Personalized Medicine

Topics: Law, Intellectual property, Property Pages: 41 (10288 words) Published: June 3, 2011
Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Law, Value Creation, and Risk Management 2 Ethics and the Law 21 Courts, Sources of Law, and Dispute Resolution 59 Constitutional Bases for Business Regulation 113 Agency 157 Administrative Law 183 82048_01_ch01_1-20.indd 1


Foundations of the Legal and R egul atory En vironment

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Chapter 

Law, Value Creation, and Risk Management

Winning Legally1
Governments immerse modern organizations “in a sea of law.”2 Public law provides the rules of the game3 within which firms compete to create and capture value. Law does more than regulate and constrain, however. It also enables and facilitates.4 Indeed, multiple-country studies reveal that the efficiency of a country’s capital markets is directly related to the country’s legal environment.5 Researchers found a statistically significant relationship between a country’s economic prosperity, as measured by the per capita gross domestic product, and each of the following: • • • • • • Judicial independence. Adequacy of legal recourse. Police protection of business. Demanding product standards. Stringent environmental regulations. Quality laws relating to information technology. • • Extent of intellectual property protection. Effectiveness of antitrust laws.6

For example, adequate protection of minority rights increases investment in new ventures.7 Conversely, excessive regulation, including burdensome licensing requirements and filing fees, can hamper new venture formation.8 “Legally astute” managers who understand and proactively manage the legal aspects of business can use the law and the legal system to increase both the total value created and the share of that value captured by the firm.9 As Tom Hinthorne remarked, “[L]awyers and corporate leaders who understand the law and the structures of power in the U.S.A. have a unique capacity to protect and enhance shareowner wealth.”10 For example, companies can use patents, copyrights, trademarks, and trade secrets to differentiate their products, command premium prices, erect barriers to entry, sustain first-mover advantage, and reduce costs. Managers can also make their own “private law” by entering 6. M.E. Porter, Enhancing the Microeconomic Foundations of Prosperity: The Current Competitiveness Index, in World Economic Forum, The Global Competitiveness Report 2001–2002 (2002). 7. S. Johnson, R. La Porta, F. Lopez-de-Silanes & A. Shleifer, Tunneling, 90 Am. Econ. Rev. 22 (2000). 8. S. Djankov, R. La Porta, F. Lopez-de-Silanes & A. Shleifer, The Regulation of Entry, 117 Q.J. Econ. 1 (2002). 9. See Constance E. Bagley, Winning Legally: The Value of Legal Astuteness, 33 Acad. Mgmt. Rev. 378 (2008). 10. Tom Hinthorne, Predatory Capitalism, Pragmatism, and Legal Positivism in the Airlines Industry, 18 Strategic Mgmt. J. 509 (1996). See also George J. Siedel, Six Forces and the Legal Environment of Business: The Relative Value of Business Law Among Business School Core Courses, 37 Am. Bus. L.J. 37 (2000).

1. See generally Constance E. Bagley, Winning Legally: How to Use the Law to Create Value, Marshal Resources, and Manage Risk (2005). 2. L.B. Edelman & M.C. Suchman, The Legal Environments of Organizations, 23 Ann. Rev. Soc. 479 (1997). 3. Douglass C. North, Institutions, Institutional Change and Economic Performance 3–4 (1990). 4. M.C. Suchman, D.J. Steward & C.A. Westfall, The Legal Environment of Entrepreneurship: Observations on the Legitimization of Venture Finance in Silicon Valley, in The Entrepreneurship Dynamic: Origins of Entrepreneurship and the Evolution of Industries (C.B. Schoonhoven & E. Romanell eds., 2001). 5. R. La Porta, F. Lopez-de-Silanes, A. Shleifer & R.W. Vishny, Legal Determinants of External Finance, 52 J. Fin. 1131 (1997).

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chapter 

Law, Value Creation, and Risk Management


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