Marketing 356

creates, defines, and regulates legal rights and obligations

legal relationship of people with other people or btw them and the state

Includes the systems and methods for enforcing the rights specified in substantive law

– Law based on past court decisions – based on the doctrine “let the decision stand” – STARE DECISIS

law based on legislative enactment

defines the relationship between government and citizens (anti-trust law)

defines the relationship between individuals (contract law)

involves rights and duties between individual units

involves wrongs against the general welfare

Power of the Fed Gov’t to regulate business activity

Interstate VS. Intrastate Commerce

Does NOT Exist

Advertising, personal selling, and sales promotions are types of commercial speech

Historically Commercial Speech was NOT protected under the 1st amendment

However, beginning with “Virginia Pharmacy” (1976) case it HAS BEEN Protected

But restrictions can still be placed on commercial speech if health, safety or welfare of citizens is involved (“Puerto Rican Casinos” case)

“44 Liquormart” case (1996) restored basic freedom of almost all commercial speech

• Prohibits contracts, combinations and
• conspiracies in restraint of trade

• Prohibits monopolies and attempts to create
• monopolies

• Look at market share when above 50%
• Price Fixing

Prohibits:

• a) Price Discrimination – B2B Sales. Tangible
• Goods. Charge different price to different consumers.NO IMPACT because of loophole. If there is a Qty difference can charge any price

• b) Exclusive Dealings
• – m/f supplier gets r/t to agree to only carry their product and exclude other products. Lock out competition. Even 15% - 20%

• c)Tying Contracts – tying together 2 products/ services.
• Something you want but have to buy this to get that.

• d) Mergers –
• separate firms become one. One buys the other.

• - Where they substantially Lessen Competition
• - A and D have no impact *

Creates The FTC

• Prohibits unfair methods of competition
• where it substantially lessens competition or causes unjury to a competitor

Has jurisdiction over the FTC and the Clayton Act

Not a consumer protection act. Initially designed to protect firms

Amends Clayton Act by prohibiting mergers where thereis purchase of ASSETS of a firm

Don’t have to have 50% and 50% of market share when merged. Could be 15-20%

• Prohibits price discrimination on goods of like grade and quality
• BOTH buyers and sellers can be prosecuted - most brought against seller

• Qty and cost are related
• Any price difference has to be tied to cost – if can show price differences

• Allows manufacturers to set the minimum retail price
• for goods

Included a “non-signers” clause

In Depression Era

State level - 45 out of 48 agreed initially

• Non Signers clause – m/f and a r/t set $5
• minimum and all other r/t must also pay $5

Exempts state fair trade laws from the Sherman Act

Unions are exempt –e.g.

Exempts non-signers clauses from federal jurisdiction and scrutiny

Federal enabling act

States decide – court

Lobbying to get it past

Repeals both the Miller-Tydings and the McGuire-Keough Acts

Due to increases in prices and inflation – this was passed

• Can have r/t sell a product while w/s still owns
• the product – can control price. As long as you give a sale % to the r/t to sell or rent space in the r/t

Cannot tell r/t to sell at a price if products are sold to the r/t

Protects trademarks, brands, and brand names

• Amends the Lanham Act to allow protection of brands not yet introduced to the market
• Global market about to come into the US etc.

• FTC and Justice Department must be notified on the case of certain mergers
• Where ACQUIRED firm has over $10 million in assets and ACQUIRING firm has over $100 million in assets

1st Federal consumer protection Act

Amended FTC Act to prohibit unfair trade practices that cause injury to consumers

Package must show name and location of manufacturer

Package must show “net” contents in a prominent place

Gives FTC power to issue rules and regulations

Established the Consumer Product Safety Commission (CPSC)

Gives CPSC the power to issue rules and regulations regarding product safety

Establishes various regulations in warranty area

Gives FTC power to issue rules and regulations in the warranty area

Requires all processed foods to have labels that display nutritional information

Enforces Sherman Act & merger section of Clayton Act

*Sherman Act allows for triple damages

*Can bring CRIMINAL complaints which are often settled by NOT CONTEST pleas

Also brings CIVIL complaints which are often settled by CONSENT DECREES

Enforces FTC Act, Clayton Act & various consumer protection acts

It is a LEGISLATIVE agency issuing rules and regulations

It is an INVESTIGATIVE agency

It is an ADMINISTRATIVE agency & tribunal

It is an ENFORECEMENT agency imposing civil penalties

• Have a lot of jurisdiction
• Deceptive Advertising

This is a virtual Per Se Violation of the SHERMAN ACT

Case: US VS. Trenton Potteries (1927)

