Business Law Final Review

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  1. Intellectual property is intangible property, which is legally protected property created mostly by mental effort. The scope of interests in intellectual property is determined by a mix of common law and statutory law that restricts infringement by others.
  2. Trademarks are design, logos, distinctive marks, or words that manufacturers put on their goods for identification by consumers. At common law, the first producer to use a mark in a given area establishes priority of use. Under the Lanham Act, marks may be registered with the Patent and Trademark Office. Rights to a mark continue for as long as the mark is used and protected.
  3. The strongest trademarks are arbitrary and fanciful, which includes made-up words or real words applied to a product not related to the word as commonly used. Suggestive marks that hint at the kind of product are also provided strong protection. Less protection is available for descriptive marks, where the mark implies the good. Generic marks are words that were once protected trademarks but were lost as a result of lack of protection and common usage.
  4. Trade dress is trademark law applied to the look and feel of a product, such as a distinctive color or design. Service marks are the same as trademarks but apply to services instead of goods. Trade names are business names and are protected in the market in which the business is recognized.
  5. Goods that are sold pretending to be genuine trademarked goods are counterfeits and are illegal. It is also a violation of trademark law to infringe on a mark by using it improperly or by using a version of the mark that is so close to the original that it could cause confusion in the market. Infringement usually is attacked for drawing sales away from the original mark holder. Similarly, dilution of marks is prohibited. Rules against dilution protect the integrity and distinctiveness of the mark by prohibiting their use in unrelated markets without permission.
  6. Copyrights allow exclusive control over original written works, musical compositions, art, and photography. Control extends to reproduction, publication, displays, performances, or derived works. While copyrights exists at common law, registration under the Copyright Act provides clear evidence of ownership and is good for 70 years plus the life of the creator.
  7. While copyright ownership is based on the common law, the Copyright Act specifies a fair use defense to avoid a charge of infringement. The factors the courts consider in ruling on fair use include:
    1. the purpose and character of the copying
    2. the nature of the copyrighted work
    3. the extent of the copying
    4. the effect of copying on the market for the original work
  8. Patents are exclusive statutory grants to protect an invention, design, or process that is genuine, useful, novel, and not obvious. Protection runs for 20 years from the time of patent application, which reveals to the public all details about the innovation.
  9. Trade secrets are formulas, patterns, devices, or compilations of information used in business that give an economic advantage over competitors who do not have the information. They are protected by tort law from theft. Trade secret owners must take reasonable steps to protect the information from disclosure, including obtaining employee agreements not to reveal the information.
  10. The Economic Espionage Act makes it a federal criminal offense to steal a trade secret and give it or sell it to another in commerce for economic benefit.
  11. To make contract law more consistent with business practices and reduce the cost of operating businesses across state lines, the Uniform Commercial Code was developed. Article 2 of the UCC governs contracts for the sale of goods. Goods are tangible things that are movable at the time of the identification of the contract. Real estate, services, stocks, bank accounts, patents, and copyrights are not "goods" under the UCC. Transactions involving those things are governed by the common law of contracts.
  12. Under the UCC, merchants are held to a higher standard of conduct than are non-merchants. A person is a merchant if she deals, holds herself out as having special knowledge, or employs an agent, broker, or other intermediary who holds himself out as having special knowledge of the goods involved in the transaction. Merchants are required to conduct their activities in good faith and must follow business practices common in the trade.
  13. The common law governs a transaction unless the UCC modifies or specifically changes the effect of the common law. Generally, when the UCC modifies the common law, the effect is usually to be less demanding than the common law. An acceptance under the UCC, for example, does not have to be unequivocal to form a contract. An indefinite offer can form the basis of a contract (even with open price, quantity, delivery, or payment terms) under the UCC but not under the common law.
  14. The basic obligation of the seller is to transfer and deliver the goods. The buyer is obligated to accept and pay for them. In performing their obligations, in contract performance and enforcement, the parties are required by the UCC to act in good faith.
  15. In delivering conforming goods to the buyer, the seller is concerned with the appropriate manner and timeliness of delivery, place of tender, and the quality of tender. The UCC instructs the courts to provide such terms according to the apparent intent of the parties or the trade custom.
  16. The common law's perfect tender rule requires that the seller's tender of delivery conform in detail to the terms of the contract. The UCC modifies the buyer's common-law right to reject the goods by providing the seller with the right to cure defects within the time frame of the contract.
  17. The UCC obligates the seller to warrant title to goods being sold. The seller warrants good title, the absence of any interests or liens on the goods, and that the goods are free of any patent, copyright, or trademark infringements.
  18. A seller may create an express warranty under the UCC by making a statement to the buyer about the gods or by providing the buyer with a description of the goods or a sample or model of the goods.
  19. The UCC provides an implied warranty of merchantability and an implied warranty of fitness for a particular purpose. The good must conform to the contract description; be fit for the purposes for which it is intended; be of even kind, quality, and quantity; be adequately labeled; and conform to label descriptions. If a seller knows a buyer has a particular purpose for a good, and the buyer relies on the seller's skill or judgement in selecting a good, an implied warranty of fitness for a particular purpose may be created.
