The Legal Environment of Business Text and Cases 9th Edition by Cross – Test Bank

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The Legal Environment of Business Text and Cases 9th Edition by Cross – Test Bank

Chapter 5

 

 

Business and the Constitution

 

 

 

 

N.B.:  indicates that a question is new, modified, or unchanged, as follows.

 

N      A question new to this edition of the Test Bank.

+       A question modified from the previous edition of the Test Bank.

=       A question included in the previous edition of the Test Bank.

 

 

TRUE/FALSE QUESTIONS

 

  1. In a federal form of government, the national government does not share sovereign power with the states.

 

answer:     F                               PAGES:   Section 1                type:       N

BUSPROG: Analytic                                AICPA:  BB-Legal

 

  1. The full faith and credit clause prevents a state from imposing unreasonable burdens on citizens of another, particularly with regard to means of doing business.

 

answer:     F                               PAGES:   Section 1                TYPE:       N

BUSPROG: Analytic                                AICPA:  BB-Legal

 

  1. The checks and balances in the U.S. Constitution prevent any one branch of government from exercising too much power.

 

ANSWER:     T                               PAGES:   Section 1                TYPE:       N

BUSPROG: Reflective                             AICPA:  BB-Critical Thinking

 

 

 

  1. The term police powers encompasses just the enforcement of criminal laws.

 

answer:     F                               PAGES:   Section 1                TYPE:       N

BUSPROG: Analytic                                AICPA:  BB-Legal

 

  1. Under the U.S. Constitution, the judicial branch interprets the laws.

 

ANSWER:     T                               PAGES:   Section 1                TYPE:       +

BUSPROG: Analytic                                AICPA:  BB-Legal

 

  1. The states can establish laws and regulations that would interfere with trade and commerce among themselves.

 

answer:     F                               PAGES:   Section 1                TYPE:       N

BUSPROG: Analytic                                AICPA:  BB-Critical Thinking

 

  1. The breadth of the commerce clause permits the government to legislate only in areas in which Congress has explicitly been granted power.

 

ANSWER:     F                               PAGES:   Section 1                type:       N

BUSPROG: Reflective                             AICPA:  BB-Critical Thinking

 

  1. 8. Under the supremacy clause, a valid federal statute or regulation will take precedence over a conflicting state or local law or regulation on the same general subject.

 

answer:     T                               PAGES:   Section 1                type:       N

BUSPROG: Analytic                                AICPA:  BB-Critical Thinking

 

  1. Congress may tax some states and exempt others.

 

answer:     F                               PAGES:   Section 1                type:       =

BUSPROG: Analytic                                AICPA:  BB-Critical Thinking

 

  1. The Bill of Rights protects individuals, but not business entities, against various types of interfer­ence by the government.

 

answer:     F                               PAGES:   Section 2                type:       +

BUSPROG: Analytic                                AICPA:  BB-Legal

 

  1. Traditionally, the courts have protected the right to free speech to the fullest extent possible.

 

ANSWER:     T                               PAGES:   Section 2                type:       N

BUSPROG: Analytic                                AICPA:  BB-Legal

 

  1. Expression—oral, written, or symbolized by conduct—is not subject to restrictions.

 

ANSWER:     F                               PAGES:   Section 2                TYPE:       N

BUSPROG: Analytic                                AICPA:  BB-Legal

 

  1. According to the United States Supreme Court, the First Amendment prevents limits from being placed on independent political expenditures by corporations.

 

answer:     T                               PAGES:   Section 2                type:       N

BUSPROG: Reflective                             AICPA:  BB-Critical Thinking

 

  1. The First Amendment does not require a complete separation of church and state.

 

answer:     T                               PAGES:   Section 2                type:       +

BUSPROG: Reflective                             AICPA:  BB-Critical Thinking

 

  1. To obtain a search warrant, law enforcement officers must convince a judge that they have reasonable grounds to believe a search will reveal evidence of a specific illegality.

 

ANSWER:     T                               PAGES:   Section 2                TYPE:       N

BUSPROG: Analytic                                AICPA:  BB-Critical Thinking

 

  1. Generally, government inspectors do not have the right to enter business premises without a warrant.

 

ANSWER:     T                               PAGES:   Section 2                TYPE:       +

BUSPROG: Analytic                                AICPA:  BB-Legal

 

 

 

  1. Substantive due process limits what the government can do in its legislative and executive capacities.

 

ANSWER:     T                               PAGES:   Section 3                TYPE:       +

BUSPROG: Analytic                                AICPA:  BB-Legal

 

  1. A law that prohibits or inhibits only some persons from exercising a fundamental right will be subject to “strict scrutiny” by the courts.

 

ANSWER:     T                               PAGES:   Section 3                TYPE:       N

BUSPROG: Analytic                                AICPA:  BB-Legal

 

  1. Pretexting is the process of obtaining information by false means.

 

ANSWER:     T                               PAGES:   Section 4                TYPE:       =

BUSPROG: Analytic                                AICPA:  BB-Legal

 

  1. State laws protect individuals’ privacy rights, often to a significant degree.

 

answer:     T                               PAGES:   Section 4                type:       +

BUSPROG: Reflective                             AICPA:  BB-Critical Thinking

 

 

MULTIPLE-CHOICE QUESTIONS

 

  1. The Constitution sets forth specific powers that can be exercised by the national government and provides that the national government has the implied power to undertake actions necessary to carry its expressly designated powers. Under the Tenth Amendment, all other powers are expressly reserved to

 

  1. none of the choices.
  2. the states.
  3. the national government.
  4. the people.

 

answer:     B                              PAGES:   Section 1                type:       N

BUSPROG: Analytic                                AICPA:  BB-Legal

 

 

 

  1. Savers Mart, Inc., distributes its merchandise on an inter­state basis. Under the commerce clause, Congress has the power to regulate

 

  1. any commercial activity in the United States.
  2. only activities that are in intrastate commerce.
  3. only activities that are in local commerce.
  4. none of the choices.

