Chapter 7 Legal Aspects of Business ©2008 Thomson/South-Western

Lesson 7.1 Regulations Maintaining Competition Goals Explain how federal laws help regulate monopolies. Explain how federal laws help promote fair competition. Chapter 7 Legal Aspects of Business

Legal Aspects of Business Monopolies Monopoly — exists when only one company provides a product or service without competition from other companies Natural monopoly — usually involves providing public services, such as public utilities, which have a fairly stable demand and are costly to create Chapter 7 Legal Aspects of Business

Promoting Fair Competition Monopoly – exists only when on company provides a product or service without competition from other companies. Vs. Natural Monopoly – may be better for consumers than competition because of the large cost involved in developing or supplying a product or service. PSEG (Public Service Gas & Electric) Chapter 7 Legal Aspects of Business

Promoting Fair Competition Sherman Act – Sherman Antitrust Act, 1890; discourages monopolies by outlawing business arrangements among competitors that might tend to promote monopolies. American Airlines and United Airlines Possible Merger, 2013. Clayton Act – Addendum to the Sherman Antitrust Act, 1914. One part of the law forbids corporation from acquiring ownership rights in other corporations if the purpose is to create a monopoly or to discourage competition. Another section of the Clayton Act forbids business contracts that require customers to purchase certain goods in order to get other goods. MS’s Internet Explorer killing their competition with Netscape Navigator by giving their Internet Browser away for free. Chapter 7 Legal Aspects of Business

Promoting Fair Competition Robinson-Patman Act (1936) – amended portion of the Clayton Action; purpose was to prevent price discrimination. Sellers cannot change prices on products & services based up socio-economic status, gender, marital status, ethnicity, etc. Wheeler-Lea Act (1938) – made unfair or deceptive advertising unlawful. Bait and Switch, misleading facts as to what the product does (cosmetics/acne products) Sensa weight loss product http://www.consumer.ftc.gov/blog/sensa-buyers-gain-refund-checks https://www.youtube.com/watch?v=XqBmERKEcUE Chapter 7 Legal Aspects of Business

Promoting Fair Competition Federal Trade Commission – see Fig. 7.1, pg. 165 Other Federal Agencies – see Fig. 7.2, pg. 165 Chapter 7 Legal Aspects of Business

Promoting Fair Competition Bankruptcy Relief Is a legal process that allows the selling of assets to pay off debts. Businesses and Individuals can file for bankruptcy. Assets are sold to pay off debts, the law will excuse businesses and individuals from paying the remaining unpaid debts. Chapter 7 Legal Aspects of Business

Bankruptcy Relief Continued…. Companies and Individuals can survive bankruptcy if a plan has been developed. Consequences of Bankruptcy: Bad credit rating Bankruptcy/unpaid debts stay on your records for 10 years. Businesses cannot file for bankruptcy for 8 years and will have difficulty obtaining credit. Chapter 7 Legal Aspects of Business

Lesson 7.2 Regulations Protecting Business and the Public Goals Explain how patent, copyright, and trademark protection benefits business. Describe the ways in which government regulations protect consumers. Describe three methods used by state and local governments to regulate business. Chapter 7 Legal Aspects of Business

Intellectual Property Patent — agreement in which the federal government gives an inventor the sole right for 20 years to make, use, and sell an invention or process Patent & Trademark Office – gives individuals/inventor a monopoly on newly invented products, designs, and processes. See pg. 167 Patents & Trademarks can be revoked or denied. Stealing patents in an acceptable practice in some countries (China) that do not honor US Paten Law. American firms lose millions of dollars. Chapter 7 Legal Aspects of Business

Intellectual Property Copyright — Sole right to reproduce, publish, and sell literary or artistic work for the life of the author plus 70 years. No one may publish or reproduce copyrighted work without permission of the copyright owner. Exceptions – teachers may copy a magazine article to distribute to students. Copyrights protect creators of Games, Music, Video & Audio Games, Computer Software. Copyright Office – regulate copyrights. Chapter 7 Legal Aspects of Business

Intellectual Property Trademark — Distinguishing name, symbol, or mark placed on a good or service that is legally reserved for the sole use of the owner. Examples are Nike “Swoosh,” McDonald’s “Golden Arches,” Nintendo’s “Game Boy.” Trademarks are also regulated by the Patent & Trademark Office. Chapter 7 Legal Aspects of Business

Intellectual Property PATENTS Motors Mousetraps Games Computers COPYRIGHTS Software Novels Histories Poetry Textbooks TRADEMARKS Names Symbols Chapter 7 Legal Aspects of Business

