1 international business law lecture 4 the multinational enterprise

11

International Business LawInternational Business Law

Lecture 4Lecture 4

The Multinational The Multinational EnterpriseEnterprise

22

A. HOME STATE A. HOME STATE REGULATION OF REGULATION OF MULTINATIONAL MULTINATIONAL

ENTERPRISESENTERPRISES TopicsTopics

• Unfair competitionUnfair competition• Products liabilityProducts liability• Sharp practicesSharp practices

33

Unfair Competition LawsUnfair Competition Laws United States Unfair Competition United States Unfair Competition

Laws Laws • Sherman Antitrust ActSherman Antitrust Act of 1890 is the of 1890 is the

principal US law regulating anti-principal US law regulating anti-competitive behavior. competitive behavior.

Section 1Section 1 of the Act prohibits contracts, of the Act prohibits contracts, agreements, and conspiracies which restrain agreements, and conspiracies which restrain interstate or international trade.interstate or international trade.

Section 2Section 2 of the Act forbids attempts to of the Act forbids attempts to monopolize commerce or trade either monopolize commerce or trade either between the states of the US or in between the states of the US or in international commerce affecting the US.international commerce affecting the US.

44

Unfair Competition LawsUnfair Competition Laws

• Clayton ActClayton Act of 1914: defines certain of 1914: defines certain specific acts that constitute unfair specific acts that constitute unfair business competition.business competition.

• Robinson-Patman ActRobinson-Patman Act of 1936: makes of 1936: makes ____________________ illegal.____________________ illegal.

55

Unfair Competition LawsUnfair Competition Laws Enforcement of US Antitrust Laws Enforcement of US Antitrust Laws

• US US Justice DepartmentJustice Department may bring may bring criminal suits for egregious violations.criminal suits for egregious violations.

• US US Federal Trade CommissionFederal Trade Commission may may bring civil actions (notably for bring civil actions (notably for injunctions) to ensure full compliance.injunctions) to ensure full compliance.

• Private personsPrivate persons may sue and recover may sue and recover ________________ for injuries they have ________________ for injuries they have suffered.suffered.

66

Unfair Competition LawsUnfair Competition Laws Extraterritorial Application of US Extraterritorial Application of US

Antitrust Laws Antitrust Laws • Sherman ActSherman Act applies to conduct applies to conduct

affecting “trade or commerce among the affecting “trade or commerce among the several states, or with foreign nations.”several states, or with foreign nations.”

77


• Judicially imposed limitsJudicially imposed limits on the on the extraterritorial application of the extraterritorial application of the US antitrust laws. US antitrust laws. Personal Jurisdiction Personal Jurisdiction

RequirementsRequirements. . Subject Matter Jurisdiction Subject Matter Jurisdiction

RequirementsRequirements

88


• Personal Jurisdiction Personal Jurisdiction RequirementsRequirements

Due process forbids a court from Due process forbids a court from assuming personal jurisdiction assuming personal jurisdiction unless a defendant has unless a defendant has minimum minimum contactscontacts with the forum state. with the forum state.1.1. the defendant ___________the defendant ___________ did did

businessbusiness in the forum state; and in the forum state; and2.2. the defendant reasonably could have the defendant reasonably could have

anticipatedanticipated that it would have to that it would have to defend itself in the forum state.defend itself in the forum state.

99

• Subject matter jurisdiction Subject matter jurisdiction requirementrequirement

Two tests have been created by the Two tests have been created by the courts for determining when they courts for determining when they have subject matter jurisdiction in an have subject matter jurisdiction in an American antitrust case:American antitrust case:a.a. Effects testEffects test

b.b. Jurisdictional Rule of Reason testJurisdictional Rule of Reason test


1010


Effects testEffects test: Companies carrying on : Companies carrying on business outside of the US will come business outside of the US will come within the subject matter jurisdiction within the subject matter jurisdiction of a US court if their business of a US court if their business activity is: activity is: 1.1. Intended to affect US commerce, andIntended to affect US commerce, and

2.2. Not _________Not _________..

1111

Jurisdictional Rule of Reason Jurisdictional Rule of Reason testtest: A three-pronged test – : A three-pronged test – 1.1. Was the alleged conduct Was the alleged conduct intended intended to to

affect the foreign commerce of the US?affect the foreign commerce of the US?

2.2. Was it of a type and magnitude that Was it of a type and magnitude that violates the violates the Sherman ActSherman Act??

3.3. As a matter of international ________As a matter of international ________ and fairnessand fairness, should a court assume , should a court assume extraterritorial jurisdiction?extraterritorial jurisdiction?


