jobs Act.
• Added Sidebar 14.2 to provide detail of changes that Tax Cuts and Jobs Act
made to corporate tax rates.
• Revised Trends in Managing the Organization to describe increasing emphasis
on sustainability.
• Added new Case 14.2 Marchand v. Barnhill and commentary in text, replacing
FCC v. AT&T.
• Revised Trends in Managing the Organization to discuss how businesses are
dealing with remote workspaces.
PART THREE
Chapter 15 Regulatory Process
• Updated Sidebar 15.2 examining the unique structure of the Consumer Finan-
cial Protection Bureau to include 2018 D.C. Circuit Court opinion.
• Added marginalia concerning FTC request for information from big tech
companies.
• Replaced Case 15.1 with Free Lucia v. SEC highlighting the authority of admin-
istrative law judges in federal agencies.
• Added Key Points for Case 15.1.
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Chapter 16 Antitrust Regulation

• Added new Case 16.1 Prosterman v. American Airlines and commentary in text,
replacing U.S. v. Apple.
• Added Sidebar 16.2, addressing debate regarding whether Big Tech firms are
monopolists.
• Added new Case 16.3, Apple v. Pepper, and commentary in text, replacing
Kolon Industries v. E.I. Dupont De Nemours.
• Updated Figure 16.3 on criminal antitrust fines (2008-2019).
Chapter 17 Financial and Securities Regulation
• Updated marginalia with quote concerning capital formation trends.
• Replaced Case 17.1 with Lorenzo v. SEC in which the Supreme Court addressed
Rule 10b-5 liability.
• Added Key Points for Lorenzo v. SEC.
• Added reference to Case 17.1 in discussion of PSLRA.
• Updated number of filings of securities claims against foreign companies with
2019 data.
• Update Table 17.2 with data from 2010-2019.
• Added new marginalia providing link to the 2019 PCAOB five-year strategic plan.
• Updated Dodd-Frank whistleblower discussion with Supreme Court’s 2018 deci-
sion in Digital Realty Trust, Inc. v. Somers.
• Added findings from 2019 SEC crowdfunding study under the JOBS Act.
• Added Figure 17.1 demonstrating the geographical distribution of crowdfunding
offerings.
Chapter 18 Privacy and Consumer Protection
• Added new Case 18.1 Carpenter v. United States and commentary in text,
replacing In re Zynga.
• Added Sidebar 18.2 discussing the possible exchange of privacy rights for
increased protection and security during a crisis.
• Updated Sidebar 18.3 discussing the development and impact of the GDPR.
• Added discussion of 2018 Economic Growth, Regulatory Relief and Consumer
Protection Act that revised system for credit freezes and fraud alerts.
Chapter 19 Environmental Regulation and Resource Sustainability
• Updated Learning Objective 19-4 to reflect 21st century sustainability issues.
• Updated NEPA discussion to include 2020 proposed rule limiting its impact.
• Updated data regarding international air quality rankings.
• Changed the title of Table 19.1 to better reflect its contents.
• Replaced marginalia with Supreme Court’s 2020 Clean Water Act decision in
County of Maui v. Hawaii Wildlife Fund.
• Updated Superfund cleanup discussion with Supreme Court’s 2019 case Atlan-
tic Richfield v. Christian.

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• Changed the final section title to Sustainability Approaches to better reflect

updated contents.
• Reorganized discussion of the Kyoto Protocol as a precursor to the Paris Agree-
ment and updated the Paris Agreement discussion.
• Added discussion about government and business leaders around the world
engaging in new actions to preserve the environment and promote jobs, such as
education and ecotourism.
PART FOUR
Chapter 20 Employment Discrimination
• Updated marginalia and added additional information to the text, including the
McDonald’s sexual harassment class action.
• Updated Figure 20.1 EEOC data.
• Updated Sidebar 20.3 with new material about concerns related to COVID-19.
• Updated Sidebar 20.4 with additional examples about religious accommodation
claims related to Muslims.
• Updated Sidebar 20.5 with additional information about the many forms of sex-
ual harassment for women in the workplace.
• Updated Sidebar 20.6 with information about #MeToo and the unintended con-
sequences and backlash in the workplace.
• Updated Sidebar 20.7 information about pregnancy discrimination claims and
added more information about the Young v. UPS case.
• Updated Sidebar 20.9 with information about cases brought in the U.S. Supreme
Court involving LGBT discrimination.
• Updated Sidebar 20.10 with a case involving age discrimination at PwC.
• Updated Sidebar 20.11 with additional examples.
Chapter 21 Employment Laws
• Updated minimum wage information and added statistics on COVID-19
unemployment.
• Updated Sidebar 21.1 with the FLSA overtime rules and new examples.
• Updated Sidebar 21.2 with information about the department of Labor’s new
primary beneficiaries test for internships.
• Updated Sidebar 21.4 FMLA statistics information.
• Added an example to Sidebar 21.9 about OSHA’s severe violator program.
• Updated Sidebar 21.10 with information about Families First Coronavirus
Response legislation.
Chapter 22 Labor–Management Relationship
• Updated Table 22.1 with statistics on union membership.
• Updated Sidebar 22.1 with information on union membership.
• Replaced Sidebar 22.2 with details of three Trump Administration Executive
Orders.

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• Replaced Sidebar 22.5 with information about Kickstarter, the first technology
company to unionize.
• Update statistics regarding state right-to-work laws.

Authorship Team
One of the strengths of this text is its continuity of authorship and the coordina-
tion among the authorship team. Marisa Pagnattaro, who joined the team on the
fourteenth edition, continues to lead the authorship team. Dan Cahoy (who began
on the sixteenth edition) and Julie Manning Magid (who joined on the seventeenth
edition) have played a significant role in shaping this edition. Peter Shedd, who has
long been a steward of the text, joined the book as a co-author on the eighth edition
in 1990. Although he is no longer part of the authorship team, we want to recognize
Lee Reed who joined the team in 1977 on the fourth edition.

Acknowledgments
We want to thank a number of people who contributed to the nineteenth edition. We
greatly appreciate the efforts of our team at McGraw-Hill, especially Tim Vertovec and
­Kathleen Klehr. We greatly appreciate their support of the authorship team and the
continued development of new electronic features of the text. We are also grateful to
all of the regional sales team representatives for their enthusiastic marketing support.
The following colleagues gave of their time and provided insight during the
review process. For their expert comments and suggestions, we are most grateful.

Perry Binder Georgia State University

Aaron Butler Warner Pacific College
Elizabeth Cameron Alma College
Amy Chataginer Mississippi Gulf Coast Community College
Marsha Cooper California State University, Long Beach
Joe Easton Pueblo Community College
Mark Edison North Central College
Howard Ellis Millersville University of Pennsylvania Jackson
Ken Ginsberg Hodges University
Earl Clayton Hipp Jr. Wake Forest University
Johndavid Kerr Harris-Stowe State University
Michael Koval Salisbury University
Sharlene McEvoy Fairfield University
Michael Monhollon Hardin-Simmons University
Nancy Oretskin New Mexico State University
David Orozco Florida State University

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Susan O’Sullivan-Gavin Rider University

Victor Parker University of North Georgia
Matthew Phillips Wake Forest University
Debra Strauss Fairfield University
Byron Stuckey Dallas Baptist University
Lee Usnick University of Houston, Downtown
Mary-Kathryn Zachary University of West Georgia
Benjamin Akins Georgia Gwinnett College School of Business
Dr. Christy Ann Powers St. Petersburg College
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704 Appendix I

in its decision; also to ask a higher court to review Procedural History This case was brought
Business Law
(decide) Case Repository
the case. as a class action in the U.S. District Court for the Central
dissent To disagree with both the result and the legal District of California, claiming (among other things) that
The Case Repository is a collection
reasoning of the majority opinion. Spokeo willfully failed to comply with the requirements
of cases from previous editions and
opinion The court’s decision in a case. of the Fair Credit Reporting Act. The District Court ini-
the current edition, accessible and tially denied Spokeo’s motion to dismiss the complain
assignable in Connect.
petitioner Cases
The losing can
party in the court of appeals
for lack of jurisdiction. Upon reconsideration of the
who asks
be selected based(i.e.,on“petitions”)
Topic, Type, the orSupreme Court to
motion, the district court dismissed the complaint with
State. decide whether the lower court made a mistake. prejudice holding that Robins had not properly pleaded
respondent The prevailing party in the court of “injury in fact.”
appeals who is responding to the petitioner. The Court of Appeals for the Ninth Circuit reversed,
reversed What an appeals court says when it dis- holding that Robins adequately alleged an injury in fact.
agrees with the court beneath it. If it agrees with the The case was then appealed to the U.S. Supreme Court.
lower court, it says “affirmed.”
Issue Appealed The key issue on appeal was:

CASE BRIEF Case

1. Whether Brief
Robins had standing to maintain an action
in federal court against Spokeo under the Fair Credit
Spokeo, Inc. v. Robins, 578 U.S. __ (2016). CaseAct.
Reporting Briefs, found in the Instructor
How do I read this citation? Resources, contain a brief of each
Who Wins
editedand
case Why?
found in the text. For ease
∙ “Spokeo, Inc.” refers to the petitioner.
of the
1. In that use, the briefs
Supreme Courtare numbered
held by Circuit
that the Ninth
∙ “v” means versus or against. failedchapter
to consider
in theboth aspects
order theyofappear
the injury-in-fact
in
∙ “Robins” refers to the respondent. requirement
the text.and,
Caseas such,
Briefsitsoffer
standing analysis was
additional
∙ 578 is the volume number of the official U.S. Supreme incomplete, Spokeolike
information prevailed.
the Facts, the Issue,
Court Reporter, and __ refers to the page number 2. The Supreme
the Decision, vacated
Court, and the theReasoning,
Ninth Circuitfor
decision
where the case begins (once it is assigned a page num- and remanded
each case. the case back to the district court.
ber). The date, 2016, is the year the case was decided.
What Does This Mean? Overall, this case
Facts Thomas Robins discovered that his Spokeo- was a narrow victory for Spokeo, but the case is not over. By
generated profile contained inaccurate information. Spokeo remanding the case back to the lower court, it allows Robins
Quizzes
Inc. describes itself as a “people search engine,” which another chance to allege injury in fact. If he can success-
organizes public information from white pages, public fully demonstrate the kind of injury necessary to support
Quizzes
records,are
andavailable for each
social networks. chapter
Robins contended that the his claim, he could prevail in the long run. Many watch-
andinformation
test students’ overall
indicated that comprehen-
he was wealthy, married with ing the case hoped for a clear ruling from the Supreme
sion of theand
children, concepts presented
worked in in the
a professional or technical field. He Court that would define the parameters for lawsuits
chapter.
contended that the inaccuracies could make it seem that he based on violation of statutes such as the Fair Credit
is overqualified for employment positions he was seeking, Reporting Act.
or could suggest that he might want a salary higher that the
position, or that he might be unwilling to relocate. Source: Spokeo, Inc. v. Robins, 578 U.S. __ (2016)

Test Bank
Instructors can test students’ mastery of concepts as the instructors create exams with the use of
this Test Bank. Organized by chapter, the Test Bank contains multiple-choice, true/false, and essay
questions. Many of the questions have been modified to correspond with the text’s revision. Answers
immediately follow each question, along with corresponding Learning Objectives.

