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Business Law Chapter 4 Homework Web Site Was Uphelde Whether The Reasoning

Page Count
9 pages
Word Count
5000 words
Book Title
Business Law: Text and Cases 14th Edition
Authors
Frank B. Cross, Kenneth W. Clarkson, Roger LeRoy Miller
1
Chapter 4
Business and the Constitution
INTRODUCTION
Many people assume that a government acts from a vague position of strength and can enact any regulation
it deems necessary or desirable. This chapter emphasizes a different perspective from which to view the law: action
taken by the government must come from authority and this authority cannot be exceeded.
Neither Congress nor any state may pass a law in conflict with the Constitution. The Constitution is the
supreme law in this country. The Constitution is the source of federal power and to sustain the legality of a federal
2 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS
CHAPTER OUTLINE
I. The Constitutional Powers of Government
Before 1789, the Articles of Confederation defined the central federal government, which was perceived as
too weak when state laws interfered with commerce. A national convention was called to amend the Articles,
but instead the delegates drafted the U.S. Constitution.
A. A FEDERAL FORM OF GOVERNMENT
The U.S. Constitution established a federal form of government, through which the states and the na-
tional government share sovereign powers.
1. Federal Powers
The national government has specific powers and the implied power to act to carry out these
enumerated powers. All other powers are reserved to the states under the Tenth Amendment.
2. Regulatory Powers of the States
The states regulate affairs within their borders through their police powers, which derive in part from
the Tenth Amendment. These powers are exercised to protect or promote the public order, health,
safety, morals, and general welfare.
B. RELATIONS AMONG THE STATES
1. The Privileges and Immunities Clause
Under the Constitution’s Article IV privileges and immunities clause, when a citizen of one state
2. The Full Faith and Credit Clause
The Constitution’s full faith and credit clause ensures that rights established under deeds, wills,
contracts, and so on in one state will be honored by other states. It also ensures that judicial
decisions with respect to such property rights are honored and enforced in all states.
C. THE SEPARATION OF POWERS
Deriving power from the Constitution, each of the governmental branches (the executive, the legislative,
and the judicial) performs a separate function. No branch may exercise the authority of another, but
each has some power to limit the actions of the others. This is the system of checks and balances.
Congress, for example, can enact a law, but the president can veto it.
The executive branch is responsible for foreign affairs, but treaties with foreign governments
require the advice and consent of the members of the Senate.
Congress determines the jurisdiction of the federal courts, but the courts have the power to hold
acts of the other branches of the government unconstitutional.
D. THE COMMERCE CLAUSE
1. The Expansion of National Powers under the Commerce Clause
The Constitution expressly provides that Congress can regulate commerce with foreign nations,
interstate commerce, and commerce that affects interstate commerce. This provisionthe
CHAPTER 4: BUSINESS AND THE CONSTITUTION 3
commerce clausehas had a greater impact on business than any other provision in the
Constitution. At one time the clause was interpreted to allow Congress to regulate even intrastate
commerce that affected interstate commerce.
CASE SYNOPSIS
Case 4.1: Heart of Atlanta Motel v. United States
A motel owner, who refused to rent rooms to African Americans despite the Civil Rights Act of 1964,
brought an action to have the Civil Rights Act of 1964 declared unconstitutional. The owner alleged that, in
passing the act, Congress had exceeded its power to regulate commerce because his motel was not engaged
in interstate commerce. The motel was accessible to state and interstate highways. The owner advertised
nationally, maintained billboards throughout the state, and accepted convention trade from outside the state
(75 percent of the guests were residents of other states). The district court sustained the constitutionality of
the act and enjoined the owner from discriminating on the basis of race. The owner appealed. The case went
to the United States Supreme Court.
..................................................................................................................................................
Notes and Questions
Does the Civil Rights Act of 1964 actually regulate commerce or was it designed to end the
practice of race (and other forms of) discrimination? In this case, the Supreme Court said, “[T]hat
Congress was legislating against moral wrongs . . . rendered its enactments no less valid.”
Are there any businesses in today’s economy that are “purely local in character”? An individual
who contracts to perform manual labor such as lawn mowing or timber cutting within a small geographic area
might qualify, as long as the activity has no effect on interstate commerce. But in most circumstances it would
be difficult if not impossible to do business purely local in character” in today’s U.S. economy. Federal
statutes that derive their authority from the commerce clause often include requirements or limits to exempt
small or arguably local businesses.
