Operational Liabilities, Insurance,

and Compliance

GR645

Tort Defined

• A tort is defined as a civil wrong resulting in injury to a person or property.

• Brought by an injured party to obtain compensation for the wrong done.

• Tort actions can be brought where there is intentional actions or negligence that lead to the tort action.

Negligence Torts

Showing of Negligence

• Instead of intent, there is a focus on whether the act (or failure to act) was a “failure to use such care as a reasonably prudent and careful person would use under similar circumstances.” (the “reasonable man” standard)

• Negligence does not require that the defendant intended, or even knew, that his or her actions would harm the plaintiff. It is enough that the defendant acted carelessly or created an unreasonable risk of harm.

• Plaintiff must show:

• The defendant owed a duty to the plaintiff to act reasonably under the circumstances

• The defendant breached that duty by failing to conform to the standard

• A reasonably close causal connection exists between the plaintiff’s injury and the defendant’s breach, and

• The plaintiff suffered an actual loss or injury

Legal Duty

• A person with legal duty to another is required to act reasonably under the circumstances to avoid harming the other person.

• Standard of care is what a reasonable person of ordinary prudence would do in the circumstances.

• Defendant is expected to anticipate certain accidents.

Duty to Rescue

• In the U.S. there is no duty to rescue.

• However, once a person undertakes a rescue, the law imposes a duty to act as a responsible person would and not abandon the rescue effort unreasonably.

• If there is a special relationship between the two people (spouse, child, parent, employer, teacher, innkeeper, common carrier, etc.) then there may be a duty to rescue.

• There is a duty to rescue those whom one has placed in peril.

Duty of Landlord to Tenant

• Landlord has a duty to provide adequate security to protect tenants from foreseeable criminal acts by a third party.

• A court will balance the foreseeability of the harm against the burden imposed on the landlord if required to take precautionary measures.

Duty of Landowner and Other Possessors

to Third Parties

• A landowner or possessor (such as a tenant) has a legal duty to keep the property reasonably safe.

• Landowner has a general duty to inspect his or her property and keep it in repair.

• Premises Liability is based on the distinctions of duty to trespassers, licensees, and invitees. Possessor owes the least duty to a trespasser and the greatest duty to an invitee.

Duties to Trespassers

• Generally no duty owed to undiscovered trespassers. However, some jurisdictions require some duty of reasonable care to a known trespasser.

• Higher level of duty of care is owed to trespassing children. “Attractive nuisance” doctrine imposes liability on the possessor for physical injury on a child trespasser if:

• The possessor knew or should have known children were likely to trespass

• The condition is one the possessor reasonably knew would be an unreasonable risk to children

• Because of their youth, the children did not discover the condition or realize the risk involved

• The utility to the possessor of maintaining the condition is not great

• The burden of eliminating the risk is slight compared with the magnitude of risk to children

• The possessor fails to exercise reasonable care to protect the children

Liability of Professionals to Third Parties

• Intentional Misrepresentation – if a professional commits fraud, he or she is liable not only to the client, but to any other person whom he or she reasonably should have foreseen would rely on the intentional misrepresentation.

• Negligent Misrepresentation (Malpractice) – usually limited only to the client, and may not have a duty to a third party who he or she did not have a contractual relationship with.

• Note that for accountants, attorneys, and investment bankers dealing with businesses (or individuals) in which they knew or had reason to know that their opinions or reports would be used for a specific purpose or shown to others, then the liability extends to those that would reasonably rely on such documents.

Negligent Hiring and Liability for Employee

Recommendations• Note that employers are always liable for torts of employees made

within the scope of their employment (and sometimes outside the scope).

• Negligent Hiring – where the cause of the plaintiff’s injury is the employer’s own negligence in hiring the employee, rather than the employee’s wrongful act.

• Employee Recommendations – employer’s that disclose too much may be subject to a defamation suit by the former employee, and those that disclose too little may be held liable to an injured third party for negligent misrepresentation.

Duty to Licensees and Invitees

• Possessor's duty to a licensee (one who is allowed on the land with possessor's express or implied consent) is to refrain from gross negligence. Possessor is not required to inspect for unknown dangers. Duty only arises when the possessor has actual knowledge of the risk.

• Possessor must protect invitees against known dangers and also against dangers that the possessor might discover with reasonable care. Business invitees should be protected from criminal conduct by third parties as well.

