Deck 2: Ethics and Social Responsibility of Business

Question 1

False Advertising Papa John's International, Inc., is the third-largest pizza chain in the United States, with more than 2,050 locations. Papa John's adopted a new slogan-"Better Ingredients. Better Pizza."-and applied for and received a federal trademark for this slogan. Papa John's spent over $300 million building customer recognition and goodwill for this slogan. This slogan has appeared on millions of signs, shirts, menus, pizza boxes, napkins, and other items, and it has regu­larly appeared as the tag line at the end of Papa John's radio and television advertisements.
Pizza Hut, Inc., is the largest pizza chain in the United States, with more than 7,000 restaurants. Pizza Hut launched a new advertising campaign in which it declared "war" on poor-quality pizza. The advertisements touted the "better taste" of Pizza Hut's pizza and "dared" anyone to find a better pizza. Pizza Hut also filed a civil action in federal court, charging Papa John's with false advertising in violation of Section 43(a) of the federal Lanham Act.
What is false advertising? What is puffery? How do they differ from one another? Are consumers smart enough to see through companies' puffery? Is the Papa John's ad­vertising slogan "Better Ingredients. Better Pizza" false advertising? Pizza Hut, Inc. v. Papa John's Interna­tional, Inc., 227 F.3d 489, 2000 U.S. App. Lexis 23444 (United States Court of Appeals for the Fifth Circuit)

Answer 1

Case summary:
PJ International Inc. is the third largest pizza chain in United States with more than 2000 locations. The company has adopted a new slogan "Better Ingredients, Better Pizza" and has spent $300 million for building its new brand using several advertising mediums like T.V., radio etc. Over this PZ Inc. which the largest pizza chain in United States sued PJ Inc. federal court alleging false advertising by PJ which is the violation of Lanham Act and also declared a war on poor quality pizzas.
Lanham Act which was passed on July 5, 1946 is also known as Trademark Act, 1946 stands for the federal statutes that govern trademarks, service marks, unfair competition etc.
Conclusion:
False advertising stands for the use of misleading, fake, and unproven information in advertising products or services to the consumers. Example of false advertising could be claiming by a company that it's particular product carry nutritional ingredients and is healthy for a person which infact it is not.
Puffery stands for an exaggeration of something or falsely praising something or the other. Thus the difference between false advertising and puffery is that in puffery a general exaggeration of something or the other is undertaken but in false advertising, a product or a service is advertised claiming fake or non genuine information about is ingredients or service providing capability to its buyers.
Today consumers are smart enough to make a difference between puffery and false advertising because every company undergo puffery to exaggerate its products or services and its quality but false advertising claims certain facts and figures about a particular product or service in which information provided are false then it is illegal, thus there is a great lot difference between the two and the consumers are smart enough recognize the difference between the both.
PJ's advertising slogan "Better Ingredients Better Pizza" is not a false advertising but infact it was a puffery because here PJ is not claiming any fact or figure, it is generally stating that its pizzas are now better because it has started using better ingredients in preparing them. Thus the slogan used by PJ is a puffery and not a false advertising.

Question 2

Ethics The Johns Manville Corporation was a profitable company that made a variety of building and other products. It was a major producer of asbestos, which was used for insulation in buildings and for a variety of other uses. It has been medically proven that excessive exposure to asbestos causes asbestosis, a fatal lung disease. Thousands of employees of the company and consumers who were exposed to asbestos and contracted this fatal disease sued the company for damages. Eventually, the lawsuits were being filed at a rate of more than 400 per week.
In response to the claims, Johns Manville Corporation filed for reorganization bankruptcy. It argued that if it did not, an otherwise viable company that provided thousands of jobs and served a useful purpose in this country would be destroyed and that without the declaration of bankruptcy, a few of the plaintiffs who first filed their lawsuits would win awards of hundreds of millions of dollars, leaving nothing for the remainder of the plaintiffs. Under the bankruptcy court's protection, the company was restructured to survive. As part of the release from bankruptcy, the company contributed money to a fund to pay current and future claimants. The fund was not large enough to pay all injured persons the full amounts of their claims. In re Johns-Mansville Corporation, 36 B.R. 727, Web 1984 Bankr. Lexis 6384 (United States Bankruptcy Court for the Southern District of New York)
1. Is Johns Manville liable for negligence?
2. Was it ethical for Johns Manville to declare bankruptcy?
3. Did Johns Manville meet its duty of social responsibility in this case?

