11

Legal Research, Issues, and Legal Research, Issues, and Practice in CyberspacePractice in Cyberspace

--

Advertising, Jurisdiction, Advertising, Jurisdiction, & International Issues& International Issues

Todd Krieger & Cyrus DaftaryTodd Krieger & Cyrus Daftary

March 18March 18thth, 2013, 2013

22

AgendaAgenda

Administrative DiscussionAdministrative Discussion AdvertisingAdvertising JurisdictionJurisdiction International International Questions & AnswersQuestions & Answers

33

Introduction to Internet and Introduction to Internet and Technology AdvertisingTechnology Advertising

In Game Advertising and In Game In Game Advertising and In Game SalesSales

A new way to reach a captive audience http://www.youtube.com/watch?

v=VwFHoVuB2-c

44

55

Internet AdvertisingInternet Advertising

$9.26B Q$9.26B Q33 in 2012 online ads – a in 2012 online ads – a record setting quarter. record setting quarter. http://www.iab.nethttp://www.iab.net

Online advertising is often coupled Online advertising is often coupled with advertising across other with advertising across other channels:channels:– Increases brand awareness;Increases brand awareness;– Increase awareness of brand attributes; andIncrease awareness of brand attributes; and– Influence purchase intent. Influence purchase intent. www.iab.net

Advertisers now pay to appear on Advertisers now pay to appear on social networks, blogs, mobile social networks, blogs, mobile phones, and PDA screens.phones, and PDA screens.

Your Search Results Can Follow Your Search Results Can Follow You Across WebsitesYou Across Websites

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Advertisement on Yahoo.com

Search results on Nextag.com

Advertisement on Rottentomatoes.com

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Online Advertising Legal IssueOnline Advertising Legal Issuess

46% of all fraud complaints with the FTC were 46% of all fraud complaints with the FTC were internet related.internet related.

Courts will often consider commercial Courts will often consider commercial websites as advertising.websites as advertising.

Internet ads are subject to the same Internet ads are subject to the same standards as other media.standards as other media.

A local online advertisement may attract A local online advertisement may attract global attention. global attention.

Local, state, federal, and foreign agencies are Local, state, federal, and foreign agencies are actively patrolling the web.actively patrolling the web.

Intrusive advertising, such as unsolicited Intrusive advertising, such as unsolicited bulk e-mail (SPAM), invites legal trouble.bulk e-mail (SPAM), invites legal trouble.

88

Types of Advertising ClaimsTypes of Advertising Claims

ExplicitExplicit– Our product helps you lose weightOur product helps you lose weight..

ImplicitImplicit– Our product reduces the cravings that cause weight gain.Our product reduces the cravings that cause weight gain.

Reviewing an ad that includes identifying Reviewing an ad that includes identifying claims.claims.

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Basic Guidelines from the Federal Basic Guidelines from the Federal Trade Commission (FTC) Trade Commission (FTC)

Truth In Advertising Rules Truth In Advertising Rules (under the (under the Federal Trade Commission Act): ):

Advertising must be truthful and Advertising must be truthful and non-deceptive; non-deceptive;

Advertisers must have evidence to Advertisers must have evidence to back up their claims; and back up their claims; and

Advertisements cannot be unfair. Advertisements cannot be unfair.

States also have consumer protection lawsStates also have consumer protection laws..

Source: http://business.ftc.gov/advertising-and-marketing/advertising-and-marketing-basics

Claim Substantiation

Unfairness

Deception

Key Issues

1010

Put Yourself in the Mind of the Put Yourself in the Mind of the ConsumerConsumer

What is the literal meaning of the ad?What is the literal meaning of the ad? What is the message your client is trying What is the message your client is trying

to convey and how could it be to convey and how could it be interpreted?interpreted?

1111

DeceptionDeception

A deceptive advertisement A deceptive advertisement contains (or omits) information contains (or omits) information likely to mislead reasonable likely to mislead reasonable consumers and is material to the consumers and is material to the consumerconsumer’’s decision to s decision to purchase.purchase.

Memberships renew automatically at $14.95 after three days, every month(s) Until Cancelled. You will not be billed for a full membership if you cancel before your trial membership expires. PayPal Subscription charge is final and is not refundable in any condition

1212

Example of Example of ‘‘Deceptive AdvertisingDeceptive Advertising’’

Virgin Atlantic Airways advertised an Virgin Atlantic Airways advertised an inexpensive transatlantic flight online.inexpensive transatlantic flight online.