• Some courts have done away with distinction between trespasser, licensee and invitee and have gone with reasonable care under the circumstances. This standard requires all landowners to act in a reasonable manner with respect to entrants on the land, with liability hinging on the foreseeable harm.

Breach of Duty

• Usually negligence is looked at to whether a reasonable person believes the defendant breached their duty of care.

• However, when a person is specially trained to practice a profession, there is a higher standard of care and the question is whether a reasonably skilled member of that profession breached their duty.

• A specialist within a profession will be held to the standard of a specialist in that profession or trade.

• Negligence per se applies when a statute or regulation was designed to protect a class of persona from the type of harm suffered by the plaintiff and the plaintiff is a member of that class.

• Courts will also look to the custom or practice of others under similar circumstances to determine the standard of care.

Res Ipsa Loquitur

• “The thing speaks for itself”

• Allows plaintiff to prove the breach of duty and causation indirectly.

• Occurs when an accident has occurred and it is obvious, although there is no direct proof, that the accident would not have happened without someone’s negligence.

• Three requirements:

• Plaintiff’s injury must have been caused by a condition or instrumentality that was within the defendant’s exclusive control

• Accident must be of such a nature that it ordinarily would not occur in the absence of negligence by the defendant

• The accident must not be due to the plaintiff’s own negligence.

• Some jurisdictions will give a directed verdict to the plaintiff absent a defendant showing he or she was not responsible, and some jurisdictions will leave the burden of proof with the plaintiff showing the preponderance of the evidence shows the defendant is at fault.

Causal Connection

• In addition for the plaintiff in a negligence case to show duty and breach of that duty, the plaintiff must also prove the breach of duty caused the injury to the plaintiff. Plaintiff must show actual and proximate cause.

• Actual cause – proving plaintiff would not have been harmed but for the defendant’s negligence.

• When a plaintiff sues more than one defendant the actual cause test may become the substantial factor test, which asks if the defendant’s conduct was a substantial factor in bringing about the plaintiff’s injury.

• Proximate cause – proof that the defendant had a duty to protect the particular plaintiff against the particular conduct that caused the injury.

• Courts may limit defendant’s liability to that which is foreseeable or within the “zone of danger” caused by the defendant’s carless conduct.

Defenses to Negligence

• Contributory Negligence – if plaintiff is also negligent (even slightly) he or she cannot recover any damages from the defendant.

• Comparative Negligence – plaintiff may recover the proportion of his or her loss attributable to the defendant’s negligence.

• Ordinary Comparative Negligence – plaintiff recovers only if he or she is less culpable than the defendant (basically under 50%)

• Pure Comparative Negligence – plaintiff may recover for any amount of the defendant’s negligence, even if plaintiff was found to be more negligent than defendant

• Assumption of Risk – requires that the plaintiff knew the risk was present, understood its nature, and voluntarily chose to incur the risk.

Kubert v. Best (2013)• The Kuberts were seriously injured by an 18 year-old driver that was texting while

driving and crossed the center line of the road. The claims against the driver have been settled but this case is the appeal of the trial court’s dismissal to sue the driver’s friend who what texting the driver and sent the message to him immediately before the accident.

• Issue here is whether one who is texting from a remote location to the driver of a motor vehicle that is in an accident is also found to be the cause of the accident.

• The court holds that the sender of a text message has a duty to avoid texting a person driving a vehicle, but only if the sender knew or had reason to know that the recipient would view the text while driving and be distracted. However, since the evidence did not prove that the sender had such knowledge when she texted the driver, she is not liable here.

• The court also stated that they do not hold someone who texts a person while driving is liable for the driver’s negligence, as the driver bears responsibility for obeying the law and maintaining control of the vehicle. However, when I texter knows the person is driving and that they would be distracted by a text, then the texter has a duty to users of public roads to refrain from sending the text at that time.

Intentional Torts

Intentional Torts

• To prove an intentional tort, the plaintiff must prove:

• Actual or implied intent

• A voluntary act by the defendant

• Causation, and

• Injury or harm

• Intent is defined as the subjective desire to cause the consequences of an act.

• Actual intent is shown by evidence that the defendant intended a specific consequence to a particular individual.

• Implied intent is where the defendant knew that the consequences of the act were certain or substantially certain to occur, even if there was no actual intent for any consequences at all.

• Intent can be transferred – if the act was meant against one individual but harmed another, the intent requirement is still met for the other person.

