Business Law Case Study Year 1

INTRODUCTION TO LAW

UNIT 1

WHAT IS LAW?

In general terms, law is a set of rules recognized and maintained by the state to regulate the human behavior and conduct in a society in

order to protect basic rights and freedoms, and to treat everyone fairly.

Legal rules vs. social rules

Law can be defined as a set of rules which we are bound to obey (i.e. those rules which are enforced by the State). Failure to obey laws would result in us having to face certain repercussions. However, besides legal rules, there are also social rules. Society may be governed by social rules as well. These two types of rules are clearly distinct from each other. Social rules could include ‘proper’ behaviour or etiquette. The same conduct can be both wrong legally and socially (e.g. killing a person).

It is polemic to say which social rule should receive the force of law and which should not. A person is likely to be fined for failure to wear a helmet while travelling on a motorbike, but it might not be considered as being socially unacceptable to not wear a helmet. How a social rule becomes law may depend on the society we live in, being conditioned by religion, culture, tradition, etc.

Any kind of behaviour which is accepted as proper by the society may be defined as social rules and any behaviour regulated by law are legal rules. The difference between these rules can be identified in the mechanisms used to enforce them and the analysis of their violation consequences.

For example: • Breaking the law will result in punishment by courts (e.g. robbery) • Violating a social rule will result only in criticism (e.g. unhealthy lifestyle)

What is law for?

1. Maintenance of public order and safety

Law is seen as the ‘glue’ that holds the fabric of society together. The law protects us from complete social disorder and anarchy (i.e. lawlessness).

2. Protection of individual rights and liberties

This is to ensure that everybody is equal before the law and that nobody is above the law. Therefore powerful persons are all controlled by the laws in place and this would mean that all individual rights are protected equally.

3. The organisation and control of the political sphere

The law sets out the boundaries of politics by preserving the political structure and process under which governance is possible. The best example of the relationship between law and state is the constitution.

4. The regulation of economic activity

Facilitates and encourages national and international trade in goods and services by setting out legal frameworks by which parties can be bound.

5. The regulation of human relationships It serves to legitimize and control various aspects of interpersonal relationships such as entering into marriages, distribution of family wealth, regulation of the parent-child relationship, etc.

6. The preservation of a moral order Sometimes law and morals overlap. Some morals are given the force of law.

7. The regulation of international relations

The regulation of international relations is also done by a branch of law called (public) international law. The creation of states, definition of state boundaries, diplomacy, international humanitarian law etc.

LEGISLATION AND CASE LAW

• Statutory law (legislation) refers to laws passed by legislative bodies. They are designed to deal comprehensively and sensibly within a defined set of issues, presenting the public with a clear set of rules to follow. They are political in nature, reflecting the political forces inherent in the legislatures that create them.

• Case-law refers to the decisions of courts that arise from disputes between individual parties. Case law stems from cases that have “new" legal scenarios or when the reading of a statute is ambiguous or vague and the judges need to step in and interpret how it applies to one or many situations.

So, the most distinctive difference between case-law and statutory law has to with the institution in which these laws are constituted. Statutory law can overwrite decisions set by the courts. The only situation where court can overwrite a statutory law is when the latter violates the fundamental rights or constitutional rights.

MAIN CATEGORIES OF LAW

CATEGORIES OF LAW BASED ON THE INVOLVED LEGAL SUBJECTS

PUBLIC LAW

PRIVATE LAW

Public law regulates relations between private individuals and the state. -Operation of government -Extent of state authority, relationship between state organs and public, etc.

Private law regulates Relationships between private persons. “Person” refers both to natural and legal persons.

Public Law and Private Law

CATEGORIES OF LAW BASED ON THE CONTENT

SUBSTANTIVE LAWS

PROCEDURAL LAWS

Substantive Law and Procedural Law

Substantive law defines rights, obligations and liability.

Procedural law defines the pleading and procedure by which substantive laws are applied in practice.

CATEGORIES OF LAW BASED ON THE APPLICATION SCOPE

NATIONAL LAW

• National law is a domestic law existing in a state.

INTERNATIONAL LAW

• International law is a law that regulates how the nations/states interact with each other.

NATIONAL LAW

CONSTITUTIONAL LAW

ORDINARY

LAW

INTERNATIONAL PUBLIC LAW IS A SET OF RULES GOVERNING THE CONDUCT AND RELATIONS OF STATES WITH EACH OTHER.