 

answer:     A                              PAGES:   Section 1                type:       +

BUSPROG: Analytic                                AICPA:  BB-Legal

 

  1. A statute enacted by the Arizona state legislature to regulate trucking affects interstate commerce. In evaluating this statute, the courts will balance the burden that it imposes on interstate commerce against

 

  1. the courts’ authority to determine that a law is unconstitutional.
  2. the purpose of interstate commerce.
  3. the state’s interest in regulating the matter.
  4. the statute’s impact on noneconomic activity.

 

ANSWER:     C                              PAGES:   Section 1                TYPE:       +

BUSPROG: Reflective                             AICPA:  BB-Legal

 

  1. Selena’s Fajitas, a fast food outfit, files a suit against the state of Texas, claiming that a Texas state law violates the commerce clause. The court will agree if the statute imposes a substantial burden on

 

  1. a local government.
  2. interstate commerce.
  3. noneconomic activity.
  4. the state.

 

answer:     B                              PAGES:   Section 1                type:       N

BUSPROG: Reflective                             AICPA:  BB-Decision Modeling

 

 

 

  1. Congress enacts a law prohibiting toys made in Indonesia from being sold in the United States. The Washington state legislature enacts a law allowing the sale of Indonesian-made toys. Washington’s law will most likely be

 

  1. rendered invalid under the supremacy clause.
  2. held to be valid under the equal protection clause.
  3. struck down under the taxing and spending clause.
  4. upheld under the commerce clause.

 

answer:     A                              PAGES:   Section 1                TYPE:       =

BUSPROG: Reflective                             AICPA:  BB-Legal

 

  1. A decision by the federal Environmental Protection Agency (EPA) on the amount of carbon that can be emitted from a car’s exhaust system conflicts with a California state law. In this situation, under the supremacy clause,

 

  1. both the decision and the law are invalid.
  2. both the decision and the law apply concurrently.
  3. California’s law takes precedence.
  4. the EPA’s decision takes precedence.

 

answer:     D                              PAGES:   Section 1                TYPE:       +

BUSPROG: Reflective                             AICPA:  BB-Legal

 

  1. Congress enacts the Supplemental Income Tax Act (SITA) to exempt the citizens of New Jersey from federal taxes until their coastal towns are rebuilt from the ravages of a recent hurricane. SITA will most likely be

 

  1. rendered invalid under the supremacy clause.
  2. held to be valid under the equal protection clause.
  3. struck down under the taxing and spending clause.
  4. upheld under the commerce clause.

 

answer:     C                              PAGES:   Section 1                TYPE:       =

BUSPROG: Reflective                             AICPA:  BB-Legal

 

 

 

  1. Rodrick, the chief executive officer of Social Post Host Inc., claims that certain actions by the state of Texas infringe on rights guaranteed by the Bill of Rights. Most of these guarantees have been held to limit

 

  1. federal actions only.
  2. federal and state actions.
  3. federal and state actions, and actions by nongovernment entities.
  4. actions by nongovernment entities only.

 

ANSWER:     B                              PAGES:   Section 2                TYPE:       +

BUSPROG: Reflective                             AICPA:  BB-Legal

 

  1. Mariah creates a t-shirt design that expresses support for Nathan, a presidential candidate, and distributes t-shirts imprinted with the design to her friends. The t-shirts are an example of

 

  1. unprotected speech.
  2. controlled speech.
  3. symbolic speech.
  4. illegal speech.

 

answer:     C                              PAGES:   Section 2                type:       N

BUSPROG: Reflective                             AICPA:  BB-Critical Thinking

 

  1. Port Harbor City enacts an ordinance that bans the distribu­tion of all printed materials on city streets. Later, Quint protests a new “revenue-enhancing” measure also enacted by the city by distributing handbills. When Quint is charged with violating the printed-materials ban, he files a suit against the city. Most likely, the court will hold that the ban is

 

  1. an unconstitutional restriction of speech.
  2. constitutional under the First Amendment.
  3. justified by the need to protect individual rights.
  4. necessary to protect national interests.

 

ANSWER:     A                              PAGES:   Section 2                TYPE:       N

BUSPROG: Reflective                             AICPA:  BB-Critical Thinking

 

 

 

  1. The Long-haul Truckers Association wants the federal government to spend funds to build a new highway. Congress can spend revenues

 

  1. only to carry out its enumerated powers.
  2. to promote any objective that it deems worthwhile.
  3. as long as the funds are spent uniformly among the states.
  4. without regard to whether the expense violates the Constitution.

 

answer:     B                              PAGES:   Section 2                type:       =

BUSPROG: Reflective                             AICPA:  BB-Legal

 

  1. Sustainable Products Corporation regularly expresses opinions on political issues. Under the First Amendment, corporate political speech is given

 

  1. discouraged.
  2. forbidden.
  3. protected.
  4. required.

 

ANSWER:     C                              PAGES:   Section 2                TYPE:       N

BUSPROG: Reflective                             AICPA:  BB-Critical Thinking

 

  1. Taco Hot Dogs, Inc., regularly advertises its products. Under the First Amendment, in comparison with noncommercial speech, the protection given these ads is

 

  1. equally extensive.
  2. less extensive.
  3. more extensive.
  4. non-existent.

 

ANSWER:     B                              PAGES:   Section 2                TYPE:       +

BUSPROG: Reflective                             AICPA:  BB-Critical Thinking

 

 

 

  1. Congress enacts the Ad Restriction Act (ARA) to limit advertising in certain circumstances. The ARA will be considered valid if it directly advances a substantial government interest

 

  1. and goes no further than necessary to achieve its purpose.
  2. without regard to how “far” it goes.
  3. and the parties affected by it can elect how “far” to go in applying it.
  4. and goes further than necessary to ensure full coverage.

 

answer:     A                              PAGES:   Section 2                type:       +

BUSPROG: Reflective                             AICPA:  BB-Legal

 

  1. Utah enacts a law that restricts certain kinds of advertising to protect consumers from being misled. This law would likely be held by a court to be

 

  1. an unconstitutional restriction of speech.
  2. constitutional under the First Amendment.
  3. justified by the need to protect individual rights.
  4. necessary to protect state interests.

