Unit II Case Study BL

BBA 3210, Business Law 1

Course Learning Outcomes for Unit II Upon completion of this unit, students should be able to:

2. Interpret provisions of the Constitution of the United States related to businesses and property. 2.1 Explain the importance of the evolution of the Commerce Clause in the Constitution of the

United States. 2.2 Discuss the categories of intellectual properties protected by the Constitution of the United

States.

Course/Unit Learning Outcomes

Learning Activity

2.1

Unit Lesson Chapter 5 Article: "Statutory Interpretation - Commerce Clause" Unit II Case Study

2.2

Unit Lesson Chapter 8 Article: “Recent Developments in Intellectual Property Law[1]” Unit II Case Study

Required Unit Resources Chapter 5: Constitutional Law Chapter 8: Real, Personal, and Intellectual Property In order to access the following resources, click the links below. Hawkins, D. (2018, July 11). Statutory interpretation - Commerce Clause. Wisconsin Law Journal.

https://link.gale.com/apps/doc/A546713092/ITOF?u=oran95108&sid=ITOF&xid=a28938cf Nichols, C. (2019). Recent developments in intellectual property law[1]. Tort Trial & Insurance Practice Law

Journal, 54(2), 615–629. https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direc t=true&db=asn&AN=137859269&site=ehost-live&scope=site

Unit Lesson

The Constitution of the United States When the Founding Fathers created the Constitution of the United States in 1787, they were not just trying to create something different; they were trying to create a structure for government and a legal system that addressed the deficiencies of the governments and legal systems that they knew in England and France. Of course, they had already set the course for a new government and legal system in the Declaration of Independence written 13 years before, but the details of government and the legal system of the new United States still had to be solidified in the new constitution. Looking back, we might be forgiven for thinking that the tasks that the writers faced must not have been too difficult since they did create a government and a legal system that has been successful for more than 200 years, but the truth is that the task of creating a new government and legal system was difficult and

UNIT II STUDY GUIDE

The Constitution, Business, and Property

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controversial work and that, perhaps surprisingly, there was not universal approval of the final document that became the Constitution of the United States. The Constitution of the United States is a comprehensive outline that creates a structure of government and a legal system, but it is an outline that has to be continually interpreted to address issues and situations that could not have been anticipated by the writers. The Constitution addresses many areas of government and the legal system, but naturally our focus in this course is on the provisions of the Constitution that affect business and property. The Commerce Clause The most important—or at least the most prominent—provision of the Constitution that affects business is the Commerce Clause found in Article I, Section 8 of the Constitution, which provides “Congress shall have the power … To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes” (U.S. Const. art. I, §8). This clause provides that the Congress of the United States has the authority to regulate commerce between the states. In other words, Congress, not the individual states, has the authority to enact laws that regulate business transactions between private businesses in different states. That authority is the basis for a broad range of federal laws that range from setting standards for the quality of products made in one state and sold in other states to prohibiting advertising of certain kinds of products, like tobacco products, that move in interstate commerce. For many years, the Commerce Clause was applied by the courts as it was written without any major interpretation. However, coinciding with the recovery after the Great Depression, the courts began to interpret the Commerce Clause more broadly so that the authority of Congress to regulate business transactions was extended to business transactions within a single state that had the potential to affect interstate commerce. An extreme example of the power of Congress to regulate business activities that were not interstate in nature but that were judged to have an effect on interstate commerce was the case of Wickard v. Filburn. In that case, a farmer, Filburn, grew wheat on his farm to feed the animals that he raised on that farm. There was a federal law that limited the amount of wheat that a farmer could grow, and when Filburn was found to have grown more wheat than the law allowed him to grow, a significant fine was assessed against him. Filburn objected to the fine, contending that the law limiting the amount of wheat that a farmer could grow should not apply to him because he did not sell the wheat in interstate commerce and used the wheat only to feed animals that he raised on his farm. The U.S. Supreme Court ruled that while Filburn’s actions were local in nature and might not even be considered to be business activities, the law applied to those activities because the activities had an impact on interstate commerce. If Filburn had only grown what he was allowed to grow, he would have had to buy the additional wheat that he needed from other growers, and those growers might have been in other states, so by growing more than he was allowed to grow, Filburn potentially affected the amount of interstate commerce that might otherwise be expected (Wickard v. Filburn, 1942). The Dormant Commerce Clause Despite this expansion of the authority of Congress to regulate interstate commerce, there are legitimate reasons for states to regulate commercial activity within the state. However, if a state’s regulation of commerce within the state has a negative impact on interstate commerce, courts must balance the state’s interests in regulating the commercial activity against the negative impact on interstate commerce; often, courts find that the state regulation of commerce within the state does not justify the impact on interstate commerce, and the state regulations are invalid because they conflict with Congress’s authority to regulate interstate commerce. The invalidation of state regulation of commercial activity within the state because the regulation conflicts with the Commerce Clause is often called the Dormant Commerce Clause. An extreme example of the application of the Dormant Commerce Clause doctrine is the case of Gonzales v. Raich. In that case, though California law allowed individuals to grow marijuana for personal medical use, the federal Drug Enforcement Administration agents destroyed marijuana plants being grown by Raich because marijuana was illegal under the federal Controlled Substances Act. Raich sued the United States, contending that her activities were legal under California law and that the destruction of the marijuana plants she was growing was illegal (Gonzales v. Raich, 2005). The U.S. Supreme Court, in what some thought was an