INTERNATIONAL PRIVATE LAW IS A SET OF RULES APPLICABLE TO INDIVIDUALS (NOT TO STATES) IN THE CASE OF EXISTENCE OF A FOREIGN ELEMENT.

INTERNATIONAL LAW

INTERNATIONAL PUBLIC LAW

INTERNATIONAL PRIVATE LAW

THE MAIN CHARACTERISTICS OF LAW ARE:

1) IT IS A SET OF RULES.

2) IT REGULATES THE HUMAN CONDUCT.

3) IT IS CREATED AND MAINTAINED BY THE STATE.

4) IT HAS CERTAIN AMOUNT OF STABILITY, FIXITY AND UNIFORMITY.

5) IT IS BACKED BY COERCIVE AUTHORITY.

6) ITS VIOLATION LEADS TO PUNISHMENT.

7) IT IS THE EXPRESSION OF THE WILL OF THE PEOPLE AND IS GENERALLY WRITTEN DOWN TO GIVE IT DEFINITENESS.

8) IT IS RELATED TO THE CONCEPT OF SOVEREIGNTY WHICH IS THE MOST IMPORTANT ELEMENT OF ANY STATE.

SOURCES OF LAW

• Constitutions

• Statutes

• Customs

• Judicial decisions

• Legal principles

• The opinions of jurists

HIERARCHY OF NORMS

(EU SYSTEM)

WORLD LEGAL SYSTEMS

CANON LAW

SYSTEM

RELIGIOUS LAW

SYSTEM

CIVIL LAW

SYSTEM

COMMON LAW

SYSTEM

MIXED LAW

SYSTEM

CUSTOMARY LAW

SYSTEM

THERE ARE THE FOLLOWING LEGAL SYSTEMS IMPLEMENTED THROUGHOUT THE WORLD:

World legal systems mapping can be found here (as to 03.10.2019): https://upload.wikimedia.org/wikipedia/commons/9/92/Map_of_the_Legal_systems_of_the_world _%28en%29.png

CIVIL LAW SYSTEM

THE CIVIL LAW SYSTEM IS THE MOST WIDESPREAD LEGAL SYSTEM IN THE WORLD. THE DISTINGUISHING FEATURE

OF THE CIVIL LAW SYSTEM IS THAT ITS LEGAL AUTHORITY IS ORGANIZED INTO WRITTEN CODES. THE CIVIL LAW

SYSTEM IS DERIVED FROM ROMAN LAW AND IS FOUND IN MUCH OF CONTINENTAL EUROPE, CENTRAL AMERICA,

SOUTH AMERICA, AND SEVERAL OTHER REGIONS.

COMMON LAW SYSTEM

IN CONTRAST TO THE CODIFIED LAWS OF THE CIVIL LAW SYSTEM, DOCTRINES AND RULES DEVELOPED OVER TIME

BY JUDGES SERVE AS "LEGAL PRECEDENT" IN THE COMMON LAW SYSTEM. THE COMMON LAW SYSTEM IS

DERIVED FROM THE ENGLISH COMMON LAW AND IS FOUND IN MANY PARTS OF THE ENGLISH-SPEAKING

WORLD SUCH AS AUSTRALIA, CANADA, ENGLAND, THE UNITED STATES, WALES, AND OTHER COUNTRIES.

CUSTOMARY LAW SYSTEM

CUSTOMARY LAW IS ROOTED IN THE CUSTOMS OF A COMMUNITY. COMMON ATTRIBUTES OF CUSTOMARY

LEGAL SYSTEMS ARE THAT CUSTOMS MAY BE UNWRITTEN, CUSTOMS GOVERN SOCIAL RELATIONS, AND CUSTOMS ARE WIDELY ACCEPTED BY THE COMMUNITY'S

MEMBERS. CUSTOMARY LAW SYSTEMS ARE FOUND IN AFRICA, THE PACIFIC ISLANDS, AND ELSEWHERE.

MIXED LAW SYSTEM

MIXED LAW REFERS TO A COMBINATION OF ELEMENTS OF THE LEGAL SYSTEMS DESCRIBED

ABOVE (CIVIL LAW-COMMON LAW SYSTEMS; CIVIL LAW- RELIGIOUS LAW SYSTEMS; COMMON LAW-RELIGIOUS

LAW SYSTEMS; CIVIL LAW-CANNON LAW SYSTEMS).