Defenses to Intentional Torts

• With intentional torts, the most frequently raised defense is that of consent of the plaintiff to the action that caused harm to the plaintiff.

• If found the plaintiff consented to the defendant’s action, there is no tort.

• Law can sometimes imply consent by the plaintiff as well.

• Finally, the defendant can also claim self-defense or defense of others to be absolved from a tort action.

Intentional Torts to Protect Persons

Assault and Battery

• Assault is the intentional, nonconsensual act that gives rise to the apprehension (though not necessarily the fear) that a harmful or offensive contact is imminent.

• Assault requires some act and the ability to follow through immediately with a battery.

• Battery is the intentional, nonconsensual, harmful or offensive contact with the plaintiff’s body or with something in contact with the plaintiff’s body.

• The contact in battery may be made by the defendant directly or by something the defendant has set in motion.

False Imprisonment

• False imprisonment is the intentional, nonconsensual confinement by physical barriers, by physical force, or by threats of force.

• Requires plaintiff either knew or had reason to know he or she was confined or suffered as a result of the confinement.

• What if I locked the doors to the classroom after everyone arrived for class? The doors remained locked throughout the class. By the end of class the doors were unlocked. No one knew because no one got up to notice the doors were locked. Did I commit a tort? Ethically did I do something wrong?

Intentional Infliction of Emotional Distress

• Plaintiff must prove:

• Outrageous conduct by the defendant

• Intent to cause, or reckless disregard of the probability of causing, emotional distress

• Severe emotional suffering, and

• Actual and proximate causation of the emotional distress

• Note that the mental distress must be foreseeable – where a reasonable person could have anticipated this would be the result of the action.

• Some jurisdictional also require a showing that there was a physical manifestation of the distress and not just mental anxiety.

• The defendant’s acts must be of a kind that are outrageous or intolerable.

Defamation

• Defined as the communication or publication to a third party of an untrue statement, asserted as fact, that injures the plaintiff’s reputation by exposing him or her to “hatred, ridicule or contempt.”

• Libel is written defamation.

• Slander is spoken defamation.

• For slander, plaintiff must prove there was an actual harm suffered, unless the statement is so obviously damaging that it falls into the category of slander per se (the words themselves are slanderous).

• For libel, the law presumes injury, therefore no actual harm needs to be shown, unless the statement on its face does not seem damaging.

• An opinion is defamation only if it implies a statement of objective fact.

• Self-publication of a slanderous statement can also lead to an action of defamation

Defenses and Privileges for Defamation

• Truth is the absolute defense to any defamation suit.

• It is on the defendant to prove the truth of the statement.

• Absolute privilege is allowed in situations where:

• The plaintiff has consented to the publication

• The statement is made by a government official in the performance of government duties

• The statement is made by participants in judicial proceedings, or

• The statement is made between spouses

• Qualified privilege is allowed in situations where:

• Statements made to protect one’s own personal interests

• To make statements to protect legitimate business interests, and

• To provide information for the public interest

• Absolute privilege cannot be lost and defendant is allowed to publish even if they know the statement to be false. Qualified privilege can be lost if the person making the statement did so with malice, bad faith, or improper motive

Public Figures and Media Defenses

• Media generally has qualified privilege that is almost absolute when they are commenting on a public official or public figure.

• US Supreme Court has held that a public official or public figure cannot recover damages for defamation by a media figure absent a showing of actual malice (had actual knowledge of the false statement or a reckless disregard as to whether it was false).

• Publicly traded corporations are generally considered public figures, so must show actual malice when bringing a claim of defamation.

• Private persons do not have to show actual malice to prove defamation. Can prevail if shown defendant acted with knowledge, acted in reckless disregard, or was negligent in ascertaining the facts. However, if using negligence, plaintiff must show actual damages. With malice no proof of actual damages is required.

• Local news reporter learns through sources that a person running for town counsel may have an illegal substance habit. This reporter does not have time to investigate fully before the 6 o’clock news, but decides to run with it as a headliner for the evening news. Can this person running for town counsel sue the reporter for defamation?

Invasion of Privacy

• Invasion of privacy is a violation of the right to keep personal matters to oneself.

• Intrusion is objectionable prying. No publication of the information obtained is necessary to have a cause for intrusion. Injunctions or court orders are usually used to prevent further intrusions.

