Entrepreneurship – Chapter 7
7.03 Legal Issues and Business Ownership
Regulations That Promote Competition
Antitrust Legislation
Sherman Act
 Competitors can not get together to set prices
 Discussing pricing with competitors is illegal
at a certain level
Clayton Act
 It is illegal for a business to:
o require a customer to buy exclusively
from it
o force a customer to purchase one good in order to be able to purchase another good
Robinson-Patman Act
 It is illegal to discriminate by charging different prices
to different customers
 Some economically sound reasons that allow for different prices include:
o volume discounts
o special distribution
o legal requirements that vary by location
Wheeler-Lea Act
 Unfair or deceptive actions or practices by businesses that may cause an unfair competitive
advantage are banned.
o false advertising
 Businesses are required to warn consumers about possible negative features of their product.
o potential side effects
of medication
Consumer Protection Legislation
 Laws and organizations designed to ensure the rights of consumers as well as fair trade competition
and the free flow of truthful information
 These laws protect the public from harmful products
FERPA
 Federal Educational Rights and Privacy Act
o Established in 1974
o Gives students access to their education records
o The opportunity to seek to have the records amended
o Control over the disclosure of information from the records
o Only applies to educational institutions that receive funding from the U.S. Department of
Education
 Why would this apply to business?
HIPAA
 Health Insurance Portability and Accountability Act
o Established in 1996
o Privacy of individuals health information
o Includes information on:
o Medical records
o Medical billing
o Clinical or research databases
 Why would this apply to business?
Other Laws that Protect Consumers
 Licenses
o State and local governments require some businesses to have licenses
o training may be required
o inspections may be required

Zoning Laws
o Local governments often establish zoning regulations that control what types of buildings can be
built
in specific areas

The Federal Food, Drug, and Cosmetic Act of 1938
o Covering food, drugs, and cosmetics, this law bans selling products that are:
o impure
o improperly labeled
o falsely guaranteed
o Unhealthful

The Consumer Product Safety Act of 1972
o sets safety standards

for products other than food and drugs
The Truth-In-Lending Act of 1968
o requires all banks to calculate credit costs in the same way
Laws Concerning Financial Accuracy
 Sarbanes-Oxely Act
o Introduced in 2002 as a direct result of Enron scandal
o Improved the accuracy and reliability of corporate disclosures made pursuant to the securities
laws
o Created new standards for corporate accountability as well as new penalties for acts of
wrongdoing
Government Agencies that Protect Competition
Justice Department
 The Antitrust Division takes legal action against any business it believes has tried to monopolize an
industry
 Prosecutes businesses that violate antitrust laws
Federal Trade Commission
 The FTC administers most of the laws dealing with fair competition
o false advertising
o price setting by competitors
o price discrimination
o product misrepresentation
How to Protect Business
Intellectual Property
 The original creative work of an artist or inventor
o Examples: songs, novels, artistic designs, inventions
 No one can use someone else’s original work to make money.
Patent
 The grant of a property right to an inventor to exclude others from making, using, or selling his or
her invention
 Lasts for 20 years
 Provisional patent application
 Allows inventor one year to research details of an idea prior to filing a patent
Copyright
 an intellectual property law
 protects works of authorship
 remains in effect for 70 years after the death of an author
Trademark
 name, symbol, or special mark used to identify a business or brand of product
Legal Issues Affecting Business
Contracts - a legally binding agreement between two or more persons or parties
 Offer and Acceptance
o one party offers or agrees to something and the other party accepts
 Consideration
o what is exchanged
for the promise
 Capacity
o the parties are legally able
to enter into a binding agreement
 Legality
o a contract cannot have anything in it that is illegal
or that would result in illegal activities
 Genuine Assent
o the agreement is not based on deceit, mistakes, or unfair pressure
Torts - a wrong against people
or organizations for which the law grants a remedy