 

ANSWER:     B                              PAGES:   Section 2                TYPE:       =

BUSPROG: Reflective                             AICPA:  BB-Decision Modeling

 

  1. Oklahoma enacts a law requiring all businesses in the state to donate 10 per­cent of their profits to Protestant churches that provide certain services to persons whose income is below the poverty level. Price-Lo Mart files a suit to block the law’s enforcement. The court would likely hold that this law violates

 

  1. no clause in the U.S. Constitution.
  2. the establishment clause.
  3. the free exercise clause.
  4. the supremacy clause.

 

answer:     C                              PAGES:   Section 2                type:       =

BUSPROG: Reflective                             AICPA:  BB-Decision Modeling

 

 

 

  1. Keralyn creates a Web site to post threatening messages about celebrities. The First Amendment protects such speech

 

  1. all of the time.
  2. none of the time.
  3. only if it is noncommercial.
  4. only if it is symbolic.

 

ANSWER:     B                              PAGES:   Section 2                TYPE:       N

BUSPROG: Reflective                             AICPA:  BB-Legal

 

  1. Coffee Klatch Party Group, a political organization, files a claim to challenge a Delaware statute that limits the liberty of all persons to broadcast “annoying” radio commercials. This claim is most likely based on the right to

 

  1. equal protection of the law.
  2. privacy.
  3. procedural due process.
  4. substantive due process.

 

ANSWER:     D                              PAGES:   Section 3                TYPE:       =

BUSPROG: Reflective                             AICPA:  BB-Legal

 

  1. In an effort to reduce traffic, Bay City enacts an ordinance that allows only a few specific street vendors to op­er­ate in certain areas. A court would likely review this ordinance under the principles of

 

  1. the commerce clause.
  2. the equal protection clause.
  3. the due process clause.
  4. the First Amendment.

 

ANSWER:     B                              PAGES:   Section 3                TYPE:       =

BUSPROG: Reflective                             AICPA:  BB-Critical Thinking

 

 

 

  1. Jon, a law enforcement official, monitors Kelsey’s Internet activities—e-mail and Web site visits—to gain access to her personal financial data and student information. This may violate Kelsey’s right to

 

  1. equal protection of the law.
  2. privacy.
  3. procedural due process.
  4. substantive due process.

 

answer:     B                              PAGES:   Section 4                TYPE:       N

BUSPROG: Analytic                                AICPA:  BB-Legal

 

 

Essay Questions

 

  1. The Wisconsin state legislature enacts a statute that prohibits the advertising of video games “because the games might be harmful to minors.” Despite this new statute, the president of xGamez, Inc., orders xGamez marketers to place ads in various media. When an xGamez ad appears on YUTV, a local television station, xGamez and YUTV are charged with violating the statute. What is the defendants’ best defense against a conviction?

 

ANSWER:   xGamez and YUTV cannot be convicted because a state legislature cannot enact a statute that restricts commercial speech (in this problem, marketing video games) to this extent.

The First Amendment protects commercial speech. Commercial speech does not receive as much protection as noncommercial speech, however, so states can place some restraints on the former. For example, to protect consumers, a state may ban certain kinds of marketing practices, such as deceptive or misleading advertising. Generally, a restriction on commercial speech will be considered valid as long as it (1) seeks to implement a substantial government interest, (2) directly advances that interest, and (3) goes no further than necessary to accomplish the objective.

Here, the complete ban on ads for video games “because the games might be harmful to minors” is too restrictive: it goes too far in attempting to protect minors for an apparently unsubstantiated purpose.

 

PAGES:         Section 2                                                                  type:       =

BUSPROG: Reflective                             AICPA:  BB-Decision Modeling

 

  1. The Pennsylvania Consumer Protection Agency (PCPA) investigates the marketing practices of Respond Now!, Inc. The PCPA serves a subpoena on Respond Now!, ordering the firm to provide certain business records, including its marketing agreements with other companies. Respond Now! refuses to comply with the subpoena. On what is the company most likely basing its refusal? Is a court likely to support this position? Why or why not?

 

ANSWER:   Respond Now! is most likely refusing to comply with the subpoena on the ground that it has a constitutional privilege against self-incrimination. A corporation cannot invoke the U.S. Constitution’s privilege against self-incrimination as a basis for refusing to produce documents in response to a subpoena, however, which means that a court is most likely to rule against Respond Now! A corporation can be compelled to comply with such a subpoena, because a corporation is a legal entity and not a natural person. The Fifth Amendment’s guarantee extends only to natural persons. Also, an employee of the corporation in charge of the corporate records cannot rely on his or her personal privilege against self‑incrimination as a basis for refusing to produce the records.

 

PAGES:         Section 2                                                                  type:       =

BUSPROG: Reflective                             AICPA:  BB-Decision Modeling

 

Chapter 15

 

 

Internet Law,

Social Media, and Privacy

 

 

 

 

N.B.:  TYPE indicates that a question is new, modified, or unchanged, as follows.

 

N      A question new to this edition of the Test Bank.

+       A question modified from the previous edition of the Test Bank.

=       A question included in the previous edition of the Test Bank.

 

 

 

TRUE/FALSE QUESTIONS

 

  1. In some states, an unsolicited e-mail must include a toll-free phone number that the recipient can use to ask the sender to send no more unsolicited e-mail.

 

ANSWER:     T                               PAGES:   Section 1                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. Federal law permits the sending of unsolicited commercial e-mail and does not prohibit spamming activities.

 

ANSWER:     F                               PAGES:   Section 1                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. Cybersquatting is illegal only if a domain name is identical to the trademark of another, not if the name is merely confusingly similar.

 

ANSWER:     F                               PAGES:   Section 1                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. Cybersquatting occurs when key words are inserted into the hyper text markup language code to tell Internet browsers specific information about a Web page.

