2. 7-2
Learning Objectives
• LO1 Discuss the complexity of the legal forces that
confront international business.
• LO2 Explain the possibilities for international
dispute settlement.
• LO3 Recognize the need and methods to protect
intellectual property.
• LO4 Explain the risk of product liability legal
actions.
• LO5 Discuss some of the U.S. laws that affect
international business operations.
• LO1 Discuss the complexity of the legal forces that
confront international business.
• LO2 Explain the possibilities for international
dispute settlement.
• LO3 Recognize the need and methods to protect
intellectual property.
• LO4 Explain the risk of product liability legal
actions.
• LO5 Discuss some of the U.S. laws that affect
international business operations.
3. 7-3
International Legal Forces
• Rule of Law –
– The basis of a county’s legal system, protects
investment
• Rule of Law –
– The basis of a county’s legal system, protects
investment
• Sources of Law
– Treaties
– agreements between countries – also called
conventions, covenants, compacts, protocols
– Customary International Law
– International rules derived from customs and
use over centuries
• Sources of Law
– Treaties
– agreements between countries – also called
conventions, covenants, compacts, protocols
– Customary International Law
– International rules derived from customs and
use over centuries
4. 7-4
Extraterritoriality
• Extraterritorial Application of Laws
– A country’s attempt to apply its laws to
foreigners or nonresidents and to acts and
activities that take place outside of its
borders
• Extraterritorial Application of Laws
– A country’s attempt to apply its laws to
foreigners or nonresidents and to acts and
activities that take place outside of its
borders
6. 7-6
Litigation
• Major Problems:
– Which jurisdiction’s
laws should apply?
– Where will litigation
occur?
• Major Problems:
– Which jurisdiction’s
laws should apply?
– Where will litigation
occur? • Solutions:
– Choice-of-law clause
• Which law governs
– Choice-of-form clause
• Where disputes will be
settled
• Solutions:
– Choice-of-law clause
• Which law governs
– Choice-of-form clause
• Where disputes will be
settled
7. 7-7
Performance Contracts
• Major Problems:
– Getting other side to
perform obligations
– No worldwide court has
power to enforce decrees
– UN International Court of
Justice relies on
voluntary compliance
– International contracts
are complicated to enforce
• Major Problems:
– Getting other side to
perform obligations
– No worldwide court has
power to enforce decrees
– UN International Court of
Justice relies on
voluntary compliance
– International contracts
are complicated to enforce
• Possible Solutions:
– UN Convention on
International Sale of
Goods (CSID)
– Private Solutions –
Arbitration, an
alternative to litigation
– Incoterms, the
International Chamber of
Commerce’s universal
trade terminology
• Possible Solutions:
– UN Convention on
International Sale of
Goods (CSID)
– Private Solutions –
Arbitration, an
alternative to litigation
– Incoterms, the
International Chamber of
Commerce’s universal
trade terminology
9. 7-9
Global Interest
in Arbitration is Growing
• Arbitration Preferred over Litigation:
– Suspicion of foreign courts
– Faster
– Confidential
– Less expensive
• Arbitration Preferred over Litigation:
– Suspicion of foreign courts
– Faster
– Confidential
– Less expensive
10. 7-10
Despite Legal Uncertainties,
International Business Grows
Global business activity is growing
IB managers need to be aware of legal
environments they work in
Legal environments vary significantly
between countries
Assumptions made on home country legal
systems may not apply in other countries
11. 7-11
Intellectual Property
all of which result from the
exercise of someone’s intellect
all of which result from the
exercise of someone’s intellect
• Patents
• Trademarks
• Trade Names
• Copyrights
• Patents
• Trademarks
• Trade Names
• Copyrights
CAUTION: country laws vary greatly on
protection of rights and enforcement of
intellectual property laws.
12. 7-12
Patent Standardization/ Harmonization
• International Convention for the Protection of
Industrial Property (Paris Union) – 137 countries
• European Patent Organization (EPO) – 27 EU states
• World Intellectual Property Organization (WIPO) – 24
intellectual property treaties, through UN
• Trade-related Aspects of Intellectual Property
(TRIPS), through WTO
• Anti-Counterfeiting Trade Agreement (ACTA)--
proposed
• International Convention for the Protection of
Industrial Property (Paris Union) – 137 countries
• European Patent Organization (EPO) – 27 EU states
• World Intellectual Property Organization (WIPO) – 24
intellectual property treaties, through UN
• Trade-related Aspects of Intellectual Property
(TRIPS), through WTO
• Anti-Counterfeiting Trade Agreement (ACTA)--
proposed
CAUTION: Smaller nations want to shorten
protection from 15-20 years down to 5 years or
30 months!
