Internet domain names are linked to trademark issues. Technology makes it easy to copy and distribute music and movies without paying royalties. Business conducted on the internet raise security and privacy issues. What legal concerns are raised by these issues? Predict which of these issues will be of major concern in the future in regard to the law and business practices. Your initial post should be at least 250 words in length. Support your claims with examples from the required reading material and one outside scholarly source, and properly cite the reference. Unit V Business Law in the 21st Century CHAPTER 14: Cyberlaw CHAPTER 15: International and Environmental Law 286 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_14_c14_286-306.indd 286 9/20/16 11:03 AM B usinesses increasingly operate in a global environment, one linked together by electronic communication that is almost instantaneous, and that now enables even small businesses to do business on an international level. The Internet has vastly increased opportunity for both businesses and consumers, but it also has brought new hazards in the form of security and privacy issues. In Chapter 14, we will look at some of the major concerns involving law and the Internet. As companies increasingly move across national boundaries, an awareness of international law is important for the business student. In Chapter 15, we will discuss laws impacting import and export of goods, international contracts, and some of the problems that can arise when one country’s laws conflict with another’s. We will also examine the major areas of environmental regulation, noting both where legal protections have been effective, and where they have fallen short. As the world grows increasingly interdependent, in terms of both economies and resources, business practice and the law will both continue to evolve. These chapters will introduce business students to topics critical to globalization, and hopefully pave the way for future understanding as changes take place. 287 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_14_c14_286-306.indd 287 9/20/16 11:03 AM © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_14_c14_286-306.indd 288 9/20/16 11:03 AM 14 Cyberlaw Learning Objectives After studying this chapter, you will be able to: 1. Distinguish the major statutes regulating cyber activity. 2. Define spam, phishing, click-wraps, and cookies. 3. Describe the issues relating to privacy and the Internet. 4. Explain how legal issues about sales tax affect business on the Internet. Lucenet Patrice/Oredia Eurl/SuperStock Chapter Overview 14.1 J urisdiction and the Problem of Enforcement 14.2 Computer Crime • • • • Hacking Identity Theft Fraud Phishing 14.5 E-Contracts • Click-Wrap Contracts • Sales Tax 14.6 Intellectual Property • The Digital Millennium Copyright Act (DMCA) • The Stop Online Piracy Act (SOPA) 14.7 Chapter Summary 14.3 Cyber Torts • Focus on Ethics • Case Study: American Guarantee & Liability Insurance Co. v. Ingram Micro, Inc. • Case Study: E. & J. Gallo Winery v. Spider Webs Ltd. • Critical Thinking Questions • Hypothetical Case Problems • Key Terms 14.4 Privacy • • • • • Cookies and Privacy E-Mail and Privacy Commercial E-Mail and Privacy The Constitution and Privacy Computer Crime and Privacy 289 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_14_c14_286-306.indd 289 9/20/16 11:03 AM Section 14.1 Jurisdiction and the Problem of Enforcement CHAPTER 14 T he incredible capabilities of computers and the growth of the Internet have greatly increased opportunities in the business world, but have also resulted in new risks for both businesses and consumers. Technology makes it possible for us to communicate with anyone in an instant, to buy goods with a click of a mouse, and to gather vast amounts of information with unprecedented speed and efficiency. So, too, does the brave new world of electronic communication present a challenge for the law. How do we translate the traditional contract rules of offer and acceptance in a world of electronic transactions? What are the limits on how others collect and use our personal data? How do we balance the free flow of communication and information with the protection of our privacy? These are just a few of the issues this chapter will explore. In many ways, the Internet is the Wild West of the new millennium, full of both opportunity and danger! Cyberlaw is a broad term used to refer to rules dealing with this digital Wild West, with the Internet and computer technology. In some cases, well-established areas of law such as torts and contracts have evolved to deal with situations arising from computer use. In others, legislatures have to enact new statutes when existing laws fall short. The main categories of cyberlaw include criminal law, tort law, contracts, and intellectual property. Note that there are issues that overlap these different segments of the law. For example, statutes such as the Digital Millennium Copyright Act contain both criminal and civil provisions, and privacy concerns in the cyber sector have spawned legal developments in multiple areas of the law. 14.1 Jurisdiction and the Problem of Enforcement R egardless of what the law says about behavior in cyberspace, there is a major problem when it comes to enforcement of the rules in physical space. The Internet has no regard for state or national boundaries. A hacker in Russia can target your computer as easily as someone who lives next door to you. Counterfeiters in China do a huge trade in bootleg DVDs of Hollywood movies, sometimes hitting the market even before the movie has been released. The hacker and the counterfeiter are both violating the law, but what can you do about it? The answer may well be nothing. One obstacle is identifying the culprit. The Internet allows a certain degree of anonymity, and even if a particular account is identified as where the action Digital technology has made it much more difficult to police copyrights and prevent counterfeiting. gzorgz/iStock/Thinkstock 290 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_14_c14_286-306.indd 290 9/20/16 11:03 AM CHAPTER 14 Section 14.2 Computer Crime originated, the Internet Service Provider (ISP) may not cooperate in identifying who the account belongs to. Even if that problem can be overcome, and you know who is responsible for the offense, the problems of suing someone in a foreign country, particularly one not known for cooperation with the United States, are huge. And suppose you sue and win and now are seeking to collect your damages? Enforcing a judgment depends on the government of the country where the defendant’s assets are located. 14.2 Computer Crime Hacking Computers are both victims and tools of crime. A common computer crime is hacking, where a person gains unauthorized access to a computer from a remote location. Hackers may maliciously target a computer to raid its data or damage it through the use of viruses, and of course they are usually using computers and software programs to commit these offenses. In the early days of computers and the Internet, many unauthorized incursions of this type were not covered by existing law. Example 14.1. A graduate student improperly uses university computers and databases to do personal research. If he had legally paid for the service, it would have cost about $12,000. Is this theft? He has not “taken” any information from the computers; he’s just shared it. And while the old saying goes “Time is money,” the common law says that time and money are actually very different things! So the student could not be convicted of a crime under traditional rules. Cases such as this eventually resulted in the creation of new regulations including the federal Computer Fraud and Abuse Act of 1986 (CFAA). The CFAA applies to any computer on the Internet (which today is the vast majority of them) and prohibits computer trespass, fraud, espionage, theft, damage to a computer such as planting viruses or worms, and selling of computer passwords, among other things. Example 14.2. David, a college student, accesses Gov. Sarah Palin’s Yahoo e-mail account by guessing the answers to the prompt questions that allow the password to be reset. He posts the new password on a public bulletin board, allowing access by others. In 2010, David is convicted of unauthorized access and sentence to one year and one day’s imprisonment. However, the CFAA only applies within the United States, which considerably limits its effectiveness. Many hackers operate from outside the United States, even if their victims are in this country. Example 14.3. On November 24, 2014, a massive cyberattack was launched against Sony Pictures Entertainment by a group calling themselves the Guardians of the Peace. The attackers wiped out the data on thousands of Sony’s computers and servers and stole a wide range of data including movie scripts, emails, and films. They also made off with personal 291 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_14_c14_286-306.indd 291 9/20/16 11:03 AM CHAPTER 14 Section 14.2 Computer Crime employee data including 47,000 social security numbers. Much of this data was subsequently posted on the internet. The FBI concluded that North Korea was responsible for the attack, although some private security experts have suggested that it was an inside job. Despite the CFAA, hacking continues to occur on a regular basis. As massive as the Sony hack was, it only ranked as the 33rd largest data breach of 2014. The largest data breach in 2014 occurred earlier in the year when an eBay database was hacked, resulting in over 145 million customer records being compromised. Identity Theft Another law targeting criminal behavior on the Internet is the Identity Theft and Assumption Deterrence Act of 1998, which prohibits use of false identification to commit fraud or other crimes. Identity theft is a growing problem: in 2014, approximately 17.6 million U.S. residents age 16 or older (about 7%) were the victims of identity theft. The law gives victims a right to sue for damages, but possibly more useful (since a victim may never know who put that $5,000 charge for Racy Stacy lingerie on his card, and thus will be unable to sue him or her!) is the provision that limits liability to the first $50 when a stolen card has been used. It is important for victims to report identity theft to credit card companies as soon as possible, so as to limit the liability for the fraudulent credit card charges. Fraud Fraud is an enormously common crime committed via the Internet and takes many different forms. One common variety is the Nigerian Letter scam, in which the victim gets an e-mail purporting to be from a Nigerian government official who seeks help in transferring funds out of the country; the would-be official is willing to pay a large sum of money to whoever allows the funds to be transferred into their personal bank account. Of course, whoever actually agrees to help is actually the victim of the crime since he will need to provide the “Nigerian official” personal bank account information so that the funds can be transferred. The perpetrator of this fraud then uses the information to raid the victim’s account. To many, this may seem like such an obvious hoax as to be laughable, but millions of dollars are lost annuE-mail has become a favorite tool of scam artists. ally to such fraudulent schemes. © 2009 Justin NB Francis/Just One Film/Getty Images Phishing Another fast-growing area of crime is phishing, where the victim receives an e-mail that appears to come from a site such as PayPal, eBay, or a bank, asking her to verify her account information. Clicking on the link provided takes the victim to a “dummy” site, one that appears to look legitimate but in fact is a clever counterfeit. When the victim logs in, her account information is then transmitted to the phisher. 292 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_14_c14_286-306.indd 292 9/20/16 11:03 AM CHAPTER 14 Section 14.3 Cyber Torts The Federal Trade Commission also has regulations that apply in the area of consumer fraud and deceptive practices committed via the Internet, and some states have passed additional statutes. California, for example, requires companies to inform consumers when their personal information has been the target of unauthorized access. 