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Going Global: 10 Rules for
Your Company in Its
International Transactions
CLE Seminar for In-House Counsel
June 24, 2014
S...
Stafford Matthews
Stafford Matthews is a technology transactions and licensing lawyer and the managing partner
of the Palo...
GOING GLOBAL
3
A transaction or agreement will be international or cross-
border in nature unless:
 Both parties are resident in a singl...
[1] Determine the Playing Field
"I see England, I see France…"
Threshold issues are:
 Whether common law or civil law wil...
[1] Common Law Versus Civil Law
Common Law
 In most of the United States and Canada -
originated in England and serves as...
[1] Common Law Versus Civil Law
Common Law
 These controlling principles are supplemented by
legislation.
 For example, ...
[1] Common Law Versus Civil Law
Civil Law
 Origins in Roman and canonical laws.
 Source of controlling law is an integra...
[1] Common Law Versus Civil Law
Civil Law
 Different branches of civil law have evolved over time,
primarily French law b...
[1] Common Law Versus Civil Law
Civil Law
 Judicial reasoning under civil law systems in concept
is fundamentally deducti...
[1] Common Law Versus Civil Law
Hybrid Systems include:
 India
 Israel
 South Africa
 Scotland
 Quebec [Canada]
 Lou...
[1] Common Law Versus Civil Law
Special case: EU Regulations and Directives
 In the case of the European Union, national ...
[1] Common Law Versus Civil Law
Effect:
 Civil law contracts tend to be much shorter and
standardized - civil codes provi...
[2] Choice of Law - Basic Principles
For every international transaction the company must
identify and understand applicab...
[2] Choice of Law - Basic Principles
 Products liability; limitation of liabilities
 Indemnification rights and obligati...
[2] Choice of Law - Basic Principles
 Confidentiality and nonuse restrictions
 Rights to terminate with or without cause...
[3] Choice of Law - Interpretation of Clause
Which Law Decides:
 US: Under majority rule in the US, the scope and
enforce...
[4] Choice of Law - US
[1] Choice of Law Rules in US:
 Generally presumed valid and enforceable under US law
unless shown...
[4] Choice of Law - US
[1] Choice of Law Rules in US:
 Under the statutes of some US states, the choice of
law will be en...
[4] Choice of Law - EU
[2] Choice of Law Rules in European Union:
 Rome I Regulation (EC) No 593/2008 governing choice
of...
[4] Choice of Law - EU
[2] Choice of Law Rules in European Union:
 The Rome I Regulation governs intellectual
property co...
[4] Choice of Law - PRC
Statute of Application of Law to Foreign Civil Relations
[the “Choice of Law Statute”] – China:
 ...
[4] Choice of Law - PRC
 However mandatory laws requiring the application of
Chinese law and matters of public policy are...
[5] Choice of Law – Exceptions
[1] EU: General Exceptions:
[1] Per Country: Where all other elements relevant to
the situa...
[5] Choice of Law - Exceptions
[2] Public Policy:
 Choice of law disregarded if contract violates public
policy (ordre pu...
[5] Choice of Law - Exceptions
[3] Non-contract claims such as torts, unfair
competition, intellectual property infringeme...
[5] Choice of Law - Exclusions
 Exclusions and limitations: Determine whether
otherwise applicable laws can and should be...
[5] Choice of Multiple Jurisdictions
 Bifurcated or Complex Choice of Law Provisions:
 Consider whether the Company shou...
[5] Choice of Multiple Jurisdictions
Example:
"This Agreement and all matters arising out of or relating to
or in connecti...
[6] Impact of National Laws
[1] General principles of nationality preempt choice of law:
[A] Subjective territoriality: Lo...
[6] National Laws
[2] Specific statutes, regulations or treaties [examples]:
 European Union competition laws.*
 Europea...
[6] National Laws
 Unfair trade practices laws: UK Unfair Contract
Terms Act 1977 (1977 c. 50).
 Third party beneficiari...
[6] National Laws – Invalidating Choice of Law
Case in Point [1]: China [PRC] Technology Transactions:
 Technology transa...
[6] National Laws – Invalidating Choice of Law
 These rules classify technology into three categories: (i)
technology who...
[6] National Laws – Invalidating Choice of Law
 These rules impose requirements on technology being
imported into China w...
[6] National Laws – Invalidating Choice of Law
(5) No unreasonable restrictions on distributing or
exporting products base...
[6] National Laws – Invalidating Choice of Law
Case in Point [2]: EU Directive on Unfair Terms in
Consumer Contracts.
Dire...
[6] National Laws – Invalidating Choice of Law
 The EU Consumer Contracts Directive lists a series of
provisions in consu...
[6] National Laws – Invalidating Choice of Law
(5) The right of the supplier to transfer its rights and
obligations under ...
[6] National Laws – Invalidating Choice of Law
Case in Point [3]: Internet Transactions
A French court held that 31 of the...
[7] National Laws - Intellectual Property
[1] Intellectual property rights:
 Patents, copyrights, trademarks, moral right...
[7] National Laws - Intellectual Property
[2] In international transactions involving intellectual
property rights:
 Whic...
[7] National Laws - Intellectual Property
 What statutory or regulatory restrictions are imposed
on the use or transfer o...
[7] National Laws - Intellectual Property
[3] Multinational Conventions and Laws
 Certain categories of intellectual prop...
[7] National Laws - Moral Rights
[4] Moral rights or "droit morale" are independent
rights in works of authorship apart fr...
[7] National Laws - Moral Rights
In general, moral rights include:
 Right of authorship or paternity [identification as t...
[7] National Laws - Moral Rights
Depending on the jurisdiction, moral rights are not
assignable per se:
 Dealing with the...
[8] Form of Transaction
In addition to determining the laws applicable to your
transaction and your positioning relative t...
[8] Form of Transaction
Common forms of international transactions include
but are not limited to:
 Distributor Agreement...
[8] Form of Transaction
[1] Distributor Agreement
 Manufacturer or supplier sells products to distributor
 Distributor r...
[8] Form of Transaction
[1] Distributor Agreement
 Possible right to compensation upon termination under
local laws. [E.g...
[8] Form of Transaction
[2] Agency Agreement
 Principal authorizes commercial agent to act on its
behalf.
 Agent bears n...
[8] Form of Transaction
[2] Agency Agreement
 Main issue is reclassification of agent as an "employee".
To the extent con...
[8] Form of Transaction
[3] Sales Representative Agreement
 Manufacturer authorizes sale representative to solicit
sales ...
[8] Form of Transaction
[4] Hybrid Technology License - Joint Venture
Parties agree to develop or manufacture and distribu...
[8] Form of Transaction
[4] Hybrid Technology License - Joint Venture
 Numerous basic issues including assignment
versus ...
[8] Form of Transaction
[4] Hybrid Technology License - Joint Venture
Must have strategies relating to:
 Disclosure and u...
[8] Form of Transaction
[4] Hybrid Technology License - Joint Venture
 In jurisdictions such as China, one approach to
co...
