Look Before You Leap Legal Considerations When Doing
Look Before You Leap – Legal Considerations When Doing Business in Dynamic International Markets Boston, February 7, 2007 Jonathan M. Epstein Partner, Holland & Knight LLP Tel: 202 -828 -1870 E-Mail: jonathan. epstein@hklaw. com
Legal Considerations • US Government Legal Issues • Laws of Foreign Jurisdiction – Foreign Corrupt Practices Act – Import Restrictions – U. S. Export Controls – Marking/Certification Requirements for Products – Customs/Import Requirements – Foreign Taxes Export Clearance – Laws Restricting Foreign Companies – Anti-Boycott Laws – Foreign Environmental Laws – Anti-Trust Laws – Foreign Privacy Laws – Environmental Laws – Employment Laws • Commercial Legal Issues – Intellectual Property Protection – Setting Up Joint-Ventures – Foreign Agents/Distributors – Logistical Arrangements for Import/Export 2
The Foreign Representative with “Connections” • For a high commission, he can get that major foreign government contract for your company – Payments to a person to induce a foreign official to obtain or retain business – Foreign Corrupt Practices Act violation is probably one of the most lethal statutes to violate – Criminal penalties, debarment from certain exports, government procurement, etc. – U. S. companies can be held liable for the actions of their agents, representatives, and foreign subsidiaries 3
The Joint Venture/Exclusive Distribution Agreement • High percentage of joint ventures/distribution arrangements fail within a few years • If you give exclusive distribution rights: – Tie it to performance criteria/minimum sales – Limit the “exclusive” territory – Limit the term • Joint ventures – Protection/retention of intellectual property – Clear rights upon dissolution 4
The Unnamed Principal: Know Your Customer/Business Partner • Distributor in Middle-East who didn’t disclose purchaser, but then. . . • Business Partner in domestic real estate partnership that was designated by Treasury on Anti-Narcotics Trafficking list • Tailor due-diligence to the transaction/product • Checking the various government lists 5
Backing Unknowingly into Exports (Export Violations) • Small to mid-size software companies are often unaware of complex restrictions on exports of software containing encryption functionality – Use of offshore (Indian) developers – Hiring of non-U. S. nationals in the U. S. to work on software – Foreign sales via the Internet – Compliance with rules is not particularly onerous 6
We Don’t Make Any Products Subject to the International Traffic in Arms Regulations (ITAR) • Our last three voluntary disclosures involved companies, some large, that didn’t realize they were manufacturing military items • Electronics subcontractor may not have any idea of end-use of product, and either send it offshore for production or fill a foreign order • If specifically designed for a military/satellite equipment, then it is controlled under the ITAR 7
Workarounds for Customs Duties/Country of Origin • Import of goods where the final packaging or minimal steps are done in a particular country for: tariff reduction/ WTO procurement agreement reasons – Bulk of production, product origin in non-WTO or non procurement agreement country – If no substantial transformation/tariff shift in final stage this won’t work 8
Conclusion • No company would/should commit resources to overseas markets without a business plan. • That plan must include solid legal planning and due diligence. 9
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