14.3 Cyber Torts T here are a number of torts that can be committed in a cyber setting as well as in the “real” world. Consider defamation, which is the publication of a false statement about the plaintiff that harms the plaintiff’s reputation. Example 14.4. Puppy Love is the doggie day care and boarding business operated by Jenny Love. Fred tells Maggie that Puppy Love mistreats dogs, hiding them in overcrowded kennels when their owners aren’t around. Maggie in turn tells other neighborhood dog owners, and Puppy Love loses a great deal of business. Assuming this claim is untrue, both Fred and Maggie can be liable to Jenny Love for defamation under the common law. If Fred had instead posted the defamatory statement on his website, he would still be liable. But note that the ISP that hosts Fred’s site is not liable for passing on the information in the same way that Maggie is. Under the Communications Decency Act of 1996, ISPs and Web hosts are not liable for information posted by others, because they are not the content providers. The law recognizes the reality that the volume of communication is such that to require a site or provider to police content might severely restrict the flow of free speech. If Fred posted the statement on an Internet bulletin board, Everything Dogs, that site is likewise not liable. But if Everything Dogs has a policy stating they will investigate and respond to complaints and three months after Jenny Love has asked them to remove the post, they still have not acted, they may have liability under a contract theory. The property torts of trespass and conversion can also be committed in computer situations. Example 14.5. Keisha is a realtor with Sunshine Realty who maintained a client list on her computer at the Sunshine office. Keisha’s contract with Sunshine specifies that she is an independent contractor who retains ownership of her work product. After a disagreement with Sunshine’s management, Keisha decides to leave the firm. Sunshine refuses to give her access to her list. Even though the list exists in electronic, rather than tangible, form, Sunshine is still interfering with Keisha’s ability to possess her property, so Sunshine may be liable for conversion. Example 14.6. Alpha Corp has done business via the Internet with Beta Inc. Unknown to Alpha, Beta has installed software on Alpha’s computers that interferes with the speed at which the computers operate. Beta may be liable for trespass. 293 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_14_c14_286-306.indd 293 9/20/16 11:03 AM CHAPTER 14 Section 14.4 Privacy 14.4 Privacy T he same tools that contribute to the ease and speed of Internet communications (think one-click shopping, which lets you buy without always reentering your address and credit card information) also present a threat to personal privacy. Interestingly enough, federal law does not require companies to have a privacy policy. However if a company chooses to have a policy, it must comply with it. Cookies and Privacy The lack of regulation means that most popular websites routinely install thousands of tracking tools (often called “cookies”) on the computers of consumers who visit. The cookies track such information as what websites you visit, but also record the keystrokes you enter online. This information is often then sold to marketers, who use it to target online advertising. But the security implications go beyond a consumer’s being plagued with unwanted ads. Once that information has been recorded, it may be accessed by hackers, or by the government, and used in harmful ways. Congress has acted to protect children specifically with the Children’s Online Privacy Protection Act of 1998 (COPPA) that prohibits Internet operators from collecting information from children under 13 without their parents’ permission. Sites must also disclose how they will use any such information. Mrs. Field’s Cookies ran afoul of the law when their site offered birthday coupons for free cookies to children; they were collecting names and birth dates without parental consent. The European Union has taken a more proactive approach, requiring sites to offer an “opt-in” system under which tracking cookies may not be used unless the consumer has authorized it. The website must also state how the tracking devices will be employed. E-Mail and Privacy Many people routinely discuss very personal matters via electronic communications such as e-mail, and use computers in ways they would not like to see made public. Suppose Sally is using her work e-mail account to tell her best friend all about her recent divorce. Could her employer read this e-mail? Or Bob has downloaded child pornography using his computer at the office after hours, although he subsequently deleted all the images. A coworker tips off the police. Can the police then obtain a warrant, seize the computer, recover the images, and use them as evidence against Bob? In all likelihood the answer to both these questions is yes because most employers have stated policies that make clear that office computers and e-mail accounts belong to the employer and information transmitted or stored is not confidential. The Electronic Communications Privacy Act of 1986 does prohibit unauthorized access to, or disclosure of, e-mail and transmissions from pagers or cell phones. Despite this lack of actual privacy, sitting alone at your computer does create an illusion of privacy. Perhaps the best advice is to never say anything on the Internet that you would not say in a crowded café, where the person eavesdropping at the next table might be a police officer or your worst enemy! 294 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_14_c14_286-306.indd 294 9/20/16 11:03 AM CHAPTER 14 Section 14.4 Privacy Commercial E-Mail and Privacy A different type of privacy issue—and a very common one for many e-mail users—is the flood of unwanted e-mail that appears in your inbox (frequently advertising things such as penile enlargements and drugs to enhance your sex life). Known as spam, this e-mail is not banned but is regulated by the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM). This law prohibits deceptive headings (To, From, Subject, etc.) and requires an unsubscribe option and that the advertiser proSpam is the modern form of junk mail. vide a legitimate physical address, among other Devonyu/iStock/Thinkstock things. Unfortunately this law does not seem to have had much effect and spam continues to be a problem for computer users. There have been a few tort lawsuits arguing that unwanted e-mail in volume is a kind of trespass, but courts have generally refused to allow damages for sheer annoyance, instead restricting liability to situations in which the plaintiff’s computer is actually damaged. The Constitution and Privacy The First Amendment protects free speech and has significant implications for statements made on the Internet as well. As already noted, ISPs are largely shielded from liability for disseminating statements that may be defamatory. The Fourth Amendment also has implications for online privacy. Note that if the government wants to get evidence such as e-mail from a computer, the officers will ordinarily have to obtain a warrant. This is equally true if they are seeking the information from the ISP. However it should be noted that there are situations, such as those involving national security under the USA Patriot Act, where the legalities of government intrusions are less clear, and the warrant requirements may not be applicable. Example 14.7. The FBI suspect Jason of having robbed five banks. They have reason to think he communicates with some of his gang by e-mail and text messages. The FBI needs a warrant to obtain access to Jason’s e-mail from his ISP. Example 14.8. Comcast thinks one of their account holders is using the ISP to traffic in porn. Because Comcast is not a government entity, it does not need a warrant to access the suspected porn user’s account. 295 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_14_c14_286-306.indd 295 9/20/16 11:04 AM CHAPTER 14 Section 14.4 Privacy Computer Crime and Privacy While invasion of privacy is often treated as a civil matter, it can also be a crime. One of the highestprofile computer-based privacy cases of recent years involved a college student, Dahrun Ravi, who used a computer-mounted webcam to spy on his roommate Tyler’s intimate encounter with another man. Ravi then sought to use social media to encourage others to watch. A few days later, Tyler committed suicide by jumping off a bridge. Ravi was prosecuted for multiple crimes, including criminal invasion of privacy, and eventually sentenced to 30 days in jail, three years of probation, counseling, and community service. Dharun Ravi (right) was convicted for criminal invasion of privacy. He set up a webcam to record his roommate’s intimate encounter with another man. His roommate later committed suicide. Mel Evans/Associated Press In the Media: Apple vs. the FBI How much privacy should an individual who commits a crime be entitled to during an investigation? Should the government be able to force companies to hack into their customers’ private data? Apple and the United States FBI faced these questions during the investigation into a mass shooting in Southern California. On December 2, 2015, Syed Rizwan Farook and Tashfeen Malik shot and killed 14 people and wounded 22 others at a banquet held at a community facility in San Bernardino, California. In the course of their investigation into the mass shooting, the FBI seized an Apple iPhone from a Lexus belonging to Farook’s family that was found parked outside Farook’s residence. The FBI asked Apple to help them disable some security features on the phone so that they could unlock the phone and access the data stored on the device. In particular, the FBI wanted Apple to disable an encryption feature that automatically erases the data on the phone after ten failed password attempts. When Apple declined the FBI’s request, the FBI obtained a court order directing Apple to assist the government in accessing the data on the phone. Apple filed an objection to the order, setting off a debate between privacy and national security interests. Apple claimed that complying with the court order would require writing software which did not yet exist. The government could then use this software to access data on anyone’s device. Compromising the security of the iPhone would also leave iPhone users vulnerable to hackers. Apple argued that forcing the company to comply with the FBI’s request would set a dangerous precedent which could be used as the basis for requiring Apple or other technology companies to create software that would give the government access to citizens’ private, encrypted data such as messages, location, and financial and health information. The government argued that not only did they have a valid search warrant authorizing law enforcement to access the device, but the owner of the device (Farook’s employer) consented to allow the (continued) 296 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_14_c14_286-306.indd 296 9/20/16 11:04 AM CHAPTER 14 Section 14.5 E-Contracts In the Media: Apple vs. the FBI (continued) government access to the device. The government further argued that they were seeking Apple’s assistance in accessing only this device, and the software required to do so would remain in the possession and control of Apple. Others have argued that encryption such as that on the iPhone makes it more difficult for law enforcement to solve crimes and combat terrorism and that digital data is not entitled to any greater protection from the government than any other type of information. Prior to the final hearing in the case, the Department of Justice reported that it had been able to unlock the device and access the data with the help of a third party and asked the court