• Public disclosure of private facts requires the publication of non-newsworthy private facts to others. Truth is not a defense to this act.

• Appropriation of a person’s name or likeness may be an invasion of privacy. For example, by using fictitious testimonial in an advertisement or article which the plaintiff never gave consent to.

Intentional Torts That Protect Property

Trespass to Land

• Is an interference with a real property right without the consent of the owner. The land need not be injured by such trespass.

• Intent required is only the intent to enter the property and mistake of ownership is irrelevant.

• Trespass also includes below the surface and above in the airspace to the land.

• Refusing to move something that at one time the plaintiff permitted is also trespass.

• Even if given access, if the act is in excess of the express access to the land, it is considered a tort of trespass.

Nuisance• A nontrespassory interference with the use and enjoyment of real

property.

• Focus is on the plaintiff's harm and not on the degree of defendant's fault.

• Court will balance the utility of the activity creating the harm and the burden of preventing it, against the nature and the gravity of the harm.

• Public nuisance – an unreasonable and substantial interference with public health, safety, peace, comfort, convenience, or use of land. (Usually brought by governments)

• Private nuisance – an interference with an individual's use and enjoyment of his or her land.

Conversion and Trespass to Personal Property

• Conversion is defined as the exercise of dominion and control over the personal property of another, and the property was thereby stolen, destroyed, or substantially altered by the defendant.

• Just need to show the intent to exercise control over the property, and does not have to show the defendant knew the property belonged to the plaintiff.

• If the property is not stolen, destroyed, or substantially altered, but the defendant still had the intention to exercise control over the property, then there is a trespass to personal property (also know as a trespass to chattels)

Intentional Torts That Protect Certain Economic Interests and Business

Relationships

Fraudulent Misrepresentation

• Fraud requires proof that the defendant either:

• Intentionally misled the plaintiff by making a material misrepresentation of fact on which the plaintiff relied, or

• Omitted to state a material fact when the defendant had a duty to speak because of a special relationship with the plaintiff.

• Plaintiff must also show there were actual damages as a result of the fraud.

• Usually opinions given are not seen as fraud unless:

• The defendant held itself out to be specially qualified and the plaintiff acted reasonably in relying on defendant’s superior knowledge

• The opinion is that of a fiduciary or other trusted person, or

• The defendant stated its opinion as an existing fact or as implying facts that justified a belief in the opinion’s truth.

Disparagement

• Defined as the publication of statements derogatory to the quality of the plaintiff’s business, to the business in general, or even to the plaintiff's personal affairs, in order to discourage others from dealing with the plaintiff.

• Plaintiff must show that the defendant made false statements about the quality or ownership of the plaintiff’s goods or services, knowing that the statements were false or with conscious indifference as to their truth, and the statements caused actual harm

Interference with Contractual Relations and Participation in a Breach

of Fiduciary Duty• Provides a remedy when the defendant intentionally induces another person to

breach a contract with the plaintiff.

• Defendant must know of the existing contract, or that a reasonable person would be led to believe a contract existed.

• Defendant must induce the contracting party to breach rather than just creating an opportunity to breach.

• If a defendant induces a breach of fiduciary duty by another , then the tort of participation in a breach of fiduciary duty results.

• Some jurisdictions allow a defendant to induce a breach of a contract if there are good grounds to do so.

• Truth is also a defense to breach of contractual relations.

Interference with Prospective Business Advantage

• Plaintiff must prove that the defendant intentionally interfered with a relationship the plaintiff had sought to developed that the interference caused the plaintiff’s loss.

• Defenses are a showing of fair competition. Some jurisdictions require the plaintiff to show the defendant acted from a motive other than financial gain. In other jurisdictions the defendant must prove it acted only for financial gain.

• Truth is an absolute defense here as well.

• SupplierA is in talks with CorpB to supply CorpB with materials necessary for CorpB’s manufacturing business. The negotiations are to result in a 5-year contract to be the exclusive supplier of this material to CorpB. SupplierC, a competitor of SupplierA, hears about these negotiations and decides to make a play to be CorpB’s exclusive supplier. An agent for SupplierC talks to CorpB and states that SupplierA has inferior materials that degrade faster than the material that SupplierC provides. CorpB stops negotiations with SupplierA and signs an exclusive 5-year contract with SupplierC for their materials. Can SupplierA sue Supplier C for interference? Was what SupplierC did ethical?

