Business Law

Isabel Arnett was promoted to chief executive officer (CEO) of Tamik, Inc., a pharmaceutical company that manufactures a vaccine called Kafluk, which supposedly provides some defense against bird flu. The company began marketing Kafluk throughout Asia. After numerous media reports that bird flu could soon become a worldwide epidemic, the demand for Kafluk increased, sales soared, and Tamik earned record profits. Tamik's CEO, Arnett, then began receiving disturbing reports from Southeast Asia that in some patients, Kafluk had caused psychiatric disturbances, including severe hallucinations, and heart and lung problems. Arnett was informed that six children in Japan had committed suicide by jumping out of windows after receiving the vaccine. To cover up the story and prevent negative publicity, Arnett instructed Tamik's partners in Asia to offer cash to the Japanese families whose children had died in exchange for their silence. Arnett also refused to authorize additional research within the company to study the potential side effects of Kafluk. Using the information presented in the chapter, answer the following questions. If Kafluk prevented fifty Asian people who were infected with bird flu from dying, would Arnett's conduct in this situation be ethical under a utilitarian model of ethics? Why or why not? DEBATE THIS : Executives in large corporations are ultimately rewarded if their companies do well, particularly as evidenced by rising stock prices. Consequently, shouldn't we just let those who run corporations decide what level of negative side effects of their goods or services is "acceptable"?

Shokun Steel Co. owns many steel plants. One of its plants is much older than the others. Equipment at the old plant is outdated and inefficient, and the costs of production at that plant are now twice as high as at any of Shokun's other plants. Shokun cannot increase the price of its steel because of competition, both domestic and international. The plant employs more than a thousand workers; it is located in Twin Firs, Pennsylvania, which has a population of about forty-five thousand. Shokun is contemplating whether to close the plant. What factors should the firm consider in making its decision? Will the firm violate any ethical duties if it closes the plant? Analyze these questions from the two basic perspectives on ethical reasoning discussed in this chapter.

Have Internet chat rooms and online forums affected corporate decision makers' willingness to consider the community and public interest when making choices? Are corporate decision makers more apt to make ethical choices in the cyber age? Explain.

Business Ethics on a Global Scale In the 1990s, Pfizer, Inc., developed a new antibiotic called Trovan (trovafloxacin mesylate). Tests showed that in animals Trovan had life-threatening side effects, including joint disease, abnormal cartilage growth, liver damage, and a degenerative bone condition. In 1996, an epidemic of bacterial meningitis swept across Nigeria. Pfizer sent three U.S. physicians to test Trovan on children who were patients in Nigeria's Infectious Disease Hospital. Pfizer did not obtain the patients' consent, alert them to the risks, or tell them that Médecins Sans Frontières (Doctors Without Borders) was providing an effective conventional treatment at the same site. Eleven children died in the experiment, and others were left blind, deaf, paralyzed, or brain damaged. Rabi Abdullahi and other Nigerian children filed a suit in a U.S. federal district court against Pfizer, alleging a violation of a customary international law norm prohibiting involuntary medical experimentation on humans. Did Pfizer violate any ethical standards? What might Pfizer have done to avert the consequences? Explain. [ Abdullahi v. Pfizer, Inc., 562 F.3d 163 (2d Cir. 2009)]

Ethical Misconduct Frank A. Pasquale used the Social Security number of his father, Frank F. Pasquale, to obtain a credit card, which he used to charge a $7,500 item. Although he was employed by his father's firm, the son also collected unemployment benefits. Later, the son, claiming to act on behalf of Frank Pasquale Limited Partnership, misrepresented his status to obtain a $350,000 loan. His father-the only person authorized to borrow funds on behalf of the partnership- was unaware of his son's misdeeds. The loan went into default. When the father learned of the fraud, he confronted his son, who produced forged documents to show that the loan had been paid. Adams Associates, LLC, which had acquired the unpaid loan from the original lender, fi led a suit in a New Jersey state court against the father and the son for damages. During the trial, another family member testified to the son's general "lack of ethics." Did the son deserve this characterization? Should the court issue a judgment against the father and the son? Explain. [Adams Associates, LLC v. Frank Pasquale Limited Partnership, __ A.3d __ (2011)]