They neglected to mention a $38.50 tax.They neglected to mention a $38.50 tax.

The FTC fined Virgin Atlantic Airways $14,000.The FTC fined Virgin Atlantic Airways $14,000.

Ads must disclose the full details of the offer.Ads must disclose the full details of the offer.

1313

Claim SubstantiationClaim Substantiation

Advertiser must have a reasonable basis Advertiser must have a reasonable basis (objective evidence) to support its claims(objective evidence) to support its claims

‘‘PufferyPuffery’’ that consumers would not believe communicates any claim that consumers would not believe communicates any claim does not require substantiation.does not require substantiation.

Magnetic Therapeutic Technologies settled Magnetic Therapeutic Technologies settled with the FTC for claims that wearing magnets with the FTC for claims that wearing magnets could cure cancer. could cure cancer.

APPLICATIONS OF BIOMAGNETISMAPPLICATIONS OF BIOMAGNETISM

* * * In the treatment of chronic conditions such as some forms of arthritis, degenerative joint conditions, * * * In the treatment of chronic conditions such as some forms of arthritis, degenerative joint conditions, diabetes ulcers and cancer, magnetic field therapy has shown dramatic results in aiding the reduction diabetes ulcers and cancer, magnetic field therapy has shown dramatic results in aiding the reduction or reversal of the condition.or reversal of the condition.

** *Some researchers, such as Nordenstrom and Wollin, have reported using super-magnet and electrical ** *Some researchers, such as Nordenstrom and Wollin, have reported using super-magnet and electrical therapies to successfully treat lung and breast cancers.therapies to successfully treat lung and breast cancers.

http://www.ftc.gov/os/1999/06/magneticcmp.htmhttp://www.ftc.gov/os/1999/06/magneticcmp.htm

1414

UnfairnessUnfairness

Advertisement is unfair if it Advertisement is unfair if it causes or is likely to cause causes or is likely to cause substantial consumer injury, substantial consumer injury, which a consumer could not which a consumer could not reasonably avoid reasonably avoid ((and is not and is not outweighed by the benefit).outweighed by the benefit).

Get rich quick schemesGet rich quick schemes Work at homeWork at home Multi-level marketingMulti-level marketing

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Advertising LandminesAdvertising Landmines

Use of superlatives (Use of superlatives (““the best,the best,”” ““only from,only from,”” etc.) etc.)– Can be softened into opinions/pufferyCan be softened into opinions/puffery

Always include necessary disclosures:Always include necessary disclosures:– Promotion start and end datesPromotion start and end dates– All relevant terms and conditionsAll relevant terms and conditions

Multiple meanings for the same sentence:Multiple meanings for the same sentence:– ““The best computer system…from our company.The best computer system…from our company.””– ““Two items for the price of one.Two items for the price of one.””

Put yourself into the mind of the consumerPut yourself into the mind of the consumer Certain products may be regulated (state or federal)Certain products may be regulated (state or federal) Geographic scope and international rulesGeographic scope and international rules Capacity to ship as promised (mail order rule)Capacity to ship as promised (mail order rule) Liability for typosLiability for typos

Danger

Mines

1616

E-mail Marketing Requires Legal E-mail Marketing Requires Legal RestraintRestraint

Federal anti-spam law superseded dozens Federal anti-spam law superseded dozens of statesof states’’ broad anti-spam laws. broad anti-spam laws.

Spammers are still flooding e-mail inboxes.Spammers are still flooding e-mail inboxes. Use of third party e-mail data is risky:Use of third party e-mail data is risky:

– Check the reputation of the provider. Check the reputation of the provider.

http://groups.google.com/http://groups.google.com/

– How data were gathered (where and when)?How data were gathered (where and when)?– What type of What type of ‘‘opt-inopt-in’’ was obtained? was obtained?

1717

Third Party E-mail ConsiderationsThird Party E-mail Considerations

Who is sending the e-mail?Who is sending the e-mail? What is the return address?What is the return address?

– Is it the same as the site that collected the names?Is it the same as the site that collected the names?

What kind of site collected the names?What kind of site collected the names? Can the address provider include opt-in data?Can the address provider include opt-in data?

