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I n t e r n a t i o n a l M a r k e t i n g
The InternationalLegal Environment:
Playing by the Rules
Chapter 7
13 t h E d i t i o n
P h i l i p R. C a t e o r a
M a r y C. G i l l y
J o h n L . G r a h a m
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What Should You Learn?
The four heritages of todays legal systems
The important factors in jurisdiction of legaldisputes
Issues associated with jurisdiction of legaldisputes and the various methods of disputeresolution
The unique problems of protecting intellectual
property rights internationally
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What Should You Learn?
How to protect against piracy and counterfeiting
The legal differences between countries andhow the differences can affect internationalmarketing plans
The different ways U.S. laws can be applied toU.S. companies operating outside the UnitedStates
The many issues of evolving cyberlaw
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Global PerspectiveThe Pajama Caper
No single, uniform international commercial lawgoverns foreign business transactions The international marketer must pay particular attention to the
laws of each country
Laws governing business activities within andbetween countries An integral part of the legal environment of international
business
Securing expert legal advice is a wise decision
The foundation of a legal system Profoundly affects how the law is written, interpreted, and
adjudicated
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Bases for Legal Systems
Four heritages form the basis for the majority ofthe legal systems of the world
Common law
Civil or code law Islamic law
Marxist-socialist tenets
Even though a countrys laws may be based onthe doctrine of one of the four legal systems itsindividual interpretation may vary significantly
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Lawyers per 100,000 Peoplein Selected Countries
Exhibit 7.1
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Common and Code Law
Common law
Seeks interpretation through the past decisions of higher courts whichinterpret the same statues
Applies established and customary law principles to a similar set of facts
Are recognized as not being all-inclusive Ownership is established by use
Code law
Legal system is generally divided into three separate codes Commercial
Civil
Criminal
Ownership is determined by registration
Considered complete as a result of catchall provisions found in mostcode-law systems
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Islamic Law
The basis for Islamic law is interpretation of the Koran
Islamic law defines a complete system that prescribesspecific patterns of social and economic behavior for allindividuals
Property rights Economic decision making
Types of economic freedom
Among the unique aspects of Islamic law is theprohibition against the payment of interest
The Islamic system
Places emphasis on the ethical, moral, social, and religious dimensionsto enhance equality and fairness for the good of society
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Jurisdictionin International Legal Disputes
No judicial body exists to deal with legal commercialproblems arising between citizens of different countries
Legal disputes can arise in three situations Between governments
Between a company and a government
Between two companies
Jurisdiction is generally determined on the basis of:
Jurisdictional clauses included in contracts
Where a contract was entered into
Where the provisions of the contract were performed Most clear-cut decisions can be made:
When contracts or legal documents supporting a business transactioninclude a jurisdictional clause
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International DisputeResolutionConciliation
Conciliation is a nonbinding agreement betweenparties to resolve disputes by asking a thirdparty to mediate differences
Sessions are private
All conferences between parties and the mediator areconfidential
Although conciliation may be the friendly route toresolving disputes
It is not legally binding
An arbitration clause should be included in all conciliationagreements
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International DisputeResolutionArbitration
Conducted under the auspices more formaldomestic and international arbitration groups Organized specifically to facilitate the resolution of commercial disputes
The popularity of arbitration has led to aproliferation of arbitral centers
Established by countries, organizations, and institutions
Inter-American Commercial Arbitration Commission
Canadian-American Commercial Arbitration Commission (for disputes
between Canadian and U.S. businesses) London Court of Arbitration (decisions are enforceable under English law
and English courts)
American Arbitration Association
International Chamber of Commerce (select Arbitration)
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International DisputeResolutionArbitration
Contracts and other legal documents shouldinclude clauses specifying the use of arbitrationto settle disputes
Arbitration clauses require agreement on twocounts
To arbitrate in the case of a dispute according to the rules andprocedures of some arbitration tribunal
To abide by the awards resulting from the arbitration
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International DisputeResolutionLitigation
The best advice is to seek settlement
Deterrents to litigation
Fear of creating a poor image and damaging public relations
Fear of unfair treatment in a foreign court
Difficulty in collecting a judgment that may otherwise have been
collected in a mutually agreed settlement through arbitration
The relatively high cost and time required when bringing legal
action Loss of confidentiality
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Protection of Intellectual PropertyRightsA Special Problem
Companies spend millions of dollars establishingbrand names or trademarks
To symbolize quality and design
To entice customers
Millions are spent on research
To develop products, processes, designs, and formulas
Intellectual or industrial properties are among
the most valuable assets
New technologies developed to prevent piracy
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Counterfeiting and Piracy