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illogical opinion, said that the federal Controlled Substance Act was a proper exercise of the authority of Congress under the Commerce Clause. The court said that the California law allowing Raich to grow marijuana for personal medical use conflicted with the Controlled Substance Act and that the Dormant Commerce Clause required that the California law, which allowed Raich to grow marijuana for personal medical use, be ruled as invalid, reasoning that if Raich did not grow marijuana for her own medical use, she would have had to buy the marijuana potentially in interstate trade (Gonzales v. Raich, 2005). The reason this train of thought is so illogical is, of course, because buying marijuana in interstate trade would be illegal. Other Constitutional Provisions Affecting Business There are other, less controversial provisions of the Constitution that affect business transactions. Article I, Section 10, Clause 1 of the Constitution provides, “No State shall … pass any … Law impairing the Obligation of Contracts” (U.S. Const. art. I, §10, Clause 1). In other words, the government cannot enact laws that change or invalidate private contracts that have already been made. It is a fairly rare occurrence that the government would have an interest in interfering with contracts made between private businesses, but it has happened a few times. In most cases under this Contracts Clause, the change in the terms of the contract are indirect. An example of a Contracts Clause case is Energy Reserve Group v. Kansas Power and Light. In that case, Kansas Power and Light had a long-term contract to buy natural gas from the Energy Reserve Group at a price that was tied to the federally established price for natural gas. During the term of the contract, the federal apparatus for establishing the price of natural gas was changed so that, though a federal price for natural gas was still established, states were allowed to set a price for natural gas that was lower than the federal price. The State of Kansas did establish a price for natural gas that was lower than the federal price, and when the Energy Reserve Group attempted to charge Kansas Light and Power the federal rate, Kansas Light and Power refused to pay more than the price set by the State of Kansas (Energy Reserve Group v. Kansas Power and Light, 1983). The Energy Reserve Group sued claiming that the federal regulations that allowed Kansas to set a price for natural gas that was less than the federal price and that the Kansas law did set a price lower than the federal price both violated the Contracts Clause because those laws impaired the existing contract between the Energy Reserve Group and Kansas Light and Power. The U.S. Supreme Court decided that, though the laws resulted in Kansas Light and Power being able to pay less for the natural gas supplied by the Energy Reserve Group than was expected under the contract, that result was justified by the interest of the State of Kansas in protecting consumers in Kansas from escalating natural gas prices (Energy Reserve Group v. Kansas Power and Light, 1983). Despite the fact that the law changed the terms of the contract between private parties, the change was justified by an overriding state interest. Often, in cases involving interpretation of constitutional provisions as they relate to business, there is a balancing of private business interests against legitimate state or federal interests that seem to conflict with those private business interests. When the Constitution was adopted, some of the Founding Fathers thought that it was incomplete because it did not contain a statement of the rights of the people that should be protected from government interference. That deficiency was corrected in 1791 when the first 10 amendments to the Constitution, called the Bill of Rights, were ratified. Most of the rights that are included in the Bill of Rights apply not only to individuals but also to organizations, including business organizations, but a few of those rights have special applications to business. For example, the Fifth Amendment provides that private property shall not be taken for public use without due compensation paid to the owner of that property. Over the years, there have been questions about what taking private property for “public use” means and how “due compensation” is determined. Though the interpretation of those concepts continues to evolve, it is clear that government cannot involuntarily take privately owned property except to be used for a legitimate public purpose and only if the private owner is paid for that property.

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Protection of Intellectual Property Another constitutional provision that relates to property is Article I, Section 8, Clause 8 of the Constitution, which authorizes Congress "to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries" (U.S. Const. art. I, §8, Clause 8). This provision is the basis for intellectual property protection in the United States. The concept of intellectual property is probably broader now than it was in 1789, and it now includes the copyrights and patents that were probably contemplated by the Founding Fathers but also trademarks and even trade dress and trade secrets. Each of these categories of intellectual properties are afforded some protection under federal and state laws, ranging from registration of the copyrights, patents, and trademarks to laws that provide how intellectual properties can be protected from infringement. Despite the protections provided for intellectual properties, exceptions have developed that allow the use of certain intellectual property in limited situations without the permission of the owner of that property. For example, the fair use doctrine allows the limited use of copyrighted and trademarked material for specific purposes without the consent of the owner of the copyright or trademark. One example of this is when passages from a copyrighted book are quoted in a review or criticism of that book. Another common application of the fair use doctrine is the use of limited amounts of copyrighted material used in teaching a class.

Conclusion Although the Constitution was written more than 230 years ago, it addresses two areas that are important for businesses today: commerce and intellectual property. Though the primary responsibility for promoting and protecting commerce and protecting intellectual property is assigned to the federal government, there are still opportunities for states to be involved in these areas that are important to businesses.

References Energy Reserve Group v. Kansas Power and Light, 459 U.S. 400 (1983). Gonzales v. Raich, 545 U.S. 1 (2005). U.S. Const. art. I, §8 U.S. Const. art. I, §8, Clause 8 U.S. Const. art. I, §10, Clause 1 Wickard v. Filburn, 317 U.S. 111 (1942).

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Learning Activities (Nongraded) Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit them. If you have questions, contact your instructor for further guidance and information.

View the Unit II Glossary to review key terms presented in this unit. Alternate format for Unit II Glossary

Reference Photogl. (n.d.). Books on library shelves (ID 20785201) [Photograph]. Dreamstime.

https://www.dreamstime.com/stock-image-books-library-shelves-image20785201

(Photogl, n.d.)