Chapter 07 Intellectual Property and Other Legal Forces McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

7-2 Learning Objectives LO 7-1 Discuss the complexity of the legal forces that confront international business. LO 7-2 Explain the possibilities for international dispute settlement. LO 7-3 Recognize the need and methods to protect intellectual property. LO 7-4 Explain the risk of product liability legal actions. LO 7-5 Discuss some of the U.S. laws that affect international business operations. LO 7-1 Discuss the complexity of the legal forces that confront international business. LO 7-2 Explain the possibilities for international dispute settlement. LO 7-3 Recognize the need and methods to protect intellectual property. LO 7-4 Explain the risk of product liability legal actions. LO 7-5 Discuss some of the U.S. laws that affect international business operations.

7-3 International Legal Forces Rule of Law – –The basis of a country’s legal system, protects investment Rule of Law – –The basis of a country’s legal system, protects investment What is International Law? –Public International Law –Legal relations between governments –Private International Law –Laws governing transactions of individuals and companies that cross international borders What is International Law? –Public International Law –Legal relations between governments –Private International Law –Laws governing transactions of individuals and companies that cross international borders

7-4 International Legal Forces Sources of Law –Treaties –agreements between countries – also called conventions, covenants, compacts, protocols –Customary International Law –International rules derived from customs and use over centuries Sources of Law –Treaties –agreements between countries – also called conventions, covenants, compacts, protocols –Customary International Law –International rules derived from customs and use over centuries

7-5 Extraterritoriality Extraterritorial Application of Laws –A country’s attempt to apply its laws to foreigners or nonresidents and to acts and activities that take place outside of its borders Extraterritorial Application of Laws –A country’s attempt to apply its laws to foreigners or nonresidents and to acts and activities that take place outside of its borders

7-6 International Dispute Settlement Litigation Performance of Contracts United Nations Solutions Private Solutions – Arbitration Litigation Performance of Contracts United Nations Solutions Private Solutions – Arbitration

7-7 Litigation Major Problems: –Which jurisdiction’s laws should apply? –Where will litigation occur? Major Problems: –Which jurisdiction’s laws should apply? –Where will litigation occur? Solutions: –Choice-of-law clause Which law governs –Choice-of-form clause Where disputes will be settled Solutions: –Choice-of-law clause Which law governs –Choice-of-form clause Where disputes will be settled

7-8 Performance Contracts Major Problems: –Getting other side to perform obligations –No worldwide court has power to enforce decrees –UN International Court of Justice relies on voluntary compliance –International contracts are complicated to enforce Major Problems: –Getting other side to perform obligations –No worldwide court has power to enforce decrees –UN International Court of Justice relies on voluntary compliance –International contracts are complicated to enforce Possible Solutions: –UN Convention on International Sale of Goods (CSID) –Private Solutions – Arbitration, an alternative to litigation –Incoterms, the International Chamber of Commerce’s universal trade terminology Possible Solutions: –UN Convention on International Sale of Goods (CSID) –Private Solutions – Arbitration, an alternative to litigation –Incoterms, the International Chamber of Commerce’s universal trade terminology

7-9 Incoterms – International Chamber of Commerce

7-10 Global Interest in Arbitration is Growing Arbitration Preferred over Litigation: –Suspicion of foreign courts –Faster –Confidential –Less expensive Arbitration Preferred over Litigation: –Suspicion of foreign courts –Faster –Confidential –Less expensive

7-11 Despite Legal Uncertainties, International Business Grows Global business activity is growing IB managers need to be aware of legal environments they work in Legal environments vary significantly between countries Assumptions made on home country legal systems may not apply in other nations

7-12 Intellectual Property all of which result from the exercise of someone’s intellect Patents Trademarks Trade Names Copyrights Patents Trademarks Trade Names Copyrights CAUTION: country laws vary greatly on protection of rights and enforcement of intellectual property laws.

7-13 Patent Standardization/ Harmonization CAUTION: Smaller nations want to shorten protection from years down to 5 years or 30 months!

