Chapter NineChapter Nine

Intellectual Property and

Other Legal Forces

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

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Learning ObjectivesLearning Objectives

Discuss the complexity of the legal forces that confront international business

Recognize the importance of foreign law Explain possibilities for international dispute

settlement Recognize the need and methods to protect

your intellectual properties

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Learning ObjectivesLearning Objectives

Recognize that many taxes have purposes other than to raise revenue

Discuss enforcement of antitrust laws Explain the risk of product liability legal

actions Discuss U.S. laws that affect international

business operations

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International Legal ForcesInternational Legal Forces

Rule of law allows foreign businesses to know interests will be protected

Public International Law Legal relations between governments

Private International Law Laws governing transactions of

individuals and companies that cross international borders

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Sources of International LawSources of International Law

The most important source of law is found in bilateral and multilateral treaties between nations Treaties are agreements among countries, which

may be bilateral (between two countries) or multilateral (involving more than two countries); also called conventions, covenants, compacts, or protocols

United Nation’s International Court of Justice creates law when it decides disputes

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ExtraterritorialityExtraterritoriality

Extraterritoriality refers to a country’s attempt to apply its laws to foreigners or nonresidents and to acts and activities that take place outside its borders Not done through force, but by traditional

legal means

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International Dispute SettlementInternational Dispute Settlement

Litigation in the United States Well-developed court systems that facilitate

litigation One reason many people outside the

U.S. dislike litigation in the U.S. is the process of discovery

Unlike most other countries, the U.S. has two major court systems

The federal court system and the state court systems

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Performance of ContractsPerformance of Contracts

United Nations solution Many countries, including the U.S., have ratified

the UN Convention on Contracts for International Sales of Goods (CISG)

CISG established uniform legal rules to govern international sales contracts and the rights and obligations of the buyer and seller

CISG is automatically applied to all contracts

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Performance of ContractsPerformance of Contracts

Private solution: arbitration Instead of going to court in any country,

companies may opt for arbitration A process, agreed to by parties to a dispute in

lieu of going to court, by which a neutral person or body makes a binding decision

Generally faster More informal Confidential Less expensive

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Enforcement of Enforcement of Foreign Arbitration AwardsForeign Arbitration Awards

The UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards The U.S. and most UN member-countries of

have ratified this convention Binds ratifying countries to compel

arbitration when the parties have so agreed in their contract and to enforce the resulting awards

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Intellectual PropertyIntellectual Property

Intellectual property includes Patents Trademarks Trade names Copyrights Trade secrets

All result from the exercise of someone’s intellect

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Intellectual PropertyIntellectual Property

Patents - protection International Convention for the Protection of

Industrial Property European Patent Organization (EPO) The World Intellectual Property Organization

(WIPO)

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Intellectual PropertyIntellectual Property

Trademarks Protection varies by country, 10 to 20 years Madrid Agreement of 1891 General American Convention for

Trademark and Commercial Protection Bilateral basis in friendship, commerce, and

navigation treaties

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Intellectual PropertyIntellectual Property

Trade names Protected in countries that adhere to the

Convention for the Protection of Industrial Property

Copyrights Protection provided under the Berne Convention of

1886 which is adhered to by 77 countries Universal Copyright Convention of 1954 adopted by

92 countries

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Common Law or Civil Law?Common Law or Civil Law?

Common Law Jurisdiction has more power to expand rules to

fit particular cases Civil Law

Jurisdiction is bound by the words in the code Much more predictable

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Legal System Differences Legal System Differences between Europe and United Statesbetween Europe and United States

Europe Legislation is rarely amended and regulations are

rarely revised Courts are not as often asked to give their

interpretations If they are, the decisions are rarely appealed

United States Laws and regulations are constantly being

amended or revised by legislatures and the agencies

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Standardizing LawsStandardizing Laws

Many attempts have been made to standardize laws among various countries

International business flows are facilitated with a uniform set of rules

Attempts include Tax conventions and treaties Antitrust cooperation International Center for Settlement of Investment

Disputes UN Convention on International Sale of Goods International Organization for Standardization (ISO) International Electrotechnical Commission (IEC)

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TaxationTaxation

Non-revenue tax purposes To redistribute income Discourage consumption of products such as

tobacco and alcohol Encourage purchase of domestic rather than

imported products

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National Tax Approach DifferencesNational Tax Approach Differences

Tax Levels Range from relatively high in some Western

European countries to zero in tax havens Some countries have capital gains taxes, and

some do not Capital gain is realized when an asset is sold

for an amount greater than its cost

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Tax Laws and RegulationsTax Laws and Regulations

Complexity of national tax systems differs Many consider tax laws and regulations of the U.S.

the most complex Compliance with tax laws and their enforcement varies

Germany and U.S. are strict Italy and Spain are relatively lax

Other differences include Tax incentives, exemptions, costs, depreciation

allowances, foreign tax credits, timing, and double corporate taxation

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TaxationTaxation

Tax Treaties or conventions Treaties between countries that bind the

governments to share information about taxpayers and cooperate in tax law enforcement, often called tax conventions

The U.S. has tax treaties with over 50 countries

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Antitrust LawsAntitrust Laws

Antitrust laws Laws to prevent price fixing, market sharing, and

business monopolies Competition policy

The European Union equivalent of antitrust laws The U.S. and the EU have attempted to enforce their

antitrust laws extraterritorially Japan’s Fair Trade Commission

The “toothless tiger” Japanese companies are incorporating antitrust

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Tariffs, Quotas, Tariffs, Quotas, and Other Trade Obstaclesand Other Trade Obstacles

Purposes of tariffs To raise revenue for government To protect domestic producers

Quotas limit the number or amount of imports For protection

Other trade obstacles include Health requirements Packaging requirements Language requirements Weak patent or trademark protection Quarantine periods Voluntary Restraint Agreements

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Worldwide Examples of TarrifsWorldwide Examples of Tarrifs

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TortsTorts

Torts are injuries inflicted on other people, either intentionally or negligently

Product Liability Standard that holds a company and its officers

and directors liable and possibly subject to fines or imprisonment when their product causes death, injury, or damage

Strict Liability Standard that holds the designer or manufacturer

liable for damages caused by a product without the need for a plaintiff to prove negligence in the product’s design or manufacture

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U.S. Laws That Affect U.S. Firms’ U.S. Laws That Affect U.S. Firms’ International BusinessInternational Business

Foreign Corrupt Practices Act (FCPA) U.S. law prohibits making payments to

foreign government officials for special treatment

Congress passed FCPA outlawing bribery, but not “grease” payments

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Bribe Payers Index Bribe Payers Index

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Accounting LawAccounting Law

Sarbanes-Oxley Act (SOX) Brings major changes to the regulation of corporate

governance and financial practice New reporting requirements Officer and director responsibilities Auditor independence

Applies to any company, domestic or foreign, that has securities registered or is required to file reports under the Securities Exchange Act of 1934

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