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Learning Objectives
Learning Objectives are included
at the beginning of each chapter.
These objectives will act as a helpful

2
road map of each chapter, narrow-
ing the focus of each topic for both
instructor and students. You will
also find these Learning Objectives
tagged for every test bank question
to ensure that key points from each Michael Hitoshi/Getty Images

chapter are covered in every quiz

and exam.
Confirming Pages The Role of Ethics
in Decision Making
CHAPTER 2 The Role of Ethics in Decision Making 51

sidebar 2.8 Learning Objectives

Marginalia
The Swedish Example of Lagom In this chapter you will learn:
In the margins, each chapter
and parental leave-taking during a child’s first year. When
The Swedes have a strong property-based private mar-
Swedish companies go overseas, they treat employees
ket, but the business emphasis in Sweden is not solely on 2-1 To consider ethical challenges facing business in the 21st century.
includes notes, points ofthereemphasis,
with much of the same ethic as in Sweden.
profit making. Instead, the Swedes have a strong ethic of
Lagom means that there are few wealthy Swedes,
lagom, which means “not too much, not too little, but just 2-2 To compare the connection between law and ethical principles.
enough.”
definitions, quotes, anddepends
recom-
and Sweden’s social welfare system of “just enough”
on a tax rate of approximately twice that in the
As a result, the pay of corporate chief executive 2-3 To analyze why ethical consequentialism and not ethical formalism has
mendations about whatUnited tocountry
dowhose citizens share a common ethical
States. Note also that Sweden is a small, homog-
officers (CEOs) is only a small fraction of what it is in the
enous
United States, and the average take-home pay of employ-
been the chief source of values for business ethics.

and what to avoid. culture that is often not found in larger nations.
ees (excluding CEOs) varies from highest to lowest by
a ratio of only 3 to 1. Sweden provides universal health Source: Susan Wennemyer, “Sweden: The Kindness Economy,” Business Ethics,
2-4 To generate an individual framework for ethical values in business.
care, public nursing homes, and subsidized child care Fall 2003.
2-5 To evaluate the obstacles and rewards of ethical business practice in our
property-based legal system.

Does the emphasis on profit in a property-based private market mean that only Don’t forget that a
profit must be considered in business decision making? For an example of a nation nation is just a large
where not only profit is important in business, see Sidebar 2.8. group. This means that
“culture matters” in the
The Effect of the Group The social critic Ambrose Bierce once remarked implementation (or not)

Do understand that an
that the corporation is “an ingenious device for obtaining individual profit without of moral values.
individual responsibility.” He was referring to the fact that individuals in large groups
such as the corporation feel less responsibility for what happens in the group than
they do for what happens in their individual lives. They may also act differently, and
pag34285_ch02_026-059.indd 26
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to some extent less ethically, in a group.

Ambrose Gwinnett Bierce (1842 – 1914) by 38 states through leg-
That individuals will do unethical things as part of a group which they would
never do alone is widely recognized, and the same pattern can be observed in cor-
“Study after study con-
firms it: the vast majority islative action or by a con-
stitutional convention. The
of people act based on
porate behavior. Within corporations, it becomes easy for a researcher not to pass the circumstances in
on lately discovered concerns about the possible (yet not certain) side effects of a their environment and
new skin lotion that upper management is so enthusiastic about. In corporate life,
it is not difficult to overlook the unethical behavior of a superior when many fellow
the standards set by
their leaders and peers,
United States has never
employees are also overlooking it. And of course, “I did it because everyone else did
it” is a common rationalization in groups of all kinds. “Just following orders” is a
even if it means com-
promising their personal
held a convention for the
similar rationalization.
That individuals in groups may feel a diminished sense of responsibility for deci-
moral ideals. ‘Good’ peo-
ple do bad things if they
purposes of amending the
sions made and actions taken invites ethical compromise. Coupled with an over-
emphasis on profit, the group effect increases the difficulty of achieving an ethical
are put in an environ-
ment that doesn’t value Constitution.
values, if pressured to
business corporation. believe that they don’t
have any choice but
The Control of Resources by Nonowners In the modern corporation, to get the job done—
the owners (or shareholders) are often not in possession and control of corporate whatever it takes.”
resources. Top management of many corporations effectively possess and control –Ethics Resource
vast resources that they do not own. This produces the problems of corporate gov- Center (2008)
ernance mentioned in Chapter 1. Managerial agents like the president and vice

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44 PART 1 Introduction: Legal Foundations for Business
sidebar 2.5
American Marketing Association Statement of Ethics
PREAMBLE
The American Marketing Association commits itself to pro-
moting the highest standard of professional ethical norms
and values for its members (practitioners, academics and
students). Norms are established standards of conduct that
are expected and maintained by society and/or profes-
sional organizations. Values represent the collective con-
ception of what communities find desirable, important and
morally proper. Values also serve as the criteria for evaluat-
ing our own personal actions and the actions of others. . . .
ETHICAL VALUES
Honesty—to be forthright in dealings with customers and
stakeholders. To this end, we will:
• Strive to be truthful in all situations and at all times.
• Offer products of value that do what we claim in our
communications.
• Stand behind our products if they fail to deliver their
claimed benefits.
• Honor our explicit and implicit commitments and
promises.
Responsibility—to accept the consequences of our
marketing decisions and strategies. To this end, we will:
• Strive to serve the needs of customers.
• Avoid using coercion with all stakeholders.
• Acknowledge the social obligations to stakeholders that
come with increased marketing and economic power.
• Recognize our special commitments to vulnerable
market segments such as children, seniors, the eco-
nomically impoverished, market illiterates and others
who may be substantially disadvantaged.
• Consider environmental stewardship in our
decision-making.
Fairness—to balance justly the needs of the buyer with
the interests of the seller. To this end, we will:
• Represent products in a clear way in selling, advertis-
ing and other forms of communication; this includes
the avoidance of false, misleading and deceptive
promotion.
• Reject manipulations and sales tactics that harm cus-
tomer trust.
• Refuse to engage in price fixing, predatory pricing,
price gouging or “bait-and-switch” tactics.
• Avoid knowing participation in conflicts of interest.
pag34285_ch02_026-059.indd 44
Concept Summary
At appropriate points in each chap-
ter, a summary of the preceding
material appears. Through these
summaries, complex and lengthy
presentations are easily reviewable
by the reader.
pag34285_fm_i-lx.indd xxi
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Sidebars
• Seek to protect the private information of customers,
Examples or further descriptions
employees and partners.
Respect—to acknowledge the basic human dignity of all
are separated from the text into
stakeholders. To this end, we will:
• Value individual differences and avoid stereotyping
boxes labeled Sidebars. As in the
customers or depicting demographic groups (e.g.,
gender, race, sexual orientation) in a negative or
courtroom setting, when a judge
dehumanizing way.
• Listen to the needs of customers and make all rea-
calls for a conversation with the
lawyers away from the jury, these
sonable efforts to monitor and improve their satisfac-
tion on an ongoing basis.
• Make every effort to understand and respectfully
treat buyers, suppliers, intermediaries and distribu- boxes are sidebars to the overall
tors from all cultures.
• Acknowledge the contributions of others, such as discussion. Through these side-
consultants, employees and coworkers, to marketing
endeavors. bars, the text is explained in more
detail or is brought to life with a
• Treat everyone, including our competitors, as we
would wish to be treated.
Transparency—to create a spirit of openness in marketing
operations. To this end, we will: business-related example.
• Strive to communicate clearly with all constituencies.
• Accept constructive criticism from customers and
other stakeholders.
• Explain and take appropriate action regarding signifi-
cant product or service risks, component substitutions
or other foreseeable eventualities that could affect cus-
tomers or their perception of the purchase decision.
• Disclose list prices and terms of financing as well as
available price deals and adjustments. Confirming Pages
Citizenship—to fulfill the economic, legal, philanthropic
and societal responsibilities that serve stakeholders. To this
end, we will:
• Strive to protect the ecological environment in the
execution of marketing campaigns.
• Give back to the community through volunteerism CHAPTER 1 The Role of Ethics in Decision Making 49
and charitable donations.
• Contribute to the overall betterment of marketing When you are convinced that a law itself is morally wrong, you may be
and its reputation. justified in disobeying it. Even then, to be ethical, you should be willing to
• Urge supply chain members to ensure that trade make is public your disobedience and to accept the consequences for it. Both
fair for all participants, including producers in devel-
Mohandas Gandhi and Martin Luther King Jr. deliberately disobeyed laws
oping countries.
they thought were morally wrong, and they changed society by doing so. Ulti-
Source: AMA Statement of Ethics, published at https://www.ama.org/. Repro-mately, they changed both
laws and ethics. But they made their disobedience
duced with the permission of the American Marketing Association. to these laws public, and
they willingly accepted punishment for violating
them. Dr. King famously wrote about his decision to disobey a law that he
evaluated as unjust as he accepted the consequences of that decision in “Letter
from a Birmingham Jail.”
Leading an ethical business life may be difficult at times. You will make mis-
takes. You will be tempted. It is unlikely that you will be perfect. But if you want to
be ethical and will work hard toward achieving your goal, you will be rewarded. As
with achieving other challenging business objectives, there will be satisfaction in
ethical business decision making.
07/10/20 10:06 PM
concept summary
Self-Examination for Self-Regulation
• Have I thought about whether the action I may take is • Am I willing for everyone to act as I am thinking of acting?
right or wrong?
• Will I be proud to tell of my action to my family? To my
• Will my decision cause harm to others or to the
environment?
employer? To the news media? • Will my actions violate the law?
In business as well as in personal life, the key to ethical decision making is
wanting to be ethical and having the will to be ethical. If you do not want to be
ethical, no code of conduct can make you ethical. Potential harm you may cause
to individuals and to society will best be deterred by the threat of legal punishment
and the sanctions of professional and corporate codes. You may never get caught,
lose your job, or go to jail. But, as Mortimer Adler observed, you will lack “much
that is needed for the good life.”
Achieving an Ethical Business Corporation
The dominant form of organization in modern business is the corporation. The primary reason that
Currently, the top 100 manufacturing corporations produce more than two-thirds corporations dominate
of the nation’s entire manufacturing output. In 1840, the largest manufacturing firm the business landscape
in the United States, the Springfield Armory, employed only 250 workers. Today, is that their ownership
many corporations have tens of thousands of employees. Some have hundreds of is divisible into small
shares that make them
thousands. In substantial part, the development of the corporate form of business
easily sellable.
organization made possible this growth in business size.
Ethical problems, however, arise in corporate life that are not present in one’s
individual experience. In a study of Harvard MBAs during their first five years
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Cases case 4.1

Except for the first two chapters, JULIANA v. UNITED STATES

chapters include edited portions ___ F.3d ___ (9th Cir. 2020)

of actual court decisions. These ConfirmingThe had stated a viable “danger-creation due process claim” arising
Pages panel reversed the district court’s interlocutory orders
in this action which was brought by 21 individual plaintiffs from the government’s failure to regulate third-party emissions.