– Domain where the name was collectedDomain where the name was collected– Date and timeDate and time– IP address of the submitterIP address of the submitter

Obtain broad and enforceable warranties and Obtain broad and enforceable warranties and indemnifications.indemnifications.

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Attorney AdvertisingAttorney Advertising

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Sample Law Firm SitesSample Law Firm Sites

www.shearman.com

www.arentfox.com

www.taxprophet.comwww.taxprophet.com www.wilmerhale.com www.wilmerhale.com

http://www.exemplarcompanies.com/site/law-http://www.exemplarcompanies.com/site/law-expertise/expertise/

http://neumann.law.firm.tripod.com/ http://neumann.law.firm.tripod.com/

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Finding a LawyerFinding a Lawyer

ABA -ABA - http://www.abanet.org/lawyerlocator/searchlawyer.htmlhttp://www.abanet.org/lawyerlocator/searchlawyer.html

FindlawFindlaw - - www.findlaw.com www.findlaw.com

MH – Lawyers – MH – Lawyers – www.lawyers.comwww.lawyers.com

Lawyershop.comLawyershop.com – – www.lawyershop.comwww.lawyershop.com

Martindale Hubble Martindale Hubble - - www.martindale.com www.martindale.com

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Benefits of Online Benefits of Online Attorney AdvertisingAttorney Advertising

Create awareness of a firmCreate awareness of a firm

Save money from yellow pagesSave money from yellow pages

Highlight a firmHighlight a firm’’s areas of practice/newsletterss areas of practice/newsletters

Provide visitors with biographies & resumesProvide visitors with biographies & resumes

Communicate with current and potential clientsCommunicate with current and potential clients

Create a resource - subject matter expertiseCreate a resource - subject matter expertise– Ongoing blogsOngoing blogs

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Attorney Advertising Attorney Advertising & State Bar Associations& State Bar Associations

States allow attorneys to advertise through public States allow attorneys to advertise through public media provided the advertisements do not contain media provided the advertisements do not contain deceptive statements or claims.deceptive statements or claims.

Attorneys may need to submit to local bar copies of Attorneys may need to submit to local bar copies of website materials and updates.website materials and updates.

Advertisements must be noted and retained for a Advertisements must be noted and retained for a statutory period.statutory period.– Recent NY law required Recent NY law required ‘‘attorney advertisingattorney advertising’’ label on websites. label on websites.

Attorneys must avoid e-mail solicitations and Attorneys must avoid e-mail solicitations and contacting people from listservs, news groups, or chat contacting people from listservs, news groups, or chat rooms.rooms.

Choice of law issues.Choice of law issues. Avoid the unauthorized practice of law. Avoid the unauthorized practice of law.

2323

Risk of Online Risk of Online Attorney AdvertisingAttorney Advertising

LawyersLawyers’’ advertising or solicitations may lead advertising or solicitations may lead to ethical violations and disciplinary actions.to ethical violations and disciplinary actions.

Revised rules in Massachusetts removed the Revised rules in Massachusetts removed the requirement of labeling solicitations requirement of labeling solicitations ‘‘advertisinadvertisingg’’ since it is not required of other professions. since it is not required of other professions.

Rule 7.2 outlines online advertising restrictions: Rule 7.2 outlines online advertising restrictions: http://www.massbar.org/publications/ethics-opinions/1990-1999/1998/http://www.massbar.org/publications/ethics-opinions/1990-1999/1998/opinion-no-98-2opinion-no-98-2

2424

Additional RisksAdditional Risks

Poorly executed site may reflect poorly on the Poorly executed site may reflect poorly on the firm.firm.

Jurisdictional exposure.Jurisdictional exposure. Disclaim attorney client relationship.Disclaim attorney client relationship. Non-compliance with ethical rules.Non-compliance with ethical rules. Unreasonable expectations.Unreasonable expectations. Do not use chat rooms to find clients.Do not use chat rooms to find clients. Be cautious with blogs.Be cautious with blogs.

2525

JurisdictionJurisdiction

A court’s power to adjudicate a controversy.A court’s power to adjudicate a controversy. Defined by Defined by ‘‘long-armlong-arm’’ statute and due statute and due

process clause of constitution.process clause of constitution.