Lost sales from the unauthorized use of U.S.patents, trademarks, and copyrights
Amount to more than $100 billion annually
The piracy industry has grown so sophisticated Many counterfeit goods are indistinguishable from original
Piracy actually can serve come companies
Microsoft
Counterfeit pharmaceuticals
2% of the $327 billion worth of drugs sold each year
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Piracy Rates for Computer SoftwareTop and Bottom 20
Exhibit 7.2
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Inadequate Protection
Failing to adequately protect intellectual propertyrights can lead to the legal loss of rights inpotentially profitable markets
There have been many cases where companieshave legally lost the rights to trademarks andhave had to buy back these rights or payroyalties for their use
McDonalds in Japan Many businesses fail to take proper steps to
legally protect their intellectual property
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International Conventions
Three major international conventions
Paris Convention for the Protection of Industrial Property
Inter-American Convention
Madrid Arrangement
World Intellectual Property Organization (WIPO) Responsible for the promotion of the protection of intellectual property
and for the administration of the various multilateral treaties throughcooperation among its member states
Patent Cooperation Treaty (PCT)
European Patent Convention (EPC)
The Trade-Related Aspects of Intellectual PropertyRights (TRIPs)
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Marketing Laws
All countries have laws regulating marketingactivities
Promotion Product development
Labeling Pricing Channels of distribution
Discrepancies across markets cause problems fortrade negotiatorsparticularly for managers and
their firms U.S. does not allow the buying or selling of human organs Some countries only have a few marketing laws with lax enforcement Others have detailed, complicated rules that are stringently enforced
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Marketing Laws
There often are vast differences in enforcementand interpretation among countries having lawscovering the same activities
Laws governing sales promotions in the European community Censorship of advertising is a constant concern
For many U.S. products with markets in Europe,meeting EU standards is less expensive thandesigning products especially for Europe
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Green Marketing Legislation
The U.S. intervenes when non-U.S. companies attemptto acquire American companies
At times, companies are subject to antitrust charges inmore than one country
Nestles proposed acquisition of Dreyers Grand Ice Cream
Microsoft
Enforcement of antitrust in Europe almost nonexistentuntil the early stages of EU established legislation
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U.S. Laws Apply in Host Countries
Foreign Corrupt Practices Act Makes it illegal for companies to pay bribes to foreign officials,
candidates, or political parties
National security laws
Prohibit a U.S. company, its subsidiaries, joint ventures, orlicensees to sell controlled products without special permissionfrom the U.S.
Antitrust laws
Enforcement has two purposes in international commerce Protect American consumers Protect American exports and investments against any private restrictions
The question of jurisdiction and how U.S. antitrust laws apply Sections I and II of the Sherman Act
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U.S. Laws Apply in Host Countries
Antiboycott law
U.S. companies are forbidden to participate in any unauthorizedforeign boycott
Required to report any request to cooperate with a boycott
Extraterritoriality of U.S. laws
Especially important to U.S. multinational firms
Foreign governments fear the influence of American governmentpolicy on their economies through U.S. multinationals
When U.S. laws conflict with those of host country
When U.S. Justice Department restricts of forbids ventures because ofanticompetitive effects
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CyberlawUnresolved Issues
Domain names and cybersquatters
Cybersquatters (CSQs) buy and register descriptive nouns, geographicnames, and names of ethnic groups and pharmaceutical substances,and other similar descriptors and hold them until they can be sold at aninflated price
Other cybersquatting abuses that can pose a seriousthreat to business include parody sites, protest sites, andhate sites
www.walmartsucks.org
The Internet is not a libel-free zone
Lawsuits involving libel, defamation, and product liability causecompanies to voluntarily restrict their Web sites to selected countries
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CyberlawUnresolved Issues
Taxes
In the past, a company was deemed to have a taxable presencein a country if it had a permanent establishment there
The EU Commission Proposes value-added tax (VAT)
Jurisdiction of disputes and validity of contracts
The EU Commission has adopted an e-commerce directive thatwill permit online retailers to trade by the rules of their home
country unless the seller had enticed or approached theconsumer by way of advertising
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Summary
Businesses face a multitude of problems in theirefforts to develop successful marketing programs
Varying legal systems of the world and their effect on businesstransactions
Political climate, cultural differences, localgeography, different business customs, and thestage of economic development must be taken intoaccount
Legal questions must also be considered
Jurisdictional and legal recourse in disputes
Protection of intellectual property rights
Extended U.S. law enforcement
Enforcement of antitrust legislation by U.S. and foreigngovernments
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Summary
The Internet creates a new set of legalentanglements
The freedom that now exists on the World
Wide Web will only be a faint memory beforelong
Prudent path to follow at all stages of foreignmarketing operations is one leading tocompetent counsel, well versed in the intricaciesof the international legal environment
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