cases illustrate the parties’ argu-

(all young citizens) and environmental organizations against
the federal government alleging climate-change related inju-
ries caused by the federal government continuing to “permit,
ments and the judge’s decision authorize, and subsidize” fossil fuel.
of the issues. We have deleted COWEN, Circuit Judge
case 4.1 In the mid-1960s, a popular song warned that we were “on the
most of the procedural aspects, eve of destruction.” (Barry McGuire, “Eve of Destruction,”
on Eve of Destruction, Dunhill Records, 1965.) The plaintiffs
Finally, the court held that the plaintiffs had stated a public
trust claim grounded in the Fifth and Ninth Amendments. . . .
The government . . . argues that the plaintiffs lack
Article III standing to pursue their constitutional claims
To have standing under Article III, a plaintiff must have
(1) a concrete and particularized injury that (2) is caused
by the challenged conduct and (3) is likely redressable by a
favorable judicial decision. . . .
[After expressing skepticism that the first redressability

citations, and footnotes. An

JULIANA v. UNITED STATES
___ F.3d ___ (9th Cir. 2020)
alternative to these edited cases
The panel reversed the district court’s interlocutory orders had stated a viable “danger-creation due process claim” strophic
appears in some
was brought bysidebars;
21 individual plaintiffsthere
in this action which
from the government’s failure to regulate third-party emissions.
(all young citizens) and environmental organizations against Finally, the court held that the plaintiffs had stated a public
a case may be explained in ourThe government . . . argues that the plaintiffstheir
the federal government alleging climate-change related inju- trust claim grounded in the Fifth and Ninth Amendments.
ries caused by the federal government continuing to “permit,
own language.
authorize, and subsidize” fossil fuel. Article III standing to pursue their constitutional mate
To have standing under Article III, a plaintiff mustissue
COWEN, Circuit Judge
In the mid-1960s, a popular song warned that we were “on the
eve of destruction.” (Barry McGuire, “Eve of Destruction,”
on Eve of Destruction, Dunhill Records, 1965.) The plaintiffs
in this case have presented compelling evidence that climate
change has brought that eve nearer. A substantial evidentiary
record documents that the federal government has long pro-
moted fossil fuel use despite knowledge that it can cause cata-
strophic climate change, and that failure to change existing
policy may hasten an environmental apocalypse.
The plaintiffs claim that the government has violated
their constitutional rights, including a claimed right under
the Due Process Clause of the Fifth Amendment to a “cli-
mate system capable of sustaining human life.” The central
issue before us is whether, even assuming such a broad
constitutional claim exists, an Article III court can provide
plaintiffs with the redress they seek—an order requiring the
government to develop a plan to “phase out fossil fuel emis-
sions and draw down excess atmospheric CO2.” Reluctantly,
we conclude that such relief is beyond our constitutional
power. Rather, the plaintiffs’ impressive case for redress
must be presented to the political branches of government.
The district court denied the government’s motion to dis-
miss, concluding that the plaintiffs had standing to sue, raised
justiciable questions, and stated a claim for infringement of a
Fifth Amendment due process right to a “climate system capa-
ble of sustaining human life.” The court defined that right as
one to be free from catastrophic climate change that “will cause
human deaths, shorten lifespans, result in widespread damage
to property, threaten food sources, and dramatically alter the
planet’s ecosystem.” The court also concluded that the plaintiffs
in this case have presented compelling evidence that climate prong is satisfied, the court stated] even assuming that it is, the
change has brought that eve nearer. A substantial evidentiary plaintiffs do not surmount the remaining hurdle--establishing
record documents that the federal government has long pro- that the specific relief they seek is within the power of an Arti-
moted fossil fuel use despite knowledge that it can cause cata- cle III court. There is much to recommend the adoption of a
arising climate change, and that failure to change existing
comprehensive scheme to decrease fossil fuel emissions and
policy may hasten an environmental apocalypse.
combat climate change, both as a policy matter and in general
The plaintiffs claim that the government has violated and a matter of national survival in particular. But it is beyond
. . .constitutional rights, including a claimed right under
thelack
Due Process Clause of the Fifth Amendment to a “cli-
the power of an Article III court to order, design, supervise, or
implement the plaintiffs’ requested remedial plan. . . .
claimssystem capable of sustaining human life.” The central
havebefore us is whether, even assuming such a broad
The plaintiffs have made a compelling case that
action is needed; it will be increasingly difficult in light
(1) a concrete and particularized injury that (2) is causedconstitutional claim exists, an Article III court can provide of that record for the political branches to deny that cli-
by the challenged conduct and (3) is likely redressable plaintiffs
by a with the redress they seek—an order requiring the mate change is occurring, that the government had a role
favorable judicial decision. . . . government to develop a plan to “phase out fossil fuel emis- in causing it, and that our elected officials have a moral
sions and draw down excess atmospheric CO2.” Reluctantly,
[After expressing skepticism that the first redressability responsibility to seek solutions. We do not dispute that
prong is satisfied, the court stated] even assuming that itwe conclude that such relief is beyond our constitutional
is, the the broad judicial relief that plaintiffs seek could well goad
power. Rather, the plaintiffs’ impressive case for redress
plaintiffs do not surmount the remaining hurdle--establishing the political branches to action. . . . We reluctantly con-
must
that the specific relief they seek is within the power of an Arti-be presented to the political branches of government. clude, however, that the plaintiffs’ case must be made to the
cle III court. There is much to recommend the adoption ofThe a district court denied the government’s motion to dis- political branches or to the electorate at large, thee latter of
comprehensive scheme to decrease fossil fuel emissions miss,
and concluding that the plaintiffs had standing to sue, raised which can change the composition of the political branches
justiciable questions, and stated a claim for infringement of a
combat climate change, both as a policy matter and in general through the ballot box. That the other branches may have
Fifth Amendment due process right to a “climate system capa-
and a matter of national survival in particular. But it is beyond abdicated their responsibility to remediate the problem
ble oforsustaining human life.” The court defined that right as
the power of an Article III court to order, design, supervise, does not confer on Article III courts, no matter how well-
implement the plaintiffs’ requested remedial plan. . . . one to be free from catastrophic climate change that “will cause intentioned, the ability to step into their shoes. . . .
The plaintiffs have made a compelling casehuman that deaths, shorten lifespans, result in widespread damage
action is needed; it will be increasingly difficult into lightproperty, threaten food sources, and dramatically alter the *Note: On March 3, 2020, the plaintiffs filed a petition for rehearing, asking the
of that record for the political branches to deny that planet’s
cli- ecosystem.” The court also concluded that the plaintiffs Ninth Circuit to hear the matter en banc.
mate change is occurring, that the government had a role
in causing it, and that our elected officials have a moral
responsibility to seek solutions. We do not dispute that
the broad judicial relief that plaintiffs seek could well KEY
goad POINTS
the political branches to action. . . . We reluctantly con-
clude, however, that the plaintiffs’ case must be made•to To themaintain a lawsuit, a plaintiff must have standing or a legally cognizable claim and the
political branches or to the electorate at large, thee lattercourtof must have the authority to hear the matter.
which can change the composition of the political branches • The Ninth Circuit found that the court lacked Article III standing.
through the ballot box. That the other branches may • have
Accordingly, the case was remanded with instructions to dismiss the case for lack of
abdicated their responsibility to remediate the problem Article III standing.
does not confer on Article III courts, no matter how well-
Case Icon: McGraw-Hill Education.
intentioned, the ability to step into their shoes. . . .
*Note: On March 3, 2020, the plaintiffs filed a petition for rehearing, asking the
Ninth Circuit to hear the matter en banc.

KEY POINTS
• To maintain a lawsuit, a plaintiff must have standing or a legally cognizable claim and the
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court must have the authority to hear the matter.

• The Ninth Circuit found that the court lacked Article III standing.
• Accordingly, the case was remanded with instructions to dismiss the case for lack of
At the end of each edited case,
Article III standing.
Case Icon: McGraw-Hill Education.
key points can be found. These
key points help students gasp
the essential elements and rel-
evance of each case.
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Review Questions and Problems

Review Questions and
Litigation—An Overview
1. Parties
A building contractor is sued by homeowners alleging that their homes were poorly
Problems
Following the text of each chap-
constructed resulting in several defects. The contractor adds to the lawsuit a build-
ing supplier that it claims provided faulty support beams. How can the contractor

ter is a series of questions and

add the building supplier as a party to the lawsuit? What is this procedure called
and how does it work?

problems. These are tied to the

2. Standing to Sue
A group of environmentalists filed a lawsuit challenging commercial fishing in Gla-
cier Bay National Park and sued the secretary of the interior and the National Park
Service in order to prevent more commercial fishing. sections of each chapter and
(a) What must the environmentalists show in order to satisfy the requirement of
standing to sue in this case?
serve as an overview of the
(b) At what point should the issue of standing be decided by the court during the
course of litigation?
material covered.
3. Personal Jurisdiction
Smith, a resident of Michigan, was in Florida for a business meeting where he was
served with a divorce petition filed by his wife, who had moved to Florida recently.
Smith objected to the Florida court’s exercise of personal jurisdiction. What is the
basis of Smith’s objection? Should he prevail? Why or why not?
4. Class-Action Suits
How have the federal courts discouraged class-action lawsuits? What are the key
requirements for federal courts to permit class-action suits?
Pretrial Procedures
5. Pleadings
Confirming Pages
Describe the purpose of a complaint and an answer in civil litigation. What is the
function of the pleading stage in a lawsuit?
6. Steps in Discovery
(a) Why do surprises rarely occur at trial?
(b) What are some of the key devices a litigant can use in discovery?
7. Scope of Discovery 12. Burden of Proof
How do abusive discovery practices raise the cost of litigation? There are three distinct levels of proof required by law depending upon the kind of
8. Motions case involved. Describe them and when they are used.
Under what circumstances may a court grant a motion for summary judgment? 13. Deciding the Case
9. Frivolous Cases Under what circumstances should a judge enter a judgment notwithstanding the
verdict?
Federal Rule 11 sanctions are available against both lawyers and their clients to
curb frivolous litigation. Under what circumstances may sanctions be imposed? Posttrial Issues
The Trial 14. Appeals
10. Jury Selection What normally is contained in an appellate brief? An oral argument?
In light of recent court decisions restricting the use of peremptory challenges, 15. Enforcement of Judgments and Decrees
should they be eliminated from litigation altogether? Would the elimination of How does the court enforce judgments?
peremptory challenges improve the efficiency of the trial process? 16. Res Judicata
11. Other Steps during a Trial Why is the notion of res judicata critical in civil litigation?