 

answer:     F                               PAGES:   Section 1                TYPE:       N

BUSPROG: Analytic                          AICPA: BB-Legal

 

  1. Using another’s trademark in a meta tag is not permissible, even if the use is reasonably necessary.

 

answer:     F                               PAGES:   Section 1                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. Trademark dilution occurs when a person registers a domain name that is the same as, or confusingly similar to, the trademark of another and then offers to sell the domain name back to the original owner.

 

ANSWER:     F                               PAGES:   Section 1                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. When you download an application on your smartphone, you are typically entering into a license agreement.

 

ANSWER:     T                               PAGES:   Section 1                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Much of the material on the Internet, including software and database information, is not copyrighted.

 

answer:     F                               PAGES:   Section 2                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. The law does not restrict the “fair use” of methods for the circumvention of encryption software or other technological antipiracy protection for educational and other noncommercial purposes.

 

answer:     T                               PAGES:   Section 2                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

 

 

  1. An Internet service provider (ISP) is not liable for copyright infringement by its customer unless the ISP is aware of the subscriber’s violation.

 

answer:     T                               PAGES:   Section 2                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. No federal court has held that digitally sampling a copyrighted sound recording of any length constitutes copyright infringement.

 

ANSWER:     F                               PAGES:   Section 2                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. Employees who use social media in a way that violates their employer’s stated policies cannot be disciplined or fired from their jobs.

 

answer:     f                               PAGES:   Section 3                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. Federal wiretapping law covers electronic forms of communication.

 

answer:     t                               PAGES:   Section 3                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. Federal law permits the intentional interception of any wire, oral, or electronic communication.

 

answer:     F                               PAGES:   Section 3                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. Employers can monitor employees’ electronic communications made in the ordinary course of business, including employees’ personal communications.

 

ANSWER:     F                               PAGES:   Section 3                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. Federal law permits the intentional accessing of stored electronic communication even if the accessing is unauthorized.

 

answer:     F                               PAGES:   Section 3                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. Law enforcement uses social media to detect and prosecute criminals.

 

answer:     T                               PAGES:   Section 3                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. Social media posts are routinely included in discovery in litigation.

 

answer:     T                               PAGES:   Section 3                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Critical Thinking

 

  1. Online defamation is wrongfully hurting a person’s reputation by communicating false statements about that person to others online.

 

answer:     T                               PAGES:   Section 4                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. It is frequently the companies rather than courts or legislatures that are defining the privacy rights of their online users.

 

answer:     t                               PAGES:   Section 5                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

 

multiple-choice questions

 

Fact Pattern 15-1 (Questions 1–3 apply)

Great Looks Clothing Corporation sends daily e-mail ads to its previous customers and those who have opted to receive the notices. Hot Trends Inc. sends e-mail ads to any e-mail address that Hot Trends can find on the Web or otherwise generate. Ilene sends e-mail notes to her friends, relatives, and co-workers, discussing personal issues and recommending products or services that she likes.

 

  1. Refer to Fact Pattern 15-1. Federal law preempts state antispam laws

 

  1. with no exceptions.
  2. except for laws that require the use of spam by business entities.
  3. except for statutes that ban the use of spam altogether.
  4. except for provisions that prohibit false and deceptive e-mailing practices.

 

ANSWER:     D                              PAGES:   Section 1                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Refer to Fact Pattern 15-1. One of the senders—Great Looks, Hot Trends, or Ilene—is acting outside the bounds of federal law. Federal law prohibits the sending of

 

  1. unsolicited commercial e-mail.
  2. solicited commercial e-mail.
  3. commercial e-mail to randomly generated addresses.
  4. non-commercial e-mail that promotes a product or service to a friend, co-worker, or relative.

 

ANSWER:     C                              PAGES:   Section 1                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Refer to Fact Pattern 15-1. Great Looks and Hot Trends are subject to the laws of the states in which they are located and do business. Many states

 

  1. prohibit false and deceptive e-mailing practices.
  2. require the use of spam by business entities.
  3. ban the use of spam altogether.
  4. preempt the application of federal law to commercial e-mail.

 

ANSWER:     A                              PAGES:   Section 1                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. ConnectWeb, Inc., an Internet service provider (ISP), supplies information to the Federal Trade Commission concerning possible unfair or deceptive conduct in foreign jurisdictions. For this disclosure, federal law gives ConnectWeb and other ISPs immunity from liability. This is

 

  1. goodwill.
  2. fair use.
  3. a safe harbor.
  4. a license.

 

answer:     C                              PAGES:   Section 1                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 


 

Fact Pattern 15-2 (Questions 5–7 apply)

CallTalk Corporation, a smartphone and phone-time seller, chooses to use and register “calltalk” as its second-level domain. Later, CallTalk’s less successful competitor, CellTalk Company, chooses to use and register “caltalk” (an intentional misspelling of “calltalk”) as its second-level domain. Still later, Call&Talk, Inc., uses the domain name “callltalk” (also a deliberate misspelling of “calltalk”) without CallTalk’s authorization, to sell pornographic phone conversations.

 

  1. Refer to Fact Pattern 15-2. By using a similar domain name to CallTalk’s, CellTalk is most likely attempting to profit from its competitor’s

 

  1. goodwill.
  2. fair use.
  3. license.
  4. safe harbor.

 

answer:     A                              PAGES:   Section 1                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Refer to Fact Pattern 15-2. CallTalk wants to sue Call&Talk for its unauthorized use of the domain name “callltalk.” Before bringing the suit, CallTalk has to ask the court for a subpoena to discover

 

  1. the true identity of the owner of the unauthorized site.
  2. the amount of the profits of the unauthorized site.
  3. the estimated costs of the court proceedings and discovery.
  4. all of the registered variations of the name “calltalk.”

 

answer:     A                              PAGES:   Section 1                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Refer to Fact Pattern 15-2. Call&Talk’s use of the domain name “callltalk,” without CallTalk’s authorization, to sell pornographic phone conversations, is

 

  1. goodwill.
  2. fair use.
  3. a license.
  4. trademark dilution.