to dismiss the case against Apple. Although this case is over, the broader public policy debate pitting encryption and data privacy against public safety and national security continues. Sources: http://www.latimes.com/local/lanow/la-me-ln-san-bernardino-shooting-live-updates-htmlstory.html https://www.docketalarm.com/cases/California_Central_District_Court/5--16-cm-00010/USA_v._In_the_Matter_of_the_Search_ of_an_Apple_iPhone_Seized_During_the_Execution_of_a_Search_Warrant_on_a_Black_Lexus_IS300_California_License_ Plate_35KGD203/1/ http://www.nbcnews.com/storyline/san-bernardino-shooting/judge-forces-apple-help-unlock-san-bernardino-shooteriphone-n519701 http://www.cnbc.com/2016/03/29/apple-vs-fbi-all-you-need-to-know.html http://www.cnbc.com/2016/02/17/apple-order-to-hack-iphone-for-fbi-in-san-bernardino-case-chilling-tim-cook.html 14.5 E-Contracts Click-Wrap Contracts Many times when a transaction is conducted over the Internet, a consumer is confronted with a section that says something like “I have read and agree to all terms and conditions.” Such agreements are sometimes called click-wrap contracts. Many people will click without ever reading such terms, which are often stated in dense legalese and seem to go on forever. Example 14.9. Emily buys a software program for graphics from an Inter¬net site. She clicks “I accept” without reading, since she must do this to download the program. Later the program crashes her computer and she loses valuable data. Now Emily discovers that the company’s liability is limited by her “acceptance” of their warranty, which provides they will only refund the purchase price. Click wrap agreements are generally held to be enforceable as long as certain conditions are met. The user must be required to take some affirmative action such as clicking a checkbox manifesting their agreement to the terms and conditions, or clicking a button that states that the user agrees to the terms and conditions. In addition, the terms and conditions must be readily available to the user either through a hyperlink or in a textbox conspicuously displayed close to the “I agree” check box or button. Some of the most common provisions to be found in these click-wraps are provisions that mandate arbitration will be used to settle disputes, and ones that limit liability (such as 297 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_14_c14_286-306.indd 297 9/20/16 11:04 AM CHAPTER 14 Section 14.5 E-Contracts the clause that confronted Emily in the example above). In Specht vs. Netscape Communications Corporation, the plaintiffs downloaded software from Netscape’s web page by clicking on a button labeled “Download.” If the plaintiffs had scrolled further down the page, they would have seen a link to another page where they could have reviewed the terms and conditions of Netscape’s software license agreement, which included an arbitration clause requiring arbitration of any disputes. When the plaintiffs later sued Netscape over an issue with the software, Netscape moved to dismiss the lawsuit on the grounds that by clicking on the download button, the plaintiffs had agreed to arbitrate the dispute. The Court ruled that the plaintiffs were not bound by the terms and conditions of the Netscape license because there was no “immediately visible notice of the existence of the license terms” conspicuously displayed by the download button. In addition, the users downloaded the software without having to do anything that would indicate their unambiguous assent to the terms of the Netscape license. Sales Tax Another major legal issue relating to e-commerce concerns the imposition of sales tax on Internet-based sales of goods. State governments often rely on sales taxes as a major source of revenue, especially in states that do not impose an income tax. During the 2008 recession the federal government cut aid to state and local governments; by 2012 states faced a projected $50 billion shortfall in their budgets. One suggested way to make it up was by taxing online retailers such as Amazon.com, Overstock.com, Blue Nile, and others. A 1992 Supreme Court ruling, Quill v. North Dakota, had found that retailers generally can’t be made to collect taxes for out-of-state sales unless they have either a physical presence or an alliance with a business with a physical presence in the tax jurisdiction in question. Example 14.10. Book Exchange Company has an office and warehouse in Illinois, but does only online and mail order business in other states. Book Exchange can be made responsible for collecting sales tax only for its Illinois customers. Brooks and Stalwart Ltd. has an extensive online store but also has brick-and-mortar bookstores across the country. Brooks and Stalwart Ltd. can be made to collect taxes in any state in which it has a store. Theoretically consumers are supposed to pay a “use tax” for Internet transactions with no sales tax. The difference between a sales tax and a use tax is simply who collects the money and remits it to the state: a sales tax is collected by the seller, and a use tax is paid directly by the buyer to the state. In practice, consumers simply don’t pay the tax, and the state has no effective way of tracking such purchases and the money goes uncollected. Of course, many consumers have no idea this tax exists! In some states, if you buy an item at a garage sale, you should be paying use tax to the state. However, there is an ongoing lobbying effort by big-box retailers such as Walmart to have Congress pass legislation that would force online retailers to collect sales tax from consumers. These stores argue that they are put at a competitive disadvantage by having to charge sales tax; the online sellers counter that expecting them to deal with a confusing patchwork of regulation in 50 different states is unrealistic. The online businesses point to states such as Rhode Island, where the purchase of a mink coat would be subject to sales tax but the purchase of a mink purse would not, and New Jersey, where candy is taxed but 298 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_14_c14_286-306.indd 298 9/20/16 11:04 AM CHAPTER 14 Section 14.6 Intellectual Property cookies are exempt. Brick-and-mortar stores at least only have to worry about the states in which they are physically located, since that is where their sales will take place. An online business may be getting orders from fifty states and all around the world, which makes compliance much more difficult. 14.6 Intellectual Property The Digital Millennium Copyright Act (DMCA) The Digital Millennium Copyright Act (DMCA), signed into law by President Clinton in 1998, amended previous federal copyright law in part to implement two international treaties on intellectual property protection. It criminalizes the circumventing of measures that control access to copyrighted materials (known as digital rights management or DRM) and to copyrighted works. Example 14.11. Mega Music Online sells music for download by customers. Mega Music uses DRM to prevent copying and to prevent the downloaded music from being played on non-Mega Music apps and devices. Devri writes a software program that can bypass the DRM and allow the music to be copied and played on a wide range of non-Mega Music devices. Devri’s act of decrypting the DRM constitutes an offense under the DMCA. In addition, the DMCA heightens the penalties for copyright infringement on the Internet, although it does provide a safe harbor for ISPs whose clients are infringing. The filesharing sites MP3.com and Napster were early targets under the DMCA; more recently Bit-Torrent Inc., which maintains a file-sharing protocol that allows large filesto be transferred (such as movies), has been the subject of lawsuits by the entertainment industry. Not only the sites, but the people who download from such places can be liable. By 2008 the recording industry had filed over 20,000 lawsuits against downloaders. In one case, a woman in Minnesota was ordered by the court to pay $220,000 to media companies, representing $9,250 for each of the 24 songs she was found to have shared online. The Digital Theft Deterrence and Copyright Damages Improvement Act of 1999 authorized increased damages for copyright infringement, seeking to discourage would-be pirates and compensate copyright holders. Penalties were increased from the $500 to $20,000 range to $750 to 30,000 per act of infringement, and from a maximum of $100,000 for willful infringement to $150,000. Although the increase may not seem drastic, it is important to note that the penalty is assessed for each individual instance of violating a copyright, which can add up in short order. 299 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_14_c14_286-306.indd 299 9/20/16 11:04 AM CHAPTER 14 Section 14.6 Intellectual Property In the Media: You Gotta Fight, for Your Right . . . to Download? The Digital Theft Deterrence and Copyright Damages Improvement Act of 1999 attempts to do what its name suggests: deter electronic copyright infringement by allowing for the imposition of huge fines. In fact, under the statute the maximum fine allowed for each willful, illegal music download is $150,000. That’s serious deterrence, but not enough to deter everyone from taking a song or two through the use of file-sharing services like Kazaa and the former, but still infamous, Napster. In 2003, Joel Tenenbaum, while still living at his parents’ home, The Digital Theft Deterrence and illegally downloaded hundreds of songs. The Recording Indus- Copyright Damages Improvement try Association of America (RIAA) took notice of 30 of those Act of 1999 was put in place to downloads and—under the authority of the Digital Theft Deter- control high rates of piracy and rence and Copyright Damages Improvement Act—sent him a copyright infringement. Imagebroker.net/SuperStock letter demanding $3,500. According to his downloads, Tenenbaum liked what most teenagers listened to at the time: Green Day, Limp Bizket, Eminem, and Red Hot Chili Peppers. Tenenbaum (who had also downloaded Incubus’s song “Pardon Me”) acknowledged the downloads and told the RIAA he couldn’t afford to pay the demanded amount, but offered $500. The RIAA then filed suit, whereupon Tenenbaum increased his offer to settle to the originally demanded figure, and then to $12,000. Although the RIAA settles most cases it brings against downloaders, it pressed on and in 2009 a federal jury ordered Tenenbaum to pay $675,000 to the RIAA, which is much less than the maximum allowed $5.4 million it could have been. The judge, however, reduced the jury’s damages to $67,500, calling the fines allowed for under the Digital Theft act oppressive and in violation of the Constitution’s Due Process clause. Both sides appealed the decision and a federal appeals court upheld the verdict, and also reinstated the original $675,000 damages award. Tenenbaum wouldn’t give up and sought a review of the decision with the U.S. Supreme Court. But in 2012, it refused to hear his appeal. Tenenbaum, who is earning a Ph.D. in physics from Boston University, has had a legal team that included famed Harvard law professor Charles Nesson, whose legal arguments included the Fair Use doctrine. Tenenbaum never paid any of the $675,000 judgment against him. In 2016, the entire amount was discharged in bankruptcy. Sources: http://www.informationweek.com/news/internet/policy/218900365 http://www.boston.com/news/local/massachusetts/articles/2011/04/05/student_fights_music_sharing_fine/ http://blogs.wsj.com/law/2011/04/05/whats-the-appropriate-punishment-for-illegal-downloading/ http://www.scribd.com/doc/17299117/Plaintiffs-Supplemental-Disclosure-Statement-102808 http://www.plainsite.org/dockets/2yne4d2qg/massachusetts-bankruptcy-court/joel-n-tenenbaum/ 300 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_14_c14_286-306.indd 300 9/20/16 11:04 AM CHAPTER 14 Section 14.7 Chapter Summary The Stop Online Piracy Act (SOPA) How to stop online piracy remains a major concern for business, but much of the proposed legislation is highly controversial. The Stop Online Piracy Act (SOPA) and the Protect IP