mba1034 cg law ethics week 9 law & markets 2013
DESCRIPTION
Business law, property, torts, product liabilityTRANSCRIPT
LAWAND
MARKETS
Stephen Ong, BSc(Hons) Econs (LSE), MBA International Business(Bradford)
Visiting Fellow, Birmingham City UniversityVisiting Professor, Shenzhen University
MBA1034 GOVERNANCE, LAW & ETHICS
• Discussion: CEO Hubris1
• Law of Torts, Property & Product Liability2
• Case Discussion: Obesity and McLawsuits3
Today’s Overview
1. Open Discussion
• Petit, Vale´rie and Bollaert, Helen (2012) Flying Too Close to the Sun? Hubris Among CEOs and How to Prevent it, Journal of Business Ethics, 2012: 108: pp.265–283
2. THE LAW
Overview• Introduction• The common law• Property• Intellectual property• Contracts• Torts• The product safety problem and social efficiency• Entitlements, liability, and social efficiency• Products liability• Imperfections in the liability system
Introduction
• Markets are the cornerstone of a free enterprise system• The law plays a principal role in: –Reducing uncertainties –Supporting exchange in
markets
Common Law• Used in the United Kingdom, the United
States, and most of the other former English colonies
• Common law countries typically have an adversarial system of litigation in which: – Each party advocates its side of the dispute – Judges and juries render decisions based
on the evidence, the arguments provided, and precedents
Property•The set of rights to control a tangible or intangible thing
Intellectual Property
• The basic trade-off in the protection of intellectual property is between: – Benefits to society from the use of ideas and
inventions and the incentives for their creation
Information and Incentives
Intellectual Property• The appropriability of the returns
from a discovery depends on two principal factors:–How easy it is for others to replicate
the discovery–Strength of the public protection for
the discovery
Appropriability of Returns
Example : Appropriability of Returns and Peer-to-Peer Systems
Intellectual Property Protection
• Patents• Copyright• Trademarks and trade secrets
Contracts
• Governed by:–Common law –Statutes pertaining to particular
types of contracts and transactions
14-15
Enforceability
• Central issues in contracts are:–Which contracts are
enforceable–When can they be breached–What damages are due in the
event of a breach
Breach
• Breaches are allowed because: –Under some circumstances it is
economically efficient not to fulfill the conditions of the contract
Remedies
• Courts use two basic types of remedies in the event of breach:–Damages–Specific performance
Torts
• Civil wrongs - Wrongs done by one person to another
The Product Safety Problem
Social Costs of Injuries Prevented
14-21
Entitlements and Their Protection
• Rules for protecting entitlements–Property rule–Liability rule
The Assignment of Social Costs and the Choice Between Liability
and Regulation• There are five principles for the
assignment of costs and the choice between the institutions of liability and regulation
1. Products Liability
• A branch of the common law of torts
14-24
2. Allowable Defenses under Strict Liability• Some defenses are allowed
under strict liability but:–They vary among the states
• In all of these defenses, the burden of proof is on the defendant
3. Preemption
• Some federal legislation preempts states from adding requirements beyond those stated in the federal law–Could be explicit or implicit in
the law
4. Damages
• Principal form of damages awarded in liability cases is compensatory–Compensation for the loss
incurred
The Politics of Products Liability
• Strong incentives to take liability issues into the legislative arena are provided by:–The costs and consequences of
liability cases–The proportion of awards that go
to trial lawyers
Imperfections In the Liability System
• Liability system has been criticized on: –Equity grounds–Distributive grounds–Efficiency grounds
CASE DISCUSSION : OBESITY ANDMCLAWSUITS
Case - Nonmarket Environment of McDonald’s• Obesity - Economists studied the
increase in the body mass index and concluded that it was due to several factors:– Increase in calorie intake– Decrease in strenuousness of work– Decrease in cost of food due to
technological change leading people to eat more
1-31
Case - Nonmarket Environment of McDonald’s• Meal and Menu Nutrition Information - Public
attention to the obesity issue led to the introduction of the Menu Education and Labeling Act (MEAL) in the House and the Senate
• Healthy Lifestyles - As a result of the concern about obesity, McDonald’s suspended its promotion of supersize meals
1-32
Case - Nonmarket Environment of McDonald’s• Children’s Advertising– McDonald’s promoted its trademark golden
arches on Barbie dolls and backpacks– Some schools had McDonald’s days for lunch– Used plastic toys for promotion
1-33
Case - Obesity and McLawsuits
• To deal with the McLawsuits, McDonald’s and other restaurants could continue to defend themselves in court on a case-by- case basis
• McDonald’s could also seek legislation to shield restaurants and food processors from liability
• The public attention to the obesity issue led to the introduction of the Menu Education and Labeling Act (MEAL)
• The fast-food industry also faced the possibility that state attorneys would file lawsuits seeking reimbursement for Medicare costs of obese people
Core Readings• Baron, David P.(2013) Business and its environment, 7th
Edition, Pearson, Ch.14• Cheeseman, Henry R.(2013) Business law, 8th Edition,
Prentice Hall. Ch.5-6.
