1. The International Legal Environment: Playing By the Rules
Chapter 6

2. Learning Objectives
LO1 The four heritages of today’s legal systems LO2 The important factors in the jurisdiction of legal disputes LO3 The various methods of dispute resolution LO4 The unique problems of protecting intellectual property rights internationally LO5 How to protect against piracy and counterfeiting LO6 The many issues of evolving cyberlaw LO7 The legal differences between countries and how those differences can affect international marketing plans LO8 The different ways U.S. laws can be applied to U.S. companies operating outside the United States LO9 The steps necessary to move goods across country borders

3. Introduction
No single, uniform international commercial law governing foreign business transactions exists
International marketers must comply with the laws of each country within which it operate
It is impossible to explore the legal system of every country, but it is important to understand that the laws are different and the need to comply with the laws of each country.

4. Bases for Legal Systems
Common Law
Civil or Code Law
Islamic Law
Commercial Legal System in Marxist-Socialist economies or states
There are three basic types of legal systems and the commercial legal system in Marxist economies although not a “formal” system is worth discussing.

5. Bases for Legal Systems
Common law, derived from English law and found in England, the United States, Canada, and other countries once under English influence
The basis for common law is tradition, past practices, and legal precedents set by the courts through interpretations of statutes, legal legislation, and past rulings.
Common Law is based on historical or past practices. Therefore, under common law, all judgments in court are based on precedence. Common law seeks “interpretation through the past decisions of higher courts which interpret the same statutes or apply established and customary principles of law to a similar set of facts.”

6. Bases for Legal Systems
Civil or code law, derived from Roman law and found in Germany, Japan, France, and in non-Islamic and non-­Marxist countries
Code law is based on an all-inclusive system of written rules (codes) of law.
All laws are codified, however, some broad interpretations are possible. More comparisons between common and code law are in the following slides.

7. Common Law
Based on tradition, past practices and legal precedents set by courts through interpretation of past rulings/statutes, etc.
Not All-Inclusive
Code Law
Based on an all-inclusive system of written rules (codes) of law. Legal system is divided into 3 codes: commercial, civil & criminal.
Considered complete “catchall provisions” Some broad interpretations are possible.
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8. Common Law Code Law 7-8 Ownership is determined by use
Agreements may be binding so long as proof of the agreement can be established.
Code Law
Based on an all-inclusive Ownership is determined by registration
Agreements may not be enforceable unless properly notarized or registered.
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9. Common Law countries are codifying Commercial Law.
Impossibility of performance does not excuse non-compliance with the provisions of the contract, unless it was an act of God.
Common Law countries are codifying Commercial Law.
Code Law
Acts of God are not necessarily limited to acts of nature but include “unforeseeable human acts” such as labor strikes or riots.
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10. Bases for Legal Systems
Islamic law, derived from the interpretation of the Koran and found in Pakistan, Iran, Saudi Arabia, and other Islamic states

11. Islamic Law The Koran forms the basis for the Shari’ah (Islamic law)
It includes issues such as property rights, economic decision making, and types of economic freedom
The overriding objective of the Islamic system is social justice
Islamic law prohibits the payment of interest or “riba”
It describes secular aspects of the law regulating human acts.
It describes specific patterns of social and economic behavior for all individuals.
Because the laws are based on interpretation of the Koran, the international marketer must have knowledge of the religion’s tenets and understand the way the law may be interpreted in each region. Some Islamic Law countries are more liberal than others in the interpretation of the Koran.

12. Commercial Law in Marxist Economies
A commercial legal system in the Marxist–socialist economies of Russia and the republics of the former Soviet Union, Eastern Europe, China, and other Marxist–socialist states
Legal system centered on the economic, political, and social policies of the state
As each country moves toward its own version of a free market system and enters the global market, a commercial legal system is also evolving from 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. For example, China has announced that it will adopt a constitution-based socialist legal system but with Chinese characteristics. For example, China has strict Cyber Laws and prohibits the use and access to certain websites such as Facebook but has formed its own social media site that the government can monitor closely called qq. Some formerly communist eastern European countries had a formally codified legal system before the onset of communism and are adapting that to engage in global trade.