Which constitutional clause empowers the federal government to regulate commercial activities
among the states? To prevent states from establishing laws and regulations that would interfere with trade
4 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS
If this case had involved a small, private retail business that did not advertise nationally, would
the result have been the same? Why or why not? It is not likely that the result in this case would have
been different even if the facts had involved a small, private retail business that did not advertise nationally.
The intended impact of the decision in Heart of Atlanta was to uphold the constitutionality of the Civil Rights
Act of 1964 and the power of Congress to regulate interstate commerce to stop local discriminatory practices.
In the Supreme Court’s opinion, The power of Congress to promote interstate commerce also includes the
ENHANCING YOUR LECTURE
  GIBBONS V. OGDEN (1824)
 
The commerce clause, which is found in Article I, Section 8, of the U.S. Constitution, gives Congress the
power “[t]o regulate Commerce with foreign Nations, and among the several States, and with the Indian
Tribes.” What exactly does “to regulate commerce” mean? What does “commerce” entail? These questions
came before the United States Supreme Court in the case of Gibbons v. Ogden.a
BACKGROUND
In 1803, Robert Fulton, the inventor of the steamboat, and Robert Livingston, who was then American
minister to France, secured a monopoly on steam navigation on the waters in the state of New York from the
New York legislature. Fulton and Livingston licensed Aaron Ogden, a former governor of New Jersey and a
MARSHALLS DECISION
Sitting as chief justice on the Supreme Court was John Marshall, an advocate of a strong national gov-
ernment. In his decision, Marshall defined the word commerce as used in the commerce clause to mean all
commercial intercoursethat is, all business dealings that affect more than one state. The Court ruled
against Ogden’s monopoly, reversing the injunction against Gibbons. Marshall used this opportunity not only
to expand the definition of commerce but also to validate and increase the power of the national legislature to
regulate commerce. Said Marshall, “What is this power? It is the power . . . to prescribe the rule by which
CHAPTER 4: BUSINESS AND THE CONSTITUTION 5
power of the national government and that this power included the power to regulate any intrastate commerce
that substantially affects interstate commerce.
APPLICATION TO TODAYS WORLD
Marshall’s broad definition of the commerce power established the foundation for the expansion of na-
tional powers in the years to come. Today, the national government continues to rely on the commerce
clause for its constitutional authority to regulate business activities. Marshall’s conclusion that the power to
2. The Commerce Clause Today
The United States Supreme Court has recently limited the clause in its reach, in decisions that
significantly enhanced the sovereign power of the states within the federal system. Some of these
3. The “Dormant” Commerce Clause
States do not have the authority to regulate interstate commerce. When state regulations affect in-
terstate commerce, the state’s interest in the merits and purposes of the regulation must be
ENHANCING YOUR LECTURE
  DOES STATE REGULATION OF INTERNET PRESCRIPTION
TRANSACTIONS VIOLATE THE COMMERCE CLAUSE?  
Every year, about 30 percent of American households purchase at least some prescription drugs online.
There is nothing inherently unlawful in such a transaction. Consider that Article X of the Constitution gives the
AN EXTENSION OF STATE LICENSING LAWS
6 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS
About 40 percent of the states have attempted to regulate Internet prescription transactions by
supplementing their licensure rules in such a way to define a “safe” consulting relationship between the
physician prescribing and the pharmacists dispensing prescription drugs. For example, certain states allow
an electronic diagnosis. This consists of a patient filling out an online questionnaire that is then “approved” by
a physician before an Internet prescription is filled and shipped. In contrast, other states specifically prohibit a
physician from creating a prescription if there is no physical contact between the patient and the physician
providing the prescription.
SOME STATES ARE ATTEMPTING TO REGULATE INTERSTATE COMMERCE
Recently, the New York State Narcotic Bureau of Enforcement started investigating all companies in New
ARE NEW YORK AND OTHER STATES VIOLATING THE DORMANT COMMERCE CLAUSE?
As you learned in this chapter, the federal government regulates all commerce not specifically granted to
the states. This is called the dormant commerce clause. As such, this clause prohibits state regulations that
discriminate against interstate commerce. Additionally, this clause prohibits state regulations that impose an
undo burden on interstate commerce. The dormant commerce clause has been used in cases that deal with
state regulation of pharmacy activities.b
In this decade, there is an opposing view based on a line of cases that suggest that state regulation of
Internet activities do not violate the dormant commerce clause. In one case, a New York state law that
banned the sale of cigarettes to its residents over the Internet was found not to violate the dormant commerce
WHERE DO YOU STAND?