• This is likely to be lawful only if ALL of the following are strictly adhered to
• a) it is limited to Past prices

b) Information available to both Buyers & Sellers

c) It preserves each firm’s Anonymity – business name not known

d) It permits Departure from reported prices – not obvious evidence of price fixing

Identical behavior by a few large firms is NOT enough to prove illegal price fixing. Any identical behavior must be the result of collusion, NOT market conditions

• Identical behavior will be illegal if one of the following exists:
• a) A proposal for joint action
• b) Direct communications or the opportunity for it.
• c) *Behavior was NOT expected by market conditions.

Case: US VS. International Harvester (1927) American Tobacco (1946)

If pricing strategy is to copy prices it’s ok as long as there is no agreement

Cost-Based Rules Apply

Predatory pricing exists if there is any pricing that yields returns BOTH Average Variable Costs & Marginal Costs.

Also, pricing below Total Costs is considered Predatory if there is additional evidence of intent to drive out competition

Case: Standard Oil of New Jersey (1911)

• A) Goods involved must be of like grade & Quality
• Case: US VS. Borden Co. (1966)

• B) Illegal where the effect is to substantially lessen competition
• - A price that hurts one or more competitors is
• usually interpreted to mean competition is lessened

• Injury can be at any one of three levels to be a
• violation

C) If price difference is due to Cost differences often because of different quantities sold, this is a defense

D) If price difference is due to functional differences of buyers, then this is a defense (different price to wholesalers VS. Retailers)

• E) Good Faith meeting of competition is a defense, but only if:
• 1. Price met is LEGAL
• 2. Price is NOT Undercut
• 3. Competition being met is at Primary Level
• Case: FTC VS. Sun Oil (1963)

• F) Price discrimination by Buyers is also a violation of RP
• G) Promotional allowances must be on a proportionally equal basis

A firm at the same level as the price discriminator is injured

Case: Utah Pie VS. Continental Baking (1967)

A firm one level further down in the channel from the price discriminator is injured. Manufacturer to a wholesaler

A firm two levels further down in the channel from the price discriminator is injured. Wholesaler to a retailer

Usually legal is agreement entered into of one’s own free will

• Otherwise may be illegal if there is coercion
• and manufacturer’s or dealer’s market share is substantial

Virtually Per Se illegal except for good will defense

Cases: US VS. Jerrold Electronics (1960) – significant and established ^ H. Siegal VS. Chicken Delight (1971)

• Usually legal unless there is obvious coercion
• involved

If you sell this I will buy that from you

Usually Unilateral “refusal to Deal” is legal

But cannot refuse to deal if dealer refuses to cooperate with an illegal practice such as tying contracts OR if there is a Conspiracy to refuse to deal

Case: US VS. Colgate (1919)

These can now be used to promote InterBrand competition even if IntraBrand competition is lessened.

In other words, it is usually legal today

• Cases: US Vs. Arnold Schwinn (1976)
• Continental TV VS. GTE Sylvania (1977)

By merger it is illegal if it substantially lessens competition at any level of the channel

• By Internal Expansion it is legal as there is no clear remedy
• Horizontal - @ same level and same industry – same business
• Vertical – same level but different industries

These are usually legal, but have, at times, been challenged especially where there are:

• a) “Deep-Pocksts” mergers, or
• b) “Potential Entrant” mergers

Case: FTC vs. Procter & Gamble (1967)

HHI Below 1000

HHI = 1000 - 1800

• Mergers are premitted if HHI increases by less than 100 pts
• Example: a merger of two firms with 7% market ahre each

HHI over 18000

Mergers are permitted if HHI increaces by less than 50 pts

Considered deceptive if:

• a) theres a misrepresentation, omission that misleads
• b) acting reasonably
• c) misrepresentation is material - Colgate-Palmolive
• d) intent to decieve isnt relevant
• e) viewed as a whole ad conveys false impression
• f) material misrepresentation - nature and effectivness of product
• g) material misrepresentation of the nature and standing of the business
• h) competetors are disparaged no basis in fact - Vidal Sassoon vs. Bristol-Myers

• 1) Cease and Desist Orders or Consent Decrees
• 2) Affirmative Disclosure - Geritol
• 3) Corrective Advertising - Listerene
• 4) Advertising Substantiation - Pfizer

1) National Advertising Division of the Council of Better Business Bureau - if they rule against - request modification or withdrawal of ad

2) decision can be appealed to the National Advertising Review Board. 5 People - if ruled against, request modification or withdrawal - if refusal - case goes to FTC

the use to mock-ups without disclosure of the fact that one is being used is deceptive if it may materially affect the purchase decision

Case: Campbell Soup

Deceptive Unless:

• a) a product has been sold in recent past at some regular price
• b) price reduction is equal to or greater than cents-off claim
• c) regular price is clearly displayed

deceptive unless:

• a) Same brand is available in other sizes
• b) savings is at least 5%

• This involves advertising a product at a low price, but then discouraging purchase of it by trying to switch consumers to a higher priced product
• It is characterized by:

• a) Refusing to demonstrate or even tosell the product
• b) Displaying a defective product or poorly displaying it
• c) failing to have adequate inventories to meet demand

• A contest must NOT involve a lottery
• A lottery (gambling) is involved if:

• a) a prize is offered
• b) Winning depends on chance or luck
• c) AND if contestants must give up something to win.

Thus the easiest way to avoid a lottery is to NOT require a purchase to enter

A. If a seller makes ANY WRITTEN warranty to the consumer, then the implied warranties may NOT be disclaimed or modified

• The IMPLIED warranties are:
• i) “Merchantability” – goods are fit for the ordinary purposes for which
• they are normally used
• ii) “Fitness For A Particular Purpose” – Goods are suitable for any SPECIFIC purpose, other than ordinary uses, if they are sold as such.

B. FTC has power to issue rules and regulations requiring disclosure of information for warranted products over $25

• This includes:
• i) warranty period
• ii) the procedure to follow for recourse
• iii) A description of the product
• iv) being in “easy to read” language,
• v) being available BEFORE the sale

A. Before 1916, the doctrine of “privity of contract” meant that the consumer could not only sue the firm they bought from and only if it was negligent

This changed after 1916 and the consumer could sue any firm in the channel that was negligent

• Case:
• MacPherson vs. Buick Motor (1916)

B. In the 1963 doctrine of “strict liability” was adopted if product was defective. It was no longer necessary to show negligence.

• Case:
• Greenman vs. Yuba Power Products (1963)

1. Manufacturing Process Defects - When a product does not comply with its own standards or with industry guidelines

2. Inadequate Warnings or Instructions - When the seller DOES NOT provide buyers with information about the risks in using the product including risks of using it properly (foreseen uses)

3. Design Defects - Various legal tests may be applied by the courts to determine if a design defect exists.

a. Deviation From the Norm Test - a design defect exists when a product is below the quality level of most similar products in the industry

• b. Unreasonable Seller Test - A design defect exists when a “prudent manufacturer” who is aware of the risk
• involved would not have been likely to sell the product.

c. Risk-Utility Test - a design defect exists when the risk of harm from a design outweighs the utility of that design

• Evidence is Examined on:
• -The availability of other designs
• -The cost of modifying the design, the frequency and seriousness of injury
• -The user’s ability to avoid injury by exercising care.

d. Consumer Expectations and Risk-Utility Test A design defect exists when the product failed to perform as safely as an ordinary consumer would expect when used as intended, or the defendant fails to prove that the benefits of design outweigh the risks.

i) “Statute of Limitations” - Varies from state to state

• ii) Improper Use By User - negligence or unforeseen use is a partial defense
• iii) Another Firm’s Product - if injury cause by other firm’s product, that is a defense, but “market share theory” may apply
• iv) User Discovers Defect - is aware of danger, but still uses it