Ch. 4: The Legal and Regulatory Environment

The Legal and Regulatory Environment

Legislation provides a level playing field for companies that may not otherwise be able to compete

Well-developed and effective marketing plans usually avoid most legal issues

Business Legislation

Protect Companies from each other

Protect consumers

Protect the interests of Society

Enforcement Responsibilities

Enforcement is the responsibility of the executive

branch of the federal government or a federal administrative agency

a choice

Various Legislative Acts

1890 Sherman Antitrust Act 1914 Clayton Act

Federal Trade Commission Act

1936 Robinson-Patman Act 1950 Celler-Kefauver Act

1975 Consumer Goods Pricing Act  

Sherman Antitrust Act (1890)

Monopolies, attempts to monopolize Civil and criminal penalties. Injunctions to cease activities Injured parties may recover treble

damages in civil court.o Treble damages: three times the

actual loss as a result of a violation of antitrust law.

Criminal penalties (substantial fines, and jail time up to three years)

Clayton Act (1914)

Supplement to the Sherman Act Limitations on

o Tying agreementso interlocking directorateso intercorporate stockholding

Provides for civil penalties only.

Federal Trade Commission Act (1914)

Broadly defined unfair competition or competitive situations

Established the Federal Trade Commission The Wheeler-Lea Act (1938) expanded

powers:o To regulate unfair or deceptive practices

whenever the public is deceived. Common method of enforcement is the

Consent Decreeo Consent decree: written agreement between

defendant and prosecution to avoid undertaking an act that would violate law.

Robinson-Patman Act (1936)

Often known as “the price discrimination act” o Buyers as well as sellers can be

held liable for actions that violate antitrust law

o Requires proportionally equal terms to buyers in common markets.

Celler-Kefauver Act (1950)

The “Antimerger Act.”o Broadened power to prevent

acquisitions where they may substantially impact competition.

Consumer Goods Pricing Act (1975)

Prohibits price maintenance agreements among manufacturers and resellers

Repealed Miller-Tydings Act (1937)oHad allowed “fair trade,” a form

of price maintenance.

Securities Laws

Designed to protect investing public, rather than business competitors and customers.

From a marketer’s perspective, important provision is the silent period relating to Initial Public Offerings (IPO’s )

Uniform Commercial Code

Standard set of laws that govern contracts and associated case law

Most portions of the UCC adopted by 49 of 50 states (excluding Louisiana)

Consistency in the UCC between states helps with the administration and enforcement of contracts across state lines

Sarbanes-Oxley Act and Offspring

Public Company Accounting Reform and Investor Protection Act of 2002

Commonly called “SOX” Est. Public Company Accounting

Oversight Board SOX inspired:

o “Canadian Sarbanes-Oxley Act,” Bill 198 (C-SOX)

o Australian Corporate Law Economic Reform Program, (CLERP)

o Japanese Financial Instruments and Exchange Law, (J-SOX)

Business Legislation Issues

I

Intercorporate Stockholding

Interlocking Directorates

Price Maintenance

Refusal to Deal

Resale Restrictions

Price Discrimination

Intercorporate Stockholding

When a company owns another company in the same market in an attempt to control the company so that competition is reduced

Not necessarily illegal for one company to own another company in the same market

However, it is illegal to use that ownership to reduce competition and choice.

Interlocking Directorates

When a company has members of its board of directors serve on the board of another company.

Companies that compete in the same market cannot have common directors such that actions would lessen competition in their markets.

Key: what is a “market?”

Price Maintenance

When a manufacturer attempts to dictate the resale price of an item – generally illegal.

Manufacturers may “suggest” resale prices Influence allowed when added value provided by

manufacturer or channel partners (e.g., providing financing for inventory, etc.)

Attempts to protect full-service retailers from free rider retailerso Free ride retailers provide fewer services and a

reduced selling price.o Without this protection, consumers would

likely go to full service retailers for product information, but purchase from free ride retailers

Refusal to Deal

When a company refuses to restock or supply associated services to dealer that has not followed suggested pricing guidelines.

Refusal to deal is generally illegal. Courts have recognized the right of a

seller to sell or not sell to whomever it desires, as long as the reason is not to fix prices or restrain trade.

Resale Restrictions

Occurs when a company:o Maintains house accounts

(customers that are within the reseller’s market but are served directly by the supplier)

o limits resellers to certain territories The courts have not come down

on clearly on either side of this issue.

Price Discrimination

Major issue B-2-B marketers will faceo Application of Robinson-Patman Act

Occurs when a supplier sells the same product to the “same class” of buyers at different prices such that it reduces competition in the buyer’s market

Selling products at different prices to customers that are not in competition with one another is not considered discriminatory

Marketing Implications and Nuances

Pacific Model 10005000 units/month

$38 per unit

Desktop Computer Market

Pacific Model 10005000 units/month

$38 per unit

NBM Computer

s

Palo Alto Computers

PACIFIC DRIVES

Exhibit 4-4 Pacific Drives supplies the same product to two customers who compete in the same

market.

Marketing Implications and Nuances

Exhibit 4-5 United Memories aggressive price at NBM Computers

Pacific Model 10005000

units/month$38 per unit

Desktop Computer Market

Pacific Model 10005000

units/month$38 per unit

NBM Computer

s

Palo Alto

Computer

PACIFIC DRIVES

UniMem Model 3005000 units/month

$32 per unit

UNITED MEMORIES

Exhibit 4-6: Spartan Computers Enters the Market

Marketing Implications and Nuances

UNITED MEMORIES

UniMem 3005000 units/mo.

$32 per unit

Pacific Model 1000

500 units/mo.$55 per unit

Desktop Computer Market

Pacific10005000

units/mo.$38/unit

NBM Computers

Palo Alto Computer

PACIFIC DRIVES

Spartan Computer

s

Pacific10005000

units/mo.$38/unit

Major Tenants of Price Discrimination Legislation

Offerings sold:o for different useso to separate marketsoat different timeso that are not identicalo to government agenciesoat prices that meet a competitive threat

are generally not a violation of price regulations.

Offerings created through supplier-customer collaboration, partnering, customizations are not identical and therefore not subject to price regulations

Substantiality Test

This test has three considerations:o SIZE: of organization involvedo VOLUME: of business involvedo SIGNIFICANCE: of market preemption

Intellectual Property

1. Patents2. Copyrights

3. Trade Secrets4. License

5. Cross-License6. Joint Venture

1. Patents

Protection granted by the federal government to inventors of original products, processes, or compositions of matter.

Functional patents last 20 years. Design patents last 14 years.

2. Copyrights

Protection for the original works of authors, musicians, and photographers.

Protects the expression of an idea, not the underlying idea itself.

Copyrights are granted to individuals for their lifetimes plus fifty years.

Copyrights automatically apply to all work created since 1989.

3. Trade Secrets A process, technique, or competitive

advantage whose owner has chosen not to seek legal protection to avoid disclosure.

It cannot be something that is common knowledge, and the owner must have taken reasonable efforts to keep the trade secret a secret.

Owners are not able to license, sell, or trade them with the same degree of legal protection as patents or copyrights

4. License

Permission to use an asset as one’s own without any right of ownership

Granted by the owner of the asset

5. Cross-License

Occurs when two businesses each have patents or other intellectual property that is of value to the other

Greater advantage in same or different markets

6. Joint Venture

Organization where two firms combine to approach a particular market or share a particular technology

Venture operates as an independent business