Unfair Competition

• Anticompetitive behavior that is predatory and egregious

• Examples: improper use of trade secrets and customer information from prior employees; hiring many employees away from another company

Strict Liability

• Product Liability (to be discussed in next class)

• Ultrahazardous Activities – those that necessarily involve a risk of serious harm to persons or property that cannot be eliminated by the exercise of upmost care, and is not a matter of common usage. Usually liability does not attach until a court determines the dangerous activity is inappropriate to the location.

• Evidence of due care by the defendant is not a defense but can eliminate punitive damages.

Toxic Torts

• Wrongful act causes injury by exposure to a harmful, hazardous, or poisonous substance

• Potential defendants include manufacturers who:

• Use substances that may injure an employee, consumer or bystander

• Processes emit hazardous by-products into the air or discharge them into a river

• Whose waste material goes to a disposal site if the waste could migrate into the groundwater and contaminate nearby wells

• Whose products contain or create substances that can injure

• Punitive damages are common in these cases

• Plaintiffs often allege intentional tors as well as negligence with these claims.

Respondeat Superior (Vicarious Liability)

and Successor Liability

• Respondent Superior – employer is variously liable for the torts of the employee if the employee was acting within the scope of his or her employment. May also apply where someone is acting on behalf of another out of friendship or as a volunteer.

• Employer could also be liable for an employee not acting within the scope of employment, but the employer acted (or did not act) in a manner to increase the likelihood that an employee would commit a tort.

• Successor Liability – individuals or entities that purchase a business may be held liable for product defects and certain other tortious acts of the previous owner.

Damages and Equitable Relief

• Actual (Compensatory) Damages – the cost to repair or replace an item or the decrease in market value cause by the tortious conduct. Also include medical expenses, lost wages, and pain and suffering.

• Punitive (Exemplary) Damages – awarded to punish the defendant and deter others from engaging in similar conduct. May be based on the defendant’s degree of culpability and wealth.

• Equitable Relief – if a monetary award cannot adequately compensate the plaintiff’s loss than courts may allow for an injunction to prohibit the defendant from continuing a certain courts of activity, or to actually take a certain action. Courts will balance the hardship to the defendant against the benefit to the plaintiff.

Liability of Multiple Defendants

• Joint and Several Liability – multiple defendants collectively liable and individually liable. Plaintiff may recover the award from any one of them. Some sates may limit this to a contribution liability.

• Contribution – distributes the loss among several defendants based on their proportionate share of liability.

• Indemnification – allows a defendant to shift individual loss to other defendants whose relative blame is greater and the other defendants many be order to reimburse the one that has been discharged of a joint lability

Antitrust Violations

Agreements in Restraint of Trade: §1 of the Sherman Act

• Prima Facie Case.

• Plaintiff must prove:

• There is a contract, combination, or conspiracy among separate entities,

• That unreasonably restrains trade,

• That affects interstate commerce,

• Causing an antitrust injury.

• What Constitutes a Contract, Combination, or Conspiracy?

• Individual Activity: Section 1 does not prohibit unilateral activity in restraint of trade, i.e., an individual or firm may take any action, no matter how anticompetitive, and not violate Section 1.

• Must be concerted action.

• Horizontal Agreements.

• Vertical Agreements.

• Interbrand vs. Intrabrand competition.

Proving a Horizontal Conspiracy

• Horizontal Agreements: between firms (or brands) that directly compete with each other, such as retailers selling the same range of products.

• ‘Conscious Parallelism’ is not enough.

• Courts will not infer an agreement or conspiracy unless plaintiff shows additional “plus factors”

Types of Horizontal Restraints• Horizontal Price-Fixing (Per se Violation of Section 1). Agreement between retailers to set a

common price for a product such as:

• (1) Setting prices (including maximum prices).

• (2) Setting the terms of sale, such as customer credit terms.

• (3) Setting the quality or quantity of goods to be manufactured or made available for sale.

• (4) Rigging bids (agreements between or among competitors to rig contract bids)

• Horizontal Market Division and Non Price Restraints.

• Horizontal market divisions are per se violations of Section 1.

• Can take various forms.

• Group Boycotts (may be per se violation of Section 1): agreement between or among competitors that derives another competitor of something it needs to compete effectively. However, not all boycotts are per se violations.

• Trade Associations (may be per se violation of Section 1): courts do not look favorably upon attempts at self-regulation by trade and professional associations, particularly when such attempts result in group boycotts.