Clearly, there are two sides to this debate. Many states contend that they must regulate the
provision of prescription drugs via the Internet in order to ensure the safety and well-being of their
citizens. In some instances, however, the states may be imposing such regulations at the behest of
traditional pharmacies, which do not like online competition. What is your stand on whether state
regulation of Internet prescription drug transactions violates the dormant commerce clause of the
Constitution? Realize that if you agree that it does, then you probably favor less state regulation. If
you believe that it does not, then you probably favor more state regulation.
a. See, for example, Dent v. West Virginia, 129 U.S. 114, 9 S.Ct. 231, 32 L.Ed. 623 (1889).
CHAPTER 4: BUSINESS AND THE CONSTITUTION 7
E. THE SUPREMACY CLAUSE AND FEDERAL PREEMPTION
The Constitution, laws, and treaties of the United States are the supreme law of the land. When there is
a direct conflict between a federal law and a state law, the state law is held to be invalid.
1. Preemption
2. Congressional Intent
Generally, congressional intent to preempt will be found if a federal law is so pervasive,
comprehensive, or detailed that the states have no room to supplement it. Also, when a federal
statute creates an agency to enforce the law, matters that may come within the agency’s juris-
diction will likely preempt state laws.
F. THE TAXING AND SPENDING POWERS
Congress has the power to impose taxes, but all taxes must be uniform among the states. In re-
viewing tax laws, the United States Supreme Court focuses on whether the tax can be sustained as
II. Business and the Bill of Rights
The first ten amendments to the Constitution, known as the Bill of Rights, embody protections against various
types of interference by the federal government.
A. LIMITS ON FEDERAL AND STATE GOVERNMENTAL ACTIONS
1. The Fourteenth Amendment
Through the Fourteenth Amendment, most of these guarantees have been held to apply at the
state level as well.
2. Judicial Interpretation
The rights secured by the Constitution are not absolute. The government gives constitutional
principles their form and substance. The United States Supreme Court defines, and determines the
boundaries of, these rights.
B. FREEDOM OF SPEECH
1. Reasonable Restrictions
A balance must be struck between the government’s obligation to protect its citizens and those
citizens’ exercise of their rights.
CHAPTER 4: BUSINESS AND THE CONSTITUTION 9
a. Content-Neutral Laws
If a restriction imposed by the government is content neutral (aimed at combating a societal
problem such as crime, not aimed at suppressing expressive conduct or its message), then a
court may allow it.
b. Laws That Restrict the Content of Speech
To regulate the content of speech, a law must serve a compelling state interest and be
narrowly written to achieve that interest.
ENHANCING YOUR LECTURE
  DO COMPUTERS HAVE FREE SPEECH RIGHTS?
 
When you do a Web search using Microsoft’s Bing, Google, or any other search engine, the program
inherent in those engines give you a listing of results. When you use a document-creation program, such as
Microsoft Word, it often guesses at your misspellings and corrects them automatically. Do computers that
make such choices engage in “speech,” and therefore do they enjoy First Amendment protections? This
question is not as absurd as it may seem at first glance.
ARE GOOGLES SEARCH RESULTS “SPEECH?”
More than a decade ago, a company dissatisfied with its rankings in Google’s search results sued.
Google argued that its search results were constitutionally protected speech. The plaintiff, Search King, Inc.,
GOOGLE VERSUS THE FEDERAL TRADE COMMISSION (FTC)
There has never been any question in the last few years that Google is the dominant search engine.
Less than 15 years ago, the federal government was worried that Microsoft’s search engine was too dominant
and was crushing Yahoo!, AltaVista, and Lycos search engines. Of course, the latter two no longer exist and
Microsoft’s new search engine, Bing, is a relatively minor player in the field.
THE FIRST AMENDMENT PROTECTION ARGUMENT
Google commissioned Eugene Folokh and Donald Falk, two legal experts in this field, to research the
First Amendment protection issue for search engine search results.b The researchers argue that search
10 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS
engine results are the same as editorial judgments made by newspapers in terms of which wire service
stories to run, which op-ed columnist to feature, and which business columnists to feature. The authors
further claim that free speech applies to editorial choices no matter what their format. Search engine are
protected even when they are “unfair” in their rankings of search results. Whether there is use of a
computerized algorithm or not is irrelevant.
...............................................................................................................................................