[8] Form of Transaction
[5] Hybrid Distribution [Sales Representative] and
Agency Agreement
 Common circumstance is a pro...
[8] Form of Transaction - EU Commercial Agents
EU Directive 86/653/EEC (18 December 1986) on self-
employed commercial age...
[8] Form of Transaction - EU Commercial Agents
 Distribution or sales representative agreement can be
recharacterized as ...
[8] Form of Transaction - EU Commercial Agents
 The Commercial Agents EU directive and the
implementing national laws gov...
[9] Export and Import Controls
Determine what export and import restrictions will
apply to the relevant technologies or pr...
[9] Export and Import Controls
 NB that the act of disclosing controlled technologies to
a foreign national, either outsi...
[10] FCPA and Anti-Bribery Rules
Determine potential for violation of the FCPA and
other anti-bribery statutes and establi...
[10] FCPA and Anti-Bribery Rules
 Potential for vicarious liability under FCPA for payments
by third parties if knowledge...
[10] FCPA and Anti-Bribery Rules
Use of foreign distributors does not necessarily protect
manufacturer from FCPA liability...
[10] FCPA and Anti-Bribery Rules
Best practices include:
 Due diligence before appointment of foreign distributor.
One re...
[11] Competition and Antitrust Laws
Determine applicable competition or antitrust laws of
the jurisdictions relevant to th...
[11] EU Competition Laws
The European Union:
 European Union [EU] has been established by a
series of treaties between th...
[11] EU Competition Laws
Two main sources of rules governing subject
transactions within the European Union:
[1] Articles ...
[11] EU Competition Laws
Preemption of National Laws: EU competition laws take
precedence over national laws and are bindi...
[11] EU Competition Laws
[1] Article 101 of TFEU: Agreements between Two or
More Parties:
Agreements between undertakings ...
[11] EU Competition Laws – Article 101
Article 101 of TFEU: Applies to both vertical and
horizontal agreements and to cour...
[11] EU Competition Laws – Article 101
Article 101 Exemptions: TFEU Article 101(3) exempts an
agreement from a finding of ...
[11] EU Competition Laws – Article 101
Article 101 Exemptions: Two other forms of
exemption:
[1] Agreements of Minor Impor...
[11] EU Competition Laws – Article 101
[2] Block Exemptions:
 The European Commission has issued a number of
block exempt...
[11] EU Competition Laws - TTBER
EU Block Exemption Regulation for Technology-
Transfer Agreements (EU) 316/2014 (“TTBER”)...
[11] EU Competition Laws - TTBER
Note: The Technology Transfer Block Exemption
Regulation and Guidelines effective May 1, ...
[11] EU Competition Laws - TTBER
Market Share Thresholds:
 Combined market share thresholds of 20 percent for
agreements ...
[11] EU Competition Laws - TTBER
Hardcore Restrictions in General:
 Under TTBER any hardcore restrictions defeat the
exem...
[11] EU Competition Laws - TTBER
Hardcore Restrictions on Sales to Exclusive Territories
or Customers:
 Competitors [hori...
[11] EU Competition Laws - TTBER
 Non-competitors [vertical]:
(1) Restriction on active sales into exclusive territory or...
[11] EU Competition Laws - TTBER
Hardcore Pricing Restrictions:
 Fixed or minimum prices for contract products are
hardco...
[11] EU Competition Laws - TTBER
Hardcore Output Restrictions:
 Restriction on output by one party in territory of other
...
[11] EU Competition Laws - TTBER
Hardcore Non-Compete and IP Restrictions:
 Limits on rights to use own technology or con...
[11] EU Competition Laws - TTBER
Non-Compete and IP Restrictions:
 Right of licensor to terminate license if a non-
exclu...
[11] EU Competition Laws - TTBER
Withdrawal of Exemption:
 The TTBER also states that the Block Exemption may be
withdraw...
[11] EU Competition Laws - Verticals
EU Vertical Agreements Block Exemption 330/2010 [20
April 2010]*:
 Vertical agreemen...
[11] EU Competition Laws - Verticals
 Size Matters: The vertical agreement is exempt
under this Block Exemption if each p...
[11] EU Competition Laws - Verticals
Hardcore Restrictions also banned under EU Verticals
Regulation:
 Resale price maint...
[11] EU Competition Laws - Verticals
Specific restrictive provisions not eligible for the
Verticals Block Exemption:
 Non...
[11] EU Competition Laws - Other Exemptions
 Research and development agreements: Regulation
(EU) No 1217/2010 (14 Decemb...
[11] EU Competition Laws – Article 102
Prohibited Abuse of a Dominant Position:
Article 102 of the Treaty separately prohi...
[11] EU National Competition Laws
National Competition Laws:
 Must determine whether more restrictive provisions
in appli...
[12] Data Protection and Privacy
Determine which data protection and privacy laws are
applicable to the transaction.
 Dat...
[12] EU Data Protection and Privacy
 For EU countries the main rules are now set forth in the
EU European Data Protection...
[12] EU Data Protection and Privacy
 The General Data Protection Regulation (GDPR) to
be issued by the EU will deal with ...
[12] EU Data Protection and Privacy
Basic principles:
 Substantial new obligations on "controller" and
"processors" of pe...
[12] EU Data Protection and Privacy
Google Spain SL and Google Inc. [European Court of
Justice], Case C-131/12, May 13, 20...
[12] EU Data Protection and Privacy
 Search engine operators are controllers and processors
of personal data subject to E...
[13] Compliance with Formalities
Determine what formalities are required for the contract
or transaction in the relevant j...
[13] Compliance with Formalities
[5] Registration of local agents or other intermediaries.
[6] Governing language and dual...
In Closing
Bon chance!
104
© 2014 Dentons
Dentons is an international legal practice providing client services worldwide through its member firms and...
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Going global 10 rules for your company in its international transactions

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Doing business across borders carries a host of unique challenges. Partner Stafford Matthews prepares you for these challenges with a look at 10 key legal considerations that impact deals in an increasingly interconnected world.

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Transcript of "Going global 10 rules for your company in its international transactions"

  1. 1. Going Global: 10 Rules for Your Company in Its International Transactions CLE Seminar for In-House Counsel June 24, 2014 St. Louis, MO Stafford Matthews Partner, Silicon Valley and San Francisco Dentons +1 650 798 0380 stafford.matthews@dentons.com
  2. 2. Stafford Matthews Stafford Matthews is a technology transactions and licensing lawyer and the managing partner of the Palo Alto office of Dentons, a global law firm with over 2,500 lawyers and 79 offices in 52 countries, including key offices in New York, Washington D.C., Silicon Valley, San Francisco, London, Hong Kong, Shanghai, the Middle East and Africa. Mr. Matthews represents technology and industrial companies in the strategic development and exploitation of intellectual properties and products, complex contract negotiations and dispute resolution. His practice focuses on the licensing and transfer of IP rights and technologies in domestic and international markets; providing forensic advice on contentious contractual issues; establishing and enforcing distribution systems for products and services; antitrust and unfair competition matters in the US and the European Union; and the negotiation of cross border alliances and other business structures. He is dual qualified as an English solicitor and a US lawyer and has extensive experience in both European and Asian markets. Mr. Matthews recently completed his term as the Chairman of the Board of Legal Specialization for the State Bar of California. He has degrees from the University of California at Berkeley, where he earned an A.B. in Rhetoric, the University of Michigan Law School, and King’s College London, where he holds a post-graduate diploma in European Union Competition Law.
