global legal environment

International Business Lawand Its Environment

International Business Lawand Its Environment

Module 1

Sapna

Syllabus

Legal environment of international business, international law and organizations, resolution of international dispute.

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Forms of International Business

• Trade

• International licensing of technology and intellectual property (trademarks, patents and copyrights)

• Foreign direct investment

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Trade

• Exporting

• Importing

• Government controls over trade: tariffs and non-tariff barriers

• Role of trade in services

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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

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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

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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

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Trade

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

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Trade: trade in services

• Travel, banking, insurance and securities, professional services (law & architecture)

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Trade: exporting

• Direct: often use foreign sales agents

• Indirect: use export trading companies

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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

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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

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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?

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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

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Franchising as a form of Licensing

• Raymond Dayan v. McDonald’s

• Facts: Dayan had franchise to operate McDonald’s in Paris. There was a serious problem with QSC (quality, service and cleanliness standards). McDonald’s wanted to terminate the franchise but Dayan objected.

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Franchising as a form of Licensing

• Holding: After much legal maneuvering on two continents, McDonald’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?

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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

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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

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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

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• 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?

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• 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.

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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

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How do you manage the risks of international business?

• Consider “ The management of international business is the management of risk.”

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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

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Managing Risk

• Managing language and cultural differences

• Managing currency and exchange rate risk

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Managing Risk

• Political risk? Terrorism?

• Causes?

• How to handle?

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Managing Risks

Currency/Exchange Rate Risks

Transaction Risks

* litigation risk: Gaskin

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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.

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• Issue: Is the forum selection clause in the contract designating the courts of Germany enforceable?

• Yes. Gaskin is precluded from proceeding in a U.S. court.

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• 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?

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Political Risks

• Managing political risk

• Managing risk of foreign law and courts: choice of law and forum clauses

• Risk of international hostilities

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Ethical Issues

• Bribes?

• Child labor?

• Different working conditions and wages?

• Corporate response?

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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.

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International Law and Organizations

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What is International law?• “A rule… that has been accepted as such by the

international community..”. It includes-

- Customary international law- includes those commonly accepted rules of conduct that, through a consistent and long- standing practice, nations have followed out of a sense of binding obligation

- International treaties and agreements- A treaty is a legally binding agreement, between two or more nations that is recognized and given effect under international law.

- General principles common to major legal systems

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International Law Encompasses

• Public International Law

• Private International Law

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What is Public International Law?

• Involves relationships between countries and applies “norms regarded as binding on all members of the international community”

• Examples of issues: when is it appropriate for a country to use force?

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Private International Law• Private international law deals with the rights

and responsibilities of private individuals or corporations operating in an international environment.

• For example, private international law might include international conventions and rules for international business transactions, including sales contracts international shipping, or the liability of commercial airlines to passengers.

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Treaties

• Treaties are binding agreements between two or more nations

• Convention is a treaty

• Bilateral vs. multilateral treaties

• Protocol is an agreement on matters less significant than those addressed in a treaty

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Treaties

• Vienna Convention of the Law of Treaties: codified in 1980 the customary law regarding treaties

• Pacta sunt servanda: “the pact must be respected” and be followed in good faith”

• Jus cogens: there are certain fundamental rights or minimum standards that should be respected

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What impact do treaties have on business?

• Treaties involve public law but can apply to private transactions

• Tax treaties

• Example: the Convention for the International Sale of Goods

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International Court of Justice

• Also known as the World Court or the I.C.J.

• 15 judges serving 9 year terms

• Based in The Hague, Netherlands

• Only states can be parties and states must have accepted the Court’s jurisdiction

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Class Activity

• What is International Court of Justice?

• Functions?

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The Role of the United Nations in Public International Law

• General Assembly ( each country has one vote)

• Security Council ( 15 members, including 5 permanent members ( China, U.S. Russia, France and U.K.) and 10 members who rotate on a staggered basis every 2 years. The 5 permanent members have veto power over non procedural issues

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The Role of the United Nations in Public International Law- Activity II

• What is the impact of the veto power?

• What problems do you see with this structure?

• What role did the Security Council play during the Cold War? Gulf War I? Bosnia? Afghanistan? Iraq?

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The Role of International Organizations-Activity III

• International Monetary Fund

• World Bank

• GATT and WTO

• OECD: Anti- Bribery Convention

• WIPO: World Intellectual property Organization

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Human Rights, Ethics and Business’ Response?

• Should businesses be concerned about human rights?

• What is the purpose of Codes of Conduct?

• Do you think they are effective?

• How to define ethics?

• The problem of “first world standards in the third world”?

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The Resolution of International Disputes

The Resolution of International Disputes

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Avoiding Business Disputes

• Old adage “hope for the best but plan for the worst”

• Business relationship very important as well rights spelled out in contract

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Why is dispute settlement more difficult in an

international transaction?

Why is dispute settlement more difficult in an

international transaction?

• Spans continents

• Different legal systems

• Possible litigation in multiple forums

• Question of enforcement

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Methods of ResolutionMethods of Resolution

• Litigation/ Legal Action

• Alternative dispute resolution (ADR) (arbitration, mediation, other)

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LitigationLitigation

• Jurisdiction raises the fundamental question: does the court have the power to hear the case?

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Jurisdiction:

• Territorial: power to hear cases related to crimes committed within a territory

• Subject matter: jurisdiction over certain types of cases like contracts etc

• Diversity of citizenship: federal courts have jurisdiction over matters between citizens of different states or citizens of one state and a foreign country when controversy exceeds $75,000

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Jurisdiction:

• In Personam jurisdiction means over the person

• it means the power of a nation to create laws that proscribe conduct and to act over individuals, corporations, or their property in the application or enforcement of those laws.

