For any organization, the marketing and broader business decisions are constrained, directed, and influenced by regulatory forces. Regulation consists of restrictions state and federal laws place on business with regard to the conduct of its activities. Regulation exists to protect companies as well as consumers. Much of the regulation from the federal and state levels is the result of an active political process and has been passed to ensure competition and fair business practices. For consumers, the focus of legislation is to protect them from unfair trade practices and ensure their safety.
LO 3-6Explain the major legislation that ensures competition and regulates the elements of the marketing mix.
Major federal legislation has been passed to encourage competition, which is deemed desirable because it permits the consumer to determine which competitor will succeed and which will fail. The first such law was the Sherman Antitrust Act (1890). Lobbying by farmers in the Midwest against fixed railroad shipping prices led to the passage of this act, which forbids (1) contracts, combinations, or conspiracies in restraint of trade and (2) actual monopolies or attempts to monopolize any part of trade or commerce. Because of vague wording and government inactivity, however, there was only one successful case against a company in the nine years after the act became law, and the Sherman Act was supplemented with the Clayton Act (1914). This act forbids certain actions that are likely to lessen competition, although no actual harm has yet occurred.
In the 1930s, the federal government had to act again to ensure fair competition. During that time, large chain stores appeared, such as the Great Atlantic & Pacific Tea Company (A&P). Small businesses were threatened, and they lobbied for the Robinson-Patman Act (1936). This act makes it unlawful to discriminate in prices charged to different purchasers of the same product, where the effect may substantially lessen competition or help to create a monopoly.
Various federal laws in existence specifically address the product component of the marketing mix. Some are aimed at protecting the company, some at protecting the consumer, and at least one at protecting both.
A company can protect its competitive position in new and novel products under the patent law, which gives inventors the right to exclude others from making, using, or selling products that infringe the patented invention. The federal copyright law is another way for a company to protect its competitive position in a product. The copyright law gives the author of a literary, dramatic, musical, or artistic work the exclusive right to print, perform, or otherwise copy that work. Copyright is secured automatically when the work is created. However, the published work should bear an appropriate copyright notice, including the copyright symbol, the first year of publication, and the name of the copyright owner, and it must be registered under the federal copyright law.
Digital technology has necessitated additional copyright legislation, called the Digital Millennium Copyright Act (1998), to improve protection of copyrighted digital products. In addition, producers of DVD movies, music recordings, and software want protection from websites and devices designed to circumvent antipiracy elements of their products.38
These products are identified by protected trademarks. Are any of these trademarks in danger of becoming generic?
There are many consumer-oriented federal laws regarding products. The various laws include more than 30 amendments and separate laws relating to food, drugs, and cosmetics, such as the Infant Formula Act (1980), the Nutritional Labeling and Education Act (1990), and new labeling requirements for dietary supplements (1997) and trans fats (2006). Recently, several states have proposed new legislation that would require the labeling of genetically modified food.39 Various other consumer protection laws have a broader scope, such as the Fair Packaging and Labeling Act (1966), the Child Protection Act (1966), and the Consumer Product Safety Act (1972), which established the Consumer Product Safety Commission to monitor product safety and establish uniform product safety standards. Many of these laws came about because of consumerism , a grassroots movement started in the 1960s to increase the influence, power, and rights of consumers in dealing with institutions. This movement continues and is reflected in the growing consumer demand for ecologically safe products and ethical and socially responsible business practices. One hotly debated issue concerns liability for environmental abuse.
Trademarks are intended to protect both the firm selling a trademarked product and the consumer buying it. A Senate report states:
The purposes underlying any trademark statute [are] twofold. One is to protect the public so that it may be confident that, in purchasing a product bearing a particular trademark which it favorably knows, it will get the product which it asks for and wants to get. Secondly, where the owner of a trademark has spent energy, time, and money in presenting to the public the product, he is protected in this investment from misappropriation in pirates and cheats.
This statement was made in connection with another product-related law, the Lanham Act (1946), which provides for registration of a company’s trademarks. Historically, the first user of a trademark in commerce had the exclusive right to use that particular word, name, or symbol in its business. Registration under the Lanham Act provides important advantages to a trademark owner that has used the trademark in interstate or foreign commerce, but it does not confer ownership. A company can lose its trademark if it becomes generic, which means that it has primarily come to be merely a common descriptive word for the product. Coca-Cola, Whopper, and Xerox are registered trademarks, and competitors cannot use these names. Aspirin and escalator are former trademarks that are now generic terms in the United States and can be used by anyone.
In 1988, the Trademark Law Revision Act resulted in a major change to the Lanham Act, allowing a company to secure rights to a name before actual use by declaring an intent to use the name.40 In 2003, the United States agreed to participate in the Madrid Protocol, which is a treaty that facilitates the protection of U.S. trademark rights throughout the world. Currently, more than 91 nations are members of the Madrid Protocol, including the United States, Australia, China, the European Union, France, Germany, Japan, and the United Kingdom.41
One of the most recent changes in trademark law is the U.S. Supreme Court’s ruling that companies may obtain trademarks for colors associated with their products. Over time, consumers may begin to associate a particular color with a specific brand. Examples of products that may benefit from the new law include NutraSweet’s sugar substitute in pastel blue packages and Owens-Corning Fiberglas Corporation’s pink insulation.42 Another recent addition to trademark law is the Federal Trademark Dilution Act (1995, 2006), which is used to prevent someone from using a trademark on a noncompeting product (e.g., “Cadillac” brushes).