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Developing Women Entrepreneurs for the Global Marketplace Temple University
Center for International Business Education and Research
June 18, 2003
How to Avoid How to Avoid Common Legal Common Legal
Pitfalls Pitfalls
Presented by:Blank Rome LLP
How to Avoid How to Avoid Common Legal Common Legal
Pitfalls: Pitfalls: Corporate Law Issues . . . Jane K. Storero,
Esquire
International Trade Issues . . . Barbara D. Linney, Esquire
Intellectual Property Issues . . . Lisa M.
Casey, Esquire
How to Avoid Common Legal Pitfalls:How to Avoid Common Legal Pitfalls:
CORPORATE LAW ISSUES . . .
Jane K. Storero, EsquirePartner
Blank Rome LLP
Know the Law!
Choice of Entity
Third Party
Subsidiaries
Joint
Ventures/Partnerships
Tax Related Issues
“Permanent
Establishment” Issue
Tax Planning is Key
Joint Ventures/Partnership
s Contractual Agreements
• Partnership
• Joint venture
Terminating Relationships
Terms of payments
• Letter of credit
• Pay in advance
• Pay on account
Risk of Currency Fluctuations
Government Approvals, Permits
and LicensesApproval or Registration
Business Licenses
US Government
Documentation/Authentication
Employment Law Issues
Local Laws and Regulations
Application of US Laws
How To Avoid Common Legal Pitfalls:How To Avoid Common Legal Pitfalls:
INTERNATIONAL TRADE INTERNATIONAL TRADE ISSUES . . .ISSUES . . .
Barbara D. Linney, EsquireBarbara D. Linney, Esquire
Partner Partner
Blank Rome LLPBlank Rome LLP
Know the Law!
Which U.S. Laws & Which U.S. Laws & Government Departments Government Departments
Regulate Export/Import Regulate Export/Import Compliance?Compliance?
U.S. Department of Commerce
• Bureau of Industry and Security (“BIS”)
Export/Import Laws and Export/Import Laws and RegulatorsRegulators
U.S. Department of the Treasury
• Office of Foreign Assets Controls (“OFAC”)
• Customs (revenue functions)
U.S. Department of Homeland Security • Bureau of Customs and
Border Protection (“CBP”)
• Bureau of Immigration and Customs Enforcement (“ICE”)
U.S. Department of Justice
• Criminal Enforcement, Fraud Division
• Bureau of Alcohol, Tobacco, Firearms and Explosives (“BATFE”)
U.S. Department of State
• Directorate of Defense Trade Controls (“DTC”)
U.S. Trade Laws Affect:U.S. Trade Laws Affect:
Commercial production & sales
Military production & sales
Technology exchanges & transfers
Financial transactions
Domestic & international operations
Imports & exports
What Constitutes An “Export”
Actual shipment or transmission out of the United States
“Deemed export” - Release of technology or software to a foreign person in the United States by
• Visual inspection of U.S.-origin equipment and facilities• Oral exchanges of information • Application to situations abroad of personal knowledge
or technical experience acquired in the United States• Unencrypted email transmission of controlled
technology
Export Administration Regulations (“EAR”)Regulate the export and reexport of goods and technology for national security, nonproliferation, foreign policy and short supply purposes.
Antiboycott RulesAntiboycott provisions of the EAR prohibit compliance with the Arab League boycott of Israel.
BISBIS
BIS Export License BIS Export License RequirementsRequirements
A BIS export license or license exemption is required for commercial items controlled for national security, foreign policy (including anti-terrorism), nonproliferation or short supply reasons.
The EAR include the Commerce Control List (“CCL”), which sets forth BIS-controlled items, license specifications and exemptions (15 CFR Part 774).
BIS Documentation BIS Documentation RequirementsRequirements
Exporters must file a Shipper’s Export Declaration (“SED”) for each export to foreign countries or foreign trade zones.
Rules were proposed on October 9, 2002 to require electronic filing of SEDs for items on the CCL and USML through the Automated Export System (“AES”) prior to export.
Antiboycott Rules The EAR and U.S. tax laws contain provisions to
encourage or require U.S. firms to refuse to participate in foreign boycotts that the United States does not sanction (e.g., the Arab League boycott of Israel).
The antiboycott provisions of the EAR apply to all “U.S. persons” – including companies located in the United States and their foreign affiliates.
Generally, the antiboycott provisions contained in U.S. tax laws apply to all U.S. taxpayers (and their related companies).
Antiboycott Reporting Requirements
Reports to the Department of Commerce’s Office of Antiboycott Compliance• Submitted no later than 2 months following the end
of the quarter in which the request occurred.