Act (PIPA) were statutes that would have required search engines such as Google to delete links to sites that infringe copyrights, and that would block payments from companies such as Visa and PayPal to infringing sites. Unlike the DMCA, which can require a website to remove infringing content (YouTube, for example, does this regularly), these proposed laws target the entire site. They have been compared to shutting down an entire flea market because one vendor is selling counterfeit Gucci bags. There have been public protest against the laws, including the popular website Wikipedia’s going offline for a day, and, for the time being, both statutes seem to have stalled short of becoming law. 14.7 Chapter Summary T he 21st century has brought a veritable explosion of computer-related technology, and with it has come amazing opportunity for business and individuals, but also unprecedented threats to privacy and security. Spam, phishing, and tracking cookies represent problems ranging from annoying to extremely harmful, and there is no doubt that computers and the Internet have made identity theft an ever greater threat. Even traditional areas of law such as torts and contracts have been impacted in various ways by technology. Invasion of privacy has taken on new dimensions when social media and webcams are used as tortious tools. Contracts made online with a click of a mouse are less likely to have been read first. Even a relatively straightforward transaction such as the sale of goods becomes more complicated when made online, since the assessment of taxes is different than transactions made in a bricks-and-mortar store. The law has in some cases struggled to catch up with technology, and in many areas there is either little regulation or little effectiveness in implementing what regulations do exist. But there is no easy answer: many proposed regulations immediately run into conflicts with perceived censorship of the Internet or stifle innovation. As the world continues to be increasingly linked by electronic communication, societies will have to find a balance between technology and safety. 301 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_14_c14_286-306.indd 301 9/20/16 11:04 AM CHAPTER 14 Section 14.7 Chapter Summary Focus on Ethics Facebook is an enormously popular social media site with a reported 1.71 billion monthly users at the end of June 2016. But a number of Facebook users became disenchanted with the company’s gathering of their personal information and filed lawsuits, seeking $15 billion in damages. At issue was Facebook’s practice of tracking users’ Web activity, even after they had logged out of Facebook. The lawsuit is just one of a pattern of complaints against Facebook relating to privacy issues. These include: • Not allowing users to terminate their accounts. Users could deactivate their accounts, but Facebook continued to store their information unless each item was manually removed by the user. Facebook revolutionized • Data mining (the collection of large data sets) by third parties. social media, but it College students doing a research project were able to download also facilitated invasion 70,000 Facebook profiles from four target schools. of privacy to a degree • Reserving the right to sell information about users to third parties. many users did not • Using of a script called Beacon, which allowed third-party webunderstand. sites to publish their activity with Facebook users on Facebook, so Dominic Lipinski/ that users’ recent purchases and games played were published on Associated Press the site. If a Facebook user bought videos at Video.com, it would appear on the user’s Facebook site where it could be seen by any “friend.” This meant that you could purchase a gift for someone who would see on your Facebook site that you had bought it! So much for surprises. • Facilitating identity theft. Researchers have been able to use off-the-shelf face recognition software and match Facebook users with supposedly anonymous Match.com profiles, and also to take pictures of random experimental subjects on a college campus and match them to corresponding Facebook profiles. Furthermore, the researchers were also able to use previously developed algorithms to predict social security numbers with significant success. The result is that a photo taken of a person in public could be used to eventually discover very sensitive information about that person. In many cases, after the privacy problems were exposed in the press or after legal complaints were filed, Facebook changed its policy or instituted new procedures. Questions for Discussion 1. D  o you believe Facebook is ethical with regard to protecting users’ privacy? Do you think Facebook does an adequate job of alerting its users to possible privacy issues? 2. Is it an adequate response for a company such as Facebook to say that users may opt out of various procedures that may compromise their policy? Or should sites like Facebook be required to change their default so that users have opted out unless they specifically choose to “opt in”? Source: http://newsroom.fb.com/company-info/ 302 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_14_c14_286-306.indd 302 9/20/16 11:05 AM CHAPTER 14 Section 14.7 Chapter Summary Case Study: American Guarantee & Liability Insurance Co. v. Ingram Micro, Inc. Civ. 99-185 TUC ACM, 2000 U.S. Dist. LEXIS 7299 (D. Ariz., Apr. 19, 2000) Facts: Ingram is a wholesale distributor of microcomputer products. Ingram uses a computer system to track all of their business transactions. Ingram’s computers are insured by American, under a policy covering real and personal property and loss of business income. The policy insures against all risks of direct physical loss or damage. On December 22, 1998, Ingram’s data center had a power outage. Although electrical service to the buildings continued, all of the electronic equipment, including the computers and telephones, stopped working. As a result, Ingram could not conduct business in either the United States or Europe. After eight hours, during which Ingram employees strove to discover and solve the problem, power was restored to the electronics by bypassing a faulty switch. When the power outage occurred, all of the programming information disappeared from the random access memory of the computers. The customized configurations Ingram’s computers had used before the outage were different than the default settings that were restored afterwards. As a result, the configurations had to be reprogrammed before business could resume. Ingram filed a claim under its policy with American. American denied coverage, and Ingram sued. Issue: Did Ingram suffer a loss attributable to direct physical damage to its property? Discussion: American contended that because the computer system and switch were not physically damaged, the loss was not covered. Both items worked after power was restored, and the inherent ability to accept and process data and configuration settings was not adversely affected. Ingram’s argument was that “physical damage” includes loss of use and functionality. When power was restored, the computer system could not function until it had been “repaired” by restoring the custom configurations. The court found Ingram’s argument to be more persuasive, saying: At a time when computer technology dominates our professional as well as personal lives, the Court must side with Ingram’s broader definition of “physical damage.” The Court finds that “physical damage” is not restricted to the physical destruction or harm of computer circuitry, but includes loss of access, loss of use and loss of functionality. The court went on to note: Lawmakers around the country have determined that when a computer’s data is unavailable, there is damage, when a computer’s services are interrupted, there is damage; and when a computer’s software or network is altered, there is damage. Restricting the Policy’s language to that proposed by American would be archaic. Holding: For Ingram. The policy covered the loss. (continued) 303 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_14_c14_286-306.indd 303 9/20/16 11:05 AM CHAPTER 14 Section 14.7 Chapter Summary Case Study: American Guarantee & Liability Insurance Co. v. Ingram Micro, Inc. (continued) Questions for Discussion 1. Does the court’s definition of physical damage make sense to you? 2. Note that although Ingram eventually won their case, it was only after they had spent time and money on a lawsuit. If you had a business that relied heavily on computer operations, are there additional clauses you would want put in your insurance policy to avoid this sort of situation in the first place? What sort of hazards have you learned about in this chapter that might be relevant here? 3. In another case involving loss of data due to alleged negligent service on a computer system, insurance coverage was denied but the court upheld the insurance company’s decision. There, the language in the policy referred to “physical injury to tangible property.” How might that be distinguished from the policy language in the Ingram case? Do you agree with the distinction? Case Study: E. & J. Gallo Winery v. Spider Webs Ltd. 129 F. Supp. 2d 1033 (S.D. Tex. 2001) Facts: E. & J. Gallo Winery (Gallo) is a California corporation founded in 1953 that produces and sells alcoholic beverages under its various trade names. Gallo registered the mark ERNEST & JULIO GALLO with the U.S. Patent and Trademark Office in 1964. Gallo has sold more than four billion bottles of wine bearing the Gallo trademarks and has spent over $500 million promoting its brand name. Gallo owns several Internet domain names incorporating Gallo’s registered trademarks, e.g., GALLOWINERY.COM. Spider Webs Ltd (Spider Webs), a Texas partnership, registered about 2,000 Internet domain names and offered them for sale on its website and eBay.com. In 1999, Spider Webs registered the domain name “ERNESTANDJULIOGALLO.COM” to sell it for profit. Gallo sued Spider Webs for violation of the Anti-Cybersquatting Consumer Protection Act (ACPA). Gallo asked for a permanent injunction to prevent Spider Webs from using the Internet domain name ERNESTANDJULIOGALLO.COM and registering any domain name that contains the words “Gallo,” “Ernest,” and “Julio.” Gallo also asked for damages. After the suit began, Spider Webs published a website at ERNESTANDJULIOGALLO.COM to discuss the pending litigation and risks of alcohol use. Issues: Did Spider Webs violate the ACPA by registering the domain name “ERNESTANDJULIOGALLO .COM”? Did Gallo satisfy the conditions to justify a permanent injunction? Discussion: The trial court noted the goal of the ACPA—to protect businesses from “cybersquatting” (the “abusive registration of distinctive marks as Internet domain names with the intent to profit from the goodwill associated with such marks”). The evidence proved that Spider Webs registered the domain name ERNESTANDJULIOGALLO.COM with “a bad faith intent to profit from the (continued) 304 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_14_c14_286-306.indd 304 9/20/16 11:05 AM CHAPTER 14 Section 14.7 Chapter Summary Case Study: E. & J. Gallo Winery v. Spider Webs Ltd. (continued) sale of the domain name.” Gallo registered the trademark “ERNEST & JULIO GALLO,” but Spider Webs had “no intellectual property interest” in the name “ERNESTANDJULIOGALLO” apart from its registered domain. Therefore, Spider Webs violated the ACPA. To be granted an injunction, a plaintiff must show the existence of a wrongful act, the existence of imminent harm and irreparable injury, and the absence of an adequate remedy at law. The wrongful use of the ERNESTANDJULIOGALLO.COM website by Spider Webs, especially publication of disparaging comments about the current lawsuit and alcohol use, proved the existence of imminent and irreparable harm. The court concluded that Gallo satisfied conditions for being granted a permanent injunction. Holding: The court ordered a permanent injunction to Spider Webs against using the Internet domain name ERNESTANDJULIOGALLO.COM and registering any domain name that contains the words “Gallo,” “Ernest,” and “Julio.” The court found Spider Webs and its partners jointly and severally liable to Gallo for $25,000. Questions for Discussion 1. W  hat evidence is there that the trademark Gallo registered was well-known and distinctive? Did Gallo register an Internet domain name? 2. Why did Spider Webs register the domain name ERNESTANDJULIOGALLO.COM? Was this registration made in good faith? 