Regulations Protecting the Public Food and Drug Administration (FDA) - Food and drugs Federal Trade Commission (FTC) FTC prohibits the sale of tobacco and smokeless tobacco to those under 18 because research shows that the majority of those who smoke when young die prematurely. Consumer Product Safety Act Sets safety standards on many items including: Nonfood products, Information, Electronic Communications Privacy Act Warranty Act – requires sellers to specify what they will or will not do if their product is defective. Chapter 7 Legal Aspects of Business

Legal Aspects of Business Information (pg. 170) Vast amounts of information is collected, processed, stored, and distributed by computers about their customers, often times via the internet. Unauthorized use of personal information can result in identity theft. Information Liability – carelessly handled information. The responsibility for physical or economic injury arising from incorrect data or wrongful use of information. If a person’s credit rating suffers because an employee keys a SS number into credit record incorrectly, the business is liable for creating the problem. The Electronic Communications Privacy Act – make it a crime for any unauthorized person to access a major computer system, view, use or change data. Cookies – are files of information about the user, see pg. 171 Chapter 7 Legal Aspects of Business

State and Local Regulations Interstate vs. Intrastate Commerce – pg. 171 If a co. sells products/service interstate, that co. is subject to Federal & State laws. Licensing a way to limit and control those who plan to enter certain types of businesses. Ie. restaurants, liquor licenses, other firm names (Walt Disney). Public franchise Contract that permits a person or organization to use public property for private profit unless you receive a special grant by society. Ie. Deion has a franchise from his community to operate his taxi company. Chapter 7 Legal Aspects of Business

State & Local Regulations Building Codes Control the physical features of structures. Ie. – Building codes Zoning Specifies which land areas may be used for homes and for different types of businesses Businesses must obey all local regulations related to zoning and construction. Chapter 7 Legal Aspects of Business

Legal Aspects of Business Lesson 7.3 Business Taxes Goals Discuss the nature of taxes and the fairness of progressive, proportional, and regressive taxes. Identify and explain the most common types of taxes that affect business. Chapter 7 Legal Aspects of Business

Legal Aspects of Business 7.2 Assessment, pg. 173 7.2 Assessment, pg. 172, 1-4 Ch. 7 Case Study, pg. 173, 1-3 Chapter 7 Legal Aspects of Business

7.3 – General Nature of Taxes Businesses and individuals pay many kinds of taxes – local/state/and federal governments. Fed. Gov’t – 56% of all taxes collected State & Local Taxes – account for 44% Most corp.s pay approx. 50% of their profits in various kinds Chapter 7 Legal Aspects of Business

Legal Aspects of Business Reasons for Taxes Fund new & ongoing programs and to regulate business activity. Examples: law enforcement, building/repairing roads, military defense. To speed economic growth, gov’t lowers taxes. Fed. Gov’t can also tax foreign goods in order to encourage citizens to buy domestic. State and Local gov’ts may set high taxes on alcoholic beverages and tobacco products to discourage consumption. Chapter 7 Legal Aspects of Business

Ch. 7.3 - Fairness of Taxation Proportional tax (also called flat tax) — tax whose rate remains the same regardless of the amount on which the tax is imposed Progressive tax — tax based on ability to pay. Brackets are 25%, 28%, 33%, & 35% Regressive tax — tax whose rate decreases as taxable amount increases Chapter 7 Legal Aspects of Business

Legal Aspects of Business Types of Taxes Income tax — tax on the profits of businesses and the earnings of individuals Individuals pay 70%; businesses pay 30% in total to Fed. Gov’t. Sales tax — tax levied on the retail price of goods and services at the time of sale Excise tax — applied only to selected goods or services Chapter 7 Legal Aspects of Business

Legal Aspects of Business Property Taxes Property tax — tax on material goods owned, such as real property tax (real estate) and personal property tax (movable possessions) Real Property Tax – tax based upon real estate (land & buildings) Personal Property Tax – taxes on furniture, machinery, and equipment. Anything that is not real estate. Tax Assessment – pg. 178 Chapter 7 Legal Aspects of Business

Legal Aspects of Business Comparative Tax Rates Chapter 7 Legal Aspects of Business

Effect of Taxes on Business Decisions Taxes influence the accounting method a business uses to calculate profits and pay managers. Businesses decide where to open up or move a business based upon taxes. Complete 7.3 Assessment, pg. 179 Chapter 7 Legal Aspects of Business