Chapter 7 PowerPoint

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Chapter 7

The International Legal Environment: Playing by the Rules


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Learning Objectives (1 of 2)

LO1 The four heritages of today’s legal systems

LO2 The important factors in the jurisdiction of legal disputes

LO3 The various methods of dispute resolution

LO4 The unique problems of protecting intellectual property rights internationally

LO5 How to protect against piracy and counterfeiting

LO6 The many issues of evolving cyberlaw


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Learning Objectives (2 of 2)

LO7 The legal differences between countries and how those differences can affect international marketing plans

LO8 The different ways U.S. laws can be applied to U.S. companies operating outside the United States

LO9 The steps necessary to move goods across country borders


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Introduction

• No single, uniform international commercial law governing foreign business transactions exists

• International marketers must comply with the laws of each country within which it operates


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Bases for Legal Systems (1 of 3)

• Common law

• Civil or code law

• Islamic law

• Commercial legal system in Marxist–socialist economies or states


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• Common law is derived from English law and found in England, the United States, Canada, and other countries once under English influence.

• The basis for common law is tradition, past practices, and legal precedents set by the courts through interpretations of statutes, legal legislation, and past rulings.


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• Civil or code law is derived from Roman law and found in Germany, Japan, France, and in non-Islamic and non-Marxist countries.

• Code law is based on an all-inclusive system of written rules (codes) of law.

• Islamic law is derived from interpretation of the Koran and is found in Pakistan, Iran, Saudi Arabia, and other Islamic states.


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Common Law versus Code Law (1 of 3)

Common Law• Based on tradition, past practices, and legal precedents set

by courts through interpretation of past rulings/statutes, etc.

• Not all-inclusive Code Law• Based on an all-inclusive system of written rules (codes) of

law. Legal system is divided into 3 codes: commercial, civil, and criminal

• Considered complete “catchall provisions”; some broad interpretations are possible


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Common Law versus Code Law (2 of 3)

Common Law• Ownership is determined by use• Agreements may be binding so long as proof of the

agreement can be established Code Law• Based on an all-inclusive ownership; is determined by

registration• Agreements may not be enforceable unless properly

notarized or registered


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Common Law Versus Code Law (3 of 3)

Common Law• Impossibility of performance does not excuse

noncompliance with the provisions of the contract, unless it was an act of God

• Common law countries are codifying commercial law Code Law• Acts of God are not necessarily limited to acts of nature

but include “unforeseeable human acts” such as labor strikes or riots


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Islamic Law

The Koran forms the basis for the Shari’ah (Islamic law)

It includes issues such as property rights, economic decision making, and types of economic freedom

The overriding objective of the Islamic system is social justice

Islamic law prohibits the payment of interest or “riba”

The Islamic system places emphasis on the ethical, moral, social, and religious dimensions to enhance equality and fairness for the good of society

Another principle of the Islamic legal system is the prohibition against investment in those activities that violate the Shari’ah


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Commercial Law in Marxist Economies

A commercial legal system in the Marxist–socialist economies of Russia and the republics of the former Soviet Union, Eastern Europe, China, and other Marxist–socialist states• Legal system centered on the economic, political, and

social policies of the state

As each country moves toward its own version of a free market system and enters the global market, a commercial legal system is also evolving from Marxist–socialist tenets.


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Exhibit 7.1Lawyers per 100,000 People in Selected Countries

Sources: Randy Peerenboom, “Economic Development and the Development of the Legal Profession in China,” presentation at Oxford University, 2006; Council of Bars and Law Societies of Europe, http://www.ccbe.edu, 2010; http://www.oab.org.br, 2010; http://www.abanet.org, 2010; Bruce E. Aronson, “The Brave New World of Lawyers in Japan,” Pacific Rim Law & Policy Journal, 21(2), March 2012, pages 255–275.


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Jurisdiction in International Legal Disputes (1 of 2) Determining whose legal system has jurisdiction when a

commercial dispute arises is another problem of international marketing.

The World Court at The Hague and the International Court of Justice resolve international disputes between sovereign nations of the world rather than between private citizens.

The World Court can adjudicate disputes between governments, but disputes in situations 2 and 3 must be handled in the courts of the country of one of the parties involved or through arbitration.


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Jurisdiction in International Legal Disputes (2 of 2)• When international commercial disputes must be settled under the

laws of one of the countries concerned, the paramount question in a dispute is: Which law governs?

Jurisdiction is generally determined in one of three ways, on the basis of:

1. jurisdictional clauses included in contracts

2. where a contract was entered into

3. where the provisions of the contract were performed


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International Dispute Resolution

• Conciliation

• Arbitration

• Litigation


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Conciliation

• Conciliation or mediation is a nonbinding agreement between parties to resolve disputes by asking a third party to mediate differences.

• Discussion between parties and mediator are confidential and statements made by either party may not be used in future litigation or arbitration.

• It is not legally binding.

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Arbitration (1 of 2)

• Parties select a disinterested and informed party as a referee to determine the merits of the case and make a judgment both parties agree to honor.