3. Why did Gallo sue Spider Webs, asking the court for a permanent injunction? What is a permanent injunction? What conditions must a plaintiff satisfy to be granted a permanent injunction? 4. The main issue of the lawsuit is an allegation of a violation of the ACPA. Why did Gallo sue Spider Webs in a federal court instead of a state court? 5. Imagine you are a business owner planning to launch your website. What should you do to make sure your business name is not used by other companies? Why is it important for business owners to ensure that their trademarks are not subjected to “cybersquatting”? Critical Thinking Questions 1. Write down a list of the advertisements you see when you browse the Internet. Do the advertisers seem to know your age range and your gender? Do they know something about your interests? Make a profile of the person the advertisers think you are. Where do you think they compiled this data from? Can you think of sites you have visited that would give this impression of you? 2. If you use social media such as Facebook, how familiar are you with their privacy policy? How easy is it to figure out what information they are collecting and what is being done with it? Can you tell from Facebook’s site how to delete an account and the information posted? 305 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_14_c14_286-306.indd 305 9/20/16 11:05 AM CHAPTER 14 Section 14.7 Chapter Summary Hypothetical Case Problems Case 1. T  errell sends an e-mail “bomb” to his ex-girlfriend, Sofia, which floods her inbox with 200,000 e-mails. What statute has Terrell possibly violated? Case 2. A  mazon.com allows people to post reviews on items sold on the site. Amazon’s policy suggests that posters be civil. Amazon retains editorial rights over content. Jerome published several books about how to avoid paying taxes and sold them through Amazon. Some readers posted negative reviews; a few went so far as to label Jerome a “crook” and a “felon.” Jerome complained to Amazon, which agreed to remove the posts. After two days, the posts were still there so Jerome sued Amazon. Will the CDA’s “safe harbor” prevent Amazon from being held liable? Case 3. C  yberheat, Inc. ran a website with sexually explicit content for consenting adults. It contracted with other companies, called affiliates, to direct potential subscribers to its site. It provided the affiliates with a hyperlink to sexually explicit images. Some of the affiliates sent e-mail with fake subject lines that contained porn in the message. The FTC received over 400 complaints from consumers. Which federal law may Cyberheat have violated? Key Terms click-wrap An agreement that one must make in order to use a program or website. They are often very long and complex and many people never read them. hacking Gaining unauthorized access to a computer. phishing Internet-based type of fraud that involves sending an e-mail that appears to come from a legitimate source such as a bank, asking the victim to click on a link that takes him to a dummy site, where he is asked to” verify” personal information. cookies Tracking programs installed on computers to track Internet usage, often without the computer owner’s awareness. cyberlaw A general term referring to various laws regulating the Internet and computer usage. It can include criminal, tort, regulatory, and intellectual property law. spam The Internet equivalent of junk mail, unsolicited and often sent in bulk. digital rights management (DRM) Any technology that inhibits uses of digital content. Often used by manufacturers of music CDs, DVDs, and software to prevent copying after first sale. use tax A tax paid by a consumer on purchases, as opposed to a sales tax, which is paid by the seller. 306 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_14_c14_286-306.indd 306 9/20/16 11:05 AM 15 International and Environmental Law Learning Objectives After studying this chapter, you will be able to: 1. Describe the sources of international law. 2. Explain some of the major principles of international law. 3. Discuss major concerns for U.S. companies doing international business. 4. Describe the major areas of environmental regulation and the statutes that regulate them. Edi_Eco/iStock/Thinkstock Chapter Overview 15.1 International Law and Business • • • • • Sources of International Law Some Basic Principles of International Law Conducting Business in the International Arena The International Business Contract Doing Business Internationally Within the Limits of U.S. Law 15.2 Environmental Law and Business • • • • Types of Environmental Law Air Quality Regulation Water Quality Toxics and Waste 15.3 Chapter Summary • Focus on Ethics • Case Study: Arc Ecology v. U.S. Dept. of Air Force • Case Study: Karuk Tribe of California v. United States Forest Service • Critical Thinking Questions • Hypothetical Case Problems • Key Terms 307 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_15_c15_307-326.indd 307 9/20/16 11:02 AM CHAPTER 15 Section 15.1 International Law and Business B usiness today exists in a global environment. Even if your company only sells in the United States, it is still potentially affected by competition from overseas. If you seek to expand your markets beyond the borders, there are many issues to be considered. What kind of regulations must you deal with, both in your own country and in the foreign country? Where would disputes be settled, and under whose law? Do U.S. laws still apply when your company is acting outside U.S. borders? A basic understanding of international business law is important for the business student. Increasingly important, too, is the state of that globe, the planet on which we live and do business. An awareness of environmental issues and laws is relevant not just from the standpoint of compliance with regulations and avoiding liability, but also because we face in the 21st century a stark necessity of working to preserve our limited resources of fresh air and water, or dealing with ever worsening consequences. 15.1 International Law and Business I nternational law is in many ways very different from the law you studied earlier in this book. Until now, we have been examining law in the context of its being rules enforced by the government. If someone commits a crime, the government prosecutes. If someone breaches a contract, the other party can use the courts to enforce it. With international law, enforcement is less likely, because there is no powerful international entity that can do so to the same degree an individual country can within its own borders. Nonetheless, international law does still exist, and in this section we shall examine its sources and some of its basic principles. Sources of International Law Treaties and Agreements A treaty is an agreement or contract between two (bilateral) or more (multilateral) nations that must be authorized and ratified by the government of each nation. Some notable examples of treaties relating to business are the North American Free Trade Agreement (NAFTA) and the General Agreement on Tariffs and Trade (GATT). Both are the subject of considerable disagreement as to whether they are good or bad for the U.S. economy. NAFTA, which originally took effect in 1994, is an agreement between the United States, Canada, and Mexico to eliminate most trade barriers between these countries. It has resulted in much more trade among these countries, but some charge that because American manufacturers must compete with Mexican companies with much lower labor costs, NAFTA has caused jobs to leave the United States. Others counter that the United States benefits from the expanded market. The European Union (EU) is a similar agreement among 28 countries as of 2016, including Great Britain, France, Germany, and most of Europe (Switzerland being a notable 308 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_15_c15_307-326.indd 308 9/20/16 11:02 AM CHAPTER 15 Section 15.1 International Law and Business holdout). However, in 2016 Great Britain voted to leave the EU, a process which, if completed, could take up to two years. Most of the countries in the EU share a common currency, the Eurodollar, and have cooperated to facilitate increased trade among nations and (to a lesser extent) to coordinate fiscal policy. The economic recession that began in 2008 has, however, strained EU relations in recent years, with countries such as Ireland and Greece experiencing financial crises and needing much aid from the EU. GATT, which began in the 1940s, has done much to lower trade barriers between the signatory nations by decreasing tariffs, which are taxes on imported goods, from 40 percent to an average of 4 percent for manufactured goods. One effect is that consumers tend to see lower prices from increased competition among manufacturers. GATT also led to creation of the World Trade Organization, or WTO, which may hear and adjudicate trade disputes among signatory nations. Example 15.1. Brazil claimed that U.S. government subsidies for its domestic cotton industry violated trade agreements and were distorting the market, since U.S. manufacturers were able to offer cotton at a lower price (because the government was in effect paying part of their costs for them). In 2004 the WTO agreed with Brazil. The usual remedy the WTO offers is that of “retaliation,” meaning that Brazil could legally tax U.S. goods at a higher level. But the WTO went a step further, and allowed Brazil “crossretaliation,” which meant lifting intellectual property protection of U.S. products. This would mean that patents and copyrights could be ignored by Brazil; for example, it could legally pirate Hollywood movies and make knock-offs of U.S. patented drugs. To avoid Brazil’s retaliation without ending the cotton subsidies, the U.S. government agreed in 2010 to pay $150 million a year to support Brazilian cotton farmers. International Organizations There are many organizations created by the agreement of member nations. Some are primarily military in focus, such as the North Atlantic Treaty Organization (NATO), but some, such as the United Nations, deal with a wide variety of international issues. The UN has fostered increased uniformity in trade regulations with the 1980 Convention on Contracts for the International Sale of Goods (CISG), which is similar to the Uniform Commercial Code’s Article 2. Some Basic Principles of International Law Comity The principle of comity means that a nation will defer to and give effect to the laws and judicial rulings of another country, to the extent that they are consistent with the law and public policy of the accommodating nation. 309 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_15_c15_307-326.indd 309 9/20/16 11:02 AM CHAPTER 15 Section 15.1 International Law and Business Example 15.2. Buyer in Great Britain contracts with Seller, a U.S. company, for certain goods. The goods are shipped and paid for, but unfortunately turn out to be defective. Buyer sues in English courts and wins a judgment against Seller. However, because Seller’s assets are in the United States, Buyer will need the cooperation of the U.S. courts to enforce the judgment. Will the United States honor the British court’s judgment? Probably yes, because it is unlikely that there is any conflict with American law or public policy. Example 15.3. Under French law, fashion designs are protected by very strict copyright laws. An American company that published photographs of original French fashions on a website without permission of the designer could be held liable under French law for infringement. But if the French designer sought to enforce the judgment in the United States, the U.S. court might find that French law conflicts with the First Amendment right to freedom of expression, and refuse to enforce the judgment. Sovereign Immunity The doctrine of sovereign immunity means that one nation cannot sue another. In the United States, a specific federal law, The Foreign Sovereign Immunities Act (FSIA) of 1976, provides that a foreign nation cannot generally be sued, but there are exceptions where the foreign state has: • • • Under French law, images of Paris fashion designs are protected, which in some cases has led to a conflict with the U.S. Constitution’s First Amendment right to freedom of expression. When a U.S. company violated French law by publishing pictures on its website, the designer was unable to enforce a French court’s judgment in the United States. Jodi Jones/Associated Press Waived its immunity; Engaged in commercial rather than political activity; or Committed a tort in the United States or violated specific international laws. Example 15.4. Canada contracts to buy 15 airplanes from U.S.