Chapter Nine Intellectual Property and Other Legal Forces McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives  Discuss the complexity of the legal forces that confront international business  Recognize the importance of foreign law  Explain possibilities for international dispute settlement  Recognize the need and methods to protect your intellectual properties

Learning Objectives  Recognize that many taxes have purposes other than to raise revenue  Discuss enforcement of antitrust laws  Explain the risk of product liability legal actions  Discuss U.S. laws that affect international business operations

LO1 International Legal Forces  Rule of law allows foreign businesses to know interests will be protected  Public International Law  Legal relations between governments  Private International Law  Laws governing transactions of individuals and companies that cross international borders

Sources of International Law  The most important source of law is found in bilateral and multilateral treaties between nations  Treaties are agreements among countries, which may be bilateral (between two countries) or multilateral (involving more than two countries); also called conventions, covenants, compacts, or protocols  United Nation’s International Court of Justice creates law when it decides disputes LO2

Extraterritoriality  Extraterritoriality refers to a country’s attempt to apply its laws to foreigners or nonresidents and to acts and activities that take place outside its borders  Not done through force, but by traditional legal means LO2

International Dispute Settlement  Litigation in the United States  Well-developed court systems that facilitate litigation  One reason many people outside the U.S. dislike litigation in the U.S. is the process of discovery  Unlike most other countries, the U.S. has two major court systems  The federal court system and the state court systems LO3

Performance of Contracts  United Nations solution  Many countries, including the U.S., have ratified the UN Convention on Contracts for International Sales of Goods (CISG)  CISG established uniform legal rules to govern international sales contracts and the rights and obligations of the buyer and seller  CISG is automatically applied to all contracts LO3

Performance of Contracts  Private solution: arbitration  Instead of going to court in any country, companies may opt for arbitration  A process, agreed to by parties to a dispute in lieu of going to court, by which a neutral person or body makes a binding decision  Generally faster  More informal  Confidential  Less expensive LO3

Enforcement of Foreign Arbitration Awards  The UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards  The U.S. and most UN member-countries of have ratified this convention  Binds ratifying countries to compel arbitration when the parties have so agreed in their contract and to enforce the resulting awards LO3

Intellectual Property  Intellectual property includes  Patents  Trademarks  Trade names  Copyrights  Trade secrets  All result from the exercise of someone’s intellect LO4

Intellectual Property  Patents - protection  International Convention for the Protection of Industrial Property  European Patent Organization (EPO)  The World Intellectual Property Organization (WIPO) LO4

Intellectual Property  Trademarks  Protection varies by country, 10 to 20 years  Madrid Agreement of 1891  General American Convention for Trademark and Commercial Protection  Bilateral basis in friendship, commerce, and navigation treaties LO4

Intellectual Property  Trade names  Protected in countries that adhere to the Convention for the Protection of Industrial Property  Copyrights  Protection provided under the Berne Convention of 1886 which is adhered to by 77 countries  Universal Copyright Convention of 1954 adopted by 92 countries LO4

Common Law or Civil Law?  Common Law  Jurisdiction has more power to expand rules to fit particular cases  Civil Law  Jurisdiction is bound by the words in the code  Much more predictable

Legal System Differences between Europe and United States  Europe  Legislation is rarely amended and regulations are rarely revised  Courts are not as often asked to give their interpretations  If they are, the decisions are rarely appealed  United States  Laws and regulations are constantly being amended or revised by legislatures and the agencies

Standardizing Laws  Many attempts have been made to standardize laws among various countries  International business flows are facilitated with a uniform set of rules  Attempts include  Tax conventions and treaties  Antitrust cooperation  International Center for Settlement of Investment Disputes  UN Convention on International Sale of Goods  International Organization for Standardization (ISO)  International Electrotechnical Commission (IEC)

Taxation  Non-revenue tax purposes  To redistribute income  Discourage consumption of products such as tobacco and alcohol  Encourage purchase of domestic rather than imported products LO5

National Tax Approach Differences  Tax Levels  Range from relatively high in some Western European countries to zero in tax havens  Some countries have capital gains taxes, and some do not  Capital gain is realized when an asset is sold for an amount greater than its cost LO5

Tax Laws and Regulations  Complexity of national tax systems differs  Many consider tax laws and regulations of the U.S. the most complex  Compliance with tax laws and their enforcement varies  Germany and U.S. are strict  Italy and Spain are relatively lax  Other differences include  Tax incentives, exemptions, costs, depreciation allowances, foreign tax credits, timing, and double corporate taxation LO5

Taxation  Tax Treaties or conventions  Treaties between countries that bind the governments to share information about taxpayers and cooperate in tax law enforcement, often called tax conventions  The U.S. has tax treaties with over 50 countries LO5

Antitrust Laws  Antitrust laws  Laws to prevent price fixing, market sharing, and business monopolies  Competition policy  The European Union equivalent of antitrust laws  The U.S. and the EU have attempted to enforce their antitrust laws extraterritorially  Japan’s Fair Trade Commission  The “toothless tiger”  Japanese companies are incorporating antitrust thinking into their strategy LO6

Tariffs, Quotas, and Other Trade Obstacles  Purposes of tariffs  To raise revenue for government  To protect domestic producers  Quotas limit the number or amount of imports  For protection  Other trade obstacles include  Health requirements  Packaging requirements  Language requirements  Weak patent or trademark protection  Quarantine periods  Voluntary Restraint Agreements LO6

Worldwide Examples of Tarrifs

Torts  Torts are injuries inflicted on other people, either intentionally or negligently  Product Liability  Standard that holds a company and its officers and directors liable and possibly subject to fines or imprisonment when their product causes death, injury, or damage  Strict Liability  Standard that holds the designer or manufacturer liable for damages caused by a product without the need for a plaintiff to prove negligence in the product’s design or manufacture LO7

U.S. Laws That Affect U.S. Firms’ International Business  Foreign Corrupt Practices Act (FCPA)  U.S. law prohibits making payments to foreign government officials for special treatment  Congress passed FCPA outlawing bribery, but not “grease” payments LO8

Bribe Payers Index

Accounting Law  Sarbanes-Oxley Act (SOX)  Brings major changes to the regulation of corporate governance and financial practice  New reporting requirements  Officer and director responsibilities  Auditor independence  Applies to any company, domestic or foreign, that has securities registered or is required to file reports under the Securities Exchange Act of 1934 LO8