Expanded Business
What is the purpose of jury instructions?

business discussions
Discussions 115
1. You are the manager of a used car firm known as Reliant Motor Company. Your lawyer
has called to tell you that John Doe, a customer you have been dealing with for several

The last item in each chapter is months, has filed a lawsuit against the firm. The customer claims the vehicle he purchased
is a lemon and no longer even operates. You knew the vehicle was not in the best of condi-

a scenario designed to stimulate

tion at the time of sale, but you believe the buyer caused most of the problems by taking
the vehicle “off road” several times. You are not looking forward to discovery or trial in this

conversation among students,

pag34285_ch04_086-117.indd 115 09/04/20 04:45 PM case. You have several questions.
• How does discovery work?

allowing them to review and

• Can you be required to testify twice in a deposition and at trial?
• Should you shred all documents you have about this case? You know that some of the

apply the material within the

documents will not put the firm in the best light.
You wonder what will happen at trial. Will it be like what you have seen on TV or in the

chapter.
movies?
2. You are the owner of a small firm that manufactures lawn mowers. While using one of
your products, a person suffers severe injury and now is suing, claiming that your product
was negligently designed because it did not adequately protect the user. You have no
experience with the legal system. You learn that lawyers charge as much as $250 per hour
and must be paid whether they win or lose their cases. You are surprised at what must
happen before a trial can occur to determine who is at fault. First, your lawyer may move
to dismiss the case on jurisdictional grounds. If that fails, both sides will take costly deposi-
tions of likely witnesses. You will have to turn over reams of internal documents related to
the design of your mower. Each side also will have to pay several hundred dollars per hour
for experts as the lawyers prepare the case. These experts will have to be paid again when
they testify at trial. As the time for the trial approaches, each side will spend money trying
to discern the most sympathetic type of jury. Years after the lawsuit was first filed, the par-
ties will be sitting in the courtroom waiting for jury selection to begin. More money will have
been spent defending this case than the plaintiff was seeking when the lawsuit was first
filed. Many questions come to mind:

• Should you have settled the case at the beginning?

• Has your attorney been getting rich at your expense?
• Is discovery more of a burden than a help?

116

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 Once a decision of the court has become final, it is said to be res judicata (the thing
has been decided), meaning that a final decision is conclusive on all issues between
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the parties, whether raised in the litigation or not. Res judicata means either that the
case has been finally decided on appeal or that the time for appeal has expired and
a cause of action finally determined by a competent court cannot be litigated by the
parties in a new proceeding by the same court or in any other court. Res judicata
prevents successive suits involving the same factual setting between the same parties
and brings disputes to a conclusion. A matter once litigated and legally determined
is conclusive between the parties in all subsequent proceedings.
Ideally, companies will avoid litigation. See Sidebar 4.18 for practical tips to
prevent lawsuits.

sidebar 4.18
How Do You Prevent a Lawsuit in Your Firm?
• Make sure supervisors and managers have access to
legal counsel and use it before small issues explode
into major disputes.
• Encourage teambuilding and development of coop-
erative relationships in the workplace.
• Develop internal mechanisms for resolving disputes.
• Perform regular audits to ensure compliance with
legal rules and best practices.
• Require legal analysis of major decisions under
consideration.

Key Terms Key Terms

A list of critical words or phrases is
Affidavits 100 Directed verdict 106 Petitioner 110
Answer 96 Discovery 97 Plaintiff 88

found at the end of each chapter.

Appellant 110 Execution 113 Pleadings 95
Appellee 110 Extradition 92 Preponderance of evidence 108

These terms are boldfaced in the text,

Beyond a reasonable doubt 107 Garnishment 113 Request for an admission 98
Brief 111 Interrogatories 97 Request for production of

and definitions are repeated in the

Burden of proof 107 Judgment 109 documents 97
Class-action suit 92 Judgment notwithstanding the Res judicata 114

glossary.
Clear and convincing proof 108 verdict 109 Respondent 110
Complaint 95 Judgment on the pleadings 100 Standing to sue 89
Counterclaim 88 Jury instructions 107 Statute of limitations 100
Counterdefendant 89 Long-arm statutes 91 Summary judgment 100
Counterplaintiff 89 Motion 100 Summons 91
Default 96 Oral argument 111 Third-party defendants 89
Defendant 88 Peremptory challenges 103 Verdict 109
Depositions 98 Personal jurisdiction 91 Voir dire 102

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support materials

Instructor’s Resources Manual

This manual consists of the teaching outline. The teaching outline section makes up
the bulk of this Instructor’s Manual, which is organized by text chapter. This section
corresponds with the headings in the text and typically includes suggestions on points
of emphasis, answers to the case questions that appear within each chapter of the text,
cases for discussion, and additional matters for discussion. Each chapter of this manual
also includes a list of references that might be useful secondary sources of information
and suggested answers to all case questions and responses to the end-of-chapter review
questions.
Test Bank
Instructors can test students’ mastery of concepts as the instructors create exams with the
use of this Test Bank. Organized by chapter, the Test Bank contains multiple-choice, true/
false, and essay questions. Many of the questions have been modified to correspond with
the text’s revision. Answers immediately follow each question, along with corresponding
Learning Objectives.
PowerPoint Presentation
The PowerPoint Presentation provides detailed lecture outlines for discussing key points
and figures from the book.
Business Law Newsletter
McGraw-Hill Education’s monthly Business Law newsletter, Proceedings, is designed
specifically with the Business Law educator in mind. Proceedings incorporates “hot topics”
in business law, video suggestions, an ethical dilemma, teaching tips, and a “chapter key”
cross-referencing newsletter topics with the various McGraw-Hill Education business law
textbooks. Proceedings is delivered via e-mail to business law instructors each month.
Assurance of Learning Ready
Many educational institutions today are focused on the notion of assurance of learning,
an important element of some accreditation standards. The Legal and Regulatory
Environment of Business, 19e, is designed specifically to support your assurance of
learning initiatives with a simple, yet powerful solution.
Each test bank question for The Legal and Regulatory Environment of Business, 19e,
maps to a specific chapter learning outcome/objective listed in the text. You can use our
test bank software to easily query for learning outcomes/objectives that directly relate to
the learning objectives for your course.

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AACSB Statement
The McGraw-Hill Companies is a proud corporate member of AACSB International.
Understanding the importance and value of AACSB accreditation, The Legal and
Regulatory Environment of Business, 18e, recognizes the curricula guidelines detailed
in the AACSB standards for business accreditation by connecting selected questions in
the text and the test bank to the six general knowledge and skill guidelines in the AACSB
standards.
The statements contained in The Legal and Regulatory Environment of Business, 19e,
are provided only as a guide for the users of this textbook. The AACSB leaves content
coverage and assessment within the purview of individual schools, the mission of the
school, and the faculty. While The Legal and Regulatory Environment of Business, 19e,
and the teaching package make no claim of any specific AACSB qualification or evaluation,
we have within The Legal and Regulatory Environment of Business, 19e, labeled selected
questions according to the six general knowledge and skills areas.

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brief table of contents

PartONE Introduction: Legal Foundations for Business

1 Law as a Foundation for Business 4
2 The Role of Ethics in Decision Making 26
3 Understanding the Court System 60
4 Litigation 86
5 Alternative Dispute Resolution 118
6 The Constitution 150

PartTWO Basic Legal Principles

7 The Property System 186
8 Contract Formation 224
9 Contractual Performance and Breach 258
10 Torts Affecting Business 282
11 Intellectual Property 312
12 Global Expansion and International Law 352
13 Criminal Law and Business 380
14 Business Organizations 414

PartTHREE The Regulatory Landscape for Business

15 The Regulatory Process 450
16 Regulating Competition—Antitrust Laws 476
17 Financial and Securities Regulations 510
18 Privacy and Consumer Protection 550
19 Environmental Regulation and Resource Sustainability 582

PartFOUR The Employer—Employee Relationship

20 Employment Discrimination Laws 616
21 Employer Responsibilities and Employee Rights -Employment Laws 654
22 Labor—Management Relationship 684
Appendix I: Case Briefing and Legal Study Tips 709
Appendix II: Sample Complaint 711
Appendix III: The Constitution of the United States of America 714
Appendix IV: Selected Sections of Article 2 of Uniform Commercial Code 723
Appendix V: Selected Sections of the Sarbanes-Oxley Act of 2002 729
Appendix VI: Selected Sections of Securities Act of 1933 733
Appendix VI: Selected Sections of Securities Exchange Act of 1934 735
Glossary 737
Index 757
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table of contents

PartONE Introduction: Legal Foundations for

Business

1. Law as a Foundation for Business 4

INTRODUCTION 5

WHY LAW AND REGULATIONS ARE FUNDAMENTAL

FOUNDATIONS FOR BUSINESS 6
sidebar 1.1 Sustainability and Integrity:
Cautionary Tales of Legal Liability 6

Law, the Rule of Law, and Property 7

LAW 7
Pixtal/AGE Fotostock
THE RULE OF LAW 7

PROPERTY 8
sidebar 1.2 Lawyers in the Boardroom 9
PROPERTY IN ITS BROADEST SENSE 9
sidebar 1.3 China: The Rule of Law and Property Rights are Key 11
JURISPRUDENCE 11

Classifications of Law 12
COMMON LAW AND CIVIL LAW 12

PUBLIC AND PRIVATE LAW 13

CIVIL LAW AND CRIMINAL LAW 13

sidebar 1.4 Goldman Sachs: “Rouge” Bankers and a
$1 Billion Legal Charge 14
SUBSTANTIVE LAW AND PROCEDURAL LAW 14

Sources of Law 14
FEDERAL LAW 15

STATE LAW 15

JUDICIAL DECISIONS OR CASE LAW 15

Advantages 16
Disadvantages 16
SOURCES OF LAW HIERARCHY IN REVIEW 17

LEGAL SANCTIONS 17

SANCTIONS FOR CRIMINAL CONDUCT 18

SANCTIONS FOR BREACH OF CONTRACT 18

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SANCTIONS FOR TORTIOUS CONDUCT 19

SANCTIONS FOR VIOLATING STATUTES AND REGULATIONS 19

Property and Corporate Governance 20

THE SPECIFIC SENSE OF CORPORATE GOVERNANCE 20

THE GENERAL SENSE OF CORPORATE GOVERNANCE 21

sidebar 1.5 Corporate Social Responsibility: Good Faith 22

2. The Role of Ethics in Decision Making 26

Contemporary Business Ethics 28
MODERN ETHICAL CHALLENGES IN INNOVATION AND
TECHNOLOGY 29

ETHICS AND SOCIETY 30

Changing Normative Values 30
Economic Interdependence 30
News Media and the Internet 31
Michael Hitoshi/Getty Images
ETHICS AND GOVERNMENT 31
sidebar 2.1 Wells Fargo Sham Accounts 31
The Nature of Ethics 32
ETHICS AND MORALITY 32

ETHICS AND LAW 33

sidebar 2.2 Price Gouging after Hurricane Katrina 34
Two Systems of Ethics 35
FORMALISM 35
Kant and Formalism 35
The Social Contract 36
CONSEQUENTIALISM 37
sidebar 2.3 Facebook Tackles Fake News 38
The Protestant Ethic 38
COMPARING THE TWO ETHICAL SYSTEMS 39
sidebar 2.4 Tobacco Facts 40
Sources of Values for Business Ethics 40
LEGAL REGULATION 41
Liberty and Rights 41
Good Faith 41
Due Care 42
Confidentiality 42
Conflicts of Interest 43