• Some of the active arbitral centers established by countries, organizations, and institutions:– The Inter-American Commercial Arbitration Commission– The Canadian-American Commercial Arbitration Commission

(for disputes between Canadian and U.S. businesses)– The London Court of Arbitration (decisions are enforceable

under English law and English courts)– The American Arbitration Association


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Arbitration (2 of 2)

• Arbitration clauses require agreement on two counts:

– The parties agree to arbitrate in the case of a dispute according to the rules and procedures of some arbitration tribunal, and

– They agree to abide by the awards resulting from the arbitration.

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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

• Cost and time

• Loss of confidentialityback


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Protection of Intellectual Property:Counterfeiting and Piracy Firms spend millions of dollars establishing brand

names or trademarks to symbolize quality and design, only to be counterfeited and pirated.

Piracy and counterfeiting lead to lost sales from the unauthorized use of U.S. patents, trademarks, and copyrights, which amounts to about $300 billion annually as well as lost jobs.

Counterfeited pharmaceutical drugs can lead to bad publicity and even deaths.


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Exhibit 7.2Piracy Rates for Computer Software, Top and Bottom

Highest Piracy Rates Lowest Piracy Rates

Zimbabwe 91% United States 18%

Georgia 90 Japan 19

Moldova 90 Luxemburg 20

Libya 89 New Zealand 20

Venezuela 88 Australia 21

Bangladesh 87 Austria 22

Yemen 87 Denmark 23

Armenia 86 Sweden 23

Belarus 86 Germany 24

Iraq 86 United Kingdom 24

Source: From 2013 BSA and IDC Global Software Piracy Study, Business Software Alliance. Reprinted with permission. Seventh Annual BSA/IDC Global Software Piracy Study (Washington, DC: Business Software Alliance), www.bsa .org/globalstudy. One hundred and twenty six countries and regions are ranked.


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The three faces of piracy and/or reform

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Intellectual Property Rights: Inadequate Protection• The failure to protect intellectual property rights adequately

in the world marketplace can lead to the legal loss of rights in potentially profitable markets.

• Patents, processes, trademarks, and copyrights are valuable in all countries, but some companies have found their assets appropriated and profitably exploited in foreign countries without license or reimbursement.

• There have been many cases in which companies have legally lost the rights to trademarks and have had to buy back these rights or pay royalties for their use.


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• In the United States, a common-law country, ownership of intellectual property rights is established by prior use.

• In many code-law countries, ownership is established by registration rather than by prior use.

– For example, a trademark in Jordan belongs to whoever registers it first in Jordan. So there are “McDonald’s” restaurants, “Microsoft” software, and “Safeway” groceries all legally belonging to a Jordanian.

Intellectual Property Rights:Prior Use versus Registration


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International Conventions

Many countries participate in international conventions designed for mutual recognition and protection of intellectual property rights.

• The three major international conventions include:

• The Paris Convention for the Protection of Industrial Property, commonly referred to as the Paris Convention, includes the United States and 100 other countries

• The Inter-American Convention, includes most of the Latin American nations and the United States

• The Madrid Arrangement, which established the Bureau for International Registration of Trademarks, includes 26 European countries


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Other Managerial Approaches

The traditional but weak remedies for American companies operating in countries such as China are several:• prevention, that is, engage local representation and diligently register

IP with the appropriate agencies• pursue negotiation and alternative dispute resolution• complain to the Chinese authorities• complain to the U.S. government and World Trade Organization (WTO)

Multinational companies such as Microsoft, Philips, and Warner Brothers are coming up with other alternative approaches based on the factors that motivate consumers to engage in piracy.


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Cyberlaw: Unresolved Issues

Existing Internet law is vague or does not completely cover such issues as the protection of domain names, taxes, jurisdiction in cross-border transactions, and contractual issues.

The European Union, the U.S., and many other countries are drafting legislation to address the myriad legal questions not clearly addressed by current law.


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Cybersquatting

• Laws being considered deal with cybersquatters—those who buy and register descriptive nouns, geographic names, ethnic groups, pharmaceutical substances, and other similar descriptors and hold them until they are sold at an inflated price.

• The practice of registering a domain name that is the trademark of another person or company– Cybersquatters hope that the owner of the trademark will pay huge dollar

amounts to acquire the URL.

– Some cybersquatters misrepresent themselves as the trademark owner for fraudulent purposes.


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Microsoft booth in Beijing

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Taxes

A typical tax system relies on knowing where a particular economic activity is located

But the Internet enables individual workers to operate in many different countries from a computer

When taxes should be collected, where they should be collected, and by whom are all issues under consideration by countries around the world


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Jurisdiction of Disputes and Validity of Contracts Since existing laws relating to commerce do not

always clearly address the uniqueness of the Internet and its related activities, a body of cyberlaw is being created.