RELIGIOUS LAW SYSTEM

THE RELIGIOUS LAW (JEWISH LAW AND MUSLIM LAW) SYSTEM IS A LEGAL SYSTEM THAT IS BASED ON RELIGIOUS BELIEFS OR

TEXTS. ISLAMIC LAW IS THE MOST WIDESPREAD RELIGIOUS LAW SYSTEM, AND IT GOVERNS ALL ASPECTS OF PUBLIC AND PRIVATE LIFE. ISLAMIC LAW SYSTEMS ARE FOUND THROUGHOUT AFRICA, THE MIDDLE EAST, CENTRAL ASIA, AND SOUTH ASIA, AND THEIR

LAWS WIDELY VARY AMONG MUSLIM COUNTRIES.

CANON LAW SYSTEM

CANON LAW IS A SET OF ORDINANCES AND REGULATIONS MADE BY ECCLESIASTICAL AUTHORITY (CHURCH LEADERSHIP), FOR THE

GOVERNMENT OF A CHRISTIAN ORGANIZATION OR CHURCH AND ITS MEMBERS. IT IS THE INTERNAL ECCLESIASTICAL LAW, OR

OPERATIONAL POLICY, GOVERNING THE CATHOLIC CHURCH, THE EASTERN ORTHODOX AND ORIENTAL ORTHODOX CHURCHES, AND

THE INDIVIDUAL NATIONAL CHURCHES WITHIN THE ANGLICAN COMMUNION. THE WAY THAT SUCH CHURCH LAW IS LEGISLATED,

INTERPRETED AND AT TIMES ADJUDICATED VARIES WIDELY AMONG THESE THREE BODIES OF CHURCHES. CANON LAW SYSTEM, IN COMBINATION WITH CIVIL LAW SYSTEM, IS IMPLEMENTED IN

VATICAN CITY.

Civil law vs. Common law CIVIL LAW COMMON LAW

MAIN SOURCE OF LAW legislation precedents

LAW-MAKING BODIES legislative bodies the judiciary

CREATION OF LEGAL PRINCIPLES

from general and abstract; deductive reasoning:

applying a general principle to a particular case

from specific and individual; inductive reasoning:

legal principles derived from individual cases

ROLE OF THE JUDICIARY interprets and applies the law

creates the law (precedents)

TYPE OF LEGAL PROCEDURE inquisitorial adversarial ** Inquisitorial = judges play an active part in the trial, they essentially conduct a public investigation of a crime, they can question witnesses, interrogate suspects, declare the verdict and decide on the penalty.

Adversarial = the judge acts as an impartial referee between the two sides to the case; he/she does not question witnesses or suspects but listens to the arguments from both sides; if there is a jury, it makes findings of fact; the judge makes findings on the law with no power to make their own inquiries.

LAW AND ETHICS

WHAT IS ETHICS?

In general terms, ethics is a system of moral principles affecting on how people make

decisions. Ethics is concerned with identifying what is good and what is bad. Ethics provides with a moral map, a framework that we can

use to find solution to difficult issues.

VIOLATION OF BUSINESS ETHICS AND LAW: EXAMPLES OF CONSEQUENCES

Epson accused of planned obsolescence (=intentionally shorten lifespan of a product with the aim of making customers replace it)

After an investigation, the French Association for Programmed Obsolescence found a problem with the ink cartridges of this Japanese printer manufacturer. Although the cartridges had between 20% and 40% of ink, there was an indication that they were empty, thus printers became blocked and stopped working.

Consequently, Epson was denounced for the crime of planned obsolescence and in December 2017 the French Prosecutor initiated a criminal investigation against the company. The crime, according to the French Transition Energy law, is punishable by a two-year jail term and a fine that reaches 5% of annual earnings.

The company has not published any official statement to defend itself or explain what happened to the ink cartridges that stopped working prematurely.

Volkswagen falsified polluting emissions

In 2015, the United States authorities accused the German automaker of falsifying carbon dioxide emissions levels on some of its vehicles with diesel engines.

Since the scandal was known, the US government penalized Volkswagen for about 23,000 million $ to compensate affected customers and dealers. The company's shares in the stock market fell more than 15% and, of course, the brand's reputation was seriously affected.

