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

2. Lesson 7.1 Regulations Maintaining Competition
Goals
Explain how federal laws help regulate monopolies.
Explain how federal laws help promote fair competition.
Chapter 7
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3. 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
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4. 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)
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5. 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, 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.
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6. 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
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7. Promoting Fair Competition
Federal Trade Commission – see Fig. 7.1, pg. 165
Other Federal Agencies – see Fig. 7.2, pg. 165
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8. 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.
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9. 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.
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10. 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.
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11. 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.
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12. 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.
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13. 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.
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14. Intellectual Property
PATENTS
Motors
Mousetraps
Games
Computers
COPYRIGHTS
Software
Novels
Histories
Poetry
Textbooks
TRADEMARKS
Names
Symbols
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15. 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.
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16. 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
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17. 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.
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18. 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.
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19. 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.
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20. Legal Aspects of Business
7.2 Assessment, pg. 173
7.2 Assessment, pg. 172, 1-4
Ch. 7 Case Study, pg. 173, 1-3
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21. 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
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22. 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.
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23. 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
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24. 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
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25. 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
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26. Legal Aspects of Business
Comparative Tax Rates
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27. 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
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Legal Aspects of Business