• League Rules. Professional sports generally work in a concerted conduct, but there are limits

Proving a Vertical Conspiracy

• Vertical Agreements: between firms at different levels of production or distribution, such as a retailer and its manufacturer.

• Interbrand vs. Intrabrand competition: Courts look favorably on reduction in intrabrand competition when there is healthy interbrand competition.

Types of Vertical Restraints

• Restraints between firms at different levels in the chain of distribution, include price-fixing, market division, tying arrangements, and some franchise agreements.

• Vertical Price-Fixing.

• Agreements on prices between firms at different levels of production or distribution.

• Also known as resale price maintenance (RPM) when the agreement fixes minimum prices.

• Threats: sanctions that interfere with the retailer’s freedom to set its own minimum price for the goods or services that it sells.

• Nonprice Vertical Restraints and Vertical Market Division.

• Exclusive Distributorships: manufacturer limits itself to a single distributor in a given territory or, perhaps, line of business.

• Territorial and Customer Restrictions: prevent a dealer or distributor from selling outside a certain territory or to a certain class of customers.

• Dual Distributors: manufacturers that sell their goods at both wholesale and retail.

Types of Vertical Restraints (cont.)

• Product Bundling and Other Tying Arrangements.

• Tying occurs when Seller agrees to sell product A (the tying, or desired product) to the customer only if the customer agrees to purchase product B (the tied product) from the seller.

• Separate Products. The tying and tied products are separate products.

• Condition of Sale. The availability of the tied product is conditioned sale of the tied product.

• The party imposing the tie has market power (“the power to force a purchaser to do something that he would not do in a competitive market”) to force the purchase of the tied product.

• Effect on Commerce: a “non insubstantial” amount of commerce in the tied product is affected.

• Unlike other per se violations, a tying arrangement may be upheld if there is a business justification for it (quality of parts for business image).

Monopolies: Section 2 of the Sherman Act

• The courts have limited the private enforcement rights of individual citizens and states by invoking the doctrine of standing. They have also limited the liability of state governments by applying state-action exemptions.

• Scope.

• “Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several states, or with foreign nations, shall be deemed guilty of a felony.”

• To prove a prima facie case, the plaintiff must show:

• Defendant has monopoly power in a relevant market, and

• Defendant willfully acquired or maintained that power through anticompetitive acts.

Market Power

• Power to control prices or exclude competition in a relevant market.

• Monopoly power is marked by prices that are higher than they would be in a competitive market over an extended period of time and the unavailability of substitute goods or services.

• Defining the Relevant Market.

• Multiple-Brand Product Market: product or service offerings by different manufacturers or sellers that are economically interchangeable and may therefore be said to compete.

• Single-Brand Product Market: market dominated by one brand and parts are controlled by that manufacturer.

• Geographic Market Competition: also affected by geographical restraints on product movement. The contours of geographic markets may also be affected by government regulations that confine firms to certain regions.

• Determining Market Share - Once relevant market is determined, the plaintiff must show defendant possessed monopoly power inferred from its share of the market (which often carries the power to control output across the market and thereby control prices).

• Barriers to Entry.

• Plaintiff must also show that there are significant barriers to entry in the market.

Monopolistic Intent• Once a prima facie case is proved, defendant’s intent may be relevant.

• If relevant, monopolistic intent be proved by evidence of conduct (not merely statements) that is inherently anticompetitive.

• Predatory Pricing: the attempt to eliminate rivals by undercutting their prices to the point where they lose money and go out of business so that the monopolist can then raise its prices because it is no longer restrained by competition.

• Refusal to Deal and the Essential Facilities Doctrine.

• Generally, antitrust laws do not prevent a firm from deciding with whom it will or will not deal, unless the firm owns or manages an essential facility, i.e., some resource necessary to its rivals’ survival that they cannot feasibly duplicate.

• Licensing of Intellectual Property. In the absence of illegal tying, fraud on the PTO, or the Copyright Registrar, or sham litigation, Xerox’s enforcement of its statutory intellectual property rights did not violate the antitrust laws.

• Other Anticompetitive Acts: allocation of markets and territories, price-fixing, fraudulently obtaining a patent, or engaging in sham litigation against a competitor.

• Derivative Markets and Monopoly Leveraging - Derivative Markets: a firm with monopoly power in one market can use that power to gain an advantage in a separate market, thus violating Section 2.