  3. 3. GOING GLOBAL 3
  4. 4. A transaction or agreement will be international or cross- border in nature unless:  Both parties are resident in a single state or jurisdiction and  All elements of the relationship of the parties and the terms and performance of the contract are contained only within that state or jurisdiction. The following is intended as a road map to help guide you through the thicket of key issues involved in international agreements and transactions.* 4 Baseline *Due to inherent time and format limitations (1) tax issues including choice and location of entities and (2) cultural norms or customs generally will be outside the scope of these materials.
  5. 5. [1] Determine the Playing Field "I see England, I see France…" Threshold issues are:  Whether common law or civil law will govern the transaction.  The power of the parties to choose the governing law.  Which governing law to choose. 5
  6. 6. [1] Common Law Versus Civil Law Common Law  In most of the United States and Canada - originated in England and serves as the basis of the private law governing transactions in those jurisdictions and most of the British Commonwealth.  Source of controlling law is judge made legal principles derived from a series of court decisions as precedent and applied to the facts of the case. 6
  7. 7. [1] Common Law Versus Civil Law Common Law  These controlling principles are supplemented by legislation.  For example, see the UK Companies Act (2006) which codifies rules on directors duties previously established by court decisions; and the US Uniform Commercial Code and the corresponding UK Sale of Goods Act (1979).  The common law in concept is fundamentally inductive in nature: deriving general legal principles over time ufrom specific facts and circumstances. 7
  8. 8. [1] Common Law Versus Civil Law Civil Law  Origins in Roman and canonical laws.  Source of controlling law is an integrated set of codified national rules ["codes"] which sets forth a framework of legal principles, such as the duty to contract in good faith in the Code of Obligations.  Both substantive and procedural matters are governed by the civil codes.  Codes tend to be brief and more general in form: compare rules on third party beneficiaries in Article 1121 of French Civil Code (40 words) versus UK Contract (Rights of Third Parties) Act (600 words). 8
  9. 9. [1] Common Law Versus Civil Law Civil Law  Different branches of civil law have evolved over time, primarily French law based on the Napoleonic Code and Catholic canonical laws, German law in the form of the German Civil Code in effect as of 1900 (Bürgerliches Gesetzbuch), and Nordic laws.  Most commercial countries use forms of a civil code system, including all continental European countries, their former colonies in Africa, Asia and Latin America, Japan [based on the German civil code] and China [including European and Soviet codes]. 9
  10. 10. [1] Common Law Versus Civil Law Civil Law  Judicial reasoning under civil law systems in concept is fundamentally deductive in nature (general to the specific).  Court decisions in civil law countries are often shorter and have less precedential value in that judges are charged with interpreting and applying the existing civil law codes. Judges have more freedom to rewrite the agreement to conform to general principles of fairness and public order.  Judges are often not former lawyers but trained as a separate profession. 10
  11. 11. [1] Common Law Versus Civil Law Hybrid Systems include:  India  Israel  South Africa  Scotland  Quebec [Canada]  Louisiana [US]  California [US] 11
  12. 12. [1] Common Law Versus Civil Law Special case: EU Regulations and Directives  In the case of the European Union, national laws supplemented and mandated by regulations and directives issued by the EU and enacted by national authorities in EU member states.  Applicable in common law countries in the EU including most of the UK and Ireland.  For example, Directive 85/374/EEC (25 July 1985) establishing strict liability for defective products; UK Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083); Directive 86/653/EEC (18 December 1986) on self-employed commercial agents [below]. 12
  13. 13. [1] Common Law Versus Civil Law Effect:  Civil law contracts tend to be much shorter and standardized - civil codes provide what is not in the contract.  Compare with common law contracts - which can be much more detailed in an effort to cover all events - under basic principle that contracts are enforced as written in absence of an absurd result, even if unfair to one of the parties.  Therefore choice of law and forum in the contract is essential - in particular between one party in a common law jurisdiction and another party in a civil law jurisdiction - but not necessarily determinative. 13
  14. 14. [2] Choice of Law - Basic Principles For every international transaction the company must identify and understand applicable laws of relevant jurisdictions and their effect on key contract provisions including:  Form of legal relationship  Term and rights of renewal  Territory and distribution channels  Rights of exclusivity  Express and implied warranties and disclaimers 14
  15. 15. [2] Choice of Law - Basic Principles  Products liability; limitation of liabilities  Indemnification rights and obligations  Non-competition restrictions  Rights to intellectual property and any improvements, including the subject matter of rights, ownership of rights, moral rights, scope of protection, term, validity and enforceability of the rights in each case.  Effects of import and export controls  Effects of anti-corruption and anti-bribery rules 15
  16. 16. [2] Choice of Law - Basic Principles  Confidentiality and nonuse restrictions  Rights to terminate with or without cause  Compensation in event of termination  Rights to assign  Required registration or approval of agreement by national authorities 16
  17. 17. [3] Choice of Law - Interpretation of Clause Which Law Decides:  US: Under majority rule in the US, the scope and enforceability of the choice of law clause generally not decided under law chosen in the clause, but under the conflicts of law rules of the forum jurisdiction (which may be the laws of another country).*  EU: The scope and enforceability of a choice of law clause generally decided under the law chosen in the clause.** 17 * E.g., Batchelder v. Kawamoto, 147 F.3d 915, 918 (9th Cir. 1998)(applying federal common law to find Japanese choice-of-law provision enforceable). ** Rome I Regulation (EC) No 593/2008, Article 3, 10 - 13. Note that there are separate EU rules regarding choice of forum under Brussels I Regulation (EC) No 44/2001 [to be replaced in 2015 by (EU) No 1215/2012].
  18. 18. [4] Choice of Law - US [1] Choice of Law Rules in US:  Generally presumed valid and enforceable under US law unless shown to be "unreasonable" under circumstances.*  Generally not enforced in US if the chosen jurisdiction has no "substantial relationship" to the parties or the transaction and no other reasonable basis for the choice made.**  "Reasonable basis" can include choice of a neutral third jurisdiction with recognized and highly developed commercial laws.^ 18 * The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 32 L. Ed. 2d 513, 92 S. Ct. 1907 (1972); Richards v. Lloyd's of London, 135 F.3d 1289, 1297 (9th Cir. 1998). **^ See Restatement (Second) of Conflict of Laws §187 (US). .
  19. 19. [4] Choice of Law - US [1] Choice of Law Rules in US:  Under the statutes of some US states, the choice of law will be enforced there without regard to any reasonable relationship to the state, provided size of the transaction exceeds US $250,000.* 19 * See, e.g., N.Y. Gen. Oblig. Law §5-1401; Cal. Civil Code §1646.5.