-based Boeing Co. Canada breaches the contract. Since this is commercial activity, Canada can be sued in the United States. The Doctrine of “The Act of State” The legal principle of respecting an act of state means that courts in one nation will not question public acts committed by a recognized foreign government within its own borders. One situation where this can arise is with regard to expropriation, which is the seizure of private assets or business for the public good. This occurs when a government seeks to nationalize an industry, as Great Britain did with coal mining after World War II. If just compensation is provided, this is considered legal. 310 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_15_c15_307-326.indd 310 9/20/16 11:03 AM CHAPTER 15 Section 15.1 International Law and Business Example 15.5. A U.S. company has an oil refinery in an African nation. After an election where a different political party comes to power, the African country’s new government decides to nationalize the oil industry. If the nation pays the company for the refinery, this is legal expropriation. If the government simply seizes the refinery and does not pay fair compensation, this is called confiscation and violates international law. Obviously acts of state such as expropriation represent a significant risk of doing business in other countries. Companies may want to invest in insurance to cover such risks. While not cheap, such insurance can nonetheless remediate otherwise catastrophic losses. In the Media: 9/11 Families Seeking Justice Through International Law FSIA protects a foreign government from being sued in American courts under most circumstances, with limited exceptions. The statute (16 U.S.C. §§ 1601–1611) is a legislative version of what American common law provided, going as far back as a U.S. Supreme Court case in 1811, The Schooner Exchange v. M’Fadden, and it establishes under what conditions a foreign sovereign nation can be brought under the jurisdiction of the American legal system. After the 9/11 attacks on America, hundreds of families whose loved ones were murdered sued the kingdom of Saudi Arabia and members of the Saudi royal family for over $100 trillion, alleging that the Saudis helped fund the Al Qaeda terrorists behind 9/11. The evidence was compelling, and even as late as 2012 two former U.S. Senators who were privy to secret information the U.S. government gathered following the September 11 attacks filed affidavits. One of the senators even stated under oath that he was “convinced that there was a direct line between some of the terrorists . . . and the government of Saudi Arabia.” After the attacks on the World Trade Center in 2001, family members of victims filed a $100 trillion lawsuit against the Saudi Arabian royal family. After it was determined that Saudi Arabia does not sponsor terrorism, the FSIA protected the royal family from the suit. Lawrence Jackson/Associated Press In 2005, the federal district judge who had jurisdiction over the suit dismissed it because of the Foreign Sovereign Immunities Act. That dismissal also applied to the Saudi royal family members, because they are part of the Saudi government. The families then appealed to the 2nd Circuit Court of Appeals, which affirmed the trial court’s decision in 2008. Finally, the families sought an appeal of that decision before the U.S. Supreme Court. The primary argument of the 9/11 families was that an exception added in 1996 to the FSIA applied, namely, that a government that sponsors terrorism loses the protection of the FSIA. While the Supreme Court was considering whether to take the case, the Obama administration filed a legal brief with the Supreme Court (a brief written by then Solicitor General Elena Kagan, who would become a Supreme Court justice in 2009), arguing that the 2nd Circuit’s decision (continued) should be upheld. 311 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_15_c15_307-326.indd 311 9/20/16 11:03 AM CHAPTER 15 Section 15.1 International Law and Business In the Media: 9/11 Families Seeking Justice Through International Law (continued) The gist of the Obama administration’s argument was that the terrorism exception didn’t apply because Saudi Arabia was not on the State Department’s list of governments that sponsored or financed terrorism. That legal argument infuriated the 9/11 families who had brought the suit. In June 2009, the Supreme Court refused to take the appeal. But in 2010, it ruled in the case Samatar v. Yousuf that an individual foreign official sued for actions taken in his official capacity is not protected by the FSIA, which, in effect, seemed to reopen the debate all over again. In 2013, the Second Circuit Court of Appeals reversed its 2008 ruling and reinstated Saudi Arabia as a defendant in the case. Saudi Arabia appealed the ruling to the United States Supreme Court. In 2014, the Supreme Court declined to hear the appeal, clearing the way for the case to proceed in federal district court. In 2015, Saudi Arabia was again dismissed as a defendant by Federal District Court Judge George Daniels, who ruled that the plaintiffs did not present enough evidence that Saudi Arabia was involved in the 9/11 attacks to overcome its sovereign immunity. Meanwhile, Congress had been considering legislation that would make it easier for the 9/11 plaintiffs to sue Saudi Arabia. They passed the Justice Against Sponsors of Terrorisms Act in September 2016, but President Obama vetoed the bill shortly after. Sources: http://www.cnn.com/2002/LAW/08/15/attacks.suit/ http://www.cbsnews.com/2100-201_162-5051884.html http://www.nytimes.com/2009/06/30/us/30victim.html http://www.scotusblog.com/case-files/cases/samantar-v-yousuf/ http://articles.philly.com/2014-07-02/business/51005807_1_saudi-arabia-saudi-government-cozen-o-connor http://www.bbc.com/news/world-us-canada-34405451 http://www.cnn.com/2016/05/17/politics/senate-9-11-saudi-arabia-bill/ https://www.govtrack.us/congress/bills/114/s2040/text/enr#compare=es http://www.usnews.com/news/articles/2016-09-20/9-11-families-protest-at-white-house-ask-obama-tosign-bill-allowing-them-to-sue-saudi-arabia Conducting Business in the International Arena Suppose your company wants to take advantage of overseas markets. One of the first things you will have to do is make sure that you are allowed to export, or sell outside the United States, your goods. Exports are regulated by a number of different laws, including those designed to protect national security. For example, if you manufacture ballistic missile systems, you would probably expect there to be restrictions. But what if you manufacture lie-detector equipment? Sometimes restrictions are based on not just what is being sold, but where it is being sold. Example 15.6. Polyglot Polygraph Inc. plans to sell polygraph equipment to Honduras. This export is regulated and a license will be required. But if Polyglot is selling the same equipment in Iceland, a license is not required. Often a U.S. company will find an agent to act for them in the foreign country, and the agent will receive the exported goods and arrange for their sale. Sometimes a company will instead decide to do the actual manufacturing overseas. Alternatively, the company may elect to work overseas through a licensing or franchising scheme. 312 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_15_c15_307-326.indd 312 9/20/16 11:03 AM CHAPTER 15 Section 15.1 International Law and Business Example 15.7. If Polyglot decided to instead license a Honduras company to make the machines according to Polyglot’s design, and in exchange the Honduras company pays Polyglot a percentage of the sales on the machines, this would be a licensing arrangement. There are also restrictions on importing, or bringing goods into the country that were made in foreign countries. While in many cases imports are desirable for a nation, there is also a fear that too much importing can hurt domestic businesses, as discussed earlier in relation to treaties such as NAFTA. One way in which countries restrict imports is by the imposition of tariffs, or duties, which, as mentioned earlier, are basically a tax on goods entering the country. Example 15.8. Polyglot now has gone into the general security business, and is looking to import burglar alarms from France. Polyglot will need to find out if there are any restrictions on such imports, and if they are allowed, how much the tariff will be. The costs of tariffs should be factored into the cost of acquiring the product. Tariffs can vary widely, depending on the type of goods and the country from which one is importing. For example, there are generally no tariffs on trade between Canada and the United States. Dumping refers to a foreign company selling its goods in the United States at a cost less than fair value, usually in an attempt to dominate the market and be able to raise prices in the long run. Example 15.9. A Chinese company was selling solar panels in the United States at less than the cost of production, putting U.S. companies at a competitive disadvantage. The U.S. government then assessed additional antidumping tariffs of 30 percent and higher on the Chinese solar panels. Of course, there is always a risk that the manufacturing country will then raise its tariffs in retaliation, and thus cause what is sometimes known as a trade war to break out, where countries act in an increasingly protectionist fashion and grant preference to manufacturers in their own countries. Governments have to strike a careful balance, seeking to keep good trading relationships while not disadvantaging business within their borders. The International Business Contract Obviously much of what you have already learned about contracts is equally applicable in the international setting, but when contracting across international borders, there are some additional considerations to take into account. What language should the contract be written in? For example, the law of France requires that some types of contracts be in French. If disputes arise, what country will have jurisdiction? What law will be applied? How will payment be made, and whose currency will be used? These are all matters that should be spelled out in the contract. Example 15.10. Cargo Four, a U.S. shipping company, decides to contract with a Swedish company for a shipment of sweaters. The parties agree that the language should be English, but that Swedish law will apply and 313 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_15_c15_307-326.indd 313 9/20/16 11:03 AM CHAPTER 15 Section 15.2 Environmental Law and Business that the choice of forum (where any lawsuits will be brought) is Sweden. Payment will be in U.S. dollars, and the payment method will be wire transfer from the Swedish company’s bank to Wells Fargo, which is Cargo Four’s U.S. bank. Because Cargo Four is a company that routinely engages in international business and they are familiar with Sweden, Cargo is not concerned about the choice of law and forum. The Swedish company, on the other hand, is a small boutique business that was not willing to