Next Week’s Ideas for Discussion
• Gabaix, Xavier, Landier, Augustin and Sauvagnat, Julien (2013) CEO pay and firm size: an update after the crisis,NBER working paper 19078, May 2013
QUESTIONS?
APPENDIX I :TORTS
Introduction to Intentional Torts and Negligence
• Injured party brings civil lawsuit to seek compensation for a wrong done to the party
• Damages available–Tort damages–Punitive damages
• If the victim of a tort dies, beneficiaries can bring a wrongful death action against defendant
5-2
Intentional Torts
• Assault–Threat of immediate harm or
offensive contact–Any action that arouses reasonable
apprehension of imminent harm–Actual physical contact is
unnecessary5-3
Intentional Torts
• Battery–Unauthorized and harmful or
offensive physical contact with another person–Direct physical contact between
victim and perpetrator unnecessary–May accompany assault
5-4
Intentional Torts
• Doctrine of transferred intent–Party A intends to harm Party B,
but actually injures Party C–Law transfers perpetrator’s intent
from target to actual victim–Party C can sue the perpetrator
5-5
Intentional Torts
• False imprisonment–Intentional confinement or restraint of
another person without authority or justification and without that person’s consent• Physical force• Barriers• Threats of physical violence• False arrest
5-6
Intentional Torts
• Shoplifting and merchant protection statutes–Merchants may stop, detain, and
investigate suspected shoplifters if:• There are reasonable grounds for suspicion• Suspects are detained for only reasonable time• Investigations are conducted in reasonable
manner
5-7
Case 1: False Imprisonment
• Case–Walmart Stores, Inc. v. Cockrell– 61 S.W.3d 774, Web 2001 Tex. App. Lexis 7992– Court of Appeals of Texas
• Issue– Does the shopkeeper’s privilege protect Walmart
from liability under the circumstances of the case?
5-8
Intentional Torts
• Misappropriation of the right to publicity–Attempt by another person to appropriate a
living person’s name or identity for commercial purposes–Tort of appropriation–Plaintiff’s recourse:• Recover the unauthorized profits made by the offender• Obtain an injunction preventing further unauthorized
use of his or her identity
5-9
Intentional Torts
• Invasion of the right to privacy–Violation of a person’s right to live
his or her life without being subjected to unwanted and undesired publicity–Placing person in a “false light”
5-10
Intentional Torts
• Defamation of character–Types• Slander• Libel
–Plaintiff must prove that:• Defendant made an untrue statement of fact about
plaintiff• Statement was intentionally or accidentally published to
a third party
5-11
Intentional Torts
• Disparagement
– Untrue statement made about products, services, property, or reputation of a business
• Intentional misrepresentation (Fraud)–Wrongdoer deceives another person out of
money, property, or something of value
5-12
Intentional Torts
• Intentional infliction of emotional distress
– Extreme and outrageous conduct that intentionally or recklessly causes severe emotional distress to another person
– Also known as tort of outrage
• Malicious prosecution
– Frivolous lawsuit maliciously brought
– Prevailing defendant sues original plaintiff to recover damages for injuries
5-13
Unintentional Torts (Negligence)
• Unintentional Tort: A doctrine that says a person is liable for harm that is the foreseeable consequence of his or her actions
• Negligence: Omission to do something which a reasonable person would do, or doing something which a prudent and reasonable person would not do
5-14
Unintentional Torts (Negligence)
• Elements of a Negligence Lawsuit– The defendant owed a duty of care to the plaintiff– The defendant breached the duty of care– The plaintiff suffered injury– The defendant’s negligent act caused the
plaintiff’s injury– The defendant’s negligent act was the proximate
cause of the plaintiff’s injuries
5-15
Unintentional Torts (Negligence)
• Duty of care: Obligation not to cause any unreasonable harm or risk of harm– Tests used to determine whether a duty of care
was owed:
• Reasonable person standard• Reasonable professional standard
• Breach of duty of care: Failure to exercise care or to act as a reasonable person would act
5-16
Unintentional Torts (Negligence)
• Injury to plaintiff – Personal injury or damage to the plaintiff’s
property
– Damages cannot be recovered if the plaintiff suffered no injury
– Damages recoverable depend on the effect of the injury on the plaintiff’s life or profession
5-17
Case 2: Damages for Negligence
• Case
–Clancy v. Goad
–858 N.E.2d 653, Web 2006 Ind. App. Lexis 2576 (2006)
–Court of Appeals of Indiana
• Issue
–Were the damages awarded to Dianna Goad excessive?