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PROFESSIONAL CODES OF ETHICS 43

sidebar 2.5 American Marketing Association Statement of Ethics 44
sidebar 2.6 American Institute of Certified
Public Accountants Code of Professional Conduct 45

ORGANIZATIONAL CODES OF ETHICS 46

Different Approaches to Ethical Codes 46
sidebar 2.7 Boeing Code of Conduct 47
INDIVIDUAL VALUES 48

Achieving an Ethical Business Corporation 50

THE OBSTACLES 50
The Emphasis on Profit 50
sidebar 2.8 The Swedish Example of Lagom 51
The Effect of the Group 51
The Control of Resources by Nonowners 51
THE STEPS 52
Involvement of Top Management 52
sidebar 2.9 Failure and Collapse 52
Openness in Communication 53
Consideration of All Stakeholders 54
THE REWARDS 54
sidebar 2.10 Removing Conflict Minerals from the Supply Chain 55
CAN A BUSINESS HAVE A CONSCIENCE? 55
sidebar 2.11 Same-Sex Marriage Debate and “Kiss-Ins” 56

3. Understanding the Court System 60

sidebar 3.1 The “Daunting Workload” of Federal Trial Judges 62
Personnel 62
JUDGES AND JUSTICES 62

JURORS 63
sidebar 3.2 Trial Consultants and Technical Support:
Other Key Parties in Litigation 64

LAWYERS 65
Hero Images/AGE Fotostock
Organization of the Court System 66
SUBJECT MATTER JURISDICTION 66

STATE COURTS 66
Trial Courts 66
Appellate Courts 67

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FEDERAL COURTS 67
sidebar 3.3 Small-Claims Courts 68
District Courts 69
Appellate Courts 69
sidebar 3.4 Circuit Scorecard 71
DECISIONS BY THE U.S. SUPREME COURT 71
sidebar 3.5 Very Slim Odds 72
sidebar 3.6 The Role of the Supreme Court and
Chief Justice 73

The Power of Judicial Review 73

sidebar 3.7 Choosing a Supreme Court Justice 74
sidebar 3.8 Business and the Roberts Court 75
JUDICIAL RESTRAINT 75

JUDICIAL ACTIVISM 76
sidebar 3.9 Typical Alignment of Justices 77
A SAMPLE U.S. SUPREME COURT CASE 77
sidebar 3.10 Labeling Judges as Liberal or Conservative 77
case 3.1 IANCU v. BRUNETTI 78

THE NATURE OF THE JUDICIAL PROCESS 79

sidebar 3.11 U.S. Supreme Court Justices 80
sidebar 3.12 The Nature of the Judicial Process (1921) 82

4. Litigation 86
Litigation—An Overview 88
sidebar 4.1 Inadequate Risk Management Leads to
High Legal Costs 88
PARTIES 88

STANDING TO SUE 89
case 4.1 JULIANA v. UNITED STATES 90

rubberball/Getty Images
PERSONAL JURISDICTION 91
sidebar 4.2 Personal Jurisdiction: Minimum Contacts 91
sidebar 4.3 Where Does Mark Zuckerberg Reside? 92
CLASS-ACTION SUITS 92
sidebar 4.4 Consumer-Related Liability Watch: Allegations Against
Apple and the Fallout from Volkswagen’s Emissions Scandal 93
sidebar 4.5 Record Number of Securities
Class-Action Lawsuit Settlements 94

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Pretrial Procedures 95
sidebar 4.6 Understanding the Sample Complaint 95
PLEADINGS 95

STEPS IN DISCOVERY 96
Purpose 97
Methods 97
sidebar 4.7 Discovery Abuse: Alleged Failure to
Produce Documents 97

SCOPE OF DISCOVERY 98
sidebar 4.8 Data Analytics and Litigation 98
sidebar 4.9 Litigation Holds and E-Discovery 99
MOTIONS 99

FRIVOLOUS CASES 100

sidebar 4.10 Wacky Warning Label Contest 101
The Trial 102
JURY SELECTION 102
sidebar 4.11 The Intersection of the Internet and Juries 103
sidebar 4.12 The Jury and Constitutional Limits on Peremptory
Challenges 104
sidebar 4.13 Religion and Peremptory Challenges 104
OTHER STEPS DURING A TRIAL 104
case 4.2 WAL-MART STORES, INC. v. DUKES 105

BURDEN OF PROOF 107

Criminal Cases 107
Civil Cases 108
sidebar 4.14 Cameras in the Courtroom 109
DECIDING THE CASE 109

Posttrial Issues 110

APPEALS 110
sidebar 4.15 Qualcomm and Posttrial Sanctions 111
Appellate Procedures 111
Deference to Trial Courts 112
ENFORCEMENT OF JUDGMENTS AND DECREES 112
sidebar 4.16 Appealing an Evidentiary Ruling 113
sidebar 4.17 Discovery of Misconduct Causes Lockheed
to Lose Its $37 Million Verdict 113

RES JUDICATA 114

sidebar 4.18 How Do You Prevent a Lawsuit in Your Firm? 114

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5. Alternative Dispute Resolution 118

Conflicts and Negotiation 120
CONFLICTS AND DISPUTES 120

STYLES AND METHODS OF NEGOTIATION 121

sidebar 5.1 Negotiation Styles 121
sidebar 5.2 A Business Dispute 122
POSITIONAL NEGOTIATION 122

Exactostock/SuperStock PRINCIPLED NEGOTIATION 123

Communication 123
Relationship 123
Interests 124
Options 124
Legitimacy 124
Alternatives 124
Commitment 124
Alternative Dispute Resolution (ADR) Systems 125
RANGE OF OPTIONS 125

SETTLEMENTS 125

FOCUS GROUPS 126

Arbitration 127
sidebar 5.3 Examples of Contracts with Arbitration Clauses 128
sidebar 5.4 Trends in Arbitration 128
SUBMISSIONS 129
sidebar 5.5 Sample Arbitration Clause 129
ARBITRATORS 129
Expertise 129
sidebar 5.6 To Arbitrate or Litigate 130
Number Chosen 130
Authority over Certain Matters 130
case 5.1 RENT-A-CENTER, WEST, INC., v. ANTONIO JACKSON 131

AWARDS 132

THE FEDERAL ARBITRATION ACT 133

Impact on Policy 133
Impact on State Laws 133

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STATUTORILY MANDATED ARBITRATION 133

case 5.2 14 PENN PLAZA LLC. v. PYETT 134
sidebar 5.7 Enforcing Arbitration in Cases of Identity Theft? 135
sidebar 5.8 Strict Enforcement of a Class-Action Waiver in an
Arbitration Agreement 136
Types of Cases 136
Procedures 136
VOLUNTARY/CONTRACT-BASED ARBITRATION 137

JUDICIAL REVIEW 137

Review of Voluntary/Contract-Based Arbitration Awards 137
sidebar 5.9 Single Claims v. Class Actions 138
sidebar 5.10 Judicial Review of Arbitrator’s Award 139
Review under the Federal Arbitration Act 140
sidebar 5.11 Supreme Court Continues to
Develop Arbitration Law 141

Mediation 142
sidebar 5.12 Bill’s and M&N Revisited 143
PROCEDURES 143
sidebar 5.13 Steps in the Mediation Process 143
ADVANTAGES/DISADVANTAGES 144

LACK OF JUDICIAL INVOLVEMENT 145

COMBINATION OF ADR SYSTEMS 145

6. The Constitution 150

Basic Concepts 153
SEPARATION OF POWERS 153
SUPREMACY CLAUSE 153
Preemption 154
sidebar 6.1 Examples of State Laws Preempted by Federal Law 154
Federal Government’s Authority to Regulate Business—
The Commerce Clause 155 Source: Carol M. Highsmith
Archive, Library of Congress
REGULATION OF FOREIGN COMMERCE 155
[LC-DIG-highsm-12945]
REGULATION OF INTERSTATE COMMERCE 155

IMPACT ON INTERSTATE COMMERCE 156

LIMITATION ON FEDERAL AUTHORITY 156

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CONTRACT CLAUSE 156

State and Local Government’s Authority to Regulate

Business—Police Powers 157
LIMITATION OF POLICE POWERS 157
Exclusively Federal 157
Exclusively State 157
sidebar 6.2 Federalism and State Rights under the Commerce
Clause 158
Dual Regulation 159
sidebar 6.3 State Protectionism Struck Down 160

Amendments and Basic Protections 160

FIRST AMENDMENT PROTECTIONS 161
Freedom of Religion 161
sidebar 6.4 How Does the IRS Define “Churches”? 161
sidebar 6.5 Business and the Religious Freedom Restoration Act 162
Freedom of Speech 162
sidebar 6.6 Art and Obscenity 163
sidebar 6.7 The FCC Is Not Amused: Controversies over the Super
Bowl & More 164
sidebar 6.8 Picketing as Free Speech 164
case 6.1 SNYDER v. PHELPS 165
case 6.2 BROWN v. ENTERTAINMENT MERCHANTS
ASSOCIATION 167
sidebar 6.9 When Does a Communication Become a Threat
Unprotected by the First Amendment? 169
sidebar 6.10 The Controversy over Cigarette Warning Labels 170
Freedom of the Press 170
sidebar 6.11 WikiLeaks, Edward Snowden, and Freedom of the
Press 171
Second Amendment: The Right to Possess Guns 171
sidebar 6.12 The Second Amendment After the Heller Case 172
The Fifth Amendment: Takings Clause 172
Eminent Domain and the Common Good 172
Public Use 173
case 6.3 KELO v. CITY OF NEW LONDON, CONNECTICUT 173
Just Compensation 176
The Fourteenth Amendment: Equal Protection and
Due Process of Law 176
DUE PROCESS OF LAW 176
Incorporation Doctrine 177

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EQUAL PROTECTION 177

Minimum Rationality 178
Strict Scrutiny 178
Quasi-Strict Scrutiny 178
sidebar 6.13 Same-Sex Marriage and the Constitution 179
sidebar 6.14 Analysis of Equal Protection 180

PartTWO Basic Legal Principles

7. The Property System 186
Introduction to the Property-Based Legal System 188
sidebar 7.1 Property as the Foundation of the Private Market 189
Rationale for the Property System 189
THE PROBLEM OF LIMITED RESOURCES 190
sidebar 7.2 The Three Faces of Property 190
PROPERTY AND PROSPERITY 191
sidebar 7.3 The Mystery of Capital 192
amygdala_imagery/Getty
Images
Defining Property in the Legal System 193
TWO BASIC DIVISIONS OF PROPERTY 193
PROPERTY BOUNDARIES IN THE PHYSICAL WORLD 194
sidebar 7.4 Additional Complexity in Defining Intangible Property 194
Defining Land 195
Air Rights 195
sidebar 7.5 Trespassing Drones? 195
Subsurface Rights 196
case 7.1 BRIGGS v. SOUTHWESTERN ENERGY
PRODUCTION CO. 196
Fixtures on Land 198
Interests in Property with Respect to
Others and Time 198
TYPES OF OWNERSHIP 198
Fee Simple 198
Life Estate 198
Leasehold Estate 198
Concurrent Ownership 199
Specialty Applications of Property 199
EASEMENTS 199