  20. 20. [4] Choice of Law - EU [2] Choice of Law Rules in European Union:  Rome I Regulation (EC) No 593/2008 governing choice of laws for commercial and civil contracts.  In general permits choice of law by contract - including the laws of non-EU jurisdictions such as the United States [Article 3].  Subject to specific exceptions such as consumer contracts [Article 6], insurance contracts [Article 7], labor contracts [Article 8] and public policy [Article 9 - "overriding mandatory provisions"]. 20
  21. 21. [4] Choice of Law - EU [2] Choice of Law Rules in European Union:  The Rome I Regulation governs intellectual property contracts such as licenses and assignments but not underlying IP rights.  Rome II Regulation (EC) No 864/2007 governs conflict of laws for non-contractual obligations such as torts and fraud. Infringement of intellectual property rights comes within this Regulation [Article 8.1]. 21
  22. 22. [4] Choice of Law - PRC Statute of Application of Law to Foreign Civil Relations [the “Choice of Law Statute”] – China:  In 2010 the PRC adopted the Choice of Law Statute to govern the choice of law in “foreign civil relations” between Chinese and foreign parties. Applies to both contractual and non-contractual obligations.  Article 3 of the Statute generally permits the parties to expressly choose their governing law by contract. 22
  23. 23. [4] Choice of Law - PRC  However mandatory laws requiring the application of Chinese law and matters of public policy are not subject to contractual choice of law provisions, and Chinese law will be controlling [Article 4].*  It is an open issue under the statute as to whether the parties must choose the law of one jurisdiction for the entire contract or whether the choice of law may be bifurcated within the contract. 23 *For example, Chinese statutes concerning equity joint venture enterprises between Chinese and foreign partners specifically require application of Chinese law.
  24. 24. [5] Choice of Law – Exceptions [1] EU: General Exceptions: [1] Per Country: Where all other elements relevant to the situation at time of choice are located in one country, choice of law of another jurisdiction cannot prevent application of mandatory provisions of local law of the country. [2] European Union: Where all other elements relevant to the situation at time of choice are located in a one or more EU Member States, choice of law of a third jurisdiction cannot prevent the application of mandatory European Union laws.* 24 *Rome I, Art. 3(3), (4).
  25. 25. [5] Choice of Law - Exceptions [2] Public Policy:  Choice of law disregarded if contract violates public policy (ordre public) in other jurisdiction with substantially greater interest in the issue to be determined.  Substantive contract provisions otherwise lawful in choice of law jurisdiction may not be enforceable, where terms of contract are illegal in place of performance and the parties had knowledge or deliberate ignorance of illegality.* 25 *E.g., Lehman Bros. Commer. Corp. v. Minmetals Int'l Non-Ferrous Metals Trading Co., 179 F. Supp. 2d 118, 138-139 (S.D.N.Y. 2000)(New York choice of law; contract illegal under Chinese law and not enforceable in New York).
  26. 26. [5] Choice of Law - Exceptions [3] Non-contract claims such as torts, unfair competition, intellectual property infringement, fraud or statutory claims, depending on the scope of the choice of law clause [compare "under this Agreement" versus "arising out of or from" versus "relating to" versus "in connection with" under US law]. [4] The choice of law generally binds only the parties. Claims of third parties for infringement or otherwise not subject to choice of law. 26
  27. 27. [5] Choice of Law - Exclusions  Exclusions and limitations: Determine whether otherwise applicable laws can and should be expressly excluded or limited by contract. For example:  UN Convention on Contracts for the International Sale of Goods (1980) ("CISG").  UK Sale of Goods Act (1979). 27
  28. 28. [5] Choice of Multiple Jurisdictions  Bifurcated or Complex Choice of Law Provisions:  Consider whether the Company should bifurcate or implement even more complex choice of law provisions in order to maximize the potential benefits of applicable law, and avoid recognized risks from certain legal jurisdictions to the extent possible.  Note that choice of law generally permissible on a provision by provision basis.* *E.g., S.A. Empresa de Viacao Aerea Rio Grandense v Boeing Co., 641 F.2d 746 (9th Cir. 1981); Rome I Regulation (EC) No 593/2008, Article 3. This still may be an issue under the Chinese choice of law statute however. 28
  29. 29. [5] Choice of Multiple Jurisdictions Example: "This Agreement and all matters arising out of or relating to or in connection with this Agreement shall be governed by and construed in accordance with the laws of Switzerland; provided however that (i) all matters concerning the ownership, scope, validity, enforceability or infringement of the Intellectual Property of Company shall be exclusively governed and construed in accordance with the laws of the State of California and the federal laws of the United States of America; and provided further that Section ____ hereof (Arbitration) shall be exclusively governed by and construed in accordance with the [US Federal Arbitration Act]; in each case without reference to conflicts of law principles." 29
  30. 30. [6] Impact of National Laws [1] General principles of nationality preempt choice of law: [A] Subjective territoriality: Local law governing conduct originating in the jurisdiction.* [B] Objective territoriality: Local law governing conduct originating outside of jurisdiction but directed into it or intended to have an effect within jurisdiction.** [C] Nationality principle: Jurisdiction imposes rules for own nationals or residents, without regard to location of conduct.^ 30 * E.g., national patent laws; termination of distributors and agents (Belgium Law of April 13, 1971; German Commercial Code, arts. 84-92c). ** E.g., Microsoft and Google EU competition law cases; extraterritorial application of German law for crimes by or against a German citizen (Section 7 StGB). ^ E.g., anti-bribery statutes; tax laws.
  31. 31. [6] National Laws [2] Specific statutes, regulations or treaties [examples]:  European Union competition laws.*  European Union regulations and directives, which can preempt national laws or require national implementation by EU Member States.** 31 * E.g., Case C-89/85, A. Ahlstrom Oy v. Commission [1993] ECR I-1307 (Wood Pulp II), regarding extraterritorial application of EU competition laws. ** E.g., EU Directive 2009/24/EC on the Legal Protection of Computer Programs (April 23, 2009); EU Directive 86/653/EEC (18 December 1986) on self-employed commercial agents (overrides conflicting national laws); and Ingmar GB Ltd v Eaton Leonard Technologies Inc., Case C-381/98 (ECJ, November 9, 2000).
  32. 32. [6] National Laws  Unfair trade practices laws: UK Unfair Contract Terms Act 1977 (1977 c. 50).  Third party beneficiaries: UK Contract (Rights of Third Parties Act 1999).  Products liability: EU Directive 85/374/EEC (25 July 1985) concerning liability for defective products.  Limitation of liability and indemnification rules.  Anti-bribery laws.* 32 *For example: US Foreign Corrupt Practices Act, 15 USC §78dd; UK Bribery Act 2010 (2010 c. 23); Act on Combating Bribery of Foreign Public Officials in International Business Transactions (IntBestG) (Germany); Anti-Money Laundering Law, Act on Fighting Corruption in EU (EUBestG) (Germany).