 

answer:     D                              PAGES:   Section 1                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. BeFriends Corporation uses the trademark of Community Life Inc., a social media site, as a meta tag without Community Life’s permission. This may be permissible

 

  1. if the appropriating site has nothing to do with the meta tag.
  2. if the two sites appear in the same search engine results.
  3. if the use is reasonably necessary.
  4. under no circumstances.

 

answer:     C                              PAGES:   Section 1                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. BurgerBoy Restaurant Corporation allows its trademark to be used as part of a domain name for BurgerBoyNY, Inc., an unaffiliated company. BurgerBoyNY does not obtain ownership rights in the mark. This is

 

  1. goodwill.
  2. fair use.
  3. a license.
  4. a safe harbor.

 

ANSWER:     C                              PAGES:   Section 1                TYPE:       N

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  1. InfoFree Inc., makes and sells devices and services for the circumvention of encryption software and other technological antipiracy protection. Under the Digital Millennium Copyright Act, this is

 

  1. a violation of copyright law.
  2. prohibited but not a violation of copyright law.
  3. a “fair use” exception to the provisions of the act.
  4. permitted for reconsideration every three years.

 

ANSWER:     A                              PAGES:   Section 2                TYPE:       N

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  1. Stefano transfers copyrighted music recordings, without the copyright owners’ authorization, to his friends. This is

 

  1. copyright infringement.
  2. a license.
  3. a safe harbor.
  4. none of the choices.

 

answer:     A                              PAGES:   Section 2                TYPE:       N

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  1. Sly includes in his song “Sneaky” a few seconds of Wily’s copyrighted sound recording “Wits” without permission. Some federal courts have found that such digital sampling is

 

  1. a violation of copyright law.
  2. a “fair use” exception to the provisions of the act.
  3. not a “fair use” exception to the provisions of the act.
  4. all of the choices.

 

ANSWER:     D                              PAGES:   Section 2                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. OntheWeb Company is an Internet service provider. OntheWeb’s customer Phoebe commits copyright infringement. OntheWeb is not liable for Phoebe’s activity

 

  1. unless OntheWeb is aware of Phoebe’s violation.
  2. unless OntheWeb is not aware of Phoebe’s violation.
  3. unless OntheWeb shuts down Phoebe after learning of the violation.
  4. under any circumstances.

 

ANSWER:     A                              PAGES:   Section 2                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

 

 

  1. Sales & Revenue, Inc., discovers that defamatory statements about its policies and products are being posted in an online forum. TransWeb Inc., the Internet service provider whose users are posting the messages, refuses to disclose the identity of the person or persons responsible. Sales & Revenue files a suit against the anonymous users. The plaintiff can obtain from TransWeb the identity of the persons responsible for the defamatory messages by

 

  1. using the authority of the court.
  2. gaining unauthorized access to TransWeb’s servers.
  3. deceiving TransWeb into revealing the posters’ identities.
  4. no legal or illegal means.

 

answer:     A                              PAGES:   Section 3                TYPE:       N

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  1. Omni Corporation provides cell phones, laptops, and tablets for its employees to use “in the ordinary course of its business.” Omni intercepts the employees’ business communications made on these devices. This is

 

  1. a violation of the rights of Omni’s employees.
  2. a matter for which Omni must obtain its employees’ consent.
  3. a subject for dispute resolution by the communications providers that Omni uses.
  4. excluded from the coverage of the Electronic Communications Privacy Act.

 

ANSWER:     D                              PAGES:   Section 3                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Discount Retail Corporation’s social media policy directs its employees to “avoid negative public comments about your company.” Elin is an employee of Discount Retail. When Elin criticizes fellow employees online, Discount Retail fires her. Elin then files a suit against the employer, seeking reinstatement. The court will most likely

 

  1. award Elin reinstatement.
  2. uphold Discount Retail’s right to terminate Elin.
  3. order the parties to submit to online dispute resolution.
  4. refer the issue to a higher court.

 

answer:     B                              PAGES:   Section 3                TYPE:       N

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  1. April and other employees of Bodegas & Bistros Inc. (2B) maintain a password-protected social media page to “vent about work.” When 2B learns of the page, the company intimidates April into revealing the password, and after reviewing the posts, fires her and the other participants. Most likely, this is

 

  1. a violation of the Stored Communications Act.
  2. within 2B’s rights as an employer.
  3. a subject for dispute resolution by the communications providers that the employees’ page uses.
  4. a “business-extension exception” under the Electronic Communications Privacy Act.

 

ANSWER:     A                              PAGES:   Section 3                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Paige applies to work for Quibbling & Company. Reece applies for admittance to State University. As part of their applications, Paige and Reece are asked to divulge their social media passwords. Legislation that protects individuals from having to disclose their social media passwords has been enacted in

 

  1. no states.
  2. most states but not by the federal government.
  3. all states and by the federal government.
  4. four states.

 

answer:     D                              PAGES:   Section 3                TYPE:       N

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  1. Emily and other users of Facebook and other social networking sites post messages, images, and other materials on these sites. Social media posts are routinely included in discovery in litigation to

 

  1. establish a person’s intent.
  2. establish what a person knew at a particular time.
  3. reduce damages awards.
  4. all of the choices.

 

ANSWER:     D                              PAGES:   Section 3                TYPE:       N

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  1. Interactive Entertainment Corporation markets its products online. Through the use of cookies, Interactive Entertainment and other online marketers can

 

  1. track individuals’ Web browsing activities.
  2. gain access to competitors’ servers.
  3. “sweet talk” consumers into buying certain products.
  4. attack competitors’ Web sites.

 

answer:     A                              PAGES:   Section 5                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

 

Essay Questions

 

  1. Ralph founds Signify Inc. to make and sell products bearing the names of Tau Kappa Epsilon (TKE) and other fraternities and sororities. Among other venues, Signify sells its products online through Web sites that incorporate the fraternities’ and sororities’ names and abbreviations into the URLs—for example, “tkestuff.com”—without their permission. On what basis might the fraternities and sororities maintain a successful suit against Ralph and Signify? How might this dispute have been avoided?