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BAILMENTS 200
case 7.2 DUKE ENERGY CAROLINAS v. GRAY 201
sidebar 7.6 Is Your Financial Data “Property” That Is Bailed? 204
Acquiring Resources in a Property System 204
ACQUIRING RESOURCES THROUGH EXCHANGE 204

ACQUIRING RESOURCES THROUGH POSSESSION 205

sidebar 7.7 Barry Bonds’ Home-Run Ball 205
Lost Items 206
Adverse Possession 206
sidebar 7.8 Curing Blight through Adverse Possession? 206
ACQUIRING RESOURCES THROUGH CONFUSION 207

ACQUIRING RESOURCES THROUGH ACCESSION 207

ACQUIRING RESOURCES THROUGH GIFT 208

TITLE AND PROPERTY REGISTRATION 208

Property and Security Interests 209

SECURITY INTERESTS IN LAND 209
Recording Statutes 210
Foreclosure, Deficiency, and Redemption 210
SECURED TRANSACTIONS 211
Perfection 211
ARTISAN’S LIENS AND MECHANIC’S LIENS 212

Limitations on Property and the Common Good 212

PROPERTY, THE USE OF RESOURCES, AND
THE EQUAL RIGHTS OF OTHERS 212
NUISANCE AND ZONING 213
sidebar 7.9 Light, Odor, Noise, and the Property Fence 214
case 7.3 COOK v. SULLIVAN 215

PROPERTY LIMITATIONS AND THE COMMON GOOD 217

kenishirotie/123RF Duration Limitations on Property 217
Taxation 217
PROPERTY: A CONCLUSION AND COMMENT 218
sidebar 7.10 Property Restrictions for a More Sustainable Future 218

8. Contract Formation 224

Basic Concepts 226
CONTRACT LAW IN PRIVATE ENTERPRISE 226

SOURCES OF CONTRACT LAW 227

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Contractual Classifications and Terminology 227

BILATERAL AND UNILATERAL CONTRACTS 228

EXPRESS AND IMPLIED-IN-FACT CONTRACTS 229

case 8.1 LEYDEN v. AMERICAN ACCREDITATION
HEALTHCARE COMMISSION 230
sidebar 8.1 Idea Submission 231
sidebar 8.2 Implied Warranties 232
IMPLIED-IN-LAW OR QUASI-CONTRACTS 232

CONTRACTUAL ENFORCEMENT TERMINOLOGY 233

CONTRACTUAL PERFORMANCE TERMINOLOGY 233

Contract Formation 234

OFFER TO CONTRACT 235
sidebar 8.3 Are You Serious? 235
Definite Terms 235
sidebar 8.4 Is an Online “Policy” a Definite Offer? 236
Termination of Offer 236
ACCEPTANCE OF OFFER 237
Mirror Image Rule 237
UCC Battle of the Forms 237
Silence Not Acceptance 237
case 8.2 GOTTLIEB & CO., INC. v. ALPS SOUTH CORPORATION 238
Mailbox Rule 239
sidebar 8.5 Is the Mailbox Rule Still Relevant? 240
CONSIDERATION 240
Agreement Not to Sue 241
case 8.3 VASSILKOVSKA v. WOODFIELD NISSAN, INC. 241
Preexisting Obligation 243
sidebar 8.6 Consideration Not Necessary 243
Past Consideration 243
Promise to Make a Gift 243
Option Contract 244
Promissory Estoppel 244
CAPACITY OF PARTIES TO CONTRACT 244
Minors 244
Intoxicated and Mentally Incompetent Persons 245
LAWFUL PURPOSE 245
sidebar 8.7 Overcharging Into Invalidity 245
Contracts That Restrain Trade 246

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When a “Meeting of the Minds” Is Lacking 246

FRAUD OR INNOCENT MISREPRESENTATION 246
sidebar 8.8 Restraining Competition in Sandwiches? 247
sidebar 8.9 How Green is My Ad? 248
MISTAKE 248

DURESS OR UNDUE INFLUENCE 249

Contract Form 249

ORAL CONTRACTS 249
STATUTE OF FRAUDS 250
sidebar 8.10 Examples of Contracts Required to Be Evidenced by a
Signed Writing 250
Sale of an Interest in Land 250
Collateral Promise to Pay Another’s Debt 250
Cannot Be Performed within One Year 251
Sale of Goods of $500 or More 251
sidebar 8.11 Are Electronic Contracts Considered Writings? 252
Others Contracts 252
EXCEPTIONS TO THE WRITING REQUIREMENT 252
Part Performance 252
Rules Involving Goods 253
sidebar 8.12 Exceptions to Statute-of-Frauds Requirement That
Sale-of-Goods Contracts Be in Writing 253
Judicial Admissions 253

9. Contractual Performance and Breach 258

Interpretation of Contracts 260
RULES OF INTERPRETATION 260
THE PAROL EVIDENCE RULE 260
sidebar 9.1 Judging What the Contract Says 261
Performance 261
CONDITIONS OF PERFORMANCE 263
anyaberkut/Getty Images case 9.1 ST. LOUIS PRODUCE MARKET v. HUGHES 263

PAYMENT, DELIVERY, SERVICES TENDERED

IN GOODS CONTRACTS 265
sidebar 9.2 Terms of Delivery in the UCC 265
DISCHARGE OF DUTIES THROUGH PERFORMANCE 266
sidebar 9.3 Levels of Performance 266
DIVISIBILITY OF PERFORMANCE 267

Excuses for Nonperformance 267

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FORCE MAJEURE 267

sidebar 9.4 Is a Global Pandemic Considered a Force Majeure? 268
IMPOSSIBILITY OF PERFORMANCE AND FRUSTRATION OF
PURPOSE 268
case 9.2 EAST CAPITOL VIEW COMMUNITY DEVELOPMENT CORP.
v. ROBINSON 269

COMMERCIAL IMPRACTICABILITY 270

WAIVER OR RELEASE 270

Breach of Contract 271

DAMAGES 271
sidebar 9.5 Opening the Door to Related Liability 273
EQUITABLE REMEDIES 273
case 9.3 OLIVER v. BALL 273

EFFICIENT BREACH 275

sidebar 9.6 Walking Away from a Mortgage 275
Third Parties’ Rights 275
BENEFICIARIES 276

ASSIGNMENT AND DELEGATION IN CONTRACTS 276

Notice of Assignment 277
Contracts That Cannot Be Assigned or Delegated 277
NOVATIONS 278

Practical Perspective on Contracts 278

sidebar 9.7 Suggestions for Businessperson/Lawyer Relationship on
the Drafting of Contracts 279

10. Torts Affecting Business 282

Intentional Torts 284
sidebar 10.1 Types of Intentional Torts 284
ASSAULT AND BATTERY 284
case 10.1 HARPER v. WINSTON COUNTY 285

INTENTIONAL INFLICTION OF MENTAL DISTRESS 286

INVASION OF PRIVACY 287

case 10.2 EHLING v. MONMOUTH-OCEAN
Nick White/Digital Vision/Getty
HOSPITAL SERVICE CORP. 287 Images

FALSE IMPRISONMENT AND MALICIOUS PROSECUTION 289

TRESPASS 289

CONVERSION 290

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DEFAMATION 290
Defamation and the First Amendment 291
sidebar 10.2 Section 230 and President Trump’s
Executive Order 291
FRAUD 292
sidebar 10.3 Tort or Crime? or Both? 293
INTERFERENCE WITH BUSINESS RELATIONS 293
Injurious Falsehood 293
sidebar 10.4 One Set of Facts but Several Tort Claims? 294
Intentional Interference with Contractual Relations 294
Negligence 294
sidebar 10.5 Elements of Negligence 295
DUTY OF CARE 295
case 10.3 IANNELLI v. BURGER KING CORP. 296
sidebar 10.6 Medical Malpractice Claims 297
UNREASONABLE BEHAVIOR—BREACH OF DUTY 298
Examples of Negligence 298
Willful and Wanton Negligence 298
sidebar 10.7 Strip Search Hoax Costs
McDonald’s $6.1 Million 299
CAUSATION IN FACT 299
PROXIMATE CAUSATION 300
DEFENSES TO NEGLIGENCE 300
Contributory Negligence 300
sidebar 10.8 Explosion on the Long
Island Railroad 301
Assumption of Risk 301
Strict Liability in Tort 302
STRICT PRODUCTS LIABILITY 302
sidebar 10.9 Tort Reform 303
case 10.4 BRANHAM v. FORD MOTOR CO. 304
ULTRAHAZARDOUS ACTIVITY 305
OTHER STRICT LIABILITY TORTS 305
sidebar 10.10 The Great Molasses Flood 306
Damages 306
sidebar 10.11 The Rise of Billion Dollar Jury Verdicts 306
COMPENSATORY DAMAGES 307
PUNITIVE DAMAGES 307
sidebar 10.12 Punitive Damage Guidelines 308

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11. Intellectual Property 312

sidebar 11.1 The Importance of Intellectual
Property (IP) 314

THE JUSTIFICATION FOR INTELLECTUAL PROPERTY 315

INTELLECTUAL PROPERTY AND COMPETITION 315

sidebar 11.2 The Open-Source Alternative 316
CAPTURING INTELLECTUAL PROPERTY 316

Trade Secrets 317

Source: Library of Congress,
sidebar 11.3 Trade Secrets and International Relations 318 Prints & Photographs Division,
Reproduction number
ESTABLISHING THE EXISTENCE OF A TRADE SECRET 318 LC-USZ62-127779 (b&w film
copy neg.)
case 11.1 AL MINOR & ASSOCIATES, INC. v. MARTIN 319

DEMONSTRATING MISAPPROPRIATION 321

Employee Mobility and Trade Secrets 321
CIVIL ENFORCEMENT OF TRADE SECRETS 321

CRIMINAL ENFORCEMENT OF TRADE SECRETS 322

sidebar 11.4 Soda Secrets 322
sidebar 11.5 Federal Government Intellectual Property
Enforcement 323

Patent Law 323

OBTAINING A PATENT 324
Patent Type 324
sidebar 11.6 Can AI Be an Inventor? 325
PATENTABLE SUBJECT MATTER 325
case 11.2 ALICE CORPORATION PTY. LTD. v. CLC BANK
INTERNATIONAL 326

NOVELTY, NONOBVIOUSNESS, AND UTILITY 327

sidebar 11.7 Is Software Patentable? Maybe. 328
PATENT ENFORCEMENT 329

PATENT TROLLS AND THE LITIGATION THREAT 330

sidebar 11.8 Invention Sharing During a
Public Emergency 331

Trademark Law 331

TYPES OF TRADEMARKS 332
sidebar 11.9 Brands vs. Trademarks 332
Trade Dress 333
TRADEMARK REGISTRATION 333
sidebar 11.10 Can you Register an Offensive Mark? 334

