The International Legal Environment

Playing By The Rules

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Bases for Legal Systems

• Three heritages form the bases for the majority of the legal systems of the world.

- Common law- Civil or code law- Islamic law

• Even though a country’s laws may be based on the doctrine of one of the four legal systems its individual interpretation may vary significantly.

• One measure of the importance of the legal system in each country is the number of attorneys per capita.

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Lawyers per 100,000 People in Selected Countries

• Insert Exhibit 7.1

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Common and Code Law

• Common law seeks “interpretation through the past decisions of higher courts which interpret the same statues or apply established and customary principles of law to a similar set of facts.”

• Under code law the legal system is generally divided into three separate codes:

- Commercial - Civil- Criminal

• Common law is recognized as not being all-inclusive, whereas code law is considered complete as a result of catchall provisions found in most code-law systems.

• Under common law, ownership is established by use; under code law, ownership is determined by registration.

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Islamic Law

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Marxist-Socialist Tenets

• As socialist countries become more directly involved in trade with non-Marxist countries it has been necessary to develop a commercial legal system that permits them to engage in active international commerce.

• The pattern for development varies among the countries because each has a different background and each is at a different stage in its development of a market-driven economy.

• Under the premise that law is strictly subordinate to prevailing economic conditions, such fundamental propositions as private ownership, contracts, due process, and other legal mechanisms have had to be developed.

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International Dispute Resolution: Conciliation

• Conciliation is a nonbinding agreement between parties to resolve disputes by asking a third party to mediate differences.

• Conciliation sessions are private and all conferences between parties and the mediator are confidential.

• Although conciliation may be the friendly route to resolving disputes it is not legally binding; thus an arbitration clause should be included in all conciliation agreements.

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International Dispute Resolution: Arbitration

• Most arbitration is conducted under the auspices of one of the more formal domestic and international arbitration groups organized specifically to facilitate the resolution of commercial disputes.

• The popularity of arbitration has led to a proliferation of arbitral centers established by countries, organizations, and institutions.

• Contracts and other legal documents should include clauses specifying the use of arbitration to settle disputes.

• Arbitration clauses require agreement on two counts:- The parties agree to arbitrate in the case of a dispute according to the

rules and procedures of some arbitration tribunal.- They agree to abide by the awards resulting from the arbitration.

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International Dispute Resolution: Litigation

• The best advice is to seek settlement.• Deterrents to litigation:

- Fear of creating a poor image and damaging public relations.

- Fear of unfair treatment in a foreign court.- Difficulty in collecting a judgment that may otherwise

have been collected in a mutually agreed settlement through arbitration.

- The relatively high cost and time required when bringing legal action.

- Loss of confidentiality.

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Counterfeiting and Piracy

• Lost sales from the unauthorized use of U.S. patents, trademarks, and copyrights amount to more than $100 billion annually.

• The piracy industry has grown so sophisticated that many counterfeit goods are almost impossible to distinguish from the original.

• Recent research implies that for companies like Microsoft, some level of piracy actually can serve the company.

• A pharmaceutical manufacturers association that 2% of the $327 billion worth of drugs sold each year are counterfeit.

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Piracy Rates for Computer Software, Top and Bottom 20

• Insert Exhibit 7.2

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Prior Use versus Registration

• Prior Use – whoever can establish first use is typically considered the rightful owner.

• Registration – the first to register a trademark or other property right is considered the rightful owner.

• A company that believes it can always establish ownership in another country by proving it used the trademark or brand name first is wrong and risks the loss of these assets.

• It is best to protect intellectual property rights through registration.

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International Conventions

• Three major international conventions:- The Paris Convention for the Protection of Industrial Property- The Inter-American Convention- The Madrid Arrangement

• World Intellectual Property Organization (WIPO)- Responsible for the promotion of the protection of intellectual

property and for the administration of the various multilateral treaties through cooperation among its member states.

• Patent Cooperation Treaty (PCT)• European Patent Convention (EPC)• The Trade-Related Aspects of Intellectual Property Rights (TRIPs)• Mr. McDonalds in Venezuela

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Marketing Laws

How Drugs are Marketed in Mexico versus the United States – No Prescription Needed in Mexico

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Green Marketing Legislation

Greenpeace Protester in Hong Kong

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Green Marketing Legislation

• Green marketing laws focus on environmentally friendly products and on product packaging and its effect on solid waste management.

• Germany – stringent laws regarding management and recycling of packaging waste

- Phase one – all transport packaging waste be received back by manufacturer for re-cycling

- Phase two – all manufacturers, distributors and retailers to accept returned packaging including corrugated boxes, blister packs, anti-theft packaging, vending packaging and promotional packaging

- Phase three- all packaging, cans, plastic bottles, Styrofoam and cardboard cereal boxes

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Antitrust Legislation

Antitrust- With the exception of the U.S., antitrust laws were either nonexistent

or not enforced in most of the world’s countries for the better part of the 20th century.

• The U.S. intervenes when non-U.S. companies attempt to acquire American companies.

• At times, companies are subject to antitrust charges in more than one country.

- Nestle’s proposed acquisition of Dreyer’s Grand Ice Cream

• Competitive methods illegal in the U.S. can be legal in another country

- Tony Romas in Mexico only sell Modelo beer.

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U.S. Laws Apply in Host Countries

• Foreign Corrupt Practices Act- Makes it illegal for companies to pay bribes to foreign officials,

candidates, or political parties.• National security laws

- Prohibit a U.S. company, its subsidiaries, joint ventures, or licenses to sell controlled products without special permission from the U.S. government.

• Antitrust laws- Antitrust enforcement has two purposes in international commerce.

• Protect American consumers• Protect American export and investment opportunities against any

privately imposed restrictions.- The question of jurisdiction and how U.S. antitrust laws apply

• Sections I and II of the Sherman Act

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U.S. Laws Apply in Host Countries (continued)

• Antiboycott law- U.S. companies are forbidden to participate in any unauthorized

foreign boycott.- Required to report any request to cooperate with a boycott.

• Extraterritoriality of U.S. laws- Especially important to U.S. multinational firms- Foreign governments fear the influence of American government

policy on their economies through U.S. multinationals.

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Cyberlaw: Unresolved Issues

• Domain names and cybersquatters- Cybersquatters (CSQs) buy and register descriptive nouns,

geographic names, and names of ethnic groups and pharmaceutical substances, and other similar descriptors and hold them until they can be sold at an inflated price.

• Anti-Cyber Squatting Consumer Protection Act (ACPA)• Nominet Dispute Resolution Service (DRS)• World Intellectual Property Organization (WIPO) established a

structure through the Internet Corporation for Assigned Names and Numbers (ICANN)

- Uniform Dispute Resolution Policy (UDRP)

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Cyberlaw: Unresolved Issues

Microsoft and Censorship in China

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Cyberlaw: Unresolved Issues (continued)

• Taxes- In the past, a company was deemed to have a taxable presence in a

country if it had a permanent establishment there.- The EU Commission

• Proposes value-added tax (VAT)

• Jurisdiction of disputes and validity of contracts- The EU Commission has adopted an e-commerce directive that will

permit online retailers to trade by the rules of their home country unless the seller had enticed or approached the consumer by way of advertising.