 

ANSWER:     The fraternities and sororities in this question might maintain a successful suit against Ralph and Signify on the basis of trademark dilution. Trademark dilution occurs when a trademark is used, without authorization, in a way that diminishes the distinctive quality of the mark. Unlike trademark infringement, a claim of dilution does not require proof that consumers are likely to be confused by a connection between the authorized use and the mark. Thus, there does not need to be a similarity between, for example, the services and other advantages that fraternities and sororities offer its members and the products that Signify is selling.

In this question, on a showing that Ralph and Signify’s use of the plaintiffs’ trademarks diminishes the quality of the marks, a court would most likely enjoin that use of the marks to advertise products and to sell objects that contain, copy, or otherwise reproduce the marks.

Of course, this dispute might have been avoided if Ralph and Signify had obtained a license from the fraternities and sororities whose marks the defendants sought to use. With a license, one party may permit another to use

 

 

a trademark as part of a domain name or for some other limited purpose for a certain time period. As the text notes, licensing is ubiquitous in the online world.

 

PAGES:         Section 1                                                                   TYPE:       N

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  1. Lori claims that she suffered injuries in an auto accident with an uninsured vehicle. When her insurer Miserly Insurance Company does not pay her claim, she files a suit against Miserly for breach of contract. The insurer files a motion to compel Lori to comply with a discovery request for everything that she has posted on Facebook, Twitter, and other social media sites since the accident. Why would the insurer want to obtain such material? What might Lori argue in opposition to the motion? Should the court grant the defendant’s request? Discuss.

 

ANSWER:     Miserly, the insurer in this problem, and any litigant in any suit, would most likely want to obtain material that could have a negative effect on its opponent’s case. This would include social media postings of remarks or photos that discredit the opposing party’s claims.

Lori, or any party whose postings are sought, might argue that complying with such a request would constitute an invasion of privacy. But to effectively assert a right to privacy, a party must have a reasonable expectation of privacy in the particular situation. Even though people often believe that posting in social forums is private, it is probably not reasonable to expect privacy in postings on social media. It might be contended more successfully that such material is not relevant to the case at hand.

And in this problem, in the absence of a showing that any of the posts undermined the plaintiff’s claims, the court would most likely deny the defendant’s motion. But the court might grant the defendant the right to make the motion again if it could be shown that the material sought is relevant to the case.

 

PAGES:         Sections 3 & 5                                                          TYPE:       N

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Chapter 27

 

 

Antitrust Law

 

 

 

 

N.B.:  TYPE indicates that a question is new, modified, or unchanged, as follows.

 

N      A question new to this edition of the Test Bank.

+       A question modified from the previous edition of the Test Bank.

=       A question included in the previous edition of the Test Bank.

 

 

TRUE/FALSE QUESTIONS

 

  1. The purpose of antitrust law is to reduce competition.

 

ANSWER:     F                               PAGES:   Introduction            TYPE:       N

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  1. Any activity that substantially affects interstate commerce falls outside the scope of antitrust laws.

 

ANSWER:     F                               PAGES:   Section 1                TYPE:       N

BUSPROG: Analytic                          AICPA: BB-Legal

 

  1. Market power is the ability of a firm to enter a given market.

 

ANSWER:     F                               PAGES:   Section 1                TYPE:       N

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  1. A price-fixing agreement that is reasonable does not violate antitrust law.

 

ANSWER:     F                               PAGES:   Section 1                TYPE:       N

BUSPROG: Analytic                          AICPA: BB-Legal

 

  1. A horizontal restraint is any agreement that in some way restrains competition between rival firms competing in the same market.

 

answer:     T                               PAGES:   Section 2                TYPE:       +

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  1. Any agreement that restricts output among competitors is a per se violation of Section 1 of the Sherman Act.

 

ANSWER:     T                               PAGES:   Section 2                TYPE:       N

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  1. A concentrated industry is one in which either a single firm or a small number of firms carry out the separate functions of the chain of production.

 

ANSWER:     F                               PAGES:   Section 2                TYPE:       +

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  1. A territorial or customer restriction is currently considered a per se violation of antitrust law.

 

answer:     F                               PAGES:   Section 2                TYPE:       N

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  1. The possession of monopoly power is the only element needed to establish the offense of monopolization.

 

ANSWER:     F                               PAGES:   Section 3                TYPE:       +

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  1. A firm may be a monopolist even though it is not the sole seller in a market.

 

ANSWER:     T                               PAGES:   Section 3                TYPE:       +

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  1. The relevant product market includes only products that, although produced by different firms, have identical attributes.

 

ANSWER:     F                               PAGES:   Section 3                TYPE:       N

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  1. Attempted monopolization is a violation of antitrust law.

 

ANSWER:     T                               PAGES:   Section 3                TYPE:       +

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  1. Predatory pricing is a legitimate marketing practice, not a form of anticompetitive conduct.

 

ANSWER:     F                               PAGES:   Section 3                TYPE:       N

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  1. A seller is prohibited from charging different prices to competing buyers for identical goods or services.

 

ANSWER:     T                               PAGES:   Section 4                TYPE:       N

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  1. A seller is prohibited from making an exclusive-dealing contract if the effect is to tend to create a monopoly.

 

ANSWER:     T                               PAGES:   Section 4                TYPE:       +

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  1. An exclusive-dealing contract is an agreement in which a seller agrees not to sell to a buyer’s competitors.

 

ANSWER:     F                               PAGES:   Section 4                TYPE:       N

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  1. A horizontal merger occurs when a company at one stage of production acquires a company at a higher or lower stage of production.

 

ANSWER:     F                               PAGES:   Section 4                TYPE:       =

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  1. Only the U.S. Department of Justice can prosecute violations of all of the antitrust laws.

 

ANSWER:     F                               PAGES:   Section 5                TYPE:       +

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  1. A joint effort by businesspersons to obtain legislative action can be exempt from the antitrust laws.