13. Jurisdiction in International Legal Disputes
Determining whose legal system has jurisdiction when a commercial dispute arises is another problem of international marketing.
The World Court at The Hague and the International Court of Justice resolve international disputes between sovereign nations of the world rather than between private citizens.
Legal disputes can arise in three situations:
between governments,
between a company and a government,
and between two companies
There is no legal body to resolve disputes between citizens of different countries. The World Court can only intervene if the legal disputes are between governments, a company and a government or between two companies.

14. Jurisdiction in International Legal Disputes
The World Court can adjudicate disputes between governments, but disputes in situations 2 and 3 must be handled in the courts of the country of one of the parties involved or through arbitration.
When international commercial disputes must be settled under the laws of one of the countries concerned, the paramount question in a dispute is: Which law governs?
Because there is no international commercial law, the marketer has to look into the type or law and the specifics laws of each country the firm has operations in.

15. Jurisdiction in International Legal Disputes
Jurisdiction is generally determined in one of three ways, on the basis of:
jurisdictional clauses included in contracts
where a contract was entered into, or
where the provisions of the contract were performed
It is very important that when operating in another country to have the supporting documents that clearly state the jurisdiction in case a dispute occurs and whose laws will apply.

16. International Dispute Resolution
Conciliation
Arbitration
Litigation
If a buyer or partner in another country refuses to keep their end of the contract, there are various options to enforce it. The first steps usually involve resolving the issue informally, if that fails the above three methods are options.

17. Conciliation
Conciliation or mediation is a non-binding agreement between parties to resolve disputes by asking a third party to mediate differences.
Discussion between parties and mediator are confidential and statements made by either party may not be used in future litigation or arbitration.
It is not legally binding.
Conciliation is considered especially effective in resolving disputes with the Chinese as it is non-threatening.

18. Arbitration
Parties select a disinterested and informed party as a referee to determine the merits of the case and make a judgment both parties agree to honor.
Most arbitration is conducted under the auspices of one of the more formal domestic and international arbitration groups. These groups have formal rules for the process. In most countries, decisions reached in formal arbitration
are enforceable under the law.

19. Litigation Fear of creating a poor image
Fear of unfair treatment in a foreign court
Difficulty in collecting a judgment
Cost and time
Loss of confidentiality
Litigation is the last resort and not a preferred option in most disputes, especially in countries where it considered public humiliation. For all of the above reasons, disputes are best resolved through conciliation or arbitration.

20. Protection of Intellectual Property: Counterfeiting and Piracy
Firms spend millions of dollars establishing brand names or trademarks to symbolize quality and design only to be counterfeited and pirated
Piracy and counterfeiting leads to lost sales from the unauthorized use of U.S. patents, trademarks, and copyrights which amount to about $60 billion annually as well as lost jobs
Counterfeited pharmaceutical drugs can also lead death and bad publicity
Counterfeit products such as Rolex watches are very common in many countries, China and India being top on the list. Pirated music CDs, movies and books are some of the products commonly counterfeited. In the country of Turkey for example, there are stores that officially call themselves “Genuinely Fake” and sell counterfeit products. Piracy and counterfeiting causes losses in sales and profits for companies. However, some companies take a different approach; Microsoft’s Bill Gates states that he would rather have the Chinese copy MS products, because some day technology will force them to purchase some of the products and if one is familiar with MS, that’s the product consumers will choose to purchase.

21. Intellectual Property Rights: Inadequate Protection
There is inadequate protection from products being counterfeited or pirated as many countries do not recognize trademarks and patents registered in other countries
Not only is there inadequate protection for trademarks or brands, others in the country can register and have rights to a brand like McDonald’s or Coach and there is no legal protection. However, it is better today when companies are refusing to pay billions of dollars to get their trademark back from squatters, they give it up as there is no benefit to them.

