Reading: Lesson 2 - Regulations Protecting Business and the Public

6.2.A - Regulations Protecting Business and the Public

1. INTELLECTUAL PROPERTY

1. Intellectual property consists of creations of the mind. These include inventions, literary and artistic works, designs, symbols, and names and images used in commerce. In 2012, the U.S. Department of Commerce reported that intellectual property in the United States supported at least 40 million jobs and contributed more than $5 trillion to (or 34.8 percent of) U.S. gross domestic product. To protect these assets, the federal government developed an Office of the U.S. Intellectual Property Enforcement Coordinator. The federal government has also passed laws to protect the rights of those who create uniquely different products and new ideas. Specifically, it grants intellectual property rights to inventors, authors, and creators of distinct symbols and names for goods and services. The Figure below outlines key information about intellectual property rights in the United States. 
   

   
   

2. A patent is an agreement in which the federal government gives an inventor the sole right for 20 years to make, use, and sell an invention or a process. No one is permitted to copy or use the invention without permission. This protection is a reward for the time and money invested to create the new product. An inventor may allow others to make or use a product by giving them a license to do so. 
   

3. In a sense, through the Patent and Trademark Office, the government gives the inventor a monopoly on newly invented products, designs, and processes. This temporary monopoly provides a profit incentive that encourages manufacturers to spend the huge amounts of money required to research and develop new ideas. Research departments have produced many inventions. For example, Apple, Samsung, and other companies have developed Internet-enabled smartphones that allow users to communicate as well as download digital files and programs. Even synthetic tissue and altered vegetable plants are patentable. For example, insulin that diabetics need and a new rot-resistant tomato are products of biotechnology (biology plus technology) innovations.
   

4. New processes as well as new products can be patented, but process patenting can be undesirable at times. For example, Priceline.com, Inc., received a patent for its auction price-bidding system on the Internet. If other companies use this simple process, they will be violating the owner’s patent rights. However, the process is so fundamental to many Internet practices that competitors believe the patent is essentially unfair. Should doctors who develop a new method for healing people prohibit other doctors from using it or require them to pay a licensing fee? Occasionally, the Patent and Trademark Office revokes or denies patents that discourage desirable competition.
   

5. Unfortunately, stealing patents is an acceptable practice in some countries that do not honor the U.S. patent law. As a result, American firms lose billions of dollars. By tightening trade agreements with these countries, this great loss to American firms may begin to decline. On the other hand, patent laws differ worldwide. For example, Japan’s patents promote technology sharing, whereas U.S. patents protect inventors.
   

6. A copyright is similar to a patent in that the federal government gives an author the sole right to reproduce, publish, and sell literary or artistic work for the life of the author, typically, plus 70 years. No one may publish or reproduce copyrighted work without permission of the copyright owner. However, the law permits occasional copying of copyrighted material for fair use. An important factor in determining fair use is the economic impact of using the copyrighted work. A magazine writer quoting a paragraph from a copyrighted novel would be fair use because it would not reduce the sales of the copyrighted book.
   

7. Copyright laws also cover electronic methods for distributing creative work. Copyrights protect creators of video games and music, television shows and movies, and computer software programs, for example. Duplicating video, music files, or software programs for distribution to others is usually illegal. When an employee makes a personal copy of a computer software program for use on a home computer, the employee violates the copyright law. Furthermore, if the employer does not publicly issue a warning that copying creative work such as a software program is illegal, the employer is also guilty. Copyrights are regulated by the U.S. Copyright Office. Like a patent, a copyright is a special type of monopoly granted to authors, publishers, and other creators of original works. An example of a copyright notice appears on the back of the title page in the front of this book.
   

8. Trademarks are like patents because they are special types of monopolies. A trademark is a distinguishing name, symbol, or special mark placed on a good or service that is legally reserved for the sole use of the owner. Many nationally known products have trademarks that most people recognize. Some trademarks are symbols, such as the Nike swoosh, the Olympic rings, and the Twitter bird. Others are company or product names, such as the Sony PlayStation, Nintendo Wii, and Microsoft Xbox. Trademarks, like patents, are regulated by the Patent and Trademark Office.
   

2. REGULATIONS PROTECTING THE PUBLIC

1. The federal government protects the legal rights of not only those who create new products and ideas but also those who consume goods and services. Two major goals of legislation are to ensure safe products for consumers and to prevent the misuse of information.
   
2. Products related to the human body are closely regulated. The Food and Drug Administration (FDA) administers the Federal Food, Drug, and Cosmetic Act and related laws. These laws prohibit the sale of impure, improperly labeled, falsely guaranteed, and unhealthful foods, drugs, and cosmetics. Producers of cosmetics, for example, must show that their products will not harm users. Should a product cause harm, the FDA may require the producer to stop its sale or to notify the public of its possible danger.
   
3. Legislative activity dealing with the safety of nonfood products has increased in recent years. Laws now require labels on many products if possible danger exists from product usage. A health warning message, for example, must appear on cigarette packages. The FTC forbids 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 of smoking-related diseases. Also, auto and highway safety laws exist to reduce death and injury. The Consumer Product Safety Act sets safety standards on many items. When products already sold are found to have a dangerous defect, businesses are legally required to recall, repair, or stop selling the products. Dangerous toys, for example, have been removed from the market. And recalls have occurred with such products as cars and sport utility vehicles. A federal Warranty Act requires sellers to specify what they will or will not do if their product is defective. Many product liability laws also exist at the state level.
   
