Legal environment of business, Business Law and Ethics

Legal Environment of Business

Inventions "R Us (IRU) advertises invention development services and has aggressively advertised its services on-line, in magazines, and on radio, network and cable channels. A two step process was used by IRU.  After the initial contact by a potential customer IRU sends an initial form on which the consumer provided a general description of his invention.  About 80% of those that send in the initial form are offered the services of IRU.  A customer receives a Research Agreement in the initial phase.  The Research Agreement provided a portfolio that included a patent search, an engineer's review of feasibility, a conceptual drawing, industry related data, and a search of competing products at a cost $1000.  For $3,000 customers were to receive a color version in a presentation that could be used to present to potential businesses that might market, license, or purchase the invention.

Phase two consisted of trying to locate a corporation interested in licensing the consumer's product idea. This agreement had a term of two years. The agreement could be purchased on an hourly basis, or by paying a flat fee, ranging from $10,000 to $ 15,000, plus a percentage of royalties. The cost of creating production drawings or a prototype for submission to corporations was included in this agreement.

The Agreement contained an express acknowledgment that the consumer had not been promised financial gain or profits. Product Research was supposed to be done and provided by way of an "Inventionability Report".  The cost of creating production drawings or a prototype for submission to corporations was included in this agreement. The Agreement contained an express acknowledgment that the consumer had not been promised financial gain or profits.

The Inventionability Reports included a patent design search, and a provisional patent application. This portfolio is similar to the one provided under the Research Agreement, The Inventionability Agreement states that there are no guarantees of financial gain and that the purpose of the research is not to evaluate market potential or patentability.

The Contingency Agreement is the agreement under which IRU were to attempt to obtain a license for the consumer's product with a corporation. The Contingency Agreement provided that the consumer will be responsible for obtaining an Inventionability presentation and/or prototype of his idea for submission to corporations. The agreement states that the consumer can obtain these items either from IRU or another source, subject to IRU's approval. This agreement also contained a statement that no license is guaranteed and that the majority of products are not successfully licensed.  Less than one percent of defendants' revenues come from royalty income.  All of the agreements had integration clauses stating that the agreement constituted the entire agreement between the parties and that any verbal agreements are null and void. One of the provisions in the agreement provided,

Client acknowledges that IRU has assisted eight hundred and seventeen clients wanting licensing services in the last five years. Because Contingency Agreements last for six months, IRU is unable to determine if a Client has licensed or marketed his/her product idea or received financial gain after the expiration of the Contingency Agreement. However, IRU is aware of thirty projects that have been licensed and ten that have resulted in financial gain to the project owner since 1990. Davison is also aware that one hundred twenty projects are under corporate licensing review.

Other statements made in IRU agreements include,

(a) Consumers who buy IRU's invention-promotion services stand a reasonably good chance of realizing financial gain.

(b) IRU's invention-promotion services helped many of their customers' invention ideas become profitable products.

(c) IRU'secome profitable products: Bark Buddies, the Spot-Lite, the Snag-Buster, the Puzzle Sorter, and the EnviroGolf.

(d) IRU has a vast network of corporations with whom they have ongoing relationships and regularly negotiate successful licensing agreements.

(e) IRU' invention marketing services are necessary for consumers to license their invention ideas.

(f) IRU prepares objective and expert analyses of the patentability and marketability of consumers' invention ideas.

At IRU's instructions, Dan spent $30,000 to have 10,000 "Apollo, Solar Electronic Charger" manufactured.  Except for ten (10) of the chargers, the rest were stored at All-Type Storage Company (ATSC) Dan had obtained an inside air conditioned and heated unit for his chargers.  He wanted to keep them safe until he had orders from buyers or someone who wanted to who wanted to license them. Dan's chargers had a fair market value of $100,000.

The following provision was in the storage agreement between Dan and ATSC,

Dan Jackson shall assume the risk of loss or damage to its goods stored on the premises, and agrees to indemnify and hold ATSC and their respective agents, officers, directors, employees and partners, harmless from any loss or expense, other than risk of loss or damage to Goods caused by ATSC's negligence and limited to the extent of ATSC's insurance.

One of the warehouse employees, Sam Shifty broke into Dan's storage unit and took 1500 of the chargers selling them on eBay for $60 each.  ATSC supervisor, Mike Mine noticed that Dan's unit was unlocked but he failed to notify his supervisor or Dan.  Dan went to ATSC to get 100 chargers for a customer when he discovered that the unit was unlocked and that the 1500 chargers were missing.  Dan confronted ATSC management about the unlocked unit door and the missing chargers.  ATSC managers finally acknowledged that they were aware that the unit was unlocked and it appeared that some of product was missing.  Dan thought that he could not afford to lose the chargers or the money that could have been realized from selling them.

Subsequently, Dan learned that he was not going to get the patent on the charger as there were other devices that were too similar enough.