 

ANSWER:     T                               PAGES:   Section 5                TYPE:       +

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  1. U.S. antitrust laws may be applied to protect foreign consumers and competitors from violations committed by U.S. business firms.

 

ANSWER:     T                               PAGES:   Section 6                TYPE:       N

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MULTIPLE CHOICE QUESTIONS

 

  1. Congress enacts a statute to outlaw a specific type of anticompetitive business agreement. Like other laws that regulate economic competition, this law is referred to as

 

  1. a federal trade commission act.
  2. an antitrust law.
  3. an interstate commerce act.
  4. a suppressive restraint on trade.

 

ANSWER:     B                              PAGES:   Introduction            TYPE:       =

BUSPROG: Reflective                       AICPA: BB-Legal

 

  1. Discount Retail Corporation may be engaging in conduct that vio­lates the Sherman Act. To bring an action against the firm requires that its conduct have a sig­nificant impact on

 

  1. international commerce.
  2. Internet commerce.
  3. interstate commerce.
  4. intrastate commerce.

 

ANSWER:     C                              PAGES:   Section 1                TYPE:       =

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  1. Soft Drink Corporation is charged with violating the Sherman Act through conduct subject to the rule of reason. When applying the rule of reason in this situation, a court will not consider

 

  1. the purpose of the agreement.
  2. the parties’ market ability to implement the agreement.
  3. the effect of the agreement on international trade.
  4. the potential effect of the agreement on competition.

 

ANSWER:     C                              PAGES:   Section 1                TYPE:       N

BUSPROG: Reflective                       AICPA: BB-Legal

 

Fact Pattern 27-1 (Questions 4–5 apply)

Natural Gas, Inc., and Olio Energy  Company refine and sell natural gas. To limit the supply of natural gas on the market and thereby raise prices, Natural Gas and Olio Energy agree to buy “excess” supplies from dealers and “dispose” of it.

 

  1. Refer to Fact Pattern 27-1. The agreement between Natural Gas and Olio Energy is

 

  1. a horizontal restraint.
  2. none of the choices.
  3. a resale price maintenance agreement.
  4. a vertical restraint.

 

ANSWER:     A                              PAGES:   Section 2                TYPE:       +

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  1. Refer to Fact Pattern 27-1. The Natural Gas and Olio Energy deal is

 

  1. a deal that neither restrains trade nor harms competition.
  2. a legal restraint of trade.
  3. a per se violation of antitrust law.
  4. subject to analysis under the rule of reason.

 

ANSWER:     C                              PAGES:   Section 2                TYPE:       =

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  1. Fine Food Company, Gourmet Cheeses, Inc., and Healthy Eats, Inc. agree to exchange information and share advertising. This trade association is

 

  1. a deal that neither restrains trade nor harms competition.
  2. a legal restraint of trade.
  3. a per se violation of antitrust law.
  4. subject to analysis under the rule of reason.

 

ANSWER:     D                              PAGES:   Section 2                TYPE:       N

BUSPROG: Reflective                       AICPA: BB-Legal

 

  1. The Association of Organic Food Producers, which does not include all organic farmers and ranchers, refuses to deal with any parties who do not carry the products of its members. This group boycott is

 

  1. a situation that neither restrains trade nor harms competition.
  2. a legal restraint of trade.
  3. a per se violation of antitrust law.
  4. subject to analysis under the rule of reason.

 

ANSWER:     C                              PAGES:   Section 2                TYPE:       =

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  1. Office Warehouse Inc. and Paperclips Inc. are the chief competitors in their market. They agree that Office Warehouse will operate only east of the Mississippi River and Paperclips will operate only west of the waterway. Under antitrust law, this is most likely

 

  1. a per se violation.
  2. a violation only if their competitors make similar deals.
  3. a violation only if their customers agree to honor the deal.
  4. not a violation.

 

ANSWER:     A                              PAGES:   Section 2                TYPE:       =

BUSPROG: Reflective                       AICPA: BB-Legal

 

 

 

  1. Frictionless Lubricant Corporation and Grease, Inc., are the principal sup­pliers of their product in their market. They agree that Frictionless will sell exclusively to retailers and Grease will sell exclusively to wholesalers. Under antitrust law, this is most likely

 

  1. a per se violation.
  2. a violation only if their competitors make similar deals.
  3. a violation only if their customers agree to honor the deal.
  4. not a violation.

 

ANSWER:     A                              PAGES:   Section 2                TYPE:       =

BUSPROG: Reflective                       AICPA: BB-Legal

 

  1. Bill’s Barber Supplies, Inc., is the major distributor of barber supplies in the state of Colorado. Bill’s closest competitor is Dona’s Beauty Products Company, another Colorado firm. They agree that Bill’s will distribute its products in western Colorado and Dona’s will distribute its products in the eastern part of the state. This is

 

  1. a group boycott.
  2. a market division.
  3. none of the choices.
  4. a tying arrangement.

 

ANSWER:     B                              PAGES:   Section 2                TYPE:       +

BUSPROG: Reflective                       AICPA: BB-Legal

 

  1. Smart Tablets, Inc., requires all distribu­tors of its products to sell them at a specified minimum price. This is a violation of antitrust law

 

  1. if the anticompetitive effects outweigh the competitive benefits.
  2. if the competitive benefits outweigh the anticompetitive effects.
  3. under any circumstances.
  4. under no circumstances.

 

ANSWER:     A                              PAGES:   Section 2                TYPE:       =

BUSPROG: Reflective                       AICPA: BB-Legal

 

 

 

  1. Golf & Tennis LLC makes and sells golf clubs, tennis racquets, and related sporting goods. By selling its products at prices substantially below the normal cost of production, Golf & Tennis hopes to drive its competitors from the market. This is

 

  1. market power.
  2. predatory pricing.
  3. price discrimination.
  4. none of the choices.