2626

Jurisdiction - HistoryJurisdiction - History

1945 - International Shoe vs Washington: 1945 - International Shoe vs Washington: defendant must maintain defendant must maintain ‘‘minimum contactsminimum contacts’’ with forum state – if it doesn’t offend the with forum state – if it doesn’t offend the traditional notions of fair play and substantial traditional notions of fair play and substantial justice. justice.

Due process requires fairness and justice.Due process requires fairness and justice. Example: Out of state salesperson who Example: Out of state salesperson who

does business in California.does business in California. Gave courts some discretion.Gave courts some discretion.

2727

Jurisdiction - HistoryJurisdiction - History (cont.)(cont.)

1980 - World Wide Volkswagen vs Woodson: 1980 - World Wide Volkswagen vs Woodson: Plaintiff buys car in New York and is injured Plaintiff buys car in New York and is injured in Oklahoma. The court finds conduct must in Oklahoma. The court finds conduct must be directed towards forum state not merely be directed towards forum state not merely placing a product in the stream of commerce.placing a product in the stream of commerce.

2828

Specific v. General JurisdictionSpecific v. General Jurisdiction

General jurisdiction: General jurisdiction: (Helicopteros Nacioinales de (Helicopteros Nacioinales de

Colombia, S.A. vs Hall) Colombia, S.A. vs Hall) Continuous and systematic Continuous and systematic contacts with the forum state. Controversy contacts with the forum state. Controversy need not arise out of the defendant's activities need not arise out of the defendant's activities in the state.in the state.

Specific jurisdiction: Specific jurisdiction: (Burger King vs Rudzewics) (Burger King vs Rudzewics) Cause Cause of action arises directly from defendant’s of action arises directly from defendant’s contact with the forum state. contact with the forum state.

2929

Evolution of Online JurisdictionEvolution of Online Jurisdiction

Early websites were informational, online Early websites were informational, online brochures.brochures.

Early on, disputes were independent of the Early on, disputes were independent of the websites.websites.

Plaintiffs tried to use the websites to assert Plaintiffs tried to use the websites to assert jurisdiction, usually with little success; they jurisdiction, usually with little success; they needed to show something more.needed to show something more.

Lawyers and judges were still learning about Lawyers and judges were still learning about the technology.the technology.

Early Conflicting Cases – Sporadic Early Conflicting Cases – Sporadic Internet ActivitiesInternet Activities

Website and toll free numberWebsite and toll free number– (Graphic Controls Corp. vs Utah Med. Prods. Inc.)(Graphic Controls Corp. vs Utah Med. Prods. Inc.)– (Inset Sys. vs Instruction Set, Inc.)(Inset Sys. vs Instruction Set, Inc.)

Soliciting and maintaining a website for Soliciting and maintaining a website for future business with knowledge of in-state future business with knowledge of in-state accessaccess– (Hearst Corp. vs Goldberger)(Hearst Corp. vs Goldberger)– (State by Humphrey vs Granite Gate Resorts)(State by Humphrey vs Granite Gate Resorts)

Source: Todd D. Leitstein - A Solution for Personal Jurisdiction on the Internet, 59 La. L. Rev. 565, 1999 30

3131

First Rational FrameworkFirst Rational Framework

Zippo vs Zippo.com : Zippo vs Zippo.com : – Lighter Company vs Online E-mail/Content provider.Lighter Company vs Online E-mail/Content provider.– 3,000 customers in PA; 7 agreements with PA based ISPs.3,000 customers in PA; 7 agreements with PA based ISPs.

Sliding scale of jurisdictionSliding scale of jurisdiction

Doing Business/InteractivityJurisdiction

3232

Zippo Three Prong TestZippo Three Prong Test

(1) The defendant must have sufficient (1) The defendant must have sufficient minimum contacts with the forum state.minimum contacts with the forum state.

(2) The claim asserted against the (2) The claim asserted against the defendant must arise out of those contacts.defendant must arise out of those contacts.

(3) The exercise of jurisdiction must be (3) The exercise of jurisdiction must be reasonable.reasonable.

Courts in the 5Courts in the 5thth, 9, 9thth, and 10, and 10thth Circuits have Circuits have used the Zippo sliding scale consistently, used the Zippo sliding scale consistently, but some courts have attempted to refine but some courts have attempted to refine the test.the test.