5-18
Unintentional Torts (Negligence)
• Causation– Causation in fact (actual cause): A person who
commits a negligent act is not liable unless actual cause can be proven
– Proximate cause (legal cause): A point along a chain of events caused by a negligent party after which this party is no longer legally responsible for the consequences of his or her actions
5-19
Case 3: Duty of Care
• Case–James v. Meow Media, Inc.–300 F.3d 683, Web 2002 U.S. App.
Lexis 16185 (2002)–United States Court of Appeals for the
Sixth Circuit
5-20
Case 3: Duty of Care
• Issue–Are the video and
movie producers liable to the plaintiffs for selling and licensing violent video games and movies to Carneal, who killed the plaintiffs’ three children? 5-21
Special Negligence Doctrines
• Professional malpractice
– The liability of a professional who breaches his or her duty of ordinary care
– Breach of reasonable professional standard
• Negligent infliction of emotional distress– Permits a person to recover for emotional distress
caused by the defendant’s negligent conduct
5-22
Special Negligence Doctrines
• Negligence per se–Violation of a statute that proximately
causes an injury
• Res ipsa loquitur• Defendant had exclusive control of the
situation that caused the plaintiff’s injury
• Injury would not have ordinarily occurred but for someone’s negligence
5-23
Special Negligence Doctrines
• Good Samaritan laws
–Protects medical professionals who stop and render emergency first aid• Relieves them from liability for ordinary
negligence
• No relief for gross negligence or intentional or reckless conduct
–Laypersons not trained in CPR not covered
5-24
Defenses Against Negligence
• Superseding or intervening event–An event for which defendant is not
responsible• Assumption of risk–Plaintiff knowingly and voluntarily
participates in a risky activity that results in injury
5-25
Case 4: Assumption of the Risk
• Case
– Lilya v. The Greater Gulf State Fair, Inc.
– 855 So.2d 1049, Web 2003 Ala. Lexis 57
– Supreme Court of Alabama
• Issue
– Was riding a mechanical bull an open and obvious danger for which Lilya had voluntarily assumed the risk when he rode the mechanical bull?
5-26
Defenses Against Negligence
• Contributory negligence–Plaintiff who is partly at fault for his
or her own injuries cannot recover against negligent defendant
• Comparative negligence–Damages apportioned according to
fault– Pure comparative negligence– Partial comparative negligence (50% rule)
5-27
Strict Liability
• Strict liability is liability without fault• A participant in a covered activity
will be held liable for any injuries caused by the activity, whether or not he or she was negligent• Abnormally dangerous activities
5-28
APPENDIX II :PRODUCT LIABILITY
Introduction to Product and Strict Liability
• Product Liability: Liability of manufacturers, sellers, lessors, and others for injuries caused by defective products
• Strict Liability: A plaintiff may recover punitive damages if the defendant’s conduct has been reckless or intentional
6-2
Product Liability: Negligence
• Negligence
–Requires the defendant to be at fault for causing the plaintiff’s injuries
–The plaintiff must prove that:• The defendant breached a duty of due care to
the plaintiff
• This breach caused the plaintiff’s injuries
–Only a party who was actually negligent is liable to the plaintiff
6-3
Product Liability: Negligence
• Failure to exercise duty of care includes:–Failing to assemble a product carefully–Negligent product design–Negligent inspection or testing of a product–Negligent packaging–Failure to warn of the dangerous
propensities of a product
6-4
Product Liability: Misrepresentation
• Misrepresentation–Occurs when a seller or lesser
either:• Fraudulently misrepresents the quality of
a product• Conceals a defect in it
–Recovery is limited to persons who relied on the misrepresentation
6-5
Product Liability: Strict Liability
• Doctrine of strict liability in tort–Strict liability is liability without fault–Makes manufacturers, distributors,
wholesalers, retailers, and others in the chain of distribution of a defective product liable for the damages caused by the defect, irrespective of fault
6-6
Product Liability: Strict Liability
• Liability without fault–Does not require the injured person to
prove that the defendant breached a duty of care–Casual sales and transactions by
nonmerchants are not covered–Applies only to products, not services
6-7
Product Liability: Strict Liability
• Chain of distribution
–Comprises of:• Manufacturers • Distributors• Wholesalers and retailers• Lessors• Subcomponent manufacturers
–All parties in the chain of distribution of a defective product are strictly liable for the injuries it causes
6-8
Product Liability: Strict Liability
• Parties who can recover for strict liability– Any injured party– Privity of contract not required– Recovery possible even if the injured party had
no contractual relations with the defendant– Bystanders and non-users are entitled to the same
protection as users
6-9
Product Liability: Strict Liability
• Damages recoverable for strict liability– Damages recoverable vary by jurisdiction– Property damage recoverable in most jurisdictions– Economic loss in few jurisdictions– Some jurisdictions limit the dollar amount of the
award– Punitive damages generally allowed if defendant
recklessly or intentionally injured the plaintiff
6-10
Product Defects
• To recover for strict liability, the injured party must first show that the product that caused the injury was somehow defective
• The injured party does not have to prove who caused the product to become defective
• Plaintiff can allege multiple product defects in one lawsuit
6-11
Product Defects
• Defect in manufacturing• Defect in design• Defective packaging• Failure to warn• Inadequate instructions
6-12
Case 6.1: Defect in Manufacture
• Case– Shoshone Coca-Cola Bottling Company v.