7-14 Intellectual Property Protection Trademarks: shape, color, design, phrase, abbreviation, or sound that identifies a brand Trade Names: name of a business protected under the International Convention for the Protection of Industrial Property Copyrights: protected under the Berne Convention of 1886 (164 countries), the WIPO Copyright Treaty and the TRIPS Agreement (WTO members)

7-15 Standardizing Laws Globally IB flows better with standardized laws Progress slow, but: –Tax treaties or conventions are being made –EU Anti-Trust: Articles 81 and 82 of the Treaty of Rome –World Bank: International arbitration –UN-CISG: uniformity in international sales agreements –UNCITRAL: uniform accounting & bankruptcy standards –ISO & IEC: standardization of measurement, materials and equipment, and other technology fields IB flows better with standardized laws Progress slow, but: –Tax treaties or conventions are being made –EU Anti-Trust: Articles 81 and 82 of the Treaty of Rome –World Bank: International arbitration –UN-CISG: uniformity in international sales agreements –UNCITRAL: uniform accounting & bankruptcy standards –ISO & IEC: standardization of measurement, materials and equipment, and other technology fields

7-16 Some Specific National Legal Forces Competition Laws – EU equivalent of U.S. Antitrust laws U.S laws & attitudes different, but differences are narrowing –U.S law vigorously enforced, focuses on: Price fixing Market sharing Business monopolies Competition Laws – EU equivalent of U.S. Antitrust laws U.S laws & attitudes different, but differences are narrowing –U.S law vigorously enforced, focuses on: Price fixing Market sharing Business monopolies

7-17 Competition Laws U.S. applies antitrust laws extraterritorially U.S. antitrust law has civil and criminal penalties EU applies competition policy extraterritorially U.S. proposal for global antitrust regulations WTO may be best institution to standardize antitrust law U.S. applies antitrust laws extraterritorially U.S. antitrust law has civil and criminal penalties EU applies competition policy extraterritorially U.S. proposal for global antitrust regulations WTO may be best institution to standardize antitrust law

7-18 Tariffs, Quotas, and Other Trade Obstacles Trade obstacles are: –Legal, political & financial Trade obstacle examples: –Health or packaging requirements –Language requirements –Weak patent and trademark protection –Tariffs & quotas –VARs – voluntary restraint agreements –VERs –voluntary export restraints Trade obstacles are: –Legal, political & financial Trade obstacle examples: –Health or packaging requirements –Language requirements –Weak patent and trademark protection –Tariffs & quotas –VARs – voluntary restraint agreements –VERs –voluntary export restraints

7-19 Torts Injuries inflicted on other people, either intentionally or unintentionally U.S. tort cases result in large monetary awards Injuries inflicted on other people, either intentionally or unintentionally U.S. tort cases result in large monetary awards Product Liability –Company, officers and directors liable and subject to fines and imprisonment when products cause damage, injury or death – Strict Liability holds firms responsible without plaintiff proving negligence Product Liability –Company, officers and directors liable and subject to fines and imprisonment when products cause damage, injury or death – Strict Liability holds firms responsible without plaintiff proving negligence Multimillion dollar punitive damage awards keep many foreign products, especially medicine, out of U.S.

7-20 Differences on Product Liability U.S.: –High liability insurance premiums –High standards of strict liability –No caps on damages –Lawyers paid contingency fees –Juries hear cases, award actual + punitive damages to “teach defendant a lesson” –Juries tend to be sympathetic to plaintiffs U.S.: –High liability insurance premiums –High standards of strict liability –No caps on damages –Lawyers paid contingency fees –Juries hear cases, award actual + punitive damages to “teach defendant a lesson” –Juries tend to be sympathetic to plaintiffs Outside U.S.: –Lower liability under “state- of-the-art” & “developmental risks” defenses –Caps on damages –Lawyer is paid on settlement or if case is lost –Plaintiff, if unsuccessful, may be directed to pay defendant’s legal fees –Judges hear liability cases –Judges sympathetic to defendant may not award punitive damages Outside U.S.: –Lower liability under “state- of-the-art” & “developmental risks” defenses –Caps on damages –Lawyer is paid on settlement or if case is lost –Plaintiff, if unsuccessful, may be directed to pay defendant’s legal fees –Judges hear liability cases –Judges sympathetic to defendant may not award punitive damages

7-21 Miscellaneous Foreign Laws REMEMBER: Laws in foreign countries are different. Laws demand compliance, esp. from outsider Ignorance of foreign law is no excuse. In the case of arrest and imprisonment, punishment or fines, your country may not be able to help you. REMEMBER: Laws in foreign countries are different. Laws demand compliance, esp. from outsider Ignorance of foreign law is no excuse. In the case of arrest and imprisonment, punishment or fines, your country may not be able to help you. International Legal Defense Counsel (ILDC), New York, has a global reputation for dealing with countries when U.S. embassies/consulates can do nothing!