Foreign Corrupt Practices Act

Foreign Corrupt Practices Act (FCPA)

• In some nations the government is more immersed in the day-to-day functioning of commerce than the US government is with its own commerce.

• Almost every nation in the world formally outlaws bribery of its own officials, but in many foreign governments that are heavily involved in commerce, bribery of public officials has been a way of doing business.

• Bribery is corruptly offering something of value to a foreign official to obtain or retain business. The exception is where there is a fee paid for facilitating or expediting a routine government action (i.e. a visa, mail or phone service, utilities).

• It is particularly prevalent in emerging markets. Here, there is more risk of official persecution if a corrupt payment is not made.

• Today, at least 38 countries in the world also outlaw payment of bribes by their citizens to public officials. The US FCPA, though, was the first enactment of such a law.

Structure of the FCPA• Its purpose is to punish bribery of foreign officials through civil and criminal penalties,

and to establish internal accounting mechanisms that will prevent such bribery.

• Antibribery Provisions – authorize criminal punishment. They prohibit US firms from “corruptly” paying or offering to pay a foreign official for assistance in obtaining or retaining business. Also prohibited are payments to a foreign agent that the firm had reason to know that a portion of the payment would go to a public official.

• Any individual convicted under these provisions can be imprisoned up to 5 years and fined up to $100,000, even if there was no actual knowledge (though recklessness would need to be found), as well as up to a $10,000 civil penalty. Additionally under the American Fines Act, the individual could be fined up to twice the amount of the benefit sought from the corrupt payment.

• Any corporation convicted under these provisions can be fined $2million per violation and may be subject to the American Fines Act.

• For willful violations, an individual could be fined up to $5million and imprisoned for 20 years, and corporations fined up to $25million. Civil violations range from $5,000 to $500,000 or the amount of the pecuniary gain from the violation, whichever is greater.

FCPA: Accounting and Record Keeping Requirements

• The FCPA requires US public companies to “make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and disposition of their assets.”

• FCPA also requires an investor to “devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that all transactions are properly authorized and that access to assets is tracked.”

• The Sarbanes-Oxley Act of 2004 imposes further accounting and record-keeping requirements on public companies.

• Biggest criticism in this FCPA accounting and record-keeping requirement is that it is to track even the smallest of bribery payments. Usually for financial accounting purposes immaterial items are not disclosed, nor are required to be disclosed.

Fraud and Retaliation

Mail and Wire Fraud

• An employee who trades or tips using confidential information belonging to his employer can be liable under the Mail and Wire Fraud Acts.

• Statute prohibits:

• A scheme intended to defraud or to obtain money or property by fraudulent means

• The use of the mails or of interstate telephone lines or electronic communication in furtherance of the fraudulent scheme

Obstruction of Justice and Retaliation Against Whistleblowers

• Any effort to impede a criminal investigation, particularly the alteration or destruction of documents can result in obstruction of justice charge

• Illegal for any company, public or private, to retaliate against employees who provide truthful information to the government about possible violations of any federal law.

Computer Crime and Misappropriation of Intellectual Property

• Computer Fraud is the use of a computer to steal or embezzle funds

• Computer Fraud and Abuse Act (“CFAA”) prohibits seven types of activities involving “protected computers” (federal and financial institution computers as well as computes used in or affecting interstate or foreign commerce or communications)

• Damage is defined as any impairment to the integrity or availability of data, a program, a system, or information.

• CFAA makes it illegal to knowingly transmit a computer virus

• Computer piracy is theft of computer software or its use in violation of the licensing agreement.

• Federal crime to make or post unauthorized copies of software programs.

Insurance

Need for Insurance • Can protect those individuals in a business from personal liability, as well as the

assets and future retained earnings of a business

• Should communicate the nature of the business and its risks so that the business is adequately covered

• Two types:

• First-Party Insurance – protects the policyholder in the case of damage or loss to the insured property

• Third-Party Insurance – insures against liabilities to other arising out of the conduct of the business (usually for products liability and premises liability)

• Product Recall Insurance – indemnifies the company for the out-of-pocket recall expenses and lost profits, as well as other specified costs. Important, though, to know what exactly will trigger coverage.

• Data Breach and Cyber Insurance – some policies may actually exclude coverage fro data breaches and cyber attacks, but many will offer some type of cyber liability insurance. Companies should show they have a comprehensive cyber security policy.