Terry, Dan's girlfriend tried to console him, but she could not.  She took him to some of her Naught Nighty parties to cheer him up.  It helped a little.  Terry had discovered a fun way to make money.  She hosted "Naughty Nighties" Parties taking.  The parties were set up like Tupperware parties, a group of people is invited, refreshments are served, and fun and games are provided to make them more receptive to ordering the merchandise.  Guests were given an opportunity to be models for an evening trying on and modeling some of the items at the party.  The two "guest models" with the most votes received a $10 party voucher that could be used to apply to any merchandise purchase. Terry uses FaceBook, the Internet, flyers, mailing lists, and mailbox stuffers to advertise her business.  Some of the statements in the ads and made by Terry include the following:

"Get your Naughty Nighties just like Victoria Secret lingerie for a fraction of the cost!  Fabulous Fakes - No one can tell the difference! Order of $100 or more receive an adult toy of your choice [$15 or less]."  "Fun way to have a bachelorette or birthday party."

Victoria Secret officials were tipped off about the party and sent some investigators to the party.  Once the investigators were able to determine that the items of merchandise were knock offs, they called law enforcement at a pre-arranged phone number.  Police seized slightly less than 500 counterfeit items.  Victoria Secret officials confirmed that the seized items were copies of their merchandise and that the labels inside the items were made to look like Victoria Secrets' merchandise. Terry has a website "Naught Nighties" that can be used to order merchandise.  Terry has sold $78,000 in merchandise.

During a time when Dan thought that he was going to make some big bucks off of the charger his brother Harmon needed to buy a car.  Harmon did not have good credit.  Harmon asked Dan if he would sign so that Harmon could buy a car. Dan told Harmon that he would sign, but that Harmon would have to make the payments and not put Dan in the position of paying out any money. Harmon called Dan to come to Takeachance Motors to sign.  Harmon had signed on a line designated "Buyer".  Dan signed on a line designated "Co-buyer". After paying on time for a year, Harmon defaulted on his payments. There were several months before Takeachance made demand for payment on Dan.  Takeachance had planned to repossess the car, but could not find it. Without Dan's knowledge, Harmon had left Ohio and gone to Alaska to find work taking the car. Takeachance sued Dan and Harmon on the unpaid balance of the account.  They were unable to get service of process on Harmon.  They were able to get good service of process on Dan and have served him with the Complaint and Summons.  Dan believes that Takeachance should try and get the money from Harmon first.

Terry felt so confident in her lingerie parties that she purchased a new Kia, from Acme Motors (AM).  She chose a 60 month payment plan.  The Kia developed mechanical problems before Terry drove it off the lot even before the first payment was due. Terry has had the Kia in for repairs eight times, but the problems were not resolved.  The car had been in for service for 42 days and still Terry had problems with the car, it would just stop.  Terry stopped making the payments after eight months since she still was having problems and Acme was not helping.  Acme Credit (AC) which had been assigned Terry's retail installment contract.  AC called Terry demanding payment and that she make her account current.  Terry explained the mechanical problems she was having with the Kia and that AM was not helpful.

AC checked with AM and did inform Terry that if she did not bring her account current that they would repossess the Kia.

Employees of a repossession service, Lenders' Service came to Terry's house and demanded the Kia, but Dan had driven it to a bowling tournament.  Terry insisted that the account was not in arrears because of the mechanical problems she was experiencing.  When Dan returned and learned what happened, Dan and Terry put the car in the garage closed the door and locked it.  They chained the rear end to a post using a logging chain and two padlocks.  Placed in front of the garage door were to concrete blocks used in road construction to divide highways. When Terry and Dan returned to the house that evening they discovered that the padlocks had been cut off, someone had entered the garage and taken the Kia.  Approximately four days later, AC informed Terry that it had repossessed the Kia.  AC had also informed Terry that she would redeem the Kia before it was put up for auction.  Terry did not respond to that notice.  Two months later, AC notified Terry that the Kia had been sold and requested a deficiency payment of $10,998.46, the amount still owed once the amount received from the auction was deducted from the outstanding balance.

QUESTIONS:   Give complete answers.  Use appropriately the proper legal terms, elements, and defences, etc.  Number your answers to correspond to the question you are answering.  Answer the questions in the order listed below.  Number your pages. State the bases for your answers.  Also use the outside source in your answers and provide the citation for it.

1. Explain in detail what if any legal cause(s) of action that Dan Jackson may have and against whom.

2. Explain in detail what remedy(ies) that the Dan Jackson may be entitled to receive and specify the court(s) in which the lawsuit should be filed.

3. Explain in detail if there is anyone else who may have any legal cause(s) of action and against whom.

4. Explain in detail what remedy(ies) that anyone else may be entitled to receive and specify the court(s) in which the lawsuit should be filed.

5. Explain in detail any ethical and/or social responsibility issues presented by the fact pattern.

Posted Date: 3/19/2013 5:29:57 AM | Location : United States

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