7-22 Foreign Corrupt Practices Act: U.S. Law Affecting U.S. International Firms Foreign Corrupt Practices Act (FCPA) –U.S. law banning payments to foreign government officials for special treatment –Bribes (questionable or dubious payments) paid to government officials by companies seeing to purchase contracts from those governments Foreign Corrupt Practices Act (FCPA) –U.S. law banning payments to foreign government officials for special treatment –Bribes (questionable or dubious payments) paid to government officials by companies seeing to purchase contracts from those governments FCPA Uncertainties: – “Grease” is not outlawed –No clear distinction between legal grease and illegal bribes –Justice Department may prosecute grease payments to attack corruption in U.S. –Accounting standards compliance and management’s responsibility under “had reason to know” –“Facilitating payments” seen as bribes –Do FCPA standards put U.S. firms at competitive disadvantage abroad? FCPA Uncertainties: – “Grease” is not outlawed –No clear distinction between legal grease and illegal bribes –Justice Department may prosecute grease payments to attack corruption in U.S. –Accounting standards compliance and management’s responsibility under “had reason to know” –“Facilitating payments” seen as bribes –Do FCPA standards put U.S. firms at competitive disadvantage abroad?

7-23 Other Anti-Bribery or Anti-Corruption Statutes UN Convention Against Corruption(UNCAC) –Addresses broad range of corruption: general abuse of power, trading in official influence –Recovery of assets from officials accused or convicted of engaging in corruption UN Convention Against Corruption(UNCAC) –Addresses broad range of corruption: general abuse of power, trading in official influence –Recovery of assets from officials accused or convicted of engaging in corruption United Kingdom Bribery Act –Penalties for corporate failure to prevent bribery –Person engaging in bribe does not need to be British; act of bribery does not need to occur in U.K. –May be applied extraterritorially –Substantial uncertainty about what qualifies as adequate procedures to prevent bribery, how broadly to interpret association with potential bribe payers United Kingdom Bribery Act –Penalties for corporate failure to prevent bribery –Person engaging in bribe does not need to be British; act of bribery does not need to occur in U.K. –May be applied extraterritorially –Substantial uncertainty about what qualifies as adequate procedures to prevent bribery, how broadly to interpret association with potential bribe payers

The Bribe Payers Index 7-24

7-25 Accounting Law Global financial scandals –lead investor to question integrity of financial reporting and corporate governance Result: global economic damage Global financial scandals –lead investor to question integrity of financial reporting and corporate governance Result: global economic damage U.S. accounting practice guided by: –Securities & Exchange Commission (SEC) –Financial Accounting Standards Board (FASB) –General Accepted Account ing Principles (GAAP) EU & other countries follow: –International Accounting Standards Board (IASB) –International Financial Reporting Standards (IFRS) U.S. accounting practice guided by: –Securities & Exchange Commission (SEC) –Financial Accounting Standards Board (FASB) –General Accepted Account ing Principles (GAAP) EU & other countries follow: –International Accounting Standards Board (IASB) –International Financial Reporting Standards (IFRS) Accounting guideline convergence is expected in 2015

7-26 GLOBAL Debate America’s Dolphin- Safe Tuna Labels vs. the WTO –U.S. had voluntary labeling to help protect endangered dolphins –WTO rules the labels violate international trade rules America’s Dolphin- Safe Tuna Labels vs. the WTO –U.S. had voluntary labeling to help protect endangered dolphins –WTO rules the labels violate international trade rules Should the WTO be able to prohibit voluntary labeling efforts that provide information of potential value to a nation’s consumers? Should the WTO be able to overrule national laws based on sound science? Does joining the WTO mean nations give up national sovereignty rights? Should the WTO be able to prohibit voluntary labeling efforts that provide information of potential value to a nation’s consumers? Should the WTO be able to overrule national laws based on sound science? Does joining the WTO mean nations give up national sovereignty rights?