Two of the most troubling areas are:• determining whose laws will prevail in legal disputes

between parties located in different countries

• establishing the contractual validity of electronic communications


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Commercial Law within Countries:Marketing Laws All countries have laws regulating marketing activities in promotion,

product development, labeling, pricing, and channels of distribution

In Austria, premium offers, free gifts, or coupons are considered as cash discounts and are prohibited

Premium offers in Finland are allowed as long as the word free is not used

French law permits sales only twice a year, in January and August

The various product comparison laws, a natural and effective means of expression, are another major stumbling block

Although the goal of full integration and a common commercial code has not been totally achieved in the European Union, decisions by the European Court continue to strike down individual-country laws that impede competition across borders


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Healthcare marketing

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Green Marketing Legislation

Multinational corporations also face a growing variety of legislation designed to address environmental issues.

Global concern for the environment extends beyond industrial pollution, hazardous waste disposal, and rampant deforestation to include issues that focus directly on consumer products.

Green marketing laws focus on environmentally friendly products and product packaging and its effect on solid waste management.


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Foreign Countries’ Antitrust Laws

The European Community, Japan, and many other countries have begun to actively enforce their antitrust laws patterned after those in the United States

Antimonopoly, price discrimination, supply restrictions, and full-line forcing are areas in which the European Court of Justice has dealt severe penalties.


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U.S. Laws Apply in Host Countries

• Leaving the boundaries of a home country does not exempt a business from home-country laws.

• What is illegal for an American business at home can also be illegal by U.S. law in foreign jurisdictions for the firm, its subsidiaries, and licensees of U.S. technology.


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Foreign Corrupt Practices Act

• Makes it illegal for companies to pay bribes to foreign officials, candidates, or political parties

• Stiff penalties can be assessed against company officials found guilty of paying a bribe or of knowingly participating in or authorizing the payment of a bribe


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U.S. Antitrust Laws that Apply in Foreign Markets• Antitrust enforcement has two purposes in

international commerce:– Protect American consumers by ensuring that they

benefit from products and ideas produced by foreign competitors as well as by domestic competitors

– Protect American export and investment opportunities against any privately imposed restrictions


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Antiboycott Law (1 of 2)

• The antiboycott law was a response to the Arab League boycott of Israeli businesses.

• Under the antiboycott law, U.S. companies are forbidden to participate in any unauthorized foreign boycott; furthermore, they are required to report any request to cooperate with a boycott.

• If they trade with Israel, the Arab League will not do business with them, and if they refuse to do business with Israel in order to trade with an Arab League member, they will be in violation of U.S. law.


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Antiboycott Law (2 of 2)

• The Arab League boycott of Israel has three levels:

– A primary boycott bans direct trade between Arab states and Israel

– A secondary boycott bars Arab governments from doing business with companies that do business with Israel

– A tertiary boycott bans Arab governments from doing business with companies that do business with companies doing business with Israel


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Export Restrictions

• Export licensing controls apply to exports of commodities and technical data from the United States; re-exports of U.S.-origin commodities and technical data from a foreign destination to another foreign destination

• Most items requiring special permission or a license for exportation are under the control of the Bureau of Industry and Security (BIS) of the Department of Commerce


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National Security Laws

• American firms (as well as firms in other countries), their foreign subsidiaries, or foreign firms that are licensees of U.S. technology cannot sell products to a country in which the sale is considered by the U.S. government to affect national security.

• The events of September 11, 2001 added another set of restrictions related to weapons of mass destruction (WMD).

• Exports are controlled for the protection and promotion of human rights, as a means of enforcing foreign policy, because of national shortages, to control technology, and for a host of other reasons.


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Determining Export Requirements (1 of 3)• The first step when complying with export licensing

regulations is to determine the appropriate license for the product.

• The general license permits exportation of certain products that are not subject to EAR control with nothing more than a declaration of the type of product, its value, and its destination.

• The validated license, issued only on formal applications, is a specific document authorizing exportation within specific limitations designated under the EAR.


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Determining Export Requirements(2 of 3)• Three steps necessary to determine the type of license

required and/or if an item can be shipped are as follows:

– The exporter is responsible for selecting the proper classification number, known as the Export Control Classification Number (ECCN) , for the item to be exported. The ECCN leads to a description in the Commerce Control List (CCL) , which indicates the exportability status of the item.


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Determining Export Requirements (3 of 3)– The exporter must decide from the CCL if the

items have end-use restrictions and if the product has a dual use, that is, if it can be used in both commercial and restricted applications.

– The exporter is responsible for determining the ultimate end customer and end uses of the product, regardless of the initial buyer.


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ELAIN, STELA, ERIC, and SNAP

• Four electronic services facilitate the paperwork and reduce the time necessary to acquire export licenses:

– ELAIN (Export License Application and Information Network)

– STELA (System for Tracking Export License Applications)

– ERIC (Electronic Request for Item Classification)

– SNAP (Simplified Network Application Process)


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Summary

• Businesses face a multitude of problems in their efforts to develop successful marketing programs.

• A primary marketing task is to develop a plan that will be enhanced, or at least not adversely affected, by political climate, cultural differences, local geography, different business customs, the stage of economic development, and other environmental elements.

• The myriad questions created by different laws and different legal systems indicate that the prudent path to follow at all stages of foreign marketing operations is one leading to competent counsel, well versed in the intricacies of the international legal environment.