3333

Expanding ZippoExpanding Zippo

Court in Court in Cybersell, Inc. vs Cybersell, IncCybersell, Inc. vs Cybersell, Inc. stated . stated while the level of interactivity was a crucial factor while the level of interactivity was a crucial factor for jurisdiction, interactivity alone did not provide for jurisdiction, interactivity alone did not provide grounds for jurisdiction, but instead required grounds for jurisdiction, but instead required something more to establish minimum contacts. something more to establish minimum contacts. – ““Something moreSomething more”” consisted of consisted of ‘‘targetingtargeting’’ or intentional Internet activity or intentional Internet activity

expressly aimed at the forum state.expressly aimed at the forum state.

S. Morantz, Inc. vs HangS. Morantz, Inc. vs Hang, using Zippo and , using Zippo and targeting approach found an interactive website targeting approach found an interactive website that did not allow for online sales and was not that did not allow for online sales and was not directed at PA residents did not provide minimum directed at PA residents did not provide minimum contacts with PA over a NY defendant.contacts with PA over a NY defendant.

3434

Case DiscussionsCase Discussions

Aitkin Case:Aitkin Case:– Spam + Jurisdiction + Unionizing.Spam + Jurisdiction + Unionizing.

Pervasive Software vs LexwarePervasive Software vs Lexware– International customer + Software + Jurisdiction + Texas.International customer + Software + Jurisdiction + Texas.

3535

The The ““EffectsEffects”” Test Test

An alternative to the Zippo sliding scale test is An alternative to the Zippo sliding scale test is the effects-based approach.the effects-based approach.

Courts focus their analysis on the actual effects Courts focus their analysis on the actual effects a website had in a particular jurisdiction and do a website had in a particular jurisdiction and do not focus on the technology used.not focus on the technology used.

The effects test originated in Calder vs Shirley The effects test originated in Calder vs Shirley Jones, in which a CA entertainer sued a FL Jones, in which a CA entertainer sued a FL publisher for libel. publisher for libel.

The effects test has been applied in The effects test has been applied in Blumenthal Blumenthal vs Drudgevs Drudge and and Pavolich vs DVD Copy Control Pavolich vs DVD Copy Control AssnAssn..

Doing Business Overseas: One Size Doing Business Overseas: One Size Does Not Fit AllDoes Not Fit All

Standard agreement might be fine overseas…until there is a dispute.

How would a local court interpret the rights of the parties?– Are any clauses incompatible with local laws?

Can your clients enforce their rights?

3636

The U.S. has an Unusual Legal ClimateThe U.S. has an Unusual Legal Climate

Contingency fee plaintiff’s counselPunitive and multiple damagesDiscoveryClass action law suitsCommon law systemSome companies actively avoid the U.S. as a

forumPlaintiffs may be less likely to find the same

windfall in other countries

3737

Intellectual Property Rights Vary by Intellectual Property Rights Vary by CountryCountry

Copyright: U.S. participates multiple copyright treaties, but copyright definition and enforcement varies by countries and treaties are not universal.

Patent: U.S. patents do not give the patent holder rights overseas.

Trade Secrets: trade secret rights vary by country. NAFTA & GATT provide some protection.

3838

The EU takes a different view of The EU takes a different view of software licensing than the U.S.software licensing than the U.S.

UsedSoft GmbH vs Oracle International CorpUsedSoft GmbH vs Oracle International Corp

““With the payment for services you receive, With the payment for services you receive, exclusively for your internal business purposes, exclusively for your internal business purposes, for an for an

unlimited period a non-exclusive non-transferable unlimited period a non-exclusive non-transferable user right free of user right free of charge for everything that Oracle develops and makes charge for everything that Oracle develops and makes available to you on the basis of this agreementavailable to you on the basis of this agreement””

Court ruled downloaded perpetual license was a sale.Court ruled downloaded perpetual license was a sale. Consider finite term for licenses and technological Consider finite term for licenses and technological

measures to limit transfers.measures to limit transfers. Limit transferability of maintenance contracts.Limit transferability of maintenance contracts. Compare with Vernor case.Compare with Vernor case.

3939

Distribution ChainDistribution Chain

How many layers are there between the end user and the seller?

The rights of the parties may vary if there are other parties between them.

Statutory risks in appointing distributors and agents overseas:– Penalties for termination– FCPA compliance– Control of brand / trademarks– Export control

Who will perform support services?