Reports to the Internal Revenue Service• Submitted annually with income tax return.
EAR PenaltiesEAR PenaltiesCriminal
Individuals: Fines of up to $250,000, up to 10 years in prison, or both
Corporations: The greater of $1,000,000 or 5 times the value of the exports or reexports involved
Civil
Fines of up to $10,000 per violation Seizure of the regulated item(s) Denial of export privileges
Antiboycott PenaltiesCriminal
Firms: Fines of up to $50,000 Individuals: Fines of up to $50,000, imprisonment of
up to 10 years, or both
Civil Fines of up to $12,000 Denial of export privileges Exclusion from practice
Tax Penalties Antiboycott violators may also incur tax penalties
including fines and imprisonment
Executive Orders & Regulations under International Economic Emergency Powers Act (“IEEPA”), Trading with the Enemy Act (“TWEA”), U.N. Participation Act, etc.
Economic and trade sanctions against targeted foreign countries, individuals & entities and international terrorists & narcotics traffickers.
IEEPA embargoes apply to “U.S. Persons” worldwide“U.S. Person” includes U.S. corporations and other business entities, U.S. citizens and permanent residents, and any other persons while in the United States
OFACOFAC
Comprehensive EmbargoesComprehensive Embargoes
Countries
Other
Cuba
Iran
Libya
Sudan
Terrorists (individuals, entities & organizations)
Taliban
Foreign narcotics kingpins and traffickers
Limited Country Embargoes Burma/Myanmar (new investment ban)
Iraq (blocked funds)
Liberia (ban on diamond trade)
North Korea (limited embargo)
Sierra Leone (ban on diamond trade)
Syria (ban on certain donations and financial transactions)
Other Limited Embargoes Balkans (persons who threaten
stabilization of Western Balkans)
Yugoslavia (certain residual blocking regulations)
Zimbabwe (blocking property of President Mugabe and senior government officials who threaten political and economic stability of Zimbabwe)
Non-Proliferation (weapons of mass destruction)
OFAC Penalties
Criminal
Fines of up to $1,000,000 Up to 12 years in prison Fines & imprisonment
Civil
Fines of up to $275,000 per violation Detention, seizure and forfeiture of
shipments
Arms Export Control Act (“AECA”)
International Traffic in Arms Regulations (“ITAR”) Regulate the manufacture and export of defense articles, services and technical data.
DTCDTC
“Defense Articles” – i.e., articles listed on the U.S. Munitions List (including models, mockups or other items that reveal Technical Data)
“Technical Data” – directly related to Defense Articles
“Defense Services” – (includes furnishing of “Technical Data” to foreign persons)
Exclusive Jurisdiction of DTC
DTC PenaltiesCriminal
Fines of up to $1,000,000 per violation 10 years in prison Fines & imprisonment
Civil
Fines of up to $500,000 per violation Detention, seizure or forfeiture of vessels and
shipments Debarment (prohibition from participating in
the export of defense articles, services or technical data)
Two bureaus organized under DHS’s Border and Transportation Directorate as of March 1, 2003 serve as primary enforcement agencies protecting the nation’s borders and homeland security investigation and enforcement.
Bureau of Customs and Border Protection – activities include immigration inspection, Border Patrol and customs enforcement at the border.
Bureau of Immigration and Customs Enforcement – includes investigation and enforcement functions of Immigration and Naturalization Service, Federal Protective Services, and customs.
Department of Homeland Department of Homeland SecuritySecurity
Customs PenaltiesCriminal
Knowing entry of goods falsely classified or undervalued, or underpayment of the duty legally owed.
• Firms: Fines of up to $500,000 per violation• Individuals: Fines of up to $250,000 per violation,
imprisonment of up to 2 years, or both.
Referral to other U.S. agencies for prosecution of other export/import laws.
Civil Fines (vary depending on offense)
• Recordkeeping penalties may reach up to $100,000 or 75% of the appraised value of the merchandise, whichever is less.
Seizure and/or forfeiture of merchandise.
Prosecutes criminal violations of all export/import laws.
Responsible for civil and criminal enforcement of the antibribery provisions of the Foreign Corrupt Practices Act (“FCPA”).
Responsible as of March 1, 2003 for firearms and explosives regulation and enforcement – BATFE.
• Implements import control provisions of AECA and laws regulating commerce in explosives and crime control.
• Regulates importation of explosive materials and military items.
U.S. Department of JusticeU.S. Department of Justice
Foreign Corrupt Practices Act Foreign Corrupt Practices Act (“FCPA”)(“FCPA”)
The FCPA contains two basic prohibitions:
Direct payments or gifts to foreign government officials to obtain or retain business.• Applies to any individual firm, officer, director,
employee, or agent of the firm and any stockholder acting on behalf of of the firm.