13. 7-13
Intellectual Property Protection
Trademarks: shape, color, design, phrase,
abbreviation, or sound that identifies a brand
Trade Names: name of a business protected
under the International Convention for the
Protection of Industrial Property
Copyrights: protected under the Berne Convention
of 1886 (164 countries), the WIPO Copyright Treaty
and the TRIPS Agreement (WTO members)
14. 7-14
Standardizing Laws Globally
• IB flows better with standardized laws
• Progress slow, but:
– Tax treaties or conventions are being made
– EU Anti-Trust: Articles 81 and 82 of the Treaty of Rome
– World Bank: International arbitration
– UN-CSIG: uniformity in international sales agreements
– UNCITRAL: uniform accounting & bankruptcy standards
– ISO & IEC: standardization of measurement, materials and
equipment, and other technology fields
• IB flows better with standardized laws
• Progress slow, but:
– Tax treaties or conventions are being made
– EU Anti-Trust: Articles 81 and 82 of the Treaty of Rome
– World Bank: International arbitration
– UN-CSIG: uniformity in international sales agreements
– UNCITRAL: uniform accounting & bankruptcy standards
– ISO & IEC: standardization of measurement, materials and
equipment, and other technology fields
15. 7-15
Some Specific National Legal Forces
• Competition Laws – EU equivalent of
U.S. Antitrust laws
• U.S laws & attitudes different, but
narrowing
– U.S law vigorously enforced, focuses on:
•Price fixing
•Market sharing
•Business monopolies
• Competition Laws – EU equivalent of
U.S. Antitrust laws
• U.S laws & attitudes different, but
narrowing
– U.S law vigorously enforced, focuses on:
•Price fixing
•Market sharing
•Business monopolies
16. 7-16
Competition Laws
• U.S. applies antitrust laws extraterritorially
• U.S. antitrust law has civil and criminal penalties
• EU applies competition policy extraterritorially
• U.S. proposal for global antitrust regulations
• WTO may be best institution to standardize antitrust
law
• U.S. applies antitrust laws extraterritorially
• U.S. antitrust law has civil and criminal penalties
• EU applies competition policy extraterritorially
• U.S. proposal for global antitrust regulations
• WTO may be best institution to standardize antitrust
law
17. 7-17
Tariffs, Quotas, and Other
Trade Obstacles
• Trade obstacles are:
– Legal, political & financial
• Trade obstacle examples:
– Health or packaging requirements
– Language requirements
– Weak patent and trademark protection
– Tariffs & quotas
– VARs – voluntary restraint agreements
– VERs –voluntary export restraints
• Trade obstacles are:
– Legal, political & financial
• Trade obstacle examples:
– Health or packaging requirements
– Language requirements
– Weak patent and trademark protection
– Tariffs & quotas
– VARs – voluntary restraint agreements
– VERs –voluntary export restraints
18. 7-18
Torts
• Injuries inflicted on
other people, either
intentionally or
unintentionally
• U.S. tort cases result
in large monetary
awards
• Injuries inflicted on
other people, either
intentionally or
unintentionally
• U.S. tort cases result
in large monetary
awards
• Product Liability
– Company, officers and
directors liable and
subject to fines and
imprisonment when
products cause damage,
injury or death
– Strict Liability holds
firms responsible without
plaintiff proving
negligence
• Product Liability
– Company, officers and
directors liable and
subject to fines and
imprisonment when
products cause damage,
injury or death
– Strict Liability holds
firms responsible without
plaintiff proving
negligence
Multimillion dollar punitive damage awards
keep many foreign products, especially medicine,
out of U.S.