  33. 33. [6] National Laws – Invalidating Choice of Law Case in Point [1]: China [PRC] Technology Transactions:  Technology transactions with Chinese companies governed primarily by PRC Technology Import and Export Administrative Regulations; and Ministry of Commerce (MOFCOM) Measures on the Administration of the Registration of Technology Import and Export Contracts (2009).  Broad definition of technology transactions, not only licenses and assignments of patents and technical secrets but "transfers of technology by other means”. Interpreted to include disclosure of confidential information and know how; cooperative design; software licenses; R&D and production contracts. 33
  34. 34. [6] National Laws – Invalidating Choice of Law  These rules classify technology into three categories: (i) technology whose import and export is prohibited; (ii) technology whose import and export is restricted, and (iii) freely tradable technology subject to registration with MOFCOM.  In most cases contracts must be registered with the government within 60 days of the effective date. Contracts subject to royalty payments in general must be registered within 60 days after the royalty base for the first installment of the royalty is generated. 34
  35. 35. [6] National Laws – Invalidating Choice of Law  These rules impose requirements on technology being imported into China which strongly favor the PRC party and that are inconsistent with licensing terms standard in other jurisdictions, including the following: (1) Mandatory warranties from the licensor or transferor; (2) The PRC party can make and use any improvements to the technology during the term; (3) No restrictions on obtaining similar or competing technologies from third parties; (4) Licensor or transferor is solely liable for third party infringement claims; 35
  36. 36. [6] National Laws – Invalidating Choice of Law (5) No unreasonable restrictions on distributing or exporting products based on the improved technology; (6) No prohibitions on challenging the validity of the intellectual property rights for the technology.  Choice of foreign law permissible but cannot conflict with mandatory requirements of PRC laws and conflicting laws not enforceable against PRC party in China. 36
  37. 37. [6] National Laws – Invalidating Choice of Law Case in Point [2]: EU Directive on Unfair Terms in Consumer Contracts. Directive 93/13/EEC on unfair terms in consumer contracts (5 April 1993) issued by the EU and implemented by national legislation of EU member states. The Directive has a contains a very broad definition of "consumer".  Imposes a nonwaivable standard of "good faith" for consumer transactions with suppliers. Non-negotiated or "form" terms and conditions, if imbalanced and detrimental to the consumer, are subject to review for substantive fairness.  Contract terms must be drafted in plain language and all ambiguities construed in favor of the consumer. 37
  38. 38. [6] National Laws – Invalidating Choice of Law  The EU Consumer Contracts Directive lists a series of provisions in consumer contracts that will be considered unfair and unenforceable or void including: (1) Any irrevocable terms and conditions with which the consumer had "no real opportunity of becoming acquainted" before the contract was entered into. (2) Any right of the supplier to alter the terms of the contract unilaterally without a valid reason. (3) Any right of the supplier to alter the characteristics of the product or service unilaterally without a valid reason. (4) The exclusive right of the supplier to interpret any provision of the contract. 38
  39. 39. [6] National Laws – Invalidating Choice of Law (5) The right of the supplier to transfer its rights and obligations under the contract without consent, if this would have the effect of reducing the warranties for the consumer. (6) Hindering the consumer's right to take legal action or exercise any other legal remedy, including mandatory arbitration provisions. (7) The Directive and related EU regulations invalidate choice of law and choice of forum provisions in the contract. The applicable law for individual consumers generally is the governing law of the country where a consumer has his or her "habitual residence." 39
  40. 40. [6] National Laws – Invalidating Choice of Law Case in Point [3]: Internet Transactions A French court held that 31 of the 36 sections of the standard Terms of Use for AOL France violated the Directive and related EU rules and were unenforceable or illegal. AOL France v. UFC Que Choisir, R.G. (2005). The invalid provisions included (1) choice of law and forum, (2) sole remedy in the event of breach by AOL was termination of the agreement, (3) unilateral right of AOL to modify contract or payment terms, (4) unilateral right of AOL to terminate the agreement without cause, (5) disclaimer of liability for service interruptions and other failures, and (6) cap on AOL liabilities equal to the last six months of fees. 40
  41. 41. [7] National Laws - Intellectual Property [1] Intellectual property rights:  Patents, copyrights, trademarks, moral rights and other IPR are inherently territorial and in general exist on a national country-by-country basis.  The ownership and scope of intellectual property rights generally determined in accordance with the territoriality principle by the substantive national laws of the country of origin or the country where the rights are to be performed or enforced. 41
  42. 42. [7] National Laws - Intellectual Property [2] In international transactions involving intellectual property rights:  Which national law applies to the IP?  Who is the owner?  Are moral rights or similar limitations applicable to the assignment of the IP?  What is the geographic and legal scope of the protected IP? For example, the licensor may have relevant patent or other IP rights only in the United States and a few other jurisdictions, even if the license is purported to be worldwide. 42
  43. 43. [7] National Laws - Intellectual Property  What statutory or regulatory restrictions are imposed on the use or transfer of the IP in the applicable jurisdiction, including technology import and export rules? 43
  44. 44. [7] National Laws - Intellectual Property [3] Multinational Conventions and Laws  Certain categories of intellectual property or related products also are governed by multilateral treaties or laws, in addition to or in lieu of national laws.  For example, EU Directive 2009/24/EC on the Legal Protection of Computer Programs (April 23, 2009) sets forth standards for the protection of computer programs that [1] have the effect of limiting the national laws on moral rights in the case of software developed by employees but [2] permit consumers to reverse engineer or decompile software without permission if necessary for interoperability. 44
  45. 45. [7] National Laws - Moral Rights [4] Moral rights or "droit morale" are independent rights in works of authorship apart from the economic rights associated with copyrights:  Vests inalienable rights in the author of an original work at the time of creation. Can include software development.  Common feature of IP outside of the US although different formulations of "moral rights" in different jurisdictions.  Critical to determine whether moral rights are in the transaction. 45
  46. 46. [7] National Laws - Moral Rights In general, moral rights include:  Right of authorship or paternity [identification as the author]  Right of integrity [prevent detrimental changes in the work]  Right against false attribution  Right of privacy [photographs and films] 46