22. Intellectual Property Rights: Prior Use vs. Registration
In the United States, a common-law country, ownership of intellectual property rights is established by prior use
In many code-law countries, ownership is established by registration rather than by prior use
For example, a trademark in Jordan belongs to whoever registers it first in Jordan so there are “McDonald’s” restaurants, “Microsoft” software, and “Safeway” groceries all legally belonging to a Jordanian
As mentioned in the previous slide, in code law countries, individuals can register a trademark (however famous the brand is) and sit ion it and demand payment from the multinational company to release the trademark. A case in point is Starbucks Coffee when it first entered Japan, all of it’s Seattle theme, logo, colors and men u items were registered by Morinara Coffee. Starbucks fought its battles in court but to no avail and therefore had to change it’s usual menu, colors and most everything in order not to violate Morinara’s registered trademark!

23. International Conventions
Many countries participate in international conventions designed for mutual recognition and protection of intellectual property rights
The three major international conventions include:
The Paris Convention for the Protection of Industrial Property, commonly referred to as the Paris Convention, includes the United States and 100 other countries
The Inter-American Convention includes most of the Latin American nations and the United States.
The Madrid Arrangement, which established the Bureau for International Registration of Trademarks, includes 26 European countries.
The World Intellectual Property Organization (WIPO) of the United Nations is promotes the protection of intellectual property and for the administration of the various multilateral treaties through cooperation among its member states. The Patent Cooperation Treaty (PCT) facilitates the patent application process among its member countries. The European Patent Convention (EPC) has a regional patent system that allows any nationality to file a single international application for a European patent. The side agreement of the WTO called TRIPS (Trade Related Aspects of Intellectual Property Rights) is one of the most comprehensive treaties that details intellectual property right protection in member nations.

24. Other Managerial Approaches
The traditional, but weak remedies for American companies operating in countries such as China are several
prevention, that is, engage local representation and diligently register IP with the appropriate agencies
pursue negotiation and alternative dispute resolution
complain to the Chinese authorities
complain to the U.S. government and World Trade Organization (WTO).
Multinational companies such as Microsoft, Philips and warner Brothers are coming up with other alternative approaches based on the factors that motivate consumers to engage in piracy
Microsoft: If they steal I want them to steal my product philosophy that paid off when Bill Gates legally signed a deal with Lenovo in 2006 for all Lenovo computers to come with MS products.
Philips: Engages in an open innovation policy
Warner Brothers: Engages in “charge what the market will bear” policy
It seemed to work for all three of these companies.

25. Cyberlaw: Unresolved Issues
Existing internet law is vague or does not completely cover such issues as the protection of domain names, taxes, jurisdiction in cross-border transactions, and contractual issues `
The European Union, the U.S. and many other countries are drafting legislation to address the myriad legal questions not clearly addressed by current law
Laws being considered deal with Cybersquatters—those who buy and register descriptive nouns, geographic names, ethnic groups, pharmaceutical substances and other similar descriptors and hold them until they are sold at an inflated price
No other issue in e-commerce concerns the collection of taxes on sale of products, i.e., when taxes should be collected, where they should be collected, and by whom, are all issues under consideration by countries around the world
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26. Cybersquatting
The practice of registering a domain name that is the trademark of another person or company
Cybersquatters hope that the owner of the trademark will pay huge dollar amounts to acquire the URL
Some Cybersquatters misrepresent themselves as the trademark owner for fraudulent purposes
Microsoft.pt, Yahoo.pt, Altavista.pt, Shop.pt, Shopping.pt!
Cybersquatters register a well-known brand or trademark that misdirects a person to the CSQ’s site or to a competing company’s site. They also register the domain names of famous companies such as Microsoft in Portugal hoping to extort money from the multinational company. In the case of Microsoft in Portugal, Microsoft decided to register a new name Microsoft1.pt and informed all its customers that this was the company’s actual site and the CSQ gave up the domain.

27. Taxes
A typical tax system relies on knowing where a particular economic activity is located
But the Internet enables individual workers to operate in many different countries from a computer
When taxes should be collected, where they should be collected, and by whom are all issues under consideration by countries around the world.
In the past, a company was deemed to have a taxable presence in a country if it had a permanent establishment there. But whether the existence of a server or a website qualifies as such a presence is not clear. One proposal that has enthusiastic support from tax authorities is for servers to be designated as “virtual permanent establishments” and thus subject to local taxes. On another note, the U.S. government is trying to impose a tax on consumers for all internet purchases. For example, if a consumer that lives in a State that has Sales Tax, but shops online from a state with no Sales Tax, the appropriate taxes would be levied on the citizens come the end of the calendar year.