Answer 2

Facts of case:
J M is a company that makes variety of building and other products. It produces asbestos which is used in insulation of building.
It is proven that the exposure to asbestos causes fatal lung disease and asbestosis. Thousands of employees and consumers are exposed to the disease and sue the company for damage.
J M files reorganization bankruptcy to help their future and present claimants by providing funds to them.
Issue of case:
The issue in this J M company is that whether the company took social responsibilities to meet their victims and claimants.
1.
Yes, J M is liable for the health disorder caused to their employees and consumers. It is proven that the exposure to asbestos causes fatal lung disease and asbestosis.
2.
Yes, it was ethical to declare reorganization bankruptcy, because a few plaintiffs will be awarded with millions of dollars and others would be left without any award.
Under this court protection, the company was restructured to survive in the country. As a part of this bankruptcy code, the company would give limited amount to their present and future claimants.
3.
Yes, J M met its duty of social responsibilities towards their claimants and victims of the health disorder.
The company has declared bankruptcy not to avoid company's responsibilities instead to pay money to their present and future claimants.

Question 3

Ethics Case McDonald's Corporation operates the largest fast-food restaurant chain in the United States and the world. It produces famous foods such as the Big Mac hamburger, Chicken McNuggets, the Egg McMuffin, French fries, shakes, and other foods. A McDonald's survey showed that 22 percent of its customers are "Super Heavy Users," meaning that they eat at McDonald's 10 times or more a month. Super Heavy Users make up approximately 75 percent of McDonald's sales. The survey also found that 72 percent of McDonald's customers were "Heavy Users," meaning they ate at McDonald's at least once a week.
Jazlyn Bradley consumed McDonald's foods her en­tire life during school lunch breaks and before and after school, approximately five times per week, ordering two meals per day. When Bradley was 19 years old, she sued McDonald's Corporation for causing her obesity and health problems associated with obesity.
Plaintiff Bradley sued McDonald's in U.S. district court for violating the New York Consumer Protection Act, which prohibits deceptive and unfair acts and prac­tices. She alleged that McDonald's misled her, through its advertising campaigns and other publicity, that its food products were nutritious, of a beneficial nutritional nature, and easily part of a healthy lifestyle if consumed on a daily basis. The plaintiff sued on behalf of herself and a class of minors residing in the state of New York who purchased and consumed McDonald's products. McDonald's filed a motion with the U.S. district court to dismiss the plaintiff's complaint. Bradley v. McDonald's Corporation, 2003 U.S. Dist. Lexis 15202 (United States District Court for the Southern District of New York)
1. Did plaintiff Bradley state a valid case against McDonald's for deceptive and unfair acts and prac­tices in violation of the New York Consumer Protec­tion Act?
2. Does McDonald's act ethically in selling products that it knows cause obesity?
3. Should McDonald's disclose the information regard­ing heavy users?