Martin Winterkorn, president of the company at that time, assumed responsibility, acknowledged having sold 11 million cars with that falsification, and resigned. The company apologized to customers for abusing their trust and removed millions of cars from all over the world.

Apple admitted planned obsolescence (=intentionally shorten lifespan of a product with the aim of making customers replace it)

Apple slowed down some of its old iPhone models (6, 6s, SE and 7) through software updates in order to prolong the life of the lithium-ion battery, after that one of its users denounced. the case in social networks and media. Apple was accused in planned obsolescence and the French Prosecutor's Office conducted a criminal investigation.

Likewise, consumers in the United States and Israel sued the company, accusing it of fraud and misleading advertising. It was argued that users had to be informed that the updates would slow their iPhones.

Apple apologized for the happened and offered, until December 2018, compensation for the battery change ($ 29 instead of $ 79). It also promised to inform about iOS updates in a timely manner.

CORPORATE LEGAL STRATEGY

A company that makes proactive use of the law not only manages corporate risk,

but also enhances shareholder value. The law isn't just for lawyers. Managers

must become more perceptive about the legal environment around them. At the

same time, lawyers should understand the business environment, participate in

corporate decisions, and be ready to push back when executives head toward

wrong decisions.

The law offers a variety of tools that managers can use to run the business more

effectively. They range from contracts, which can be used to strengthen business

relationships, allocate risk and reward, and preserve options, to various forms of

intellectual property protection, such as patents, trade secrets, and trademarks.

However, law is often not at all clear-cut. It is very fact-specific. Moreover, moral

and ethical considerations may decisively influence how law is applied. As a result,

purely technical legal advice is often inadequate.

The organization must encourage the free flow of legal and business information to

and from managers and lawyers, so that the lawyers understand the context in

which a decision is being made and the competing considerations.

CEOs need to be proactive and encourage general managers to bring counsel in

early in the decision-making cycle; they should not wait until the last minute to

fight a fire that has already started or to bless a deal that is already impossible to

reach. The available options to create and capture value and to manage risk

increase substantially when the managers and lawyers work as partners both to

craft the objectives and to devise the means of accomplishing them.

Every general manager needs to develop a degree of legal awareness appropriate

to their firm and industry. At a minimum, they need to know where the lines are on

the field: that is, what conduct is legal and what is not. They also need to be able

to spot legal problems before they become legal issues and to identify

opportunities to use the law to create value and manage risk.

An example of well-thought corporate legal strategy: Mickey Mouse

and the Walt Disney Company.

Faced with the eventual expiration of its media copyrights (Mickey Mouse,

having it first appeared in 1928, will be in public domain on January 1, 2024),

Disney executives transferred the value of that intellectual property into

thousands of newly registered trademarks for various characters, names and

images. This legal strategy achieved two important goals. First, it shifted the

company’s property to a legal regime that offers an indefinite lifetime. Second, it

facilitated the expansion of name and character merchandise licensing, which

now accounts for a global, multibillion-dollar, high-profit-margin business.

Without a working knowledge of the law, however, this shrewd strategy never

would have been properly executed, and considerable shareholder value would

have been lost.

A framework that can help executives to identify the different ways in which legal strategies can be used to achieve various corporate goals are of five different legal pathways:

1. Avoidance

2. Compliance

3. Prevention

4. Value

5. Transformation

Finding the right legal pathway for a particular company requires more than just a consideration of the overall business model. Other key factors include managers' attitudes toward the law and their level of legal knowledge, the sophistication of legal counsel and, in particular, the legal department's ability to work with managers to achieve strategic business goals.

CORPORATE LEGAL STRATEGY FRAMEWORKS

1.In the avoidance pathway, managers see the law as an obstacle to their desired business goals. Companies operating in the avoidance pathway will often have careless internal controls or a failure to perform due diligence, and this approach can lead to disaster.

2.Companies in the compliance pathway recognize that the law is an unwelcome but mandatory constraint, and they think of compliance basically as a cost that needs to be minimized.

3.For businesses in the prevention pathway, managers take a more proactive approach, using the law to avoid future business-related risks.

4.The value pathway represents a fundamental shift in mind-set, from risk management to value creation; managers use the law to craft strategies that increase the return of investment in ways that can be directly tied to a profit-and-loss statement.

5.For companies in the transformation pathway, executives have integrated their legal strategy not only within the organization's various value-chain activities but also with the value chains of important external partners.