1212


• In considering comity and fairness, courts In considering comity and fairness, courts balancebalance the following factors: the following factors:

Degree of conflict between US and foreign Degree of conflict between US and foreign law or policylaw or policy

Nationality and location of the partiesNationality and location of the parties Which state is better able to obtain Which state is better able to obtain

compliancecompliance Relative significance of effects on US and Relative significance of effects on US and

other nationsother nations Whether conduct was intended to harm US Whether conduct was intended to harm US

commercecommerce _____________ of effects on_____________ of effects on commerce of US commerce of US

and other nationsand other nations

1313

European Union Unfair European Union Unfair Competition LawsCompetition Laws• European Union TreatyEuropean Union Treaty contains two contains two

provisions regulating business provisions regulating business competitioncompetition..

Article 81Article 81 prohibits normal arm’s length prohibits normal arm’s length competitors from entering into agreements or competitors from entering into agreements or carrying on concerted practices which either carrying on concerted practices which either prevent, restrain, or distort trade.prevent, restrain, or distort trade.

Article 82Article 82 forbids businesses with a dominant forbids businesses with a dominant position in their marketplace from taking improper position in their marketplace from taking improper advantage of their position to the detriment of advantage of their position to the detriment of _____________._____________.


1414

A. HOME STATE REGULATION A. HOME STATE REGULATION OF MNEsOF MNEs

• EnforcementEnforcement: EU Commission : EU Commission is solely responsible for is solely responsible for enforcing Articles 81 and 82.enforcing Articles 81 and 82.

• Extraterritorial applicationExtraterritorial application:: EU ______________: Articles 81 and EU ______________: Articles 81 and

82 apply to a foreign firm to the 82 apply to a foreign firm to the extent that the firm's activities extent that the firm's activities have an affect on trade or have an affect on trade or commerce within the EU.commerce within the EU.

1515


Opposition to the Extraterritorial Opposition to the Extraterritorial Application of Unfair Competition Application of Unfair Competition Laws Laws • Diplomatic protestsDiplomatic protests..• Blocking statutesBlocking statutes hamper a plaintiff's hamper a plaintiff's

ability to obtain evidence or enforce a ability to obtain evidence or enforce a judgment abroad. judgment abroad.

Clawback provisionsClawback provisions in these statutes allow in these statutes allow defendants to bring suit in their home country defendants to bring suit in their home country to recover ___________ damages paid abroad.to recover ___________ damages paid abroad.

• Anti-suit Injunctions Anti-suit Injunctions forbid nationals forbid nationals from suing abroad.from suing abroad.

1616


Product Liability Laws Product Liability Laws • RationaleRationale: Manufacturers must assume : Manufacturers must assume

liability for the injuries their products liability for the injuries their products cause.cause.

• Product Liability TheoriesProduct Liability Theories:: Breach of contract.Breach of contract. Negligence.Negligence. Strict liability.Strict liability.

1717


• Extraterritorial Application of Extraterritorial Application of Product Liability LawsProduct Liability Laws

Country most willing to apply its product Country most willing to apply its product liability laws extraterritorially: the US.liability laws extraterritorially: the US.

Considerations of US courts in deciding Considerations of US courts in deciding whether to exercise jurisdiction in a product whether to exercise jurisdiction in a product liability case: liability case:

• Personal jurisdictionPersonal jurisdiction: : plaintiff must show that plaintiff must show that the defendant had the defendant had __________________________________ with the forum with the forum state.state.

• Forum non conveniensForum non conveniens: used in lieu of a the : used in lieu of a the subject matter jurisdiction inquiry the courts apply subject matter jurisdiction inquiry the courts apply in antitrust cases.in antitrust cases.

1818


• Forum non conveniensForum non conveniens: A court will : A court will decline jurisdiction over a dispute if it decline jurisdiction over a dispute if it could be better decided ___________.could be better decided ___________.

CriticismCriticism: : Forum non conveniens Forum non conveniens allows allows multinational companies to avoid product multinational companies to avoid product liability for injuries that occur outside the US liability for injuries that occur outside the US (especially in developing countries were the (especially in developing countries were the remedies available to claimants are often remedies available to claimants are often limited both legally and practically). limited both legally and practically).

1919


Sharp Practices Sharp Practices • DefinedDefined: Dishonest business dealings : Dishonest business dealings

meant to obtain a benefit for a firm meant to obtain a benefit for a firm regardless of the means used.regardless of the means used.

• Laws regulating sharp practices Laws regulating sharp practices internationallyinternationally: :

Organization for Economic and Cooperation Organization for Economic and Cooperation and Development’s and Development’s Convention on Combating Convention on Combating Bribery of Foreign Public Officials in Bribery of Foreign Public Officials in International Business TransactionsInternational Business Transactions. .