risk an international lawsuit. Doing Business Internationally Within the Limits of U.S. Law One of the difficult issues confronting those doing business in an international environment is combining compliance with U.S. law with the differing customs of other nations. Nowhere is this more highlighted than when one considers the impact of the Foreign Corrupt Practices Act (FCPA). Passed by Congress after investigations discovered U.S. companies were paying millions of dollars in bribes (payments made to influence the decision of a public official in performance of public duties) to foreign officials, the law is intended to preserve confidence in the free market system. However, the companies complain that in fact it puts them at a competitive disadvantage, given that bribes are “business as usual” in much of the world. Even in countries where such payments are illegal, there is often little enforcement. One confusing aspect of the FCPA is that while bribery is illegal, grease payments (which are made not to influence an official’s decision, but to expedite a process) are not. Example 15.11. Can-do Inc. pays a Mexican official to award Can-do a construction contract for a new highway. This is an illegal bribe. Example 15.12. Can-do pays an official to move its application to the front of the line, so that it gets looked at six months earlier than it would otherwise. This is a legal grease payment. Another significant issue relates to whether U.S. employment laws that protect against discrimination apply extraterritorially (outside the United States). Generally, courts have held that the laws do apply to U.S. companies with regard to employees who are U.S. citizens, except when it would break the law of the foreign country (such as with mandatory retirement ages), or if there is a bona fide occupation qualification or BFOQ (discussed previously under employment law). Example 15.13. In Saudi Arabia, women cannot drive vehicles on public roads, so there would be a valid BFOQ for a delivery driver to be male. 15.2 Environmental Law and Business B usinesses must be fully aware of environmental regulation, as they are expected to operate within its constraints. If an energy company does not comply with design and inspection standards when it builds an oil drilling platform, it may end up paying billions of dollars in damages when a catastrophic oil spill occurs, as British Petroleum (BP) did after the Deepwater Horizon spill in the Gulf of Mexico in 2010. A factory 314 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_15_c15_307-326.indd 314 9/20/16 11:03 AM CHAPTER 15 Section 15.2 Environmental Law and Business that dumps waste containing toxic chemicals may end up being liable for increased cancer rates and other health problems in the community, as happened with Hooker Chemical Company in Love Canal, New York, in the 1970s and W.R. Grace in Woburn, Massachusetts, through the 1980s (the latter became the subject of a book and movie, A Civil Action). But environmental issues are not just a matter of business compliance and costs. The state of the environment has profound consequences for every living thing on the planet, and without effective regulation we can all expect to pay a heavy price in the form of our health and that of future generations. As individuals, we all have little control over the quality of the air we breathe, the water we use, or the soil in which our food is grown. Yet clearly we are affected deeply and directly by polluted air and water and soil. Even when we seek to make healthy choices, there is often too little information available (or so much it becomes hopelessly confusing) or no way to protect ourselves. The 2010 explosion on the Deepwater oil rig set off a chain of litigation against both British Petroleum and its contractors. Example 15.14. Organic brown rice has long been Gerald Herbert/Associated Press a staple of healthy diets. In 2012 it was found that it absorbs arsenic, often found in agricultural land even when chemicals have not been used on crops, at an especially high concentration. Syrup made from brown rice is a common ingredient in energy bars and baby formula. A famous story, “The Tragedy of the Commons” by Garrett Hardin, illustrates one of the difficulties of regulating the environment. At the center of a community is a pasture, which is a “common,” that is, property that belongs to no particular person. Members of the community use the pasture to graze their cows and sheep. This works well as long as no one puts too many animals on the pasture. But one day, a farmer decides to add more cows. His neighbor sees this, and she decides that if he is going to use more grazing, so should she and she puts out more sheep. Before long, everyone in the community is crowding the common pasture with livestock. Each person thinks there is no point to being the one to withdraw their animals, since the others will only continue to graze the land. In time, the animals have eaten all the grass and the former pasture is barren ground. The problem is that for the individual farmer, the benefit of giving his cows more grazing is obvious and immediate, while the down side of overgrazing is a problem longer in the making, and shared by all. Air and water are clearly commons, and the tragedy is that people use them in the way that is convenient, without having to bear the costs. Thus a factory may find it makes sense to dump pollutants in a river, because it’s a cheap disposal method. The long-term effects of the pollution are not borne by the factory’s owners, but potentially by everyone downstream. This is an example of an externality, a cost that is not factored into that of 315 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_15_c15_307-326.indd 315 9/20/16 11:03 AM CHAPTER 15 Section 15.2 Environmental Law and Business the goods the factory produces. The factory has little incentive to install pollution control equipment as a result. Compounding the problem is the fact that corporate law often reinforces that the duty of management is to increase the value to the company’s shareholders. Even a socially responsible, ecologically concerned manager may find it difficult to make decisions that benefit society but cost the company profits. Another problem with achieving effective regulation is that when lawmakers do cost/ benefit analyses, the environment is often left out of the equation. It is much easier to calculate the economic benefits of drilling for oil in a wildlife refuge than it is to know the cost of an animal species becoming extinct. Scientists have long recognized that the planet is a complex, interrelated system that exists in a delicate state of balance, but the ramifications of upsetting that balance are not always known. Compounding the problem is the fact that lawmakers are generally politicians who act in response to fairly short (in the United States, two to six years) election cycles. Generally, the effects of pollution, of global warming and climate change, and even of exposure to toxic substances are longer term, making it easy for lawmakers to keep putting off until some indefinite point in the future the need to regulate and enforce environmental protections. Free markets and personal ethics cannot protect the environment from degradation; the job is left to the law. In this section we will examine the primary types of regulations and analyze their effectiveness. Types of Environmental Law Much environmental law is statutory, such as the federal Clean Air Act and Clean Water Act. The Environmental Protection Agency (EPA), created in 1970, has the primary responsibility for passing rules to implement such laws and for bringing actions against those who violate the law. States also regulate in this area; for example, many of the laws that require recycling are state or local in origin. The common law also plays a role. For example, an agricultural worker exposed to dangerous chemicals who later developed lung disease might sue the manufacturer for negligence because of inadequate warnings. Homeowners with riverfront property whose beaches are fouled by a factory’s discharge might sue for trespass. In what are known as toxic tort cases, multiple plaintiffs may bring lawsuits for personal injuries caused by dangerous substances, such as the situation where a company’s dumping of a chemical pollutes a town’s water supply. But many people injured by pollution lack the resources to bring a lawsuit, and proving that a particular defendant’s activities caused specific damage can be extremely difficult. Example 15.15. After Hurricane Katrina devastated the Gulf Coast, a lawsuit was brought by people in those wrecked communities against polluters alleged to have discharged greenhouse gases, which contributed to climate change, which made the storm worse than it would otherwise have been. Although a court ruled the plaintiffs had standing to sue, clearly the difficulties of meeting their burden of proof are considerable! There are several different approaches to statutory regulation. Sometimes the law sets standards for air or water quality and leaves it up to the individual as to how to obtain compliance. 316 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_15_c15_307-326.indd 316 9/20/16 11:03 AM CHAPTER 15 Section 15.2 Environmental Law and Business Example 15.16. A factory discharges water that has been heated into a nearby stream. Because the warm water can affect the ecology of the stream in a negative manner, the change in water temperature is considered a form of pollution. The factory is ordered to keep discharged water within certain temperature limits, but the factory is free to decide whether to hold the water in tanks until the temperature comes down or to install cooling equipment. Another method is the command-and-control model, such as requiring that power plants install certain emissions control equipment. One problem with both these type of rules is that they are only effective to the extent they are enforced. Example 15.17. Suppose a utility company has failed to reduce emissions to the proper level. The company may actively lobby for the rules to be changed, or it may contribute to the political campaign of a presidential candidate who will seek a smaller budget for the EPA and cut its personnel. In some cases, companies simply find it cheaper to pay an occasional fine than to follow the law. Some statutes authorize criminal prosecutions as well as civil lawsuits for damages. For example, under the Clean Air Act (42 U.S.C. § 7401 et seq. (1970)), not only the company may be fined, but corporate officers who knowingly violate the law (for example, by falsely reporting information) may be subject to fines up to $1 million and imprisonment up to two years. The same law authorizes citizen suits, which give private individuals some ability to enforce the law even if the government doesn’t act. However, in many situations polluters have sufficient political clout that authorities may take a hands-off approach to enforcement, and citizens may not have the resources to bring private suits. Example 15.18. An area known as the Chemical Corridor in Mississippi and Louisiana was home to operations of several major companies, who were polluting with highly toxic substances. Residents of the Corridor were suffering from many often fatal health problems, but they were primarily low-income minorities who could not afford lawyers. After a law clinic at Tulane Law School stepped in to represent them and took effective action on their behalf, the governor of Louisiana threatened to withdraw funding from the school, and the Louisiana Supreme Court (which is elected and thus subject to political concerns) barred the clinic from representing residents in suits against the chemical industry. Other types of legal mechanisms include taxes on pollution and market-based regulation, which seeks to turn the external cost of pollution into an internal cost. Cap and trade systems, where, for example, a factory must buy a credit for every ton of emissions it produces, mean that businesses have incentive to reduce emissions. Since