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TRADEMARK ENFORCEMENT 335

case 11.3 KRAFT FOODS GROUP BRANDS LLC. v. CRACKER BARREL
OLD COUNTRY STORE, INC. 336
sidebar 11.11 Counterfeiting Has a Global Economic Impact 338
Trademarks and the Internet 338
TRADEMARK DILUTION 339

Copyright Law 339

COPYRIGHT OWNERSHIP 340
sidebar 11.12 When Is a Uniform Expressive? 341
sidebar 11.13 Public Domain Day Finally Arrives 341
COPYRIGHT ENFORCEMENT 342
sidebar 11.14 State Governments and Copyright: the Supreme Court
Giveth and Taketh Away 342
case 11.4 SKIDMORE V. LED ZEPPELIN 343

COPYRIGHT FAIR USE 345

COPYRIGHT IN THE DIGITAL AGE 345

Digital Millennium Copyright Act 345
sidebar 11.15 Knowledge of Users’ Infringing Activity 346
International Intellectual Property Rights 346
A Conclusion about Intellectual Property 347

12. Global Expansion and International Law 352

Risks Involved in International Trade 355
sidebar 12.1 Pharmaceutical Products to Toys: Issues
Related to Sourcing 355

PRESSURES FOR BRIBES 355

sidebar 12.2 Turning Back the Tide of Corruption 356
MONEY LAUNDERING 357
sidebar 12.3 FCPA Prosecutions: U.S. Government Success
Damien Te Whiu/Flickr/ Stories 358
Getty Images
EXPROPRIATION AND NATIONALIZATION 359

EXPORT CONTROLS 359

sidebar 12.4 U.S. Export Enforcement and Economic Espionage:
Sample of Major Cases 360
sidebar 12.5 Twenty-First-Century Pirates 361
International Law and Organizations 362
sidebar 12.6 What Are Corporate Codes of Conduct? 362

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Another random document with
no related content on Scribd:
eat that too. He had eaten so
much, though, that he couldn’t; so
he put it into his pocket. “It will do
for my breakfast,” he thought.
Poor Tursio was much ashamed of
the marionette, and Marsovino
was not less so. If they had only
known that Pinocchio was so rude
as to take things from the table
and put them into his pocket, they
would never have invited him to
dinner. Still they did not say a
word.
“Run along, now, children. Mr.
Beluga and I must talk about
business, and we cannot have you
around.”
 “‘It will do for my Breakfast,’ he thought.”

The two boys left the dolphins together and went off. While enjoying
themselves looking around, Marsovino picked up something which
looked like a chain. It was made of small round balls all alike, and
transparent. He handed it to Pinocchio.
“Tell me,” he said, “do you know what this is?”
“Why, yes, it is a bead chain. It is easy enough to know that.”
“Are you sure?”
“Yes, of course. I have seen them
many times around little girls’ necks.”
“And if I told you that they are eggs—”
“Eggs?” murmured Pinocchio. “Eggs?
This thing?”
“Yes, sir, that is what they really are;
the eggs of a halibut. It is a bad habit,
Pinocchio, to make believe you know
a thing when you do not. I am afraid I
am not going to be your friend.”
“Not my friend?” came from the poor
shamefaced marionette.
“No. Mr. Tursio has always told me to keep away from boys who—”
“Tell lies, I suppose you want to say,” finished Pinocchio.
“I was told to go with boys who are polite,” continued Marsovino.
“And instead I even take the plates away with me when I am invited
to dinner,” said Pinocchio.
“I was told to make friends with educated children.”
“And I—yes, I might as well confess it—I have hardly ever seen the
inside of a classroom in my life. Well, Marsovino, I will try to make
myself your friend. Will you try me again?”
“Very well, I will. Now let us return.”
The dolphins were still talking busily when the boys came up to
them. They seemed very much in earnest.
“Here we are, father,” called Marsovino.
“At last! Where have you been? We have important things to say to
you. Come here, both of you!”
“What is it? We are all ears.”
“My friend Beluga has been telling me that while I have been away
from home I have lost much money. He has told me of a great
treasure that is to be found in an old ship far away from here. As I
need it very much just now, I do wish I could get hold of it.”
“Well,” answered Marsovino, “why can’t we go for it?”
“Because it is miles and miles away. Not only that, but we should
have to travel as far up as the polar seas, and into the great oceans.
We could never do it. You see, I am getting old. I could hardly
attempt to cross those icy waters. Still, I need the money so much
that I am afraid I shall have to try the journey.”
“Why couldn’t Globicephalous and I go instead of you, father?”
asked Marsovino.
“And I also,” timidly added Pinocchio.
“Globicephalous is too old. And as for you two, my dear boys, you do
not know what you are saying. Do you know that for months and
months the polar seas are in darkness? That the sun is seen only in
the spring and summer?”
“I know, but it is now winter, and we should reach those seas just at
the right time. We should be back before the fall.”
“And are you not afraid of the cold?”
“It will not be cold. I will swim deep in the water, and there the water
will be warm. I will come to the surface only long enough to breathe.”
“What about the ice? What about those monsters of the seas, the
whales, the sharks, the narwhals?”
“You need the treasure. I have made up my mind to go,” answered
Marsovino, firmly.
“You might escape all the dangers I mention, my boy, and reach the
ship. But how could you ever get hold of the gold inside?”
“I might tear a hole in the ship with my strong tail,” began Marsovino.
“A ship a block long, and all made of iron? It is of no use, my boy.”
The young dolphin was silent. How could he get into the ship? He
thought and thought, but he could find no answer.
“May I go, too?” here began Pinocchio.
“You?” asked Tursio and Marsovino, at the same time.
“Yes, I. Why not? If Marsovino cannot get into the ship because he is
too big, I am so small I can get into any hole,” continued the
marionette.
“That isn’t a bad idea, is it, father?”
“No, but do you really feel courageous enough, you two, to
undertake such a journey?”
“We’ll do our best,” answered Marsovino.
“Well, then, all right. Let us return to Globicephalous, and then you
will get ready to start. Beluga, I will be with you again soon. I might
as well wait here with you for Marsovino and Pinocchio to return.”
After saying good-by to Beluga the young dolphin followed Tursio,
who seemed in haste to get to Globicephalous.
Sitting on the dolphin’s back,
Pinocchio was thinking how good he
had been in offering to go with
Marsovino. But he soon forgot this in
another surprise. In front of him, not
far away, he saw a number of animals
rise out of the sea.
They rose, shook their colored wings
gaily, and then fell back again into the
water. No sooner had they
disappeared than others came, and
then again others. How beautiful they
were! Red, blue, and green, and
shining brightly in the sun.
“Birds in the sea! Oh, they will drown!”
screamed Pinocchio.
“Oh, no, these birds will not drown. They live in the sea, my boy.
They are called flying fish,” explained Tursio.
“When shall I stop hearing news?” wondered Pinocchio. “So there
are also birds in the sea!”
“Almost birds, but not quite. These fish have very strong fins and
with them they can leap very high. As you see, they even leap out of
the water. Why do they do this, do you think? Because they want to
escape from the large fish, which follow them to eat them.”
Pinocchio had nothing to say. Meanwhile, the three friends had
reached the place where Globicephalous was waiting. Tursio told
him in a few words what Marsovino and Pinocchio had planned to do
to help him.
Very soon the two boys were ready to start.
“Well, good-by, boys,” said Tursio, after telling them how to reach the
ship. “I will no longer try to stop you from going. Only be careful.
Keep to yourselves, and you will meet with little trouble. Do not stop
on your way. Hasten back, or I shall be worried. Above all, never get
out of the water. The tide might go out, and you, Marsovino, would
be in great danger.”
Marsovino and Pinocchio listened carefully; and then, with a cheerful
good-by, they were off.
A few hours later Tursio and Globicephalous were with Beluga, and
Marsovino and Pinocchio were speeding away towards the great
oceans, treasure hunting.
 CHAPTER XII
Marsovino and Pinocchio traveled swiftly. They
passed a strait, crossed a canal, left beautiful lands
behind them, and at last came out fearlessly into
the great ocean. They never stopped.
When the moon shone they traveled on the surface
of the water. If the sky was dark and gloomy, the
dolphin plunged deep into the sea. There the two
friends had plenty of light. Great medusæ and sun
fishes made the water light and bright. Very often,
too, the wonderful phosphorescence of the sea
aided them in seeing their way. Pinocchio felt satisfied when
Marsovino explained the cause of this phosphorescence to him. At
first, though, he could hardly believe his ears.
“When the Moon shone they traveled on the Surface of the
Water.”