 

ANSWER:     B                              PAGES:   Section 3                TYPE:       +

BUSPROG: Reflective                       AICPA: BB-Legal

 

  1. A suit is filed against DrillBits Corporation, alleging that the firm commit­ted the offense of monopolization. To determine whether DrillBits has monopoly power requires looking at

 

  1. the price of a share of DrillBits’ stock.
  2. DrillBits’ size alone.
  3. DrillBits’ production methods and marketing techniques.
  4. the relevant market.

 

ANSWER:     D                              PAGES:   Section 3                TYPE:       +

BUSPROG: Reflective                       AICPA: BB-Legal

 

  1. Glassworx Corporation has exclusive control over the mar­ket for its products. Under antitrust law, this is

 

  1. a per se violation.
  2. a violation if it acquired this power through “business judgment.”
  3. a violation if it acquired this power through “anticompetitive means.”
  4. not a violation.

 

ANSWER:     C                              PAGES:   Section 3                TYPE:       =

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  1. Speedboat Corporation refuses to sell its products to Water World, Inc., a recreational water products dealership. This is a violation of antitrust laws if it

 

  1. has an anticompetitive effect on a particular market.
  2. results in lower prices for consumers.
  3. provides no economic benefits for consumers.
  4. is likely to increase competition.

 

ANSWER:     A                              PAGES:   Section 3                TYPE:       N

BUSPROG: Reflective                       AICPA: BB-Legal

 

  1. To drive its competitors out of a certain geographic segment of its market, Fryin’ Potatoes, Inc., sets the prices of its products below cost for the buyers in that area. This is

 

  1. a refusal to deal.
  2. none of the choices.
  3. predatory bidding.
  4. price discrimination.

 

ANSWER:     D                              PAGES:   Section 4                TYPE:       N

BUSPROG: Reflective                       AICPA: BB-Legal

 

  1. Disc & Shoe Brakes Corporation, a brake manufacturer, sells its products to Eastside Motors, a retailer, at lower prices than it charges Fast Brake, a com­peti­tive re­tailer. This price discrimination is legal

 

  1. under any circumstances.
  2. unless its effect is to cause a competitor a loss of any business.
  3. unless its effect is to substantially lessen competition.
  4. unless there is no effect on a competitor.

 

ANSWER:     C                              PAGES:   Section 4                TYPE:       =

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  1. City Manufacturing Corporation conditions shipments of its products to Exurb Stores, Inc., on Exurb’s agreement not to buy products from Regional Works Company, City’s competitor. This is

 

  1. an exclusive-dealing contract.
  2. a tying arrangement.
  3. none of the choices.
  4. a price-fixing agreement.

 

answer:     A                              PAGES:   Section 4                TYPE:       +

BUSPROG: Reflective                       AICPA: BB-Legal

 

  1. Mango Corporation believes that Melon Corporation engages in anticom­peti­tive behavior in an attempt to drive Mango and its other competitors out of the market. Antitrust laws can be enforced against Melon by

 

  1. Mango and Melon’s other competitors.
  2. Mango and Melon’s customers.
  3. any federal government agency.
  4. any business with a significant impact on interstate commerce.

 

ANSWER:     A                              PAGES:   Section 5                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Big American Oil Company joins with a foreign cartel to control the price of oil. If the cartel has a substantial effect on U.S. commerce, a suit for violation of U.S. antitrust laws can be brought against

 

  1. Big American Oil and the foreign cartel.
  2. the foreign cartel.
  3. Big American Oil.
  4. all of the choices.

 

ANSWER:     D                              PAGES:   Section 6                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

 


 

Essay Questions

 

  1. Under what circumstances would Quality Market, a small store in Rustic, an isolated town, be considered a mo­nopoly? If Quality Market is a monopoly, is it in violation of antitrust law?

 

ANSWER:     The elements of the offense of monopoliza­tion under the Sherman Act include monopoly power and its willful acqui­si­tion. Market domination that results from legiti­mate competitive behavior (such as foresight, in­novation, skill, good management, or, as in this problem, iso­lation) is not a violation. Also, size alone does not determine whether a firm is a monopoly—size in relation to the market is what matters.

A small store like Quality Market in an isolated town like Rustic has a mo­nopoly if it is the only store serving that market.

Monopoly in­volves the power to affect prices and output. If a firm has sufficient market power to control prices and exclude competition, that firm has monopoly power. Monopoly power in itself is not a violation of the Sherman Act. The of­fense also requires an intent to acquire or maintain that power through an­ticompetitive means.

 

PAGES:         Section 3                                                                   type:       =

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  1. Fruit-of-the-Plant Seed Company is engaged in the agricultural seed industry in the Midwest. The firm currently has about 40 percent of the market for these products. GreatGro Seed Corporation competes with Fruit-of-the-Plant in the same states. Carbonate has about 35 percent of the market. If Fruit-of-the-Plant were to acquire the stock and assets of GreatGro, would Fruit-of-the-Plant be in violation of any of the antitrust laws? If so, which one? Discuss fully.

 

ANSWER:     Section 7 of the Clayton Act prohibits the type of action by Bubbly suggested in this question—a horizontal merger that would increase market concentration. Other factors include the overall concentration of the relevant market, that market’s history of tending toward concentration, and whether the merger is apparently designed to establish market power or restrict competition.  Based on the facts stated in the question, most of these factors are present.

Thus, the major antitrust law being violated is Section 7 of the Clayton Act.  Section 7 pro­hibits any person or business organization from acquiring the stock or assets in an­other business where the result would be a significantly increased market share and the effect would most likely be to substan­tially lessen competition.  The removal of a competitor who controls 35 per­cent of the market (GreatGro) combined with the 40 percent held by the acquiring company (Fruit-of-the-Plant) definitely could drive out the remaining small competitors and be a barrier to future entrants into this market.  Either the U.S. Department of Justice or the Federal Trade Commission could file for di­vestiture of the resulting firm if these parties were to merge.

 

PAGES:         Section 4                                                                   TYPE:       =

BUSPROG: Reflective                       AICPA: BB-Decision Modeling

 

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