there are a limited number of credits available, and typically such systems reduce the credits over time so that the cost goes up, polluters face rising costs and will become less competitive in their business as they pass the cost on to consumers. Furthermore, the money raised by the sale of the pollution credits can go to environmental programs. An example of such 317 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_15_c15_307-326.indd 317 9/20/16 11:03 AM CHAPTER 15 Section 15.2 Environmental Law and Business an emissions trading program can be found in the sulfur dioxide part of the 1990 Clean Air Act Amendments, although it was weakened by subsequent court decisions and EPA rules. Air Quality Regulation Air pollution is known to have effects on human health ranging from unpleasant to fatal. The Clean Air Act, along with its subsequent amendments, regulates emissions from sources both stationary (power plants, factories) and mobile (cars). For stationary sources, the EPA sets the maximum limits for various pollutants, but states have the first responsibility for planning how to achieve those standards. Substances regulated include carbon monoxide, nitrogen dioxide, mercury, asbestos, particulate matter (dust, soot), and ozone (smog, not to be confused with the ozone layer in the atmosphere, which prevents harmful rays from the sun from penetrating to the surface), among others. In setting limits the EPA does not have to consider the cost of compliance to a factory or industry, and one of the goals of the law is to prevent deterioration of air quality in places with clean air. Acid rain is a type of pollution caused by sulfur dioxide emissions, which largely emanate from coal-burning plants located in the Midwest and eastern states such Purestock/Thinkstock as Ohio and Pennsylvania. One problem is that the pollutants are carried on the wind to other states and countries such as Canada, where the precipitation falls and the damage is done to forests, crops, lakes, and ponds. The states with the plants may have little incentive to demand costly equipment be installed, since they are not suffering the harm. Another problem is that older power plants were not covered by the law unless they undergo major renovation, so that power companies have little reason to clean up existing plants or build newer, more efficient ones. The Clean Air Act put regulations in place to try to reduce carbon emissions and improve smog in urban areas like Los Angeles, California. Mobile sources of emissions (primarily cars) are regulated primarily through requirements on auto manufacturers that call for reducing pollutants over time. For example, beginning with 2004 models, makers had to cut nitrogen oxide emissions by ten percent by 2007. Other regulations require cleaner burning gasoline, primarily in urban areas. As technology advances, the EPA updates regulations. For example, in 2012 the agency announced that it would phase out the requirement that service stations use vapor capture mechanisms on gas pumps, since modern cars are designed to eliminate most of that vapor anyway. 318 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_15_c15_307-326.indd 318 9/20/16 11:03 AM CHAPTER 15 Section 15.2 Environmental Law and Business Despite some of its weaknesses, the Clean Air legislation has undoubtedly been effective in reducing some pollutants and their negative consequences for human health. The EPA estimates that by the year 2020, regulations will save 230,000 lives in the United States. Water Quality The Clean Water Act (CWA), 33 U.S.C. § 1251 et seq. (1972), and its subsequent amendments, regulate discharge of pollutants into navigable waters. Originally this definition was broadly interpreted, but more recently the courts have excluded wetlands, intermittent streams, ponds, or lakes that do not connect to open water, and waterways within a single state. While the EPA has a permitting system for point source discharges, such as those from a factory, an animal feedlot, or a municipal sewage treatment plant, it is largely left to the states to oversee regulation for non-point sources, such as agricultural or urban runoff, a significant source of water pollution. The CWA also sets water quality standards, which vary with the intended use of the body of water. For example, a lake used for swimming and fishing would have tougher standards than a pond used for irrigation. The minimum standards are initially based on the Best Available Technology that could be used to control pollution, but the CWA includes antidegradation policies as well. Another provision requires a permit before a wetland can be dredged and filled, in an attempt to prevent real estate developers from eliminating these natural filtering systems and wildlife habitats. Wetlands policy is intended to result in no net loss, but in practice this has not proved to be the case. Environmentalists point to the aftermath of Hurricane Katrina as an example of the consequences of wetland destruction. Draining of the swamps around New Orleans meant elimination of the natural “overflow” that historically prevented much flooding. The result was that large sections of the city were rendered uninhabitable. Years later, much of the New Orleans displaced population has not returned to the city. The Safe Drinking Water Act (SDWA) applies to public drinking water systems and requires the EPA to set standards and oversee implementation by the states. It also requires that community water systems send consumers an annual report disclosing the level of contaminants in drinking water. Unfortunately, no standards have been set (and thus no testing done) for the vast majority of chemicals (upwards of 70,000) in the United States, many of which may be leaching into groundwater, and so the real level of contamination in drinking water is unknown. In a recent high profile case, city officials in Flint, Michigan have been charged with violation of the SDWA due to high levels of trihalomethanes and lead in the city’s water supply. Congressional hearings have called into question the EPA’s effectiveness in administering the SDWA in Flint. Other federal laws governing water are the Ocean Dumping Act of 1972, which prohibits waste disposal without a permit, and the Oil Pollution Act of 1990, which regulates ships. Tankers using U.S. ports are required to have double hulls to help prevent leakage and minimize spills, and the law imposes significant fines and cleanup costs in the case of an oil spill. 319 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_15_c15_307-326.indd 319 9/20/16 11:03 AM CHAPTER 15 Section 15.3 Chapter Summary Toxics and Waste The Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) required pesticides to be registered with the EPA, but the only required testing was to validate the substance’s “kill power”—that is, that it will eradicate the species it claims to. There was no preliminary testing for safety with regard to either human health or that of the environment. Although Congress in 1972 directed the EPA to test for safety, the backlog and inadequate funding mean that only a small percentage of the over 50,000 pesticides already registered have been tested for health effects. There are two major laws that deal with toxic waste. The Resource Conservation and Recovery Act (RCRA) deals with disposal of present waste, both household and toxic, setting standards for landfills and mandating processes and recordkeeping for disposal of dangerous substances. The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) imposes joint and several liability on toxic polluters and on any owner of polluted property. Example 15.19. Lola buys pastureland in 2000. Five years later, when she decides to sell the property, the prospective buyer’s surveyor discovers that twenty years before Lola bought the property, a chemical company owned the property and used it to dump barrels of toxic waste, which they then bulldozed over before selling the property. Even though she had nothing to do with the pollution and did not even know of the previous owner’s conduct, Lola could still be held liable for cleanup costs, which may be millions of dollars. This expansive liability for property owners has always been controversial, but the law was attempting to solve a practical problem: too often it is difficult to finance cleanups that occurred long ago, and the public interest in having the toxics removed is too great to finance only through liability on parties that may have disappeared or gone out of business. In the case of “orphan” polluted sites, where no responsible party can be found or sued, cleanup is financed by the Superfund, a pool of money made available for the purpose through taxes on oil companies, among others. However the funding for the Superfund has been depleted by enormously expensive cleanups, and the taxes that funded it have in some cases been eliminated, and so the future of the Superfund—and of contaminated property—is uncertain. 15.3 Chapter Summary B usiness in the 21st century takes place on a world stage, requiring the astute businessperson to have knowledge of international law and practices. If a company is exporting its goods, it must comply with any possible restrictions on shipping outside the United States. If it is importing, it needs to investigate possible tariffs. In drafting international sales contracts, issues such as choice of law, forum, currency, and even language should be agreed upon in advance by both parties to avoid future misunderstandings. Additionally, as multinational business becomes the norm, many companies 320 © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. rog80328_15_c15_307-326.indd 320 9/20/16 11:03 AM CHAPTER 15 Section 15.3 Chapter Summary will need to make decisions on whether to operate internationally through subsidiaries or licensing arrangements, or whether they wish to operate directly in a foreign country. Compliance with environmental regulations should also be a major concern. Much of the law focuses on preventing, or at least limiting, pollution with regard to air and water quality and disposal of waste. As the world population grows and industrialization increases, businesses and individuals alike will face the challenge of dwindling resources, including the basic necessities of fresh air and water and unpolluted land. The choices made now will affect the state of the world in the decades to come. Focus on Ethics To what extent should a U.S. company be responsible for the conduct of a foreign firm doing its business? Sportswear and equipment company Nike came under fire in the 1990s for contracting with overseas manufacturers described as sweatshops, located in countries including China, Vietnam, Pakistan, and Indonesia. Labor advocates charged that the companies violated minimum wage and other worker protection laws. In 1998 Nike, in response to pressure, pledged to eliminate child labor for Nike products and to improve conditions for workers in overseas companies to meet U.S. standards. However, it did not address wage issues. In 2001, the use of child labor again became an issue. In 2011, there were reports of physical abuse at factories in Indonesia. Examples included workers being punched and kicked and made to stand for hours in the sun when they failed to make production quotas. Nike issued a statement saying that while they regretted the abuse of workers, there was little they could do to stop it. In 2012, a settlement with an Indonesian labor organization was announced, where Nike agreed to pay $1 million to compensate about 4,000 workers for over 593,400 unpaid overtime hours worked over two years. (The workers’ unpaid labor went back further than that, but Indonesian law only applied to the two-year window). In 2000, members of United Students Against Sweatshops protest outside the Niketown store in New York. Tina Fineberg/Associated Press Questions for Discussion 1. I s Nike’s response enough? Do you think they are acting ethically by continuing to use contractors who commit human righ...
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