4040

Work With Local CounselWork With Local Counsel

Local subject matter expertiseRealistic risk assessmentLanguage skills (where applicable) Cultural awarenessAble to assist with negotiationsCan help navigate through a dispute.

4141

Language ConsiderationsLanguage Considerations

Contractual obligations can be diluted in translation:– Double check key clauses with local counsel or other trusted

native speaker.– Even automated translations can give a hint at a problem.

– Have side by side English translation with English prevailing,

where permitted.

Consider local language requirements.

4242

Automated Translations Are Not Automated Translations Are Not Always AccurateAlways Accurate

4343

Negotiations OverseasNegotiations Overseas

Local contract negotiation styles will differ:– Focus on building a relationship– Turnaround time can vary by regions– Be sensitive to local time zones and holidays.

For important issues video conference, telephone, or face to face discussions can be more efficient than e-mail.

Leverage business team to assist in working with the other party.

4444

Get Accounting InsightGet Accounting Insight

Shift tax burden to the other party.

Tax rates vary by country and depend on categorization of goods:– Rate may be different if technology is delivered digitally or on a

tangible medium

– Support service rate may vary from tech license

– Creating a local nexus can have profound tax consequences

– Who will provide local services?

Be aware of currency exchange issues.

Can payment be sent directly to the U.S.?

4545

Select a Predictable Forum for Select a Predictable Forum for DisputesDisputes

Local entities may prefer their local court and choice of law.

Foreign forum and choice of law clause may not be enforceable.

Arbitration offers a reasonable alternative.– Define rules and forum– Reserve the right to obtain injunctive relief

What resources are needed if there is a dispute?

Maintaining confidentiality during the disputeLocal dispute may be a leap of faith.

4646

Standard Clauses May Not Be Standard Clauses May Not Be EnforceableEnforceable

Validity of warranty exclusions, disclaimers, and limitations on liability vary by region:– Reverse engineering exclusion in the EU– Statutory warranty remedies– No limitations for death or personal injury in the UK.

Other standard clauses may be illegal:– Interest for late payment under Sharia law.

4747

Business to Consumer Sales Overseas Business to Consumer Sales Overseas Require Additional CautionRequire Additional Caution

The European Union has enacted consumer protection directives that set the minimum standard in the member states.

Typical U.S. style disclaimers may invite local scrutiny (OFT – UK) :– sellers cannot restrict consumers’ rights to reject faulty goods– warranties must be reasonable– contracts must be clear and easy to understand without hidden

‘traps.’

4848

Consumer Protection DirectivesConsumer Protection Directives

Data Protection Directive 95/46/EC Distance Selling Directive 97/7/EC Unfair Terms in Consumer Contracts

Directive 93/13/EEC Electronic Commerce Directive 2000/31/EC

4949

Export ControlExport Control

U.S. Department of Commerce Bureau of U.S. Department of Commerce Bureau of Industry responsible for most export regulationsIndustry responsible for most export regulations– Export Administration Regulations (EAR)Export Administration Regulations (EAR)

Applies to all U.S. companies:Applies to all U.S. companies:– EmployeesEmployees– SubsidiariesSubsidiaries– AgentsAgents– DistributorsDistributors

Software transfer can be considered an export:Software transfer can be considered an export:– E-mailE-mail– FTPFTP– DownloadDownload– Provision of source code subject to EAR to foreign national in the U.S.Provision of source code subject to EAR to foreign national in the U.S.

5050

Export Administration RegulationsExport Administration Regulations

Restrictions and requirements depend upon:Restrictions and requirements depend upon:– What is exported?What is exported?– Where is the recipient?Where is the recipient?– Who is the recipient?Who is the recipient?– How will the item be used?How will the item be used?

EAR apply no matter whether the software EAR apply no matter whether the software originated in the U.S. or elsewhere.originated in the U.S. or elsewhere.

Certain exports could be prohibited or Certain exports could be prohibited or require a license.require a license.