  47. 47. [7] National Laws - Moral Rights Depending on the jurisdiction, moral rights are not assignable per se:  Dealing with the presence of moral rights in an acquisition or technology transfer (including the work product of employees or independent contractors) requires a multi-pronged approach to limit the impact of these rights.  Possible approaches: (1) waiver of assertion of moral rights, (2) a covenant to cooperate, and (3) an exclusive license of such rights to the transferee.  Statutes in a number of jurisdictions limit application of moral rights in the case of software development, permitting an employer to own and transfer the rights. 47
  48. 48. [8] Form of Transaction In addition to determining the laws applicable to your transaction and your positioning relative to those laws, you must determine the form of the relationship:  The form of the international transaction will be dictated primarily by nonlegal and commercial objectives.  However it is necessary to understand the inherent legal risks in the form used and to avoid inadvertent consequences. 48
  49. 49. [8] Form of Transaction Common forms of international transactions include but are not limited to:  Distributor Agreement  Agency Agreement  Sales Representative Agreement  Straight Technology License  Hybrid Technology License and Distribution Agreement  Joint Venture  Hybrid Distribution [Sales Representative] and Agency Agreement 49
  50. 50. [8] Form of Transaction [1] Distributor Agreement  Manufacturer or supplier sells products to distributor  Distributor resells to customers and has financial risk  Distributor has no authority to create contract between manufacturer - supplier and customer  Margin of profit included in resale price  Right to distribute may be exclusive [manufacturer prohibited from selling into the exclusive territory or channel of distribution], sole [manufacturer has right to sell for own account] or nonexclusive. 50
  51. 51. [8] Form of Transaction [1] Distributor Agreement  Possible right to compensation upon termination under local laws. [E.g., Belgium Law of April 13, 1971; German Commercial Code, arts. 84-92c]. 51
  52. 52. [8] Form of Transaction [2] Agency Agreement  Principal authorizes commercial agent to act on its behalf.  Agent bears no substantial financial risk.  Principal retains control over agent’s activities, prices and distribution methods.  Principal liable to third parties for acts of agents.  Local laws may regulate termination and compensation of agents. [E.g., Brazil Laws No. 4886 (December 10, 1965), 10406 (January 10, 2002)]. Commercial agents also have rights under EU directives and implementing national laws [below]. 52
  53. 53. [8] Form of Transaction [2] Agency Agreement  Main issue is reclassification of agent as an "employee". To the extent contract provides for fixed compensation [as opposed to performance based] and substantial supervision and control by principal, the greater the risk that the relationship will be deemed employment.  Reclassification of the agent as an "employee" can subject principal to social welfare obligations, local employment law requirements and potentially to local taxation as a branch office or permanent establishment. 53
  54. 54. [8] Form of Transaction [3] Sales Representative Agreement  Manufacturer authorizes sale representative to solicit sales on its behalf in exchange for a commission.  Sales rep has no authority to accept orders or bind manufacturer and bears no substantial financial risk.  Manufacturer retains control over prices and distribution methods. 54
  55. 55. [8] Form of Transaction [4] Hybrid Technology License - Joint Venture Parties agree to develop or manufacture and distribute technology or other products in deal structures including:  A hybrid technology license and distribution agreement.  A joint venture between the parties or use of other entity such as a wholly foreign owned enterprise under Chinese law (WFOE). 55
  56. 56. [8] Form of Transaction [4] Hybrid Technology License - Joint Venture  Numerous basic issues including assignment versus license of intellectual property; background versus foreground technology rights; ownership and use of improvements and jointly developed IP or products; technology protection and management; import and export restrictions; foreign investment and ownership restrictions; control rights; exclusivity and non-competition restrictions; currency controls; termination.  Detailed IP due diligence by both parties is essential. 56
  57. 57. [8] Form of Transaction [4] Hybrid Technology License - Joint Venture Must have strategies relating to:  Disclosure and use of company trade secrets and know-how and the risk of technology hijacking;  Potential rights of the other party to own and separately use improvements to company technologies;  Potential loss of control of joint venture operations and related risk of revenue and royalty manipulations by use of intermediaries or “straw” affiliates. 57
  58. 58. [8] Form of Transaction [4] Hybrid Technology License - Joint Venture  In jurisdictions such as China, one approach to consider is bifurcated manufacturing and distribution joint ventures, with the manufacturing JV or other supplier of critical components controlled by the foreign licensor. 58
  59. 59. [8] Form of Transaction [5] Hybrid Distribution [Sales Representative] and Agency Agreement  Common circumstance is a product distribution or sales representative agreement with some additional terms which intentionally or inadvertently also create commercial agent status for the distributor or sales representative.  In the European Union in particular this can result in substantial rights of compensation and other unexpected issues when the contract terminates. 59
  60. 60. [8] Form of Transaction - EU Commercial Agents EU Directive 86/653/EEC (18 December 1986) on self- employed commercial agents and implementing regulations ("Commercial Agents Directive"):  Applies to self employed intermediaries within the European Union with continuing authority to negotiate sale or purchase of goods or to negotiate and conclude transactions in the name of another person ("commercial agents"). May be a company or partnership or other entity.  Generally applies to goods and not services. 60
  61. 61. [8] Form of Transaction - EU Commercial Agents  Distribution or sales representative agreement can be recharacterized as a commercial agency relationship under the Directive. Agreement may be oral or implied from the conduct of the parties.  Minimum notice on termination required if a contract of indefinite duration.  Company generally required to pay compensation to commercial agent upon the expiration or termination of contract, either as an "indemnity" for increases in business or as "compensation" for termination of the contract. 61
  62. 62. [8] Form of Transaction - EU Commercial Agents  The Commercial Agents EU directive and the implementing national laws govern without regard to any choice of law of the parties.* 62 *Ingmar GB Ltd v Eaton Leonard Technologies Inc., Case C-381/98 (ECJ, November 9, 2000). See e.g. UK Commercial Agents (Council Directive) Regulations 1993.
  63. 63. [9] Export and Import Controls Determine what export and import restrictions will apply to the relevant technologies or products.  The US government and the governments of a number of other jurisdictions [such as China and members of the EU] impose extensive export controls on transfers and licenses of technologies and products to foreign persons and entities.  Primary US export control rules are contained in the Export Administration Regulations (EAR) administered by the U.S. Department of Commerce. [15 CFR parts 730–774]. 63
  64. 64. [9] Export and Import Controls  NB that the act of disclosing controlled technologies to a foreign national, either outside the United States or when that person is physically present here, in any form can be deemed to be an export to the country of the foreign national. 15 CFR §734.2(b).  China and many other jurisdictions also have laws restricting or prohibiting the importation of certain technologies or products.* 64 *E.g., PRC Technology Import and Export Administrative Regulations, Ch. II.