4. Managers need information. This need has resulted in the heavy use of computers to manage data. Vast amounts of information from many sources are collected, processed, stored, and distributed by computer, especially on the Internet. As a result, individuals and businesses need protection from the wrongful use of private information. Stores check credit card balances, banks check credit ratings, hospitals store patients’ health records electronically, and the government collects income tax data on all taxpayers. Incorrect information in any of these sensitive records could be very damaging to the individual. Also, only authorized people should have access to such highly personal information. Unauthorized use of personal information can result in identity theft. According to the Federal Trade Commission, identity theft is the unauthorized use of someone’s personally identifying information, such as name, Social Security number, or credit card number, to commit fraud or other crimes. In addition to the impact on victims, identity theft creates problems for businesses.
   
5. Therefore, businesses that use computer information extensively must handle it carefully to protect the rights of individuals and organizations. Carelessly handled information can lead to information liability—the responsibility for physical or economic injury arising from incorrect data or wrongful use of data. 
6. Information liability is similar to product liability. If a defective product injures someone, the injured party can sue the producer of the product. Similarly, if a person’s credit rating suffers because an employee keys a Social Security number into a credit record incorrectly, the business is liable for creating the problem. Also, a company not directly involved in collecting or recording incorrect information may be held liable for distributing it. For instance, if a store gives an incorrect credit balance to a bank that results in the refusal for a loan, the bank is as liable as the store that provided the incorrect information. 
   
7. Occasionally, someone tampers with computerized data. The Electronic Communications Privacy Act and related laws make it a crime for any unauthorized person to access a major computer system and view, use, or change data. The laws deal with the interception and disclosure of electronic communications, including email privacy. Privacy laws help protect the public from the wrongful use or misuse of information. A debate continues over the electronic collection of information over the Internet. Websites can place small files called “cookies” on the computers of site visitors without their knowledge. Cookies are files of information about the user that some websites create and store on the user’s own computer. These cookies can, among other things, track where users go on the Internet to gather information on interests and preferences for marketing purposes. Some people feel that such data gathering is an invasion of privacy. The companies argue that they are simply identifying what consumers want so they can better serve them.
   

3. STATE AND LOCAL REGULATIONS

1. The federal government regulates interstate commerce, and individual states regulate intrastate commerce. Interstate commerce is defined as business operations and transactions that cross state lines, such as products that are produced in one state and sold in other states. Intrastate commerce, on the other hand, is defined as business transacted within a state. Most small service firms are involved mainly in intrastate commerce, because they usually sell to customers located within the same state. Because most large companies are likely to be involved in both interstate and intrastate commerce, they are subject to state and federal regulations. Moreover, each state has a constitution that allows it to create other governing units, such as cities, towns, and counties. These units also regulate business transacted within them. Large businesses especially are subject to local, state, and federal laws. Many state and local laws are related to federal laws. Most states, for instance, have laws that promote competition, protect consumers and the environment, safeguard the public’s health, and improve employment conditions. In addition, however, state and local governments regulate business by issuing licenses, franchises, and building codes, and by passing zoning regulations.
   
2. State and local governments have used licensing as a way to limit and control those who plan to start certain types of businesses. To start a business that requires a license, the owner must file an application. If the government believes there is a sufficient number of these kinds of businesses, the application can be refused. Business is regulated not only by the granting of licenses but also by regular inspections by government officials to see that the company is operating according to the law. If it is not being properly operated, it can lose its license. For example, government agents inspect a licensed restaurant from time to time for cleanliness. If the restaurant fails inspection, the government may withdraw its license, and the restaurant would have to close.
   
3. Licensing laws vary from place to place. In some cities, businesses of all types must obtain licenses, whereas in other communities only certain types need licenses. It is particularly common to license restaurants, beauty salons, health and fitness centers, barbershops, and other types of service firms that may affect the health of customers. In most states and in many cities, licensing laws regulate the sale of such items as liquor and tobacco. Businesses may also license the use of property. For example, a computer software company may give a business a license to use and copy a software program in return for a fee. Likewise, for a fee a business may license another firm to make a product using its patented device. Even firm names can be licensed. For example, Walt Disney Productions licenses the names and likenesses of its animal characters for use on clothing and other products.
   
4. Another way for state and local governments to control business is through public franchises. A public franchise is a contract that permits a person or organization to use public property for private profit. No individual member of society, however, has a right to use public property for profit except through a special grant by society. Cities often grant public franchises to companies to operate bus lines or to install electric power or cable for television. For example, as presented in the story that started this chapter, Deion has a franchise from his community to operate his taxi company.
   
5. Local governments regulate business through building codes, which control the physical features of structures. Building codes may specify such things as the maximum height, minimum square feet of space, and the types of materials that can be used. Local governments also regulate the types of buildings and where they are built. Zoning regulations specify which land areas may be used for homes and which areas may be used for different types of businesses. A business must obey all local regulations relating to zoning and construction.