5151

Some Exports have Additional Some Exports have Additional RegulationsRegulations

Defense services and munitionsDefense services and munitions– Department of State, Directorate of Defense Trade Controls (DTC)Department of State, Directorate of Defense Trade Controls (DTC)

Defense-related goods, services, and Defense-related goods, services, and technologiestechnologies– Defense Technology Security AdministrationDefense Technology Security Administration

Nuclear materials and equipmentNuclear materials and equipment– Nuclear Regulatory Commission, Office of International ProgramsNuclear Regulatory Commission, Office of International Programs

Nuclear technology and Nuclear technology and technical datatechnical data for nuclear power and special nuclear materials for nuclear power and special nuclear materials – Department of Energy, Office of Arms Controls and Nonproliferation, Export Control Department of Energy, Office of Arms Controls and Nonproliferation, Export Control

Division Division Licenses for natural gas and electric powerLicenses for natural gas and electric power

– Department of Energy, Office of Fuels ProgramsDepartment of Energy, Office of Fuels Programs Export of wildlife and endangered and threatened speciesExport of wildlife and endangered and threatened species

– Department of the Interior, U.S. Fish and Wildlife ServiceDepartment of the Interior, U.S. Fish and Wildlife Service Controlled substances and the import-export of listed chemicals used in the production Controlled substances and the import-export of listed chemicals used in the production

of control substances under the Controlled Substances Actof control substances under the Controlled Substances Act– Drug Enforcement Administration, Office of Diversion Control, Import-Export UnitDrug Enforcement Administration, Office of Diversion Control, Import-Export Unit

Drugs and medical devicesDrugs and medical devices– Food and Drug Administration, Office of Compliance, Food and Drug Administration, Food and Drug Administration, Office of Compliance, Food and Drug Administration,

Import/ExportImport/Export Hazardous waste exportsHazardous waste exports

– Environmental Protection Agency, Office of Solid Waste, International and Environmental Protection Agency, Office of Solid Waste, International and Transportation Branch Transportation Branch 5252

Export Restrictions Depend on Export Restrictions Depend on Classification of the Software Classification of the Software

Export Control Classification Number (ECCN) Export Control Classification Number (ECCN) determines the licensing requirements under the EAR.determines the licensing requirements under the EAR.

Items are categorized into 10 categories, each further Items are categorized into 10 categories, each further delineated into five product groups:delineated into five product groups:

0 = Nuclear Materials, Facilities, and Equipment (and Miscellaneous Items)1 = Materials, Chemicals, Microorganisms and Toxins2 = Materials Processing3 = Electronics4 = Computers5 = Telecommunications and Information Security6 = Sensors and Lasers7 = Navigation and Avionics8 = Marine9 = Propulsion Systems, Space Vehicles, and Related Equipment

A. Systems, Equipment and ComponentsB. Test, Inspection and Production EquipmentC. MaterialD. SoftwareE. Technology

Categories

Product Groups

Most goods are not classified (EAR99).

5353

Export Restrictions Vary by CountryExport Restrictions Vary by Country

Cross reference ECCN with the Commerce Cross reference ECCN with the Commerce Country ChartCountry Chart

5454

Embargoed Countries Have Embargoed Countries Have Additional RestrictionsAdditional Restrictions

Restricted Countries:Restricted Countries:– CubaCuba

– IranIran

– North KoreaNorth Korea

– Northern SudanNorthern Sudan

– SyriaSyria

Restrictions vary by countryRestrictions vary by country The list is subject to changeThe list is subject to change Export licenses are still permitted for some Export licenses are still permitted for some

categories, but very restricted.categories, but very restricted.5555

Restrictions Vary by RecipientRestrictions Vary by Recipient Individuals and organizations may be prohibited from Individuals and organizations may be prohibited from

receiving any goods from the U.S. or require a license.receiving any goods from the U.S. or require a license. EAR99 goods or other goods not requiring a license are EAR99 goods or other goods not requiring a license are

restricted.restricted.Restricted Entity List (EAR Part 744 Supplement 4).Restricted Entity List (EAR Part 744 Supplement 4).Treasury Department Specially Designated Nationals Treasury Department Specially Designated Nationals

and Blocked Persons List.and Blocked Persons List.Unverified / Red Flag List.Unverified / Red Flag List.Denied Persons List.Denied Persons List.