National legislation applied extraterritoriallyNational legislation applied extraterritorially• Example: US Example: US Foreign Corrupt Practices ActForeign Corrupt Practices Act

2020


• US US Foreign Corrupt Practices ActForeign Corrupt Practices Act (FCPA) of 1977(FCPA) of 1977. .

Antibribery provisionsAntibribery provisions. . • Apply toApply to::

US companies or companies registered with US companies or companies registered with the US Securities and Exchange Commission. the US Securities and Exchange Commission.

Officers, directors, agents, or employees of Officers, directors, agents, or employees of those companies.those companies.

• Forbid bribes toForbid bribes to: : Foreign government officials. Foreign government officials. Foreign _________________ officials.Foreign _________________ officials. Candidates for foreign political office.Candidates for foreign political office.

2121

B. HOST STATE B. HOST STATE REGULATION OF MNEsREGULATION OF MNEs

Rationales for Host States Rationales for Host States Regulating MNEsRegulating MNEs• The foreign firm The foreign firm consentsconsents to the to the

jurisdiction of the host state.jurisdiction of the host state.• The foreign firm is part of a The foreign firm is part of a common common

enterpriseenterprise with a local firm. with a local firm.• The foreign firm owns a local subsidiary The foreign firm owns a local subsidiary

and the subsidiary’s and the subsidiary’s corporate veil is corporate veil is piercedpierced..

2222


Consent to Host State Consent to Host State JurisdictionJurisdiction• Express consent is given Express consent is given

byby: : ______________ in the state.______________ in the state. Maintaining the firm's head Maintaining the firm's head

office in the state.office in the state. Obtaining a certificate to do Obtaining a certificate to do

business in the state.business in the state.

2323


• Implied consentImplied consent is inferred is inferred from a firm:from a firm:

Carrying on business.Carrying on business. Directly soliciting business.Directly soliciting business. ____________ engaging in profit-____________ engaging in profit-

making conduct.making conduct.

2424


Common Enterprise LiabilityCommon Enterprise Liability • RationaleRationale: Imposed on individuals or : Imposed on individuals or

companies who participate in a common companies who participate in a common enterprise. enterprise.

Basis of liabilityBasis of liability: The participants act as : The participants act as joint venturersjoint venturers or or partnerspartners..

Extent of liabilityExtent of liability: Each participant has : Each participant has joint or ________________ liability for the joint or ________________ liability for the obligations of the entire enterprise.obligations of the entire enterprise.

2525


• Establishing the existence of a Establishing the existence of a common enterprisecommon enterprise: Look at the intent : Look at the intent of the parties. of the parties.

Express intentExpress intent: A formal agreement : A formal agreement creating a joint venture or partnership.creating a joint venture or partnership.

Implied intentImplied intent: : • Sharing profits and losses.Sharing profits and losses.• Sharing management functions.Sharing management functions.• Joint ownership of affiliates.Joint ownership of affiliates.• Holding out to public as a common enterpriseHolding out to public as a common enterprise

2626


Piercing the Company VeilPiercing the Company Veil: : Ignoring the corporate structure of a Ignoring the corporate structure of a company (i.e., piercing the company veil) company (i.e., piercing the company veil) and exposing the shareholders (or a and exposing the shareholders (or a parent company) to liability. parent company) to liability. • Criteria for piercing the veilCriteria for piercing the veil::

The controlled companyThe controlled company The The alter egoalter ego company company UndercapitalizationUndercapitalization Personal assumption of liabilityPersonal assumption of liability

2727


• The Controlled CompanyThe Controlled Company: The : The corporate status of a controlled corporate status of a controlled company will be ignored if both: company will be ignored if both:

Its financing and management are so closely Its financing and management are so closely connected to its parent that it has connected to its parent that it has no no independent decision-making authorityindependent decision-making authority, , andand

It is induced to enter into a It is induced to enter into a transaction transaction detrimental to it detrimental to it and to ______________ but and to ______________ but beneficial to the parent.beneficial to the parent.

2828


• The The Alter Ego Alter Ego CompanyCompany: The company’s : The company’s owners do not treat it as a separate owners do not treat it as a separate juridical entity, but as their juridical entity, but as their alter egoalter ego..

• UndercapitalizationUndercapitalization: The owners : The owners intentionally provided the company with intentionally provided the company with insufficient capital to meet its prospective insufficient capital to meet its prospective debts or potential liabilities.debts or potential liabilities.

• Personal Assumption of LiabilityPersonal Assumption of Liability: The : The owners guaranteed the obligations of the owners guaranteed the obligations of the company.company.

1 international business law lecture 4 the multinational enterprise

Documents

us commerce

commerce of us

unfair business competition

us court

unfair competition lawsin

principal us law

international commerce

extraterritorial jurisdiction