Answer 3

Case summary:
MD Corp. is a the largest fast food selling company that serves various snacks and fast foods across the United States with its various chains across the country. It sells several food items like French fries, burgers, shakes, sandwiches etc. A survey suggests that 75 percent of MD's customers are its heavy users meaning these people ate at MD atleast one a week. Ms. JB, a school student consumed MD's food her entire life in school breaks, before and after school, ordering minimum two meals a day, approx. five meals a week. When she turned 19 years old, she sued MD for causing her obese and making her suffer from other health related problems. It sued MD in the district court in the violation of the New York Consumer Protection Act under which there is prohibition for showcasing of false and deceptive information. She stated that MD had misled her by announcing that if its products are to be eaten everyday then it would bring nutritional benefits to a person consuming it. Ms. JB alongwith her class students sued MD who all purchased and consumed MD's products. Over this MD requested the court to dismiss the plaintiff's (JB's) appeal.
Consumer Protection Act stands for a group of laws is designed to prevent businesses to become a part of fraud or specified unfair trade practices just to earn profits or gain advantage over the competitors. It is required for business houses to disclose all the information about the product in the areas particularly related to safety or public health such as food.
Conclusion:
The following are the answers to the questions given in the case :
1. Yes, as per the United States Consumer protection Act, Ms. JB has stated a valid case against MD for deceptive and unfair acts and practices in the violation of the New York Consumer Protection Act. This is because as per this act it is required for business houses to disclose all the information about the product in the areas particularly related to safety or public health such as food but MD disclosed false and deceptive information about its food products that they are healthy and if eaten every day the food provides nutritious part of the healthy lifestyle.
In reality fast foods served by MD are bad for health and if eaten regularly can harm a person's health. Thus Ms. JB has stated a valid case against MD for deceptive and unfair acts and practices in the violation of the New York Consumer Protection Act.
2. By selling products that cause obesity, MD did not act ethically because if certain types of food products like fast food are bad and unhealthy for a people, then these types of products should come with its nutritional values attached to the food items so that the person consuming it gets aware about its good and bad effects. But instead of doing this, MD advertised its products as healthy and nutritious which is unethical from MD' side.
3. No, it is not necessary for MD to disclose the information regarding its heavy users because disclosing information about the customers is not mandatory for any company unless and until the company has caused harm to any of its customers. But disclosing of true nutritional information about the food items is very important for food item providers like MD.

Question 4

Ethics Kaiser Aluminum Chemical Corporation entered into a collective bargaining agreement with the United Steelworkers of America, a union that represented employees at Kaiser's plants. The agreement contained an affirmative-action program to increase the representation of minorities in craft jobs. To enable plants to meet these goals, on-the-job training programs were established to teach unskilled production workers the skills necessary to become craft workers. Assignment to the training program was based on seniority, except that the plan reserved 50 percent of the openings for black employees.
Thirteen craft trainees were selected from Kaiser's Gramercy plant for the training program. Of these, seven were black and six were white. The most senior black trainee selected had less seniority than several white production workers who had applied for the positions but were rejected. Brian Weber, one of the white rejected employees, instituted a class action lawsuit, alleging that the affirmative-action plan violated Title VII of the Civil Rights Act of 1964, which made it "unlawful to discriminate because of race" in hiring and selecting apprentices for training programs. The U.S. Supreme Court upheld the affirmative-action plan in this case. The decision stated:
We therefore hold that Title VII's prohibition against racial discrimination does not condemn all private, voluntary, race-conscious affirmative action plans. At the same time, the plant does not unnecessarily trammel the interests of the white employees. Moreover, the plan is a temporary measure; it is not intended to maintain racial balance, but simply to eliminate a manifest racial imbalance.
Steelworkers v. Weber, 443 U.S. 193, 99 S.Ct. 2721, 61 L.Ed.2d 480, Web 1979 U.S. Lexis 40 (Supreme Court of the United States)
1. Why did the federal government enact Title VII of the Civil Rights Act of 1964? Explain.
2. Do companies owe a duty of social responsibility to provide affirmative-action programs?
3. Does anyone suffer economic loss because of affirmative action programs?

Question 5

Ethics The Warner-Lambert Company has manufactured and distributed Listerine antiseptic mouth wash since 1879. Its formula has never changed. Ever since Listerine's introduction, the company has represented the product as being beneficial in preventing and curing colds and sore throats. Direct advertising of these claims to consumers began in 1921. Warner-Lambert spent millions of dollars annually advertising these claims in print media and in television commercials.
After one hundred years of Warner-Lambert's making such claims, the Federal Trade Commission (FTC) filed a complaint against the company, alleging that it had engaged in false advertising, in violation of federal law. Four months of hearings were held before an administrative law judge that produced an evidentiary record of more than four thousand pages of documents from forty-six witnesses. After examining the evidence, the FTC issued an opinion which held that the company's representations that Listerine prevented and cured colds and sore throats were false. The U.S. Court of Appeals affirmed. Warner-Lambert Company v. Federal Trade Commission, 183 U.S. App. D.C. 230, 562 F.2d 749, Web 1977 U.S. App. Lexis 11599 (United States Court of Appeals for the District of Columbia Circuit)
1. Is Warner-Lambert guilty of fraud? If so, what remedies should the court have imposed on the company?
2. Why did Warner-Lambert make claims that Listerine cured colds?
3. Did Warner-Lambert act ethically in making its claims for Listerine?