  65. 65. [10] FCPA and Anti-Bribery Rules Determine potential for violation of the FCPA and other anti-bribery statutes and establish a plan for the transaction.  The US Foreign Corrupt Practices Act [FCPA] is an anti-bribery statute that prohibits any US person or company from corruptly paying or offering to pay anything of value to a foreign official directly or indirectly to assist in obtaining or retaining business. 15 USC §78dd–2(a).  "Foreign officials" interpreted to include not only government employees but also employees of state- controlled enterprises. 15 USC §78dd–2(h)(2). 65
  66. 66. [10] FCPA and Anti-Bribery Rules  Potential for vicarious liability under FCPA for payments by third parties if knowledge of payments or a "high probability" of payments. 15 U.S.C. § 78dd-1(f).  Similar rules in other jurisdictions: UK Bribery Act 2010 more stringent and includes an offense for the failure of a company to prevent commercial bribery by a person "associated with" the company. "Associated person" is defined as any "person [who] performs services for or on behalf of " the organization. Bribery Act 2010 (c. 23), 8. 66
  67. 67. [10] FCPA and Anti-Bribery Rules Use of foreign distributors does not necessarily protect manufacturer from FCPA liability for violations:  Oracle India (August 2012): $2 Million SEC settlement over unauthorized side funds held by local distributors.  Smith & Nephew (February 2012): $22 million in fines for sales to Greek distributor with distributor sales discount paid to off-shore company controlled by distributor. 67
  68. 68. [10] FCPA and Anti-Bribery Rules Best practices include:  Due diligence before appointment of foreign distributor. One red flag: distributor organized and located in different jurisdiction from sales territory.  Warranties and covenants regarding compliance with the FCPA and other anti-corruption laws.  Right to audit for compliance.  Right to terminate without compensation for breach of anti-corruption covenants and laws. 68
  69. 69. [11] Competition and Antitrust Laws Determine applicable competition or antitrust laws of the jurisdictions relevant to the transaction.  In particular a thorough understanding of the applicable competition laws in the European Union (EU) is necessary for a transaction with any connection with a European jurisdiction. These rules can have extraterritorial effect.  Provisions common in US commercial and IP agreements can violate EU competition laws under various circumstances. 69
  70. 70. [11] EU Competition Laws The European Union:  European Union [EU] has been established by a series of treaties between the European countries who are members of the Union. There are 28 member countries of the EU as of June 2014.  Main economic objective of EU is the establishment of a single market initiative.  NB: Several European countries not in the EU, including Switzerland and Norway. 70
  71. 71. [11] EU Competition Laws Two main sources of rules governing subject transactions within the European Union: [1] Articles 101 et seq. of the Treaty on the Functioning of the European Union (TFEU) and corresponding national competition statutes of the member states of the EU. [2] Regulations, guidelines, decisions and directives of the European Commission; and the judicial decisions of the Court of First Instance and the European Court of Justice (ECJ). 71
  72. 72. [11] EU Competition Laws Preemption of National Laws: EU competition laws take precedence over national laws and are binding on national authorities. More strict national laws are enforceable however. Extraterritorial: EU competition laws applied on an extraterritorial basis if relevant agreement or action is implemented or has the effect of restricting competition within the European Union. [E.g., Case C-89/85, A. Ahlstrom Oy v. Commission [1993] ECR I- 1307 (Wood Pulp II)]. 72
  73. 73. [11] EU Competition Laws [1] Article 101 of TFEU: Agreements between Two or More Parties: Agreements between undertakings [parties], decisions by associations of undertakings, or concerted practices which have the object or effect of preventing or distorting competition. [2] Article 102 of TFEU: Unilateral Abuse of Dominant Position: Conduct by one or more undertakings which amounts to an abuse of a dominant position in a market. 73
  74. 74. [11] EU Competition Laws – Article 101 Article 101 of TFEU: Applies to both vertical and horizontal agreements and to courses of dealing. Restricted provisions unenforceable and subject to substantial fines. Prohibited agreements include:  Price fixing  Limiting or controlling production or markets  Sharing of markets or suppliers  Dissimilar conditions in equivalent transactions  Tying of contract to supplementary obligations. 74
  75. 75. [11] EU Competition Laws – Article 101 Article 101 Exemptions: TFEU Article 101(3) exempts an agreement from a finding of anticompetitive behavior if all four of following factors met:  Two positive requirements: (1) agreement must contribute to improvement in production or distribution of goods or promotion of technical or economic progress; and (2) consumers must get fair share of benefits.  Two negative requirements: (3) agreement does not impose restrictions that are not indispensible; and (4) will not afford possibility of "substantially eliminating competition". 75
  76. 76. [11] EU Competition Laws – Article 101 Article 101 Exemptions: Two other forms of exemption: [1] Agreements of Minor Importance: Exempt by regulation if contract of "minor importance" due to small market shares [if competitors, aggregate market share of parties no more than 10 percent; if noncompetitors, aggregate market share of no more than 15 percent].  "Minor Importance" safe harbor not applicable if certain hardcore restrictions in agreement (2001/C 368/07, s. 11). 76
  77. 77. [11] EU Competition Laws – Article 101 [2] Block Exemptions:  The European Commission has issued a number of block exemptions, including exemptions for most technology licenses and for distribution and similar [vertical] agreements under certain circumstances.  If not qualified still may be qualify for general exemption under Article 101(3). 77
  78. 78. [11] EU Competition Laws - TTBER EU Block Exemption Regulation for Technology- Transfer Agreements (EU) 316/2014 (“TTBER”), and accompanying Guidelines (OJ, 2014/C 89/03) entered into force on May 1, 2014.  Includes patent licenses, know-how licenses, software copyright licenses and ancillary rights that permit the production of products and services.  Excluded are trademarks, artistic copyright licenses and technology pools [but licenses issued from a technology pool are included in TTBER]. 78
  79. 79. [11] EU Competition Laws - TTBER Note: The Technology Transfer Block Exemption Regulation and Guidelines effective May 1, 2014 revise the existing Block Exemption and eliminate or significantly restrict some of the prior safe harbors under the TTBER. These changes reflect the announced intention of the European Commission to more aggressively police technology transactions in the EU. 79
  80. 80. [11] EU Competition Laws - TTBER Market Share Thresholds:  Combined market share thresholds of 20 percent for agreements between competitors [horizontal agreements] and 30 percent for non-competitors [vertical agreements] based on relevant technology and product markets.  Agreements below combined threshold generally deemed pro-competitive unless there are hard core restraints in the contract. 80
  81. 81. [11] EU Competition Laws - TTBER Hardcore Restrictions in General:  Under TTBER any hardcore restrictions defeat the exemption of the contract as a whole.  Types of Hardcore Restrictions: Two sections of hardcore restrictions: (1) agreements between competitors (horizontal) and (2) agreements between non-competitors (vertical).  Excluded Restrictions: Separate class of “lesser” restrictions that deny the exemption as to the specific obligation or clause but not the contract as a whole. 81
  82. 82. [11] EU Competition Laws - TTBER Hardcore Restrictions on Sales to Exclusive Territories or Customers:  Competitors [horizontal]: (1) Reciprocal restrictions on active or passive sales into territory or customers of other party or its licensees generally hardcore. (2) Non-reciprocal restrictions for the exclusive territory or exclusive customer group of the other party generally permissible. 82
  83. 83. [11] EU Competition Laws - TTBER  Non-competitors [vertical]: (1) Restriction on active sales into exclusive territory or customers of other party or its licensee permissible. (2) Restriction on passive sales generally a hardcore restriction, with exceptions for (i) restrictions on active or passive sales by the licensor, (ii) sales into exclusive territory or group reserved by the licensor, and (iii) penetration of a new market.* 83 *There also are separate rules for a selective distribution system, which is defined as a group of approved distributors appointed by a manufacturer or supplier who meet specified minimum qualifications on the basis of objective criteria relating to the technical qualifications and expertise of the distributor and there is a prohibition on selling to unauthorized distributors in the relevant territory.