5656

Exports are Restricted by UseExports are Restricted by Use

EAR99 items and other categories are EAR99 items and other categories are restricted by use:restricted by use:– Items used by parties involved in WMD are prohibited without a Items used by parties involved in WMD are prohibited without a

license.license.– Nuclear uses.Nuclear uses.– Rocket propulsion systems.Rocket propulsion systems.– Maritime nuclear propulsion.Maritime nuclear propulsion.– Chemical & biological weapons.Chemical & biological weapons.– Certain foreign vessels or aircraft.Certain foreign vessels or aircraft.

5757

Substantial Penalties for Non-Substantial Penalties for Non-ComplianceCompliance

Criminal sanctions >$1 millionCriminal sanctions >$1 million Criminal penaltiesCriminal penalties Revocation of export privilegesRevocation of export privileges Reference: Reference:

– http://www.bis.doc.gov/licensing/exportingbasics.htmhttp://www.bis.doc.gov/licensing/exportingbasics.htm– http://www.bis.doc.gov/licensing/bis_exports2.pdfhttp://www.bis.doc.gov/licensing/bis_exports2.pdf

5858

Foreign Corrupt Practice ActForeign Corrupt Practice Act Prohibits illicit payments by U.S. companies to foreign Prohibits illicit payments by U.S. companies to foreign

officialsofficials Prohibited Payments: Prohibited Payments: It is unlawful to pay or offer It is unlawful to pay or offer

to pay to pay ““anything of valueanything of value”” to a to a ““foreign officialforeign official”” to to influence official action or to secure any improper influence official action or to secure any improper business advantage in order to obtain or retain business advantage in order to obtain or retain business.business.

5 elements: 5 elements: – Applies to any employee or agent of client in any locationApplies to any employee or agent of client in any location

– Unlawful to offer, pay, or promise to give Unlawful to offer, pay, or promise to give ““anything of valueanything of value””

– The payment must be intended to induce misuse of an official position The payment must be intended to induce misuse of an official position

– To any foreign official or political partyTo any foreign official or political party

– To influence official action or to secure any improper advantage in order to To influence official action or to secure any improper advantage in order to ““obtain or retain businessobtain or retain business””

http://www.justice.gov/criminal/fraud/fcpa/guide.pdfhttp://www.justice.gov/criminal/fraud/fcpa/guide.pdf5959

Prohibited Payments Prohibited Payments

Prohibited Payments: cannot offer, pay, or Prohibited Payments: cannot offer, pay, or promise to give promise to give ““anything of valueanything of value””

– CashCash– ServicesServices– Payment of Travel ExpensesPayment of Travel Expenses– Excessive Entertainment ExpensesExcessive Entertainment Expenses– Lavish GiftsLavish Gifts– Favorable LoansFavorable Loans– Charitable ContributionsCharitable Contributions

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ExceptionsExceptions

Payment Lawful Under Foreign LawPayment Lawful Under Foreign Law– Must be in the written law or regulations of the foreign countryMust be in the written law or regulations of the foreign country– Traditional, customary, or not enforced restrictions do not Traditional, customary, or not enforced restrictions do not

qualifyqualify

Reasonable Business ExpenditureReasonable Business Expenditure– To promote a business or productTo promote a business or product– Includes trip expenses, tours of company facilities, product Includes trip expenses, tours of company facilities, product

demonstrations and trainingdemonstrations and training– Must be reasonable and Must be reasonable and bona fidebona fide

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FCPA EnforcementFCPA Enforcement

Penalties may include substantial fines, Penalties may include substantial fines, debarmentdebarment, disgorgement of profits, and , disgorgement of profits, and prisonprison

Recent enforcement actions:Recent enforcement actions:– SiemensSiemens (Iraq, Argentina, Bangladesh, Venezuela, Iraq, Israel, (Iraq, Argentina, Bangladesh, Venezuela, Iraq, Israel,

Nigeria, Vietnam, China, Russia, Mexico) Nigeria, Vietnam, China, Russia, Mexico) $800 million$800 million– Aibel Aibel (Nigeria) $4.2 million(Nigeria) $4.2 million– AGA Medical Corp. AGA Medical Corp. (China) /$2 million(China) /$2 million– Con-Way Inc. Con-Way Inc. (Philippines) $300,000(Philippines) $300,000– Faro Technologies Faro Technologies (China) $2.95 million(China) $2.95 million– Willbros Group Willbros Group (Bolivia, Ecuador, Nigeria) $32.3 million(Bolivia, Ecuador, Nigeria) $32.3 million

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Questions & Answers Questions & Answers