Business Ethics Jason Trevor owns a commercial bakery in Blakely, Georgia, that produces a variety of goods sold in grocery stores. Trevor is required by law to perform internal tests on food produced at his plant to check for contamination. On three occasions, the tests of food products containing peanut butter were positive for salmonella contamination. Trevor was not required to report the results to U.S. Food and Drug Administration officials, however, so he did not. Instead, Trevor instructed his employees to simply repeat the tests until the results were negative. Meanwhile, the products that had originally tested positive for salmonella were shipped out to retailers. Five people who ate Trevor's baked goods that year became seriously ill, and one person died from a salmonella infection. Even though Trevor's conduct was legal, was it unethical for him to sell goods that had once tested positive for salmonella? If Trevor had followed the six basic guidelines for making ethical business decisions, would he still have sold the contaminated goods? Why or why not?

Isabel Arnett was promoted to chief executive offi cer (CEO) of Tamik, Inc., a pharmaceutical company that manufactures a vaccine called Kafl uk, which supposedly provides some defense against bird fl u. The company began marketing Kafl uk throughout Asia. After numerous media reports that bird fl u could soon become a worldwide epidemic, the demand for Kafl uk increased, sales soared, and Tamik earned record profi ts. Tamik's CEO, Arnett, then began receiving disturbing reports from Southeast Asia that in some patients, Kafl uk had caused psychiatric disturbances, including severe hallucinations, and heart and lung problems. Arnett was informed that six children in Japan had committed suicide by jumping out of windows after receiving the vaccine. To cover up the story and prevent negative publicity, Arnett instructed Tamik's partners in Asia to offer cash to the Japanese families whose children had died in exchange for their silence. Arnett also refused to authorize additional research within the company to study the potential side effects of Kafl uk. Using the information presented in the chapter, answer the following questions. Would a person who adheres to the principle of rights consider it ethical for Arnett not to disclose potential safety concerns and to refuse to perform additional research on Kafluk? Why or why not? DEBATE THIS : Executives in large corporations are ultimately rewarded if their companies do well, particularly as evidenced by rising stock prices. Consequently, shouldn't we just let those who run corporations decide what level of negative side effects of their goods or services is "acceptable"?

Violation of Internal Ethical Codes Havensure, LLC, an insurance broker, approached York International to determine whether it could provide insurance for York at a better rate. At the time, York was obtaining its group insurance from Prudential Insurance Co. through Universal Life Resources (ULR), another insurance broker. York allowed Havensure to study its policies. Havensure discovered that the premium Prudential charged included a hidden broker's fee that it used to pay ULR. When Havensure claimed that it could get the insurance at a lower price, York agreed that Havensure could send requests for proposals to various insurance companies. To keep York's business, Prudential offered to match the lowest rate quoted. Prudential also informed York that it must continue to buy the policy through ULR, not through Havensure. York agreed. Havensure then sued Prudential for wrongful interference with a business relationship (a tort that will be discussed in Chapter 6). The trial court held for Prudential. Havensure appealed. The appeals court held that although Prudential had violated its own code of ethics by having a hidden fee for a broker, and might have violated New York insurance law, Havensure still had no case. Why would a court find that a firm that violated its own rules, and might have violated the law, had no obligation for the loss it might have imposed on another firm trying to compete for business? Docs this ruling make sense? Why or why not? [ Havensure, LLC v. Prudential Insurance Co. of America, 595 F.3d 312 (6th Cir. 2010)]

Corporate Social Responsibility Methamphetamine (meth) is an addictive, synthetic drug made chiefly in small toxic labs (STLs) in homes, tents, barns, or hotel rooms. The manufacturing process is dangerous and often results in explosions, burns, and toxic fumes. The government has spent considerable resources to find and eradicate STLs, imprison meth dealers and users, treat addicts, and provide services for families affected by these activities. Meth cannot be made without ephedrine or pseudoephedrine, which are ingredients in cold and allergy medications. Arkansas has one of the highest numbers of STLs in the United States. In an effort to recoup the costs of dealing with the meth epidemic, twenty counties in Arkansas filed a suit in a federal district court against Pfizer, Inc., and other companies that make or distribute cold and allergy medications. What is the defendants' ethical responsibility in this case, and to whom do they owe it? Why? [ Ashley County, Arkansas v. Pfizer, Inc., 552 F.3d 659 (8th Cir. 2009)]