  20. The UCC extends to designated third parties any express warranty made by the seller to a buyer. To be consistent with other third-party beneficiary rules within a state, the UCC provides several alternative rules that states may adopt if they wish.
  21. When a buyer or seller breaches a contract for the sale of goods, the UCC provides the non-breaching party with remedies designed to place them in the same position as if the contract had been performed. The seller may recover for losses suffered due to buyer's failure to accept goods or to pay for goods. The buyer may recover the difference between what had to be paid to obtain substitute goods and the contract price. The seller and the buyer may seek incidental damages for recovery of costs resulting from the breach. The buyer is also allowed to recover consequential damages suffered, usually lost profits.
  22. The UN Convention on Contracts for the International Sale of Goods applies to contracts for commercial sale of goods by parties who have places of business in different countries that have ratified the CISG. Most major nations, including the United States, have ratified it. Such sales are covered by the CISG unless the parties specify that they want some other law to govern the contract.
  23. The CISG applies only to goods in commercial sales, that is, between merchants. Like the UCC, it does not require contracts to be formal writings, but gives priority to written terms in case of dispute. When terms are unclear, the courts are to look to the intent of the parties and to trade usage.
  24. In the event of a battle of the forms, under the CISG, when there are differences in material terms, no contract is formed; when changes are to minor terms, they may become incorporated into the contract unless objected to by a party.
  25. As with commercial contracts in the United States, most international commercial sale contracts include an arbitration clause. Many nations have adopted the Convention on the Recognition and Enforcement of Foreign Arbitrable Awards, so courts will uphold arbitration clauses and enforce arbitration results unless it conflicts with national policy or there was a serious problem with the arbitration process.
  26. Negotiable instruments are flexible commercial instruments because of their ability to be transferred. Once issued, a negotiable instrument can be transferred by assignment or by negotiation. If the instrument is assigned, the assignee has the same contract rights and responsibilities as the assignor. If the instrument is transferred by negotiation, the transferee takes the instrument free of the transferor's contract responsibilities.
  27. To be negotiable, a commercial instrument must meet the general requirements of a negotiable instrument as provided by the UCC. It must be written, be an unconditional order or promise to pay, be signed by the maker or drawer, be payable on demand or at a specified time, be made out "to order" or "to bearer," and state a certain sum of money.
  28. If an instrument is negotiable under the requirements of the UCC,the instrument may be freely traded in the marketplace without concern for existing contract responsibilities as long as the instrument is in the possession of a holder in due course.
  29. As a creditor, a business monitors its credit extension and debt collection policies. As a debtor, a business borrows to pay for equipment, inventory, land, and buildings. Creditors are interested in being protected in the event a debtor is unable or unwilling to pay.
  30. A secured creditor has the right to take specific property of an insolvent debtor to satisfy the debt. The law provides two ways the creditor can obtain a debtor's property, referred to as security or collateral.
    1. by agreement with the debtor
    2. by operation of law and without an agreement between the lender and the borrower
  31. A lender may require that a financially strong third party guarantee a loan. Such a guaranty may be a pledge of personal assets by business owners or from a third party. A promise is made to pay a particular debt of the business in the event it does not pay. A suretyship or guaranty is created, and the credit of the party providing it is the security for the debt owed.
  32. When a product is sold to a customer, Article 9 of the UCC provides that the product itself may secure the customer's obligation to pay. When credit is extended this way, the sale is called a secured transaction. By meeting the requirements of the UCC, the creditor obtains a security interest in the product to secure payment.
  33. To make a security interest enforceable, the lender must create the interest and make sure the interest is attached and perfected. When a creditor has a security interest in the product, it has priority to the product over some other and unsecured creditors. The lender can sue the debtor to recover the debt or repossess the product and resell it.
  34. In most credit transactions, except mortgages, creditors require that a security agreement and a financing statement be accepted and signed by the borrower. When money is borrowed for the purchase of real estate, the real estate itself secures the obligation and is evidenced by a mortgage. In most states, the mortgage is a lien, giving the holder the right to sell the property and repay the debt from proceeds in the event of default.
  35. Security obtained by a creditor through the operation of law is called a lien. The procedures for using liens are determined by state law. The most common liens are the mechanic's lien (applicable to real property), the possessory lien (applicable to personal property), and court-decreed liens. In each case, the lender may obtain the lien without the borrower's consent by following statutory procedures.
  36. The bankruptcy code governs bankruptcy procedure. There are several approaches to bankruptcy, including Chapter 7 (providing for liquidation and fair distribution of the debtor's assets for creditors), Chapter 11 (allowing businesses to reorganize rather than being liquidated), and Chapter 13 (personal bankruptcy for individuals that reorganizes debts, but does not discharge them)
  37. The trustee (or debtor in possession) is the person in charge of the bankruptcy. It is the trustee's objective, under bankruptcy court supervision, to maximize the amount of the debtor's assets available for distribution to the creditors.
  38. Bankruptcy law states that certain creditors take priority over other creditors in receiving shares of the debtor's assets. Secured creditors take priority over unsecured creditors.
  39. The most prominent forms of business organization are the sole proprietorship, partnership, limited partnership, corporation, and limited liability company.
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Business Law Final Review
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