19. 7-19
Differences on Product Liability
• U.S.:
– High liability insurance
premiums
– High standards of strict
liability
– No caps on damages
– Lawyers paid contingency
fees
– Juries hear cases, award
actual + punitive damages to
“teach defendant a lesson”
– Juries tend to be
sympathetic to plaintiffs
• U.S.:
– High liability insurance
premiums
– High standards of strict
liability
– No caps on damages
– Lawyers paid contingency
fees
– Juries hear cases, award
actual + punitive damages to
“teach defendant a lesson”
– Juries tend to be
sympathetic to plaintiffs
• Outside U.S.:
– Lower liability under “state-
of-the-art” & “developmental
risks” defenses
– Caps on damages
– Lawyer is paid on settlement
or if case is lost
– Plaintiff when unsuccessful,
may be directed to pay
defendant’s legal fees
– Judges hear liability cases
– Judges sympathetic to
defendant may not award
punitive damages
• Outside U.S.:
– Lower liability under “state-
of-the-art” & “developmental
risks” defenses
– Caps on damages
– Lawyer is paid on settlement
or if case is lost
– Plaintiff when unsuccessful,
may be directed to pay
defendant’s legal fees
– Judges hear liability cases
– Judges sympathetic to
defendant may not award
punitive damages
20. 7-20
Miscellaneous Foreign Laws
REMEMBER:
• Laws in foreign countries are different.
• Laws demand compliance, esp. from
outsider.
• Ignorance of foreign law is no excuse.
• In the case of arrest and imprisonment,
punishment or fines, your country may
not be able to help you.
REMEMBER:
• Laws in foreign countries are different.
• Laws demand compliance, esp. from
outsider.
• Ignorance of foreign law is no excuse.
• In the case of arrest and imprisonment,
punishment or fines, your country may
not be able to help you.International Legal Defense Council (ILDC), New York, has
a global reputation for dealing with countries when U.S.
embassies/consulates can do nothing!
21. 7-21
Foreign Corrupt Practices Act: U.S. Law
Affecting U.S. International Firms
• Foreign Corrupt
Practices Act (FCPA)
– U.S. law banning
payments to foreign
government officials for
special treatment
– Bribes (questionable or
dubious payments) paid
to government officials by
companies seeing to
purchase contracts from
those governments
• Foreign Corrupt
Practices Act (FCPA)
– U.S. law banning
payments to foreign
government officials for
special treatment
– Bribes (questionable or
dubious payments) paid
to government officials by
companies seeing to
purchase contracts from
those governments
• FCPA Uncertainties:
– “Grease” is not outlawed
– No clear distinction between
legal grease and illegal bribes
– Justice Department may
prosecute grease payments to
attack corruption in U.S.
– Accounting standards
compliance and management’s
responsibility under “had reason
to know”
– “Facilitating payments” seen as
bribes
– Do FCPA standards put U.S.
firms at competitive
disadvantage abroad?
• FCPA Uncertainties:
– “Grease” is not outlawed
– No clear distinction between
legal grease and illegal bribes
– Justice Department may
prosecute grease payments to
attack corruption in U.S.
– Accounting standards
compliance and management’s
responsibility under “had reason
to know”
– “Facilitating payments” seen as
bribes
– Do FCPA standards put U.S.
firms at competitive
disadvantage abroad?
22. 7-22
Accounting Law
• Global financial
scandals
– lead investor to question
integrity of financial
reporting and corporate
governance
• Result: global
economic damage
• Global financial
scandals
– lead investor to question
integrity of financial
reporting and corporate
governance
• Result: global
economic damage
• U.S. accounting
practice guided by:
– Securities & Exchange
Commission (SEC)
– Financial Accounting Standards
Board (FASB)
– General Accepted Accounting
Principles (GAAP)
• EU & other countries
follow:
– International Accounting
Standards Board (IASB)
– International Financial
Reporting Standards (IFRS)
• U.S. accounting
practice guided by:
– Securities & Exchange
Commission (SEC)
– Financial Accounting Standards
Board (FASB)
– General Accepted Accounting
Principles (GAAP)
• EU & other countries
follow:
– International Accounting
Standards Board (IASB)
– International Financial
Reporting Standards (IFRS)
Accounting guideline convergence is expected in 2015
23. 7-23
GLOBAL gauntlet
• Barista Battles Over
Patents
– Nestle´ files 1,777
patents to protect
design of new in-
home coffee system.
– Sara Lee sues.
• Barista Battles Over
Patents
– Nestle´ files 1,777
patents to protect
design of new in-
home coffee system.
– Sara Lee sues.
• Should Nestle´ have had
to file 1,777 patents?
• Should Sara Lee sue?
• Who funds these suits?
• What should be done?
• Should Nestle´ have had
to file 1,777 patents?
• Should Sara Lee sue?
• Who funds these suits?
• What should be done?