A QUESTION OF ETHICS: Copyrights. Steven Soderbergh is the Academy Award-winning director of Erin Brockovich, Traffic, and many other films. CleanFlicks, LLC, filed a suit in a federal district court against Soderbergh, fifteen other directors, and the Directors Guild of America. The plaintiff asked the court to rule that it had the right to sell DVDs of the defendants' films altered without the defendants' consent to delete scenes of "sex, nudity ; profanity and gory violence." CleanFlicks sold or rented the edited DVDs under the slogan " It's About Choice" to consumers, sometimes indirectly through retailers. It. would not sell to retailers that made unauthorized copies of the edited films. The defendants, with DreamWorks, LLC, and seven other movie studios that own the copyrights to the films, filed a counterclaim against CleanFlicks and others engaged in the same business, alleging copyright infringement. Those filing the counterclaim asked the court to prevent CleanFlicks and the others from making and marketing altered versions of the films. [ CleanFlicks of Colorado, LLC v. Soderbergh, 433 FSupp.2d 1236 (D.Colo. 2006)] (a) Movie studios often edit their films to conform to content and other standards and sell the edited versions to network television and other commercial buyers. In this case, however, the studios objected when CleanFlicks edited the films and sold the altered versions directly to consumers. Similarly, CleanFlicks made unauthorized copies of the studios' DVDs to edit the films, but objected to others' making unauthorized copies of the altered versions. Is there anything unethical about these apparently contradictory positions? Why or why not? (b) CleanFlicks and its competitors asserted, among other things, that they were making "fair use" of the studios' copyrighted works. They argued that by their actions "they are criticizing the objectionable content commonly found in current movies and that they are providing more socially acceptable alternatives to enable families to view the films together, without exposing children to the presumed harmful effects emanating from the objectionable content." If you were the judge, how would you view this argument? Is a court the appropriate forum for making determinations of public or social policy? Explain.

In 1999, Andrew Fastow, chief financial officer of Enron Corp., asked Merrill Lynch, an investment firm, to participate in a bogus sale of three barges so that Enron could record earnings of $12.5 million from the sale. Through a third entity, Fastow bought the barges back within six months and paid Merrill for its participation. Five Merrill employees were convicted of conspiracy to commit wire fraud, in part, on an "honest-services" theory. Under this theory, an employee deprives his or her employer of honest services when the employee promotes his or her own interests, rather than the interests of the employer. Four of the employees appealed to the U.S. Court of Appeals for the Fifth Circuit, arguing that this charge did not apply to the conduct in which they engaged. The court agreed, reasoning that the barge deal was conducted to benefit Enron, not to enrich the Merrill employees at Enron's expense. Meanwhile, Kevin Howard, chief financial officer of Enron Broadband Services (EBS), engaged in "Project Braveheart," which enabled EBS to show earnings of $111 million in 2000 and 2001. Braveheart involved the sale of an interest in the future revenue of a video-on-demand venture to nCube, a small technology fi rm, which was paid for its help when EBS bought the interest back. Howard was convicted of wire fraud, in part, on the honest-services theory. He fi led a motion to vacate his conviction on the same basis that the Merrill employees had argued. Did Howard act unethically? Explain. Should the court grant his motion? Discuss. [United States v. Howard, 471 F.Supp.2d 772 (S.D.Tex. 2007)]

Ethical Conduct Unable to pay more than $1.2 billion in debt, Big Mountain Metals, Inc., filed a petition to declare bankruptcy in a federal bankruptcy court in July 2009. Among Big Mountain's creditors were several banks, including Bank of New London and Suzuki Bank. The court appointed Morgan Crawford to work as a "disinterested" (neutral) party with Big Mountain and the creditors to resolve their disputes; the court set an hourly fee as Crawford's compensation. Crawford told the banks that he wanted them to pay him an additional percentage fee based on his "success" in finding "new value" to pay Big Mountain's debts. He said that without such a deal, he would not perform his mediation duties. Suzuki Bank agreed; the other banks disputed the deal, but no one told the court. In October 2010, Crawford asked the court for nearly $2.5 million in compensation, including the hourly fees, which totaled about $531,000, and the percentage fees. Big Mountain and others asked the court to deny Crawford any fees on the basis that he had improperly negotiated "secret side agreements." How did Crawford violate his duties as a "disinterested" party? Should he be denied compensation? Why or why not?

