International Business Law and Its Environment 6 e

Introduction to International Business Law Chapter 1 © 2005 West Legal Studies in Business/Thomson

Forms of International Business • Trade • International licensing of technology and intellectual property (trademarks, patents and copyrights) • Foreign direct investment 3

Trade • Exporting • Importing • Government controls over trade: tariffs and non-tariff barriers • Role of trade in services 4

Trade • Exporting: shipment of goods or the rendering of services to a foreign buyer • Importing: process of buying goods from a foreign supplier and entering them into the customs territory of a different country 5

Trade: Government controls over trade Tariffs: import duties or taxes imposed on goods entering the customs territory of a nation Why impose? revenue collection, protection of domestic industry, political control 6

Trade: Government controls • Non-tariff Barriers: all barriers to importing or exporting other than tariffs ex. product standards • Quota: restriction imposed by law on the numbers or quantities of goods or of a particular type of good • Embargo: a total or near total ban on trade with a particular country e. g. used against Iraq in 1990 7

Trade • Boycott: a refusal to do business with certain firms on political or other grounds 8

Trade: trade in services • Travel, banking, insurance and securities, professional services (law & architecture) 9

Trade: exporting • Direct: often use foreign sales agents • Indirect: use export trading companies 10

Intellectual Property and Licensing • Definitions – Copyrights: legal rights to an artistic or written work – Trademarks: the legal right to use a name or symbol; that identifies a firm or its product – Patents: governmental grants to inventors assuring them of the legal right to produce, use and sell their invention for a period of years 11

International Licensing Agreements • International licensing agreements: contracts by which the holder of intellectual property will grant certain rights in that property to a foreign firm to use for a period of time under certain conditions in return for a licensing fee • How does this work as a business model? • Technology transfer: exchange of technology and know how between firms in different countries through licensing 12

Protecting Intellectual Property is a key issue for your business • Inventory and secure your intellectual property as you would a building • Difficult, Why? • What is piracy? 13

Pro Golf Case • First Flight v. Pro Golf, • Facts: Pro Golf negotiated with Wynn to act as sales representative in Japan. Wynn incorporated FFA in Japan. Pro Golf entered into an agreement where FFA could use First Flight trademark. FFA tried to sublicense the trademark. 14

Pro Golf Case (cont. ) • Progolf terminated the agreement. Pro Golf learned that they had not properly registered their trademark in Japan. FFA sued for breach of contract and Pro Golf counterclaimed for royalties. • Holding: Pro Golf was permitted to terminate its Japanese sales agency with FFA because it was terminable at will. 15

Pro Golf Case (cont. ) • However Pro Golf was not entitled to royalties because they had not perfected their rights to the trademark under Japanese law. 16

Legal and Political Issues in Technology Transfer Agreements • Regulated by some governments – generally in Asia, Latin America, and the Middle East – terms restricted to benefit the developing country 17

Franchising as a form of Licensing • Raymond Dayan v. Mc. Donald’s • Facts: Dayan had franchise to operate Mc. Donald’s in Paris. There was a serious problem with QSC (quality, service and cleanliness standards). Mc. Donald’s wanted to terminate the franchise but Dayan objected. 18

Franchising as a form of Licensing • Holding: After much legal maneuvering on two continents, Mc. Donald’s was able to terminate the franchise. Dayan was able to continue his restaurants under a different name. • What is the impact of this on the franchiser? 19

Foreign Direct Investment • Ownership and active control of ongoing business concerns including investment in manufacturing, mining, farming and other production facilities • Multinational corporation • Wholly owned foreign subsidiary • Joint venture • Mergers and acquisitions 20

The Legal Environment in Developing Countries • How different? • Examples: foreign exchange, controls on trade, licensing and investments • Bhopal discussion • Reform and privatization • Transition to market economies 21

In re Union Carbide Gas Plant Disaster • UC India Limited incorporated under the laws of India. 51% owned by UCC , 22% owned by the Indian government, the rest owned by Indian citizens. 1984 gas leaked from the plant. Over 2000 individuals died. Indian government passed the Gas Leak Disaster Act giving the government the exclusive right 22

In re Union Carbide Gas Plant Disaster • To represent victims. India files suit in federal court. • Issue: Does the federal court in the U. S. have jurisdiction over UCC for the gas leak in Bhopal, India? 23

In re Union Carbide Gas Plant Disaster • No, on the basis of Forum Non. Conveniens (inconvenient forum) the court found that UCC had limited participation in the project. Most of the witnesses and documents were in India. The Ct. of Appeals upheld the District Court. However, the UCC agreed to submit to the Indian court’s jurisdiction. 24

International Framework for Trade • Trade liberalization: efforts of governments to reduce tariffs and non-tariff barriers • General Agreement on Tariffs and Trade, 1947 – Sets rules on how member nations will regulate international trade • WTO: 1995 came into existence 25

How do you manage the risks of international business? • Consider “ The management of international business is the management of risk. ” 26

Managing Risk: Risk Assessment • Market entry strategy • Shifting the risk • Using the contract to fix responsibility, allocate risk and price accordingly • Payment and credit risk, property risk, delivery risk • Managing distance and communications 27

Managing Risk • Managing language and cultural differences • Managing currency and exchange rate risk 28

Managing Risk • • Political risk? Terrorism? Causes? How to handle? Foreign courts and foreign law? See DIP Sp. A v. Commune di Bassano challenging Italian retail licensing requirements. What result? 29

DIP Sp. A v. Commune di Bassano • Three applicants for retail store licenses were denied by the local mayor. These can be denied if both the mayor and the local committee believe that the market is already being served. • Does the Italian retail law violate Articles 85, 80 and 30 and thus is anti-competitive? 30

DIP Sp. A v. Commune di Bassano • Holding: The law is not invalid under the Treaty of Rome and the laws of the EU. 31

DIP Sp. A v. Commune di Bassano • “…it is sufficient to observe that rules such as those contained in the Italian Act make no distinction according to the origin of the goods distributed by the businesses concerned, that their purpose is not to regulate trade in goods… 32

DIP Sp. A v. Commune di Bassano • And that the restrictive effect which they might have on the free movement of goods are too uncertain and indirect for the obligation which they impose to be regarded as hindering trade between member states. ” 33

Managing Risks Currency/Exchange Rate Risks * delivery risk * marine risk Transaction Risks * litigation risk: Gaskin 34

Gaskin v. Stumm Handel • Facts: Gaskin, a U. S. citizen entered into an employment contract with a German firm. The contract was in German and the representative explained the terms of the contract to him because he could not read German. The contract included a forum selection clause of Germany. 35

Gaskin v. Stumm Handel • Issue: Is the forum selection clause in the contract designating the courts of Germany enforceable? • Yes. Gaskin isl precluded from proceeding in a U. S. court. 36

Gaskin v. Stumm Handel • Why did the court rule for the defendant? • What circumstances might have altered the result? • What advice do you have for the plaintiff for the future? 37

Political Risks • Managing political risk • Managing risk of foreign law and courts: choice of law and forum clauses • Risk of international hostilities 38

Ethical Issues • • Bribes? Child labor? Different working conditions and wages? Corporate response? 39

Ethical Issues • “The law is a floor…but ethical codes and personal values call on us to exceed that which is required by law. ” • Do you agree? • Source of ethics? 40

Conclusion • Knowledge of global environment: stay current by reading from many sources • Trade, licensing and investment • How to manage risk? Good research, understand risk, know the law and use a contract to protect you and help you manage risk. 41