Payments or gifts to foreign government officials through intermediaries.
• Applies to any individual who is a citizen, national, or resident of the United States, or any business entity that has its principal place of business in the United States, or which is organized under the laws of the United States.
FCPA PenaltiesFCPA PenaltiesCriminal
Firms: The greater of a fine of up to $2 million or twice the gross pecuniary gain to the violator
Individuals: Fines of up to $250,000 per violation and imprisonment for up to 5 years
Fines imposed on individuals may not be paid by their employer or principal
Civil Fines of up to $10,000 per violation Subject to suspension and debarment proceedings
Firearms and explosives regulation reorganized under the Department of Justice as of March 1, 2003.
Implements import control provisions of AECA and laws regulating commerce in explosives and crime control.
Regulates importation of explosive materials and military items.
BATFEBATFE
BATFE Penalties
Unlawful import of items from USMIL or making false statements or concealing material facts in a registration or permit application.• Fines of up to $1,000,000, imprisonment for up to 10
years, or both.
Unlawful manufacture, import or dealing in commercial explosives or making false statements or concealing material facts in records.• Fines of up to $10,000, imprisonment for up to 10
years, or both• Seizure or forfeiture of explosive materials.
Other Crimes and Penalties
Export/import violations may trigger simultaneous prosecution for other crimes (e.g., false statements, mail/wire fraud, conspiracy, and aiding & abetting).
Additional criminal penalties may be imposed for these violations.
Violation of export/import regulations may also result in penalties such as suspension and debarment from obtaining future government contracts.
Alternative Fines Act
The Alternative Fines Act, 18 U.S.C. 3571, contains provisions that enhance the penalties for certain federal crimes.
Under the Act, if a person derives pecuniary gain from the offense, or if the offense results in pecuniary loss to a person other than the defendant, the defendant may be fined up to the greater of twice the gross gain or twice the gross loss.
Some of the statutory penalties for export/import violations may be subject to increase under the Act.
Some “Red Flags” The customer is reluctant to offer information about the
end-use of the item, or the buyer is evasive and unclear about whether the purchased product is for domestic use, for export, or for reexport.
The product's uses do not fit the buyer's line of business (i.e., sophisticated technology for a small bakery).
The customer wants to pay cash for a very expensive item when the terms of sale would normally require financing.
Delivery dates are vague, or deliveries are planned for out of the way destinations.
A freight forwarding firm is listed as the product's final destination.
You can avoid legal pitfalls!
Know the law.
Know your products.
Know the destination of your products.
Know your customers.
How To Avoid Common Legal Pitfalls:How To Avoid Common Legal Pitfalls:
INTELLECTUAL PROPERTY INTELLECTUAL PROPERTY ISSUES . . . ISSUES . . .
Lisa M. Casey, EsquireLisa M. Casey, Esquire
Associate Associate
Blank Rome LLPBlank Rome LLP
Know the Law!
General Concepts to Keep in General Concepts to Keep in Mind, EverywhereMind, Everywhere
Identify IPProtect IP – EarlyMaximize Return
Most Common Forms of IP
Copyrights
Patents
Trademarks
Domain Names
Trade Secrets
Copyrights (and Wrongs)
“Work for Hire”• Early• In writing
AssignmentsMoral RightsBenefits of Registration
• Necessary to file an infringement suit
• Option of statutory damages
Do you own what you think you
own?
Do you own your Web site?Do you own your Software?
Patents Paris Convention Allowance United States Patent Strategy
• Quality over quantity• Consider a provisional patent
application
Patent Cooperation Treaty (PCT) • One initial application for protection
in multiple countries • Not a cost-saver, nor is it a global
application, but it buys you time
Trademarks
Avoid infringing marks and names of other businesses
International Registration• Madrid Protocol
Interplay with Domain Names
Domain Names and Web Site
Domain Names• Trademark owners’ rights • <.com>, <.biz>, <.org>,
<.info.>, <.au>, <.uk>, <.everything>?
Web Sites• EU Data Protection Directive• Consult counsel to advise you
on local host country e-commerce laws.
Trade Secrets
Procedures to maintain secrecy
Detecting Infringing Conduct
Maximize Your IPLicensing
and other Business Ventures
Low risk method to capitalize IP assets
Generate income from unused IPExploit other markets by
allowing licensee to apply the existing technology to a different market
You can avoid legal pitfalls!
Identify Protect Know the law
QuestionsQuestions