Isabel Arnett was promoted to chief executive officer (CEO) of Tamik, Inc., a pharmaceutical company that manufactures a vaccine called Kafluk, which supposedly provides some defense against bird flu. The company began marketing Kafluk throughout Asia. After numerous media reports that bird flu could soon become a worldwide epidemic, the demand for Kafluk increased, sales soared, and Tamik earned record profits. Tamik's CEO, Arnett, then began receiving disturbing reports from Southeast Asia that in some patients, Kafluk had caused psychiatric disturbances, including severe hallucinations, and heart and lung problems. Arnett was informed that six children in Japan had committed suicide by jumping out of windows after receiving the vaccine. To cover up the story and prevent negative publicity, Arnett instructed Tamik's partners in Asia to offer cash to the Japanese families whose children had died in exchange for their silence. Arnett also refused to authorize additional research within the company to study the potential side effects of Kafluk. Using the information presented in the chapter, answer the following questions. Did Tamik or Arnett violate the Foreign Corrupt Practices Act in this scenario? Why or why not? DEBATE THIS : Executives in large corporations are ultimately rewarded if their companies do well, particularly as evidenced by rising stock prices. Consequently, shouldn't we just let those who run corporations decide what level of negative side effects of their goods or services is "acceptable"?

Can you think of a situation in which a business firm may be acting ethically but not in a socially responsible manner? Explain.

Why are consumers and the public generally more concerned with ethical and socially responsible business behavior today than they were, say, fifty years ago?

Isabel Arnett was promoted to chief executive offi cer (CEO) of Tamik, Inc., a pharmaceutical company that manufactures a vaccine called Kafl uk, which supposedly provides some defense against bird fl u. The company began marketing Kafl uk throughout Asia. After numerous media reports that bird fl u could soon become a worldwide epidemic, the demand for Kafl uk increased, sales soared, and Tamik earned record profi ts. Tamik's CEO, Arnett, then began receiving disturbing reports from Southeast Asia that in some patients, Kafl uk had caused psychiatric disturbances, including severe hallucinations, and heart and lung problems. Arnett was informed that six children in Japan had committed suicide by jumping out of windows after receiving the vaccine. To cover up the story and prevent negative publicity, Arnett instructed Tamik's partners in Asia to offer cash to the Japanese families whose children had died in exchange for their silence. Arnett also refused to authorize additional research within the company to study the potential side effects of Kafl uk. Using the information presented in the chapter, answer the following questions. This scenario illustrates one of the main reasons why ethical problems occur in business. What is that reason? DEBATE THIS : Executives in large corporations are ultimately rewarded if their companies do well, particularly as evidenced by rising stock prices. Consequently, shouldn't we just let those who run corporations decide what level of negative side effects of their goods or services is "acceptable"?

What might be some other deterrents to ethical behavior in the business context, besides those discussed in this Focus on Ethics feature?

To watch this chapter's videos, Pharzime, Scene 1 and Scene 2, go to www.cengagebrain.com and register your access code that came with your new book or log in to your existing Cengage account. Select the link for the "Business Law Digital Video Library Online Access" or "Business Law CourseMate." Click on "Complete Video List," view Videos 79 and 80, and then answer the following questions: (a) In Scene 1, employees discuss whether to market their company's drug as a treatment for other conditions- even though it has only been approved for treating epilepsy. One employee argues that marketing the drug for more than the one treatment will increase the company's short-term profits and that obtaining approval for the other treatments will take too long. What theory describes this perspective? (b) In Scene 2, a new sales rep discusses the company's off-label marketing strategy with a veteran sales rep. Is it unethical or illegal for a sales rep to represent that he is a doctor when he has a doctorate in chemistry but is not actually a physician? Explain.

Suppose that an automobile manufacturing company has to choose between two alternatives: contributing $1 million annually to the United Way or reinvesting the $1 million in the company. In terms of ethics and social responsibility, which is the better choice?