Week 6 Discussion 1 & 2 Response

Week 6 - Discussion 2 Response

Guided Response: Respond to at least two of your peers’ posts (as well as any comments made by your instructor) in a substantive manner and provide information or concepts that they may not have considered. Each response should have a minimum of 100 words. Support your position by using information from the week’s readings. You are encouraged to post your required replies earlier in the week to promote more meaningful and interactive discourse in this discussion forum.

Below there are two of my classmate’s discussion that needs I need to response to their names are Philip Benter and Lisa James

Philip Benter

Under the three-part test for unfairness stated in the course textbook (see page 1363), did Orkin’s behavior violate FTC Act § 5’s prohibition against unfair acts or practices?

1. Orkin's behavior violated section 5 of the FTC Act. Orkin essentially created a breach of contract by increasing their lifetime guarantee fee, which was assumed by customers, to be a set price for life.

 

Discuss each element of the three-part test and how it applies to the Orkin case.

1. Must be substantial. Langvardt et al. (2019)

· In the case with Orkin, the Extermination Company received a net of $7 million dollars in profits due to the increased fees. This example can be considered substantial, due to the monetary loss of their customers paying an increased price from the lifetime guarantee.

2. Must not be outweighed by any offsetting consumer or competitive benefits produced by the challenged practice. Langvardt et al. (2019)

· In the case with Orkin, the Extermination Company the increased fees did not provide a higher-level service than what was originally offered. Customers received no added benefit and only received a detriment in paying a higher fee.

3. Must be one that consumers could not reasonably have avoided. Langvardt et al. (2019)

· In the case with Orkin, the Extermination Company had a set fee for renewal of the lifetime guarantee. Since the contract did not list that the fees would be increased, with exception of some fairly specific scenarios, it does not provide customers enough clear information to avoid being charged the increased amount. Furthermore, Orkin marketed their lifetime guarantee as a fixed price, which further insinuated to customers that the price was not subject to change

Lisa James

Under the three-part test for unfairness stated in the course textbook (see page 1363), did Orkin’s behavior violate FTC Act § 5’s prohibition against unfair acts or practices?

Section 5 of the FTC Act prohibits unfair acts and practices and allows for the FTC to correct and penalize such behavior. The goal of Section 5 is to protect consumers from such unfair acts and practices. The three-part test for unfairness includes: the act must be substantial, it must not be outweighed or offset by any potential consumer or competitive benefits, and it must have been unavoidable for the consumer (Langvardt, Barnes, Prenkert, McCrory, & Perry, 2019). Because of this, the actions taken by Orkin would violate FTC’s Section 5.

Discuss each element of the three-part test and how it applies to the Orkin case.

· The act must be substantial: In order for the act to be substantial, the consumer must have experienced a financial loss or have had their health impacted. In this instance, Orkin was able to earn $7 million in additional revenue because of the extra fees. This was increased revenue that came from the consumers. Additionally, an argument could be made that some consumers experienced health impacts if they became ill after canceling the service upon realizing they were charged more in fees for their subscription.

· The potential benefit of the act must not outweigh the negative: The increase in fees provided no additional benefits for the consumers because they did not gain any additional services. The only group that gained any benefit was Orkin.

· The act must have been unavoidable for the consumer: The consumers were given no notification about the increase in fees and therefore the act was unavoidable. Each consumer thought they were locked into the price agreed upon in their original subscription and did not anticipate a change.

Resources

Langvardt, A. W., Barnes, A. J., Prenkert, J. D., McCrory, M. A., & Perry, J. E. (2019). Business law: The ethical, global, and e-commerce environment (17th ed.). Retrieved from https://www.vitalsource.com