  84. 84. [11] EU Competition Laws - TTBER Hardcore Pricing Restrictions:  Fixed or minimum prices for contract products are hardcore restrictions for competitors and non- competitors.  Maximum or suggested prices for contract products are hardcore if agreement between competitors, and permissible if agreement between non-competitors. 84
  85. 85. [11] EU Competition Laws - TTBER Hardcore Output Restrictions:  Restriction on output by one party in territory of other party hardcore for competitors if reciprocal; permissible if non-reciprocal license for competitors; permissible if non-competitors.  Exclusive territorial license for output of contract products permissible.  Maximum quantity limitations permissible, except (1) if imposed by licensor on a series of licensees or (2) in reciprocal license with competitors. 85
  86. 86. [11] EU Competition Laws - TTBER Hardcore Non-Compete and IP Restrictions:  Limits on rights to use own technology or conduct research and development (1) between competitors generally is a hardcore restriction, and (2) between non-competitors is generally not permissible and an excluded restriction.  Exclusive grantback licenses on improvements developed by the licensee are not permissible and are excluded restrictions.  Non-exclusive grantback licenses on improvements developed by the licensee are permissible. 86
  87. 87. [11] EU Competition Laws - TTBER Non-Compete and IP Restrictions:  Right of licensor to terminate license if a non- exclusive licensee challenges the validity of the licensed technology is not permissible and outside of the block exemption.  Right of licensor to terminate for challenges by an exclusive licensee appear to be permissible. 87
  88. 88. [11] EU Competition Laws - TTBER Withdrawal of Exemption:  The TTBER also states that the Block Exemption may be withdrawn in specific cases, in particular where the “cumulative effect of parallel networks of similar restrictive agreements” prevents third party technologies or potential licensees from entering the market. [TTBER, Art. 6]. 88
  89. 89. [11] EU Competition Laws - Verticals EU Vertical Agreements Block Exemption 330/2010 [20 April 2010]*:  Vertical agreement: An agreement or concerted practice entered into between two or more parties, each of which operates under the agreement at a different level of the production or distribution chain, and relating to the conditions under which the parties may purchase, sell or resell certain goods or services.  Vertical Agreement Block Exemption covers distribution, purchasing, franchising, agency and industrial supply contracts. 89 * The Verticals Regulation is subject to interpretative Guidelines on Vertical Restraints issued by the European Commission in May 2010.
  90. 90. [11] EU Competition Laws - Verticals  Size Matters: The vertical agreement is exempt under this Block Exemption if each party has no more than 30 percent of its relevant market, unless contract contains one or more hardcore restrictions. 90
  91. 91. [11] EU Competition Laws - Verticals Hardcore Restrictions also banned under EU Verticals Regulation:  Resale price maintenance. Maximum sales prices and MSRPs are permitted. Under related Guidelines also may be permitted if manufacturer introduces a new product into the market.  Absolute export bans are a hardcore restriction.  Bans on “active” and "passive sales". Bans on active sales into exclusive territory of another distributor or reseller permitted. Bans on passive sales not permissible and considered hardcore. Special rules for internet commerce. 91
  92. 92. [11] EU Competition Laws - Verticals Specific restrictive provisions not eligible for the Verticals Block Exemption:  Non-compete obligations if indefinite or in excess of 5 years [including contract term]. Separate restrictions for trade secrets and know-how permissible.  Non-compete obligations after termination of contract, subject to certain exceptions.  Restriction on members of a selective distribution system from selling competing brands. 92
  93. 93. [11] EU Competition Laws - Other Exemptions  Research and development agreements: Regulation (EU) No 1217/2010 (14 December 2010).  Specialisation agreements: Regulation (EU) No 1218/2010 (14 December 2010). 93
  94. 94. [11] EU Competition Laws – Article 102 Prohibited Abuse of a Dominant Position: Article 102 of the Treaty separately prohibits the unilateral abuse by a company or other undertaking of a "dominant position" within the internal EU market or a substantial part of the market, to the extent it may affect trade between EU member countries. 94
  95. 95. [11] EU National Competition Laws National Competition Laws:  Must determine whether more restrictive provisions in applicable national competition law of EU member state.  NB: Possible risk of franchise status under separate national laws dealing with franchise relationships. 95
  96. 96. [12] Data Protection and Privacy Determine which data protection and privacy laws are applicable to the transaction.  Data protection and privacy rules deal with the processing and protection of the personal information of individuals and the free movement of this personal data across jurisdictions.  In the European Union in particular, generally much more extensive than in the United States. 96
  97. 97. [12] EU Data Protection and Privacy  For EU countries the main rules are now set forth in the EU European Data Protection Directive (95/46 EC) and in corresponding national laws in the European Union, such as the UK Data Protection Act 1998.  This Directive is being revised and will be replaced by the European General Data Protection Regulation currently being promulgated in draft form by the European Commission.* 97 *http://ec.europa.eu/justice/data-protection/document/review2012/com_2012_11_en.pdf.
  98. 98. [12] EU Data Protection and Privacy  The General Data Protection Regulation (GDPR) to be issued by the EU will deal with new developments such as cloud computing and social networks, including enhanced rights to erase existing online data under a "right to be forgotten" principle.  The GDPR in final form will be adopted by the European Commission pursuant to Article 16 of the new Lisbon Treaty [personal data], and will be the single legal standard for all European Union countries when it comes into force. 98
  99. 99. [12] EU Data Protection and Privacy Basic principles:  Substantial new obligations on "controller" and "processors" of personal data.  Detailed rules regarding personal data processing and security.  Rights of individual to data portability, to object to profiling and to erasure of online data.  Prohibition on transfer of personal data outside of the EU without equivalent level of protection. 99
  100. 100. [12] EU Data Protection and Privacy Google Spain SL and Google Inc. [European Court of Justice], Case C-131/12, May 13, 2014:  Individual [in this case a Spanish citizen] has a “right to be forgotten” or a right of “erasure” if data at issue is inadequate, irrelevant or no longer relevant, or excessive in relation to the purposes for which it was processed. Case by case assessment required to be balanced against freedom of expression and the press.  Automatic, constant and systematic searching for information published on the Internet is held to be a collection of personal data. 100
  101. 101. [12] EU Data Protection and Privacy  Search engine operators are controllers and processors of personal data subject to EU data protection and privacy laws.  Even if the physical server of a company processing data is located outside Europe, EU rules apply to search engine operators if they have a branch or a subsidiary in a Member State.  Google required to remove links to the information at issue. 101
  102. 102. [13] Compliance with Formalities Determine what formalities are required for the contract or transaction in the relevant jurisdictions including: [1] Contract registration and approval with applicable governmental agencies.* [2] Registration of trademarks and other intellectual property rights in the jurisdiction. [3] Tax registration and clearances. [4] Foreign exchange controls. 102 *E.g., PRC Administrative Measures on Technology Prohibited or Restricted from Import (2009).
  103. 103. [13] Compliance with Formalities [5] Registration of local agents or other intermediaries. [6] Governing language and dual language requirements for contract. [7] Formalities of signatures and witnesses if required. > 103
  104. 104. In Closing Bon chance! 104
  105. 105. © 2014 Dentons Dentons is an international legal practice providing client services worldwide through its member firms and affiliates. This publication is not designed to provide legal or other advice and you should not take, or refrain from taking, action based on its content. Please see dentons.com for Legal Notices. Thank you! Stafford Matthews Dentons US LLP 1530 Page Mill Road, Suite 200 Palo Alto, California 94304

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