Marketing 356

  1. Substantive Law
    creates, defines, and regulates legal rights and obligations

    legal relationship of people with other people or btw them and the state
  2. Procedural Law
    Includes the systems and methods for enforcing the rights specified in substantive law
  3. Case Law
    – Law based on past court decisions – based on the doctrine “let the decision stand” – STARE DECISIS
  4. Statute Law
    law based on legislative enactment
  5. Public Law
    defines the relationship between government and citizens (anti-trust law)
  6. Private Law
    defines the relationship between individuals (contract law)
  7. Civil Law
    involves rights and duties between individual units
  8. Criminal Law
    involves wrongs against the general welfare
  9. Commerce Clause
    Power of the Fed Gov’t to regulate business activity

    Interstate VS. Intrastate Commerce
  10. Legislative Veto
    Does NOT Exist
  11. Commercial Speech
    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
  12. Sherman Antitrust Act (1890)
    • 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
  13. Clayton Act (1914)

    • 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 *
  14. Federal Trade Commission Act (1914)
    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
  15. Celler-Kefauver Act (1950)
    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%
  16. Robinson-Patman Act (1936)
    • 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
  17. State “FAIR TRADE” Laws (1930s) (Resale Price Maintenance)
    • 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
  18. Miller-Tydings Act (1937)
    Exempts state fair trade laws from the Sherman Act

    Unions are exempt –e.g.
  19. McGuire-Keough Act (1952)
    Exempts non-signers clauses from federal jurisdiction and scrutiny

    Federal enabling act

    States decide – court

    Lobbying to get it past
  20. Consumer Goods Pricing Act (1975)
    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
  21. Lanham Act (1946)
    Protects trademarks, brands, and brand names
  22. Trademark Law Revision Act (1988)
    • Amends the Lanham Act to allow protection of brands not yet introduced to the market
    • Global market about to come into the US etc.
  23. Hart-Scott-Rodino Antitrust Improvement Act
    • 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
  24. Pure Food and Drug Act (1906)
    1st Federal consumer protection Act
  25. Wheeler-Lea Act (1938)
    Amended FTC Act to prohibit unfair trade practices that cause injury to consumers
  26. “Fair Packaging & Labeling” Act (1966)
    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
  27. Consumer Product Safety Act (1972)
    Established the Consumer Product Safety Commission (CPSC)

    Gives CPSC the power to issue rules and regulations regarding product safety
  28. Magnuson-Moss Warranty Act (1975)
    Establishes various regulations in warranty area

    Gives FTC power to issue rules and regulations in the warranty area
  29. Nutrition Labeling & Education Act (1988)
    Requires all processed foods to have labels that display nutritional information
  30. Enforcement of Marketing Laws

    Justice Department., Antitrust Division
    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
  31. Enforcement of Marketing Laws

    Federal Trade Commission
    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
  32. Price Fixing
    This is a virtual Per Se Violation of the SHERMAN ACT

    Case: US VS. Trenton Potteries (1927)
  33. Exchange Price Information
    • 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
  34. Parallel Pricing
    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
  35. Predatory Pricing
    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)
  36. Price Discrimination
    • 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
  37. Price Discrimination

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

    Case: Utah Pie VS. Continental Baking (1967)
  38. Price Discrimination

    Secondary Level
    A firm one level further down in the channel from the price discriminator is injured. Manufacturer to a wholesaler
  39. Price Discrimination
    Tertiary Level
    A firm two levels further down in the channel from the price discriminator is injured. Wholesaler to a retailer
  40. Exclusive Dealing
    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
  41. Tying Contracts
    Virtually Per Se illegal except for good will defense

    Cases: US VS. Jerrold Electronics (1960) – significant and established ^ H. Siegal VS. Chicken Delight (1971)
  42. Reciprocity
    • Usually legal unless there is obvious coercion
    • involved

    If you sell this I will buy that from you
  43. Refusal to Deal
    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)
  44. Exclusive Territories
    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)
  45. Horizontal Expansion/ Mergers
    Vertical Expansion/ Mergers
    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
  46. Conglomerate Expansion/ Mergers
    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)
  47. Unconcentrated Market
    HHI Below 1000
  48. Moderate Concentration
    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
  49. Highly Concentrated Market
    HHI over 18000

    Mergers are permitted if HHI increaces by less than 50 pts
  50. Deceptive Advertising
    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
  51. FTC Remedies (Deceptive Advertising)
    • 1) Cease and Desist Orders or Consent Decrees
    • 2) Affirmative Disclosure - Geritol
    • 3) Corrective Advertising - Listerene
    • 4) Advertising Substantiation - Pfizer
  52. Self Regulation - Advertising Industry
    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
  53. Deceptive Demonstrators or Mock Ups
    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
  54. Cents Off Labeling
    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
  55. Economy Size Labeling
    deceptive unless:

    • a) Same brand is available in other sizes
    • b) savings is at least 5%
  56. Bait and Switch Advertising
    • 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
  57. Contests
    • 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
  58. Warranties
    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
  59. Product Liability
    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)
  60. Three Categories of Product Defects
    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.
  61. Design Defects Tests
    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.
  62. Posible Defenses to Product Liability Cases
    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
Card Set
Marketing 356
Exam 2