CRITICAL THINKING
Facebook has numerous computers, all programmed by humans, of course. If Facebook’s
computers make decisions that allow your private information to be shared without your knowledge,
should the First Amendment protect Facebook? Why or why not? The issue of protecting privacy has
both technological and ethical aspects. From the technological point of view, Facebook and other social
media companies have the ability to protect users’ private information. From an ethical point of view, some
argue that Facebook and other social media companies must protect all users’ private information. Then
2. Corporate Political Speech
Speech that otherwise would be protected does not lose that protection simply because its source
CASE SYNOPSIS
Case 4.2: Bad Frog Brewery, Inc. v. New York State Liquor Authority
Bad Frog Brewery, Inc., sells alcoholic beverages with labels that display a frog making a gesture known
as “giving the finger.” Bad Frog’s distributor, Renaissance Beer Co., applied to the New York State Liquor
Authority (NYSLA) for label approval, required before the beer could be sold in New York. The NYSLA
CHAPTER 4: BUSINESS AND THE CONSTITUTION 11
denied the application, in part because children might see the labels in grocery and convenience stores. Bad
Frog filed a suit in a federal district court against the NYSLA, asking for, among other things, an injunction
against this denial. The court granted a summary judgment in favor of the NYSLA. Bad Frog appealed.
The U.S. Court of Appeals for the Second Circuit reversed. The NYSLA’s ban on the use of the labels
lacked a “reasonable fit” with the state’s interest in shielding minors from vulgarity, and the NYSLA did not
adequately consider alternatives to the ban. “In view of the wide currency of vulgar displays throughout
contemporary society, including comic books targeted directly at children, barring such displays from labels
for alcoholic beverages cannot realistically be expected to reduce children’s exposure to such displays to any
significant degree.” Also, there were “numerous less intrusive alternatives.”
..................................................................................................................................................
Notes and Questions
The free flow of commercial information is essential to a free enterprise system. Individually and as a
society, we have an interest in receiving information on the availability, nature, and prices of products and
services. Only since 1976, however, have the courts held that communication of this information
(“commercial speech”) is protected by the First Amendment.
ADDITIONAL CASES ADDRESSING THIS ISSUE
Advertising and the Commerce Clause
Cases involving the constitutionality of government restrictions on advertising under the
commerce clause include the following.
Cases in which restrictions on advertising were held unconstitutional include Thompson v. Western
States Medical Center, __ U.S. __, 122 S.Ct. 1497, 152 L.Ed.2d 563 (2002) (restrictions on advertising of
compounded drugs); and This That and Other Gift and Tobacco, Inc. v. Cobb County, 285 F.3d 1319 (11th
Cir. 2002) (restrictions on advertising of sexual devices).
Cases in which restrictions on advertising were held not unconstitutional include Long Island Board of
Realtors, Inc. v. Inc. Village of Massapequa Park, 277 F.3d 622 (2d Cir. 2002) (restrictions on signs in
residential areas); Borgner v. Brooks, 284 F.3d 1204 (11th Cir. 2002) (restrictions on dentists’ ads); Genesis
Outdoor, Inc. v. Village of Cuyahoga Heights, __ Ohio App.3d __, __ N.E.2d __ (8 Dist. 2002) (restrictions on
billboard construction); and Johnson v. Collins Entertainment Co., 349 S.C. 613, 564 S.E.2d 653 (2002)
(restrictions on offering special inducements in video gambling ads).
3. Commercial Speech
Commercial speech is not protected as extensively as noncommercial speech. Even if commercial
speech concerns a lawful activity and is not misleading, a restriction on it will generally be con-
sidered valid as long as
4. Unprotected Speech
Constitutional protection has never been afforded to certain classes of speechdefamatory
speech, threats, child pornography, “fighting” words, and statements of fact, for example.
a. Obscene Speech
Obscene material is unprotected. But other than child pornography, there is little agreement
about what material qualifies as obscene. The United States Supreme Court has held that
material is obscene if
The average person finds that it violates contemporary community standards.
The work taken as a whole appeals to a prurient interest in sex.
The work shows patently offensive sexual conduct.
The work lacks serious redeeming literary, artistic, political, or scientific merit.
b. Online Obscenity
Some recent legislation has included
The Communications Decency Act (CDA) of 1996, portions of which were struck as
unconstitutional.
c. Virtual Pornography
The Prosecutorial Remedies and Other Tools to End the Exploitation of Children Today
(PROTECT) Act of 2003, which criminalizes the distribution of virtual child pornography, has
been upheld.
C. FREEDOM OF RELIGION
1. The Establishment Clause
Under the establishment clause, the government cannot establish a religion nor promote, endorse,
or show a preference for any religion.
a. Applicable Standard
Federal or state law that does not promote, or place a significant burden on, religion is
constitutional even if it has some impact on religion.
b. Religious Displays

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