28. Jurisdiction of Disputes and Validity of Contracts
Since existing laws relating to commerce do not always clearly address the uniqueness of the Internet, a body of cyberlaw is being created.
Two of the most troubling areas are:
determining whose laws will prevail in legal disputes between parties located in different countries
establishing the contractual validity of electronic communications
Cyber business makes it difficult to enforce anything in case a dispute arises. A body of law is being compiled based on experiences and past practices.

29. Commercial Law within Countries: Marketing Laws
When doing business in more than one country, a firm must comply with different marketing laws
All countries have laws regulating marketing activities in promotion, product development, labeling, pricing, and distribution channels
In Austria, premium offers, free gifts, or coupons are considered as cash discounts and are prohibited
Premium offers in Finland are allowed as long as the word free is not used
French law permits sales only twice a year, in January and August
Each country has its own marketing laws that the international marketer needs to comply with and be aware of. One of the most common regulation in advertising is a ban on comparative advertising.

30. Laws regarding marketing of healthcare products differ around the world.
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31. Green Marketing Legislation
Multinational corporations also laws on environmental issues such as industrial pollution, hazardous waste disposal, and rampant deforestation
Green marketing laws focus on environmentally friendly products and on product packaging and its effect on solid waste management
Germany has passed the most stringent green marketing laws that regulate the management and recycling of packaging waste
Some countries and regions have stricter Green Marketing legislations, Germany being one of them.

32. Patent Law USA Japan Operates under “first to invent” rule
Protects individual inventors
Patent applications secret
Patents granted in up to 24 months
Patents valid for 17 years from application date issued
Japan
Operates under “first to register” rule
Promotes technology sharing
Patent applications public
Patents granted in 4 to 6 years
Patents valid 20 years from application date issued
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33. Foreign Countries 'Antitrust Laws
The European Community, Japan, and many other countries have begun to actively enforce their antitrust laws patterned after those in the United States
Antimonopoly, price discrimination, supply restrictions, and full-line forcing are areas which lead to less competition and higher prices for consumers
Foreign countries also have started to develop and enforce antitrust laws more stringently.

34. U.S. Laws Apply in Host Countries
Leaving the boundaries of a home country does not exempt a business from home-country laws
What is illegal for an American business at home can also be ­illegal by U.S. law in foreign jurisdictions for the firm, its subsidiaries, and licensees of U.S. technology
U.S. companies operating overseas are still bound by U.S. Law, particularly the three specified in the following slide.

35. U.S. Laws Apply in Host Countries
(1) Foreign Corrupt Practices Act (FCPA)
Makes it illegal for companies to pay bribes to foreign officials, candidates, or political parties
Stiff penalties can be assessed against company officials found guilty of paying a bribe
(2) National Security Laws
U.S. firms, their foreign subsidiaries, or foreign firms that are licensees of U.S. technology cannot sell a product to a country which could affect national security of the U.S.
The control of the sale of goods that have a strategic and military value was prohibited to communist countries that were viewed as major threats to U.S. security
(3) Antitrust Laws
Protects American consumers from actions that restricts competition
Protects American export and investment opportunities against any privately imposed restrictions to compete on merit
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36. Export Restrictions National Security Laws
Determining Export Regulations
Electronic services: ELAIN, STELA, ERIC and SNAP
In addition to antitrust laws, U.S. companies that export must be particularly vigilant of products they export and which countries they export to. Where a company’s product ends up and its end use is a concern of the U.S. company and its responsibility. It is essential for a company to read or get assistance on Export Administration Regulations (EAR), determine the Export Classification Number (ECCN) and also determine that it is not exporting to a denied country or person overseas. The U.S. government has made this process relatively easy by establishing several electronic services as specified in the slide. Particularly after 9/11, the formerly Bureau of Export Administration falls under the Homeland Security division called Bureau of Industry and Security (BIS) and has gotten more stringent.