• When used in reference to a court, it is the power of a court to hear a case—to adjudicate.

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Minimum contactsMinimum contacts

• Due process clause of the Fourteenth Amendment of the U.S. Constitution has been interpreted to require that before a person or company be brought before a court, it must have had some contacts with the place or forum.

• based upon a notion of “fairness”• Many other countries have similar concept

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How is jurisdiction affected in the age of the internet?

• When has the person or company met the test of minimum contacts?

• Differentiation between active and passive website

• Law is unsettled however

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Graduate Management Admission Council v. Raju

• Raju, a citizen of India, registered gmatplus.com and gmatplus.net. He sold books to prepare students for the GMAT through his website. GMAT is a registered trademark in the U.S. GMAC , the non-profit that owns rights in GMAT and is based in Virginia, sued Raju for cyber piracy, infringement, unfair competition and other torts.

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• Issue; Does this interactive website provide the basis for jurisdiction over Raju?

• Holding: Yes, the website targeted the U.S. market in part and Raju did ship materials to the U.S.. Thus following the AlS Scan test, the exercise of personal jurisdiction comports with due process.

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• What result?

• Will enforcement be easy?

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Venue: geographical location of a court of competent jurisdiction• Forum non conveniens: inconvenient

forum (already discussed in the Bhopal case)

• Forum shopping: what is it?

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Iragorri v. United Technologies

• Facts: A U.S. citizen visiting his mother in Cali, Colombia fell to his death via an open elevator shaft in 1993. His survivors sue the elevator company, Otis, and its parent company, United Technologies, in federal court. The District court dismissed the case on the basis of forum non conveniens.

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• Issue: Should the federal district court in Connecticut take jurisdiction over the matter or will forum non conveniens force the plaintiffs to pursue the matter in Colombia?

• Decision: The Court should give deference to the plaintiff’s choice of the U.S. forum. The court notes that there is a balance of factors to consider but

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• Remand the matter to the lower court to consider the Plaintiff’s interest, the hardship of litigating in Colombia, the witnesses on the defective design theory reside in Connecticut, and any public interest factors.

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Forum Selection Clause/ Choice of Law Clause

Forum Selection Clause/ Choice of Law Clause

• How are they different?

• Why was there judicial hostility to these contractual provisions?

• Why don’t they work with 3rd parties?

• Bremen v. Zapata example

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Bremen v. Zapata

• Facts: 1967 Zapata (Texas corp.) entered into contract with a German corp., Unterweser. U was supposed to tow a rig from Louisiana to Italy. Storm intervened and Z instructed U to drop off damaged rig in Florida. Contract had a forum selection clause stating disputes would be heard by “London Court of Justice.”

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Bremen v. Zapata

• Z sued in U.S. federal court. U moved to dismiss. U filed in London. The U.S. district court and the court of appeals sided with Z and denied U’s motion to stay the U.S. proceedings.

• Issue: Does the forum selection clause control requiring any disputes to be heard in London?

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Bremen v. Zapata

• Holding: yes, the forum selection clause controls.

• What result?

• Why did courts used to be hostile to forum selection clauses?

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Choice of law and forumChoice of law and forum

• In some cases the court may not enforce where “enforcement would be unreasonable and unjust,” or “invalid for fraud and overreaching.”

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Conflict of laws

• Absent a choice of law clause, generally the court will apply the law of the state, country or jurisdiction that has the closest relationship to the transaction.

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Litigation differences between countries

Litigation differences between countries

• Common vs. civil law countries

• Role of lawyers

• Collection of evidence, discovery

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Problem: even if you win, you still have to collect!

Problem: even if you win, you still have to collect!

• Enforcement of foreign judgments

• Not automatic, why not?

• No treaty

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One kind of ADR: ArbitrationOne kind of ADR: Arbitration• Cost

• Limited discovery

• Speed

• Flexible rules of evidence

• Privacy

• Enforceability

• Limited appeal

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Arbitration and Mediation

• Mediation is a voluntary, nonbinding conciliation process

• Arbitration is a voluntary process whereby the parties agree to be bound by the decision of the arbitrator(s)

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Why is arbitration attractive to business?

Why is arbitration attractive to business?

• More reliability of enforcement due to the New York Convention

• Case example: Scherk v. Alberto Culver

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Scherk v. Alberto Culver

• Facts: 1969 Alberto Culver (Del. Corp) signed an agreement to purchase Scherk’s companies and trademarks. The contract had an arbitration clause (I.C.C. Paris) and a choice of law clause (Illinois). AC discovered that there were other claims on the trademarks. AC filed suit in U.S. federal court alleging SEC violations. Scherk moved to dismiss or stay pending arbitration.

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• Lower court denied motion to dismiss and stayed the arbitration. Court of Appeals affirmed

• Issue: Is the arbitration clause enforceable even though it involves a SEC claim?

• Holding: Yes. The Court reviewed the purposes of the United States Arbitration Act. The Court noted the contract was a “international agreement” and looked at a number of factors. The Court concluded that

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• “a parochial refusal” to enforce the agreement would result in a kind of business chaos.

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Any disadvantages of arbitration?

Any disadvantages of arbitration?

• Limited appeal

• Limited discovery

• Rules of evidence don’t apply as in a court of law

• Advantages can become disadvantages

• Would Microsoft choose ADR?

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How do businesses manage conflict?

How do businesses manage conflict?

• Try to minimize the chance of litigating in two countries

• Forum selection clauses

• Consider ADR

• Business may be able to deter litigation with a prompt response

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Questions??

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global legal environment

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