The journey was very peaceful, and nothing came to trouble the two
little heroes.
“What is that dark blue streak there, Marsovino?” asked Pinocchio,
one day. He was pointing out a wide band of dark blue water, which
stood out distinctly from the lighter green of the ocean.
“That? Oh, that is the Gulf Stream,” answered Marsovino.
“The Gulf Stream? What are you talking about? A stream running in
the ocean! Water running in water!”
“Yes, of course it is all water. But there is a difference between ocean
water and Gulf Stream water. The first, in general, is quiet, the
second is moving. That stream is just like a river flowing between
two valleys. The waters of the two never mix. If you try, you will find
that the ocean is much the colder of the two.”
“But what is the use of it?”
“Why, it is of great use. This stream carries warmth to the cold
regions of the north. It cools the hot countries of the tropics. Without
this saving current, life would not be pleasant in many countries.”
“Hurrah for the river in the middle of the sea, then!” shouted
Pinocchio. He had understood little, so he thought it better not to
speak further on the subject.
Towards noon of the same day the sea began to be filled with
herrings. They were on all sides. Our two travelers were surrounded.
Pinocchio enjoyed being with the silvery animals.
Soon, however, there were so many that Marsovino found it hard to
move. Still, the kind little fellow, seeing that Pinocchio was enjoying
himself, did not try to get away. After a while, however, the herrings
became so numerous that the ocean looked like a sea of silver, not
of water. Pinocchio and the dolphin were being pushed and shoved
around without mercy.
“I am being killed, stifled,” whispered Pinocchio. Yes, he whispered.
If he had opened his mouth a herring could easily have slipped into
it. This might not have been very pleasant.
Marsovino finally saw that the herring had become as thick as a
stone wall. So with a few strong strokes of his tail, he made his way
to the surface of the water.
“Ah! now I can breathe!” exclaimed
Pinocchio. “In that fishy world I
thought I should die.”
As night had come, and as it was very
dark, our friends began to think of
sleep. Anyway, even if they had tried
to move, they could hardly have
passed through that multitude.
Just as the sun rose, Pinocchio
opened his eyes. He had had a very
good sleep on the back of his
swimming horse. Looking around, he
could not help crying out in surprise.
“Marsovino! Wake up!” he called. “Just
look! Yesterday we were swimming in a sea of silver. To-day we are
floating in milk.”
It was really the truth. No sign of herrings was left. But as far as eye
could reach one could see only a thick heavy liquid as white as milk.
“Oh, how splendid!” cried Pinocchio. “Now I can have as much milk
as I want. It looks good.”
Marsovino had awakened, but he never said a word. He wanted to
see what Pinocchio would do. The marionette, thinking himself right,
bent over and took a long drink of milk, as he thought. But he had no
sooner had a taste than he made a wry face.
“Why, it is salty.”
“Of course it is. Is this the first time you have heard of the sea being
salt?”
“But this is not water. Look how white it is. It looks like milk.”
“Do you know why it is so? The water looks white because of the
eggs left in it by the herrings of yesterday.”
“Eggs? But there must be thousands of them?”
“Yes, and millions.”
“But the sea will soon be full of herrings, then.”
“No fear of that, Pinocchio. Think of the many large fish that are in
the sea. They live on these eggs and on small fishes. Why, they can
and they do swallow hundreds of eggs at a time. The sea is big
enough to hold all its fish and more. You don’t think we are crowded,
do you?”
“Last night we certainly were.”
“One night is not every night. You see, herrings travel in great
numbers, and we happened to meet a school of them.”
“Oh, they go to school, do they? Well, I never before thought a fish
had to go to school, too!” mumbled Pinocchio to himself.
After traveling a long time through the milky sea, the two travelers at
last came out of it.
Soon after a long, sharp, flat blade rose suddenly out of the water. It
looked like a sword, and Pinocchio, of course, thought it was one.
“What have we here?” he asked. “A soldier battling in the sea? And
is that thing his sword?”
“You can hardly be blamed for thinking it a sword. It looks very much
like one,” said Marsovino. “It is the long upper jaw of a fish, and from
this it receives its name, swordfish. With this weapon, as it is very
strong, the fish can defend himself against much larger animals. I
hope he won’t come near us.”
Luckily for the two friends, he did not. The sword disappeared into
the sea, and the travelers continued their journey.
“I must dive now, to see where we are,” said Marsovino; and soon
Pinocchio found himself at the bottom of the sea. Curious as ever,
the marionette looked around, peering here and peering there.
Seeing some cuplike objects hanging on the rocks,
he put out his hands for them. They looked very soft
and were full of holes. But as soon as Pinocchio
touched them, the holes disappeared, and the cups
clung tightly to the rocks.
“Oh, excuse me,” begged Pinocchio, “I thought you
were sponges.”
“And what are they, if not that?” laughingly asked Marsovino.
“But they move just as if they were alive!”
“And is not the sponge an animal?”
“Really? Do you mean it?”
“Why, yes. The sponge is not only one animal, but a number of
animals living together. And what do you think hides in that cuplike
sponge you see there, to live a quiet happy life in it?”
“What?”
“The pearl oyster.”
“Honestly? Oh! Do you think I could get some? I know how precious
pearls are. Why, I could make myself rich! I could buy houses and
horses and automobiles and—Oh! Oh!” and Pinocchio started to
dance a jig on the sandy floor.
Marsovino was laughing.
“You may try. You may have luck.”
Pinocchio did not have to be told twice. He searched and searched
every sponge he could lay his hands on. As a result, he found a
great many shells.
“And what now?” he asked.
“Now you must open them, to see if any pearls are inside.”
“What is the use of opening them? You said these were all pearl
oysters. I’ll carry them and open them later.”
“But many of them may have no pearls
at all. You see,” continued Marsovino,
opening a shell, “this one has none. But
do you see this coating of many colors
on the inside of the shell? That is a
substance which comes from the body
of the mollusk. It is called mother of
pearl. When the oyster opens its shell, a
grain of sand may get into it. The oyster
does not like this, as the stone hurts her,
but she can’t throw it out. So she covers
it up with this substance from her body.
When the little stone is all covered up,
we have a lovely pearl.”
“Who would ever have thought such a thing
possible!” thought Pinocchio, getting to
work. He soon had a large number of
oysters; but when he opened them he found
only a few small balls.
“Come here, Pinocchio. You may have
better luck in this corner,” and Marsovino
led the way to a nook in the rocks. “Look in
there.”
Again Pinocchio searched, and soon a
great many shells lay at his feet ready to be
opened. Without mercy, he went at them,
tearing and pulling the poor little creatures from their homes. His
search finished, he threw them aside. The sand was soon covered
with the dead and the dying.
“Poor little beings!” observed Marsovino. “After they have given you
their pearls, is that the way to treat them? Could you not be more
careful?”
Pinocchio had a kind soul. He was only thoughtless. So he went to
work and tried to undo the wrong he had done. Those oysters which
were only slightly hurt he put back into their shells; while he ate the
others, and so ended their sufferings.
This work finished, he went on with his search for pearls. In a short
time he had a small pile of beautiful pearls. Some were large, some
small, some globular, and others shaped like drops of water.
In color, too, they were different. Almost all were white, some faintly
pink, a few grayish, and one was all black.
“Well, Pinocchio, you have enough. With them you will be as rich as
the king of China. Come now. We must go on with our journey.”
“But these pearls, where shall I put them? I wish I had a bag or a
box.”
“It will not be so hard to find that. Let’s look around.”
The dolphin swam around. He did not stay away long. Soon he came
back, holding a small object out to Pinocchio. It was a little cubical
body, and seemed like a strange-looking box.
“Here is the box, my friend,” he called.
“Well, what is this?” asked Pinocchio, looking at the object. It was
hard and dark, and reminded him of the shell which had saved his
life.
“That was a fish.”
“A fish? That box?”
“Exactly. This is only its shell, but once a fish lived in it. It is called
the sea urchin. That box you have there helps him to defend himself.
Do you notice how hard it is?”
“Well, the sea is certainly a wonderful place. Once upon a time I
hated it. Now I should like to be a fish, so as to live in it always.”
 CHAPTER XIII
The journey was progressing rapidly. Blue skies
and green countries had disappeared. Gone were
the many-colored fish. Sea and sky were of a dark
gray color. Why all this? Because our two friends
had reached the cold north, where for so many
months no sun shines.
Luckily, though, spring had begun. The sun showed
itself for a while every day. And every day it showed
itself a little longer. In the summer it would be there even at midnight.
The cold was very great. Pinocchio had a fur suit which Tursio had
given him, but still he was almost freezing. Marsovino also suffered.
“It will be better for us if we dive deep into the sea,” he observed.
“We shall find it warmer there.”
“Please wait awhile,” begged Pinocchio.
“I want to see that island first,” and with
his hand Pinocchio pointed to a high
mountain still far away. It was as white
as snow, and seemed almost to touch
the sky.
“Oh, you want to see that island,”
repeated Marsovino, chuckling to
himself. “Very well.”
“Yes, it does look queer, doesn’t it? I
wonder if there are people on it?”
“Perhaps. We shall see.”
It seemed as if the island had heard
Pinocchio speak. Strange to say, it was
coming to meet the dolphin and his friend. And with it were two
others.
“Look! look!” shouted Pinocchio. “The islands at the pole walk! This
is fun!”
“Yes, they are taking a walk, as you see,” answered Marsovino, who
was enjoying himself, too. “But if they come nearer, our journey will
end right here.”
He had not finished speaking when a
terrific noise was heard. The sound
was deafening. Pinocchio found
himself thrown from his horse into the
water. When he opened his eyes—he
always closed them when he was
frightened—no islands were to be
seen.
“Marsovino! Marsovino! Help! Help!”
he cried, fearing he had lost his friend.
“Here I am! Come!”
Swiftly the marionette swam to the
dolphin, and again climbed on his
back.
“Will you please tell me what happened to those islands? Or are we
in fairyland? I never knew lands could disappear in a minute like
that!”
“Those were not islands, my dear Pinocchio. They were icebergs.
These great mountains of ice, when they come against each other,
are broken into bits. See, all that is left of them are pieces of ice;”
and Marsovino pointed to ice which was floating on the sea.
The next day Pinocchio had another surprise. In front of him, as far
as he could see, was a city of ice. Everything was flat, everything
was white.
Immense landscapes, snowy white, met his eye wherever he turned.
Mountains of ice could be seen in the distance. And, wonderful to
see, the ice was so clear and transparent that it looked like glass.
When the sun shone on it, it sparkled and showed all the colors of
the rainbow.
Pinocchio thought himself in fairyland. But as he was looking, a
strong wind rose suddenly; and then the icebergs fell and broke with
deafening noise.
Finally, Marsovino thought it best to
swim far under water. He was afraid of
losing his life in the midst of all those
icebergs.
Two days later the two boys rounded
the southern point of Greenland. On
the sandy shore of this island
continent could be seen a large
number of animals. They had round
clumsy bodies, each having a small
head with two small bright eyes.
Where we have arms, they had what
looked like very strong fins.
These animals were seals. Their bodies were covered with reddish-
brown fur. Lying on the sand, they were enjoying the warmth of the
sun. The young ones were playing with one another and enjoying
themselves, too.
Pinocchio paid little attention to them. But suddenly out of the water
came another band. The newcomers were somewhat different from
the seals, but they belonged to the same family.
Their fur was almost black, not brown, and their heads were larger.
They were walruses. From their mouths two long, thick ivory teeth
protruded. They looked very fierce, and soon they showed their
fierceness.
Seeing that the beach was occupied, and wanting it for themselves,
they started to fight for it. The seals fought very bravely, but what
could they do against those terrible teeth? The poor wounded beasts
struggled and kept up cries of “pa—pa—pa—pa.”
“Listen to that. They are calling ‘papa.’ I never thought fish could
talk,” said Pinocchio.
“First of all, seals are not fish, but mammals. And
then there are some fish which do produce sounds.
Tunnies, when out of the water, cry like children.
Some poulpes, when caught, groan. Others make a
sound like a whistle.”
“I am ready to believe anything,” Pinocchio said
very weakly. “But what is a poulpe?”
“Oh, that is another name for the octopus or
devilfish,” was the reply.
The fight continued, but the seals were soon conquered. The
victorious walruses were not to enjoy their victory, however.
While the fight was still waging, some fishermen had quietly come up
to the field of battle. Before long many of the combatants lay dead,
and were carried away into boats. The few that were left forgot the
fight, and were happy enough to escape into the water.
 CHAPTER XIV
The boys traveled two weeks longer, and at last
Marsovino thought himself near his destination. So
he dived into the water to a great depth.
After a while, as he sank deeper and deeper into
the sea, Pinocchio became frightened. They were
down so far that no light from the sun could reach
them.
“Where are you carrying me to, my dear?” he
asked. “If we go any farther, we cannot possibly live. How could we,
with this immense amount of water over us?”
“We’ll be all right, my boy, never fear. If little fish like that can live
here, why, so can we.”
Marsovino was pointing to many horrible dark objects which were
swimming around him. They had a round head, great black bodies,
no eyes, and from their heads a long thread moved about in the
water. At the end of the threads were small lights.
“What ugly things!” said Pinocchio. “What are they, and why do they
have those small lights on their heads?”
“If you look closely, you will see that those little beings have no eyes.
So they depend on these lights for their food. Other animals are
drawn to the lights. When they are near enough these animals feel
them. Then they are seized and eaten.”
“The sea is wonderful,” nodded Pinocchio, drowsily, “but don’t you
think that we might take some sleep? I am very tired.”
“Very well,” said Marsovino.
Pinocchio threw himself on the sand, and in a few minutes both
friends were asleep.