Dolinski– 82 Nev. 439, 420 P.2d 855, Web 1966 Nev. Lexis
260– Supreme Court of Nevada
6-13
Case 1: Defect in Manufacture
• Issue– Should the state of Nevada judicially adopt the
doctrine of strict liability? If so, was there a defect in the manufacture of the Squirt bottle that caused the plaintiff’s injuries?
6-14
Defect in Design
• Defect that occurs when a product is improperly designed
• Evaluation of adequacy of a product’s design:– Risk-utility analysis– Consumer expectation test
6-15
Case 2: Design Defect
• Case– Domingue v. Cameco Industries, Inc.– 936 So.2d 282, Web 2006 La. App. Lexis 1593
(2006)– Court of Appeal of Louisiana
• Issue– Is the forward blind spot on Cameco’s 405-B
dump truck a design defect?
6-16
Defect in Design
• Crashworthiness doctrine:
– Automobile manufacturers have duty to design automobiles taking into account the possibility of a second collision
– They should take into account the possibility of harm from a person’s body striking something inside the automobile in the case of a car accident
6-17
Failure to Warn
• Defect that occurs when a manufacturer does not place a warning on the packaging of products that could cause injury if the danger is unknown
• Proper and conspicuous warning insulates all in chain of distribution
• Failure to warn is a defect that will support a strict liability action
6-18
Defect in Packaging
• Manufacturers owe a duty to design and provide safe packages for their products
• Containers should be:– Tamperproof– Clearly indicate tampering
• Defective packaging subjects the chain of distribution to strict liability
6-19
Other Product Defects
• Failure to provide adequate instructions• Inadequate testing of products• Inadequate selection of component parts or materials• Improper certification of the safety of a product
6-20
Defenses to Product Liability
• Generally known dangers–Certain products are inherently
dangerous–These products are known to the
general population to be inherently dangerous–Sellers are not strictly liable for failing
to warn of generally known dangers6-21
Defenses to Product Liability
• Government contractor defense –Contractors that manufacture products
to government specifications are not usually liable if such a product causes injury
• Abnormal misuse of the product –Relieves the seller of product liability if
the user abnormally misused the product 6-22
Defenses to Product Liability
• Supervening event
–The manufacturer or seller is not liable if:
•A product is materially altered or modified after it leaves the seller’s possession
• The alteration or modification causes an injury
6-23
Defenses to Product Liability
• Assumption of risk• Defendant must prove that the
plaintiff:»Knew and appreciated the risk»Voluntarily assumed the risk
6-24
Defenses to Product Liability
• Statute of limitations –Plaintiff must bring action within a
certain number of years from the time that he or she was injured by the defective product–Limitation period set by each state–Defendant is relieved of liability if
action is not brought within limitation period 6-25
Defenses to Product Liability
• Statute of repose
–Limits the seller’s liability to a certain number of years from the date when the product was first sold
–Varies from state to state
6-26
Defenses to Product Liability
• Plaintiff partially at fault–Types•Contributory negligence•Comparative negligence
6-27
Defenses to Product Liability
• Contributory negligence –Plaintiff who contributed to own
injuries cannot recover from the defendant in negligence–Contributing plaintiff cannot recover
damages even if the product was defective
6-28
Defenses to Product Liability
• Comparative negligence– Applies when a plaintiff is partially responsible
for causing his own injuries– Liability is assessed proportionately to the degree
of fault of each party– Damages are apportioned proportionally between
the plaintiff and the defendant
6-29