A QUESTION OF ETHICS American President Lines, Limited (APL), ...

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A QUESTION OF ETHICS
  American President Lines, Limited (APL), and Stoughton Composites, Limited Liability Company, formed a joint venture, Ultralite Container Corporation, to make intermodal shipping containers with thin walls. (Intermodal containers are freight containers that can be hauled by ship, rail, or truck, and normally use a combination of these transportation modes to reach their destination.) APL contributed its knowledge of shipping requirements, plus about 4 million. Stoughton contributed its expertise in the design and manufacture of containers, plus manufacturing facilities. Stoughton was to design and make the containers. APL was to buy and sell some of them. The parties signed confidentiality agreements that prohibited each from using in its own business, or transferring to others, information disclosed by the other party as part of the joint venture. Ultralite produced and delivered the first containers, but APL believed that they were prone to delamination (separation of the foam insulation from the wall) and refused to pay. Meanwhile, Stoughton began using what it had learned in developing the intermodal containers to make and market over-the-road containers for its own business. APL asked a court to order Stoughton to stop using this information.

Question 2

A contract made by an agent on behalf of an undisclosed principal is never binding on a third party who did not know about the principal.
 a. True
  b. False
  Indicate whether the statement is true or false

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Answer to Question 1

A QUESTION OF ETHICS
1. The court ordered Stoughton to stop making thin walled over-the-road containers. (The court also ordered American President Lines, Limited (APL) to pay damages to Stoughton for breach of contract.) Stoughton appealed to the U.S. Court of Appeals for the Seventh Circuit, arguing that it could use, in its own business, information that it had developed. APL asserted that any information generated by either party as part of the joint venture could not be used for any other purpose. The U.S. Court of Appeals for the Seventh Circuit reversed the lower court's order. The appellate court held that the parties' confidentiality agreements did not prevent Stoughton from using the joint venture's intellectual property, which it had developed from knowledge and expertise that it already possessed. The court explained, This joint venture was designed to jump off from intellectual property Stoughton already possessed; that could not be achieved if Stoughton had to segregate the bodies of knowledge rigidly, on pain of forfeiting the opportunity to make any technical advances in its original product base. Nothing in the confidentiality agreements demonstrates that the parties were this self destructive.    Thus we conclude that the contracts permit Stoughton to use information from the Ultralite project in Stoughton's original business.
2. If joint venturers were not subject to a fiduciary duty of loyalty to their joint venture, it would reduce the willingness of individuals to enter into this form of business enterprise. For this reason, joint venturers should subordinate their own interests to the welfare of the joint venture. When a joint venture is established, the joint venturers agree to work toward a mutual objective. Society imposes an ethical duty on all persons to abide by their agreements. This ethical duty becomes a legal duty, owed by joint venturers, in the interests of protecting their enterprise. The chief reason for forming a business of most kinds is to make profits. To the extent that profits might be lessened by a joint venturer's usurpation of the joint venture's business opportunities or the use of information obtained from the other venturers in confidentiality, the value of the joint venture as a form of business organization would be undercut.

Answer to Question 2

FALSE