Chapter 07 Intellectual Property and Other Legal Forces McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

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 LO1 7-2

International Dispute Settlement Litigation Performance of Contracts United Nations Solutions Private Solutions – Arbitration Litigation Performance of Contracts United Nations Solutions Private Solutions – Arbitration LO2 7-3

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 dispute will be settled? Solutions: –Choice-of-law clause Which law governs? –Choice-of-form clause Where dispute will be settled? LO2 7-4

Performance Contracts Major Problems: –Getting the 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 the 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 LO2 7-5

Global Interest in Arbitration is Growing Arbitration preferred to litigation: –Suspicion of foreign courts –Faster –Confidential –Less expensive Arbitration preferred to litigation: –Suspicion of foreign courts –Faster –Confidential –Less expensive LO2 7-6

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) LO3 7-7

Standardizing Laws Around the World IB flows better when laws are standardized. Progress is slow, but: –Tax Treaties, or conventions, are being made –Anti-Trust: EU nations operate under Articles 82 & 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 when laws are standardized. Progress is slow, but: –Tax Treaties, or conventions, are being made –Anti-Trust: EU nations operate under Articles 82 & 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 LO3 7-8

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 LO3 7-9

Tariffs, Quotas, and Other Trade Obstacles Trade obstacles are: –Legal, political & financial 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 Examples: –Health or packaging requirements –Language requirements –Weak patent and trademark protection –Tariffs & quotas –VARs – voluntary restraint agreements –VERs –voluntary export restraints LO3 7-10

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 –A company, its officers & directors are liable and subject to fins and imprisonment when its products cause damage, injury or death – Strict Liability holds firms responsible without plaintiff proving negligence Product Liability –A company, its officers & directors are liable and subject to fins and imprisonment when its 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 the U.S. LO4 7-11

Global Differences Toward 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 –Loosing plaintiff may pays defendant’s legal costs –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 –Loosing plaintiff may pays defendant’s legal costs –Judges hear liability cases –Judges sympathetic to defendant may not award punitive damages LO4 7-12

Miscellaneous 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 could do nothing! LO4 7-13

U.S. Laws that Affect the IB of U.S. Firms Foreign Corrupt Practices Act (FCP – U.S, law banning payments to foreign government officials for special treatment Questionable or Dubious Payments: – Bribes paid to government officials by companies seeing to purchase contracts from those governments Foreign Corrupt Practices Act (FCP – U.S, law banning payments to foreign government officials for special treatment Questionable or Dubious Payments: – Bribes 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? LO5 7-14

Accounting Law Global financial scandals cause investor to question the integrity of financial reporting and corporate governance Result: global economic damage Global financial scandals cause investor to question the integrity of financial reporting and corporate governance Result: global economic damage U.S. accounting practice guided by: –Securities & Exchange Commission (SEC) –Financial Accounting Standards Board (FASB) –General Accepted Account ing Principles (GAAP) EU & other countries follow: –International Accounting Standards Board (IASB) –International Financial Reporting Standards (IFRS) U.S. accounting practice guided by: –Securities & Exchange Commission (SEC) –Financial Accounting Standards Board (FASB) –General Accepted Account ing Principles (GAAP) EU & other countries follow: –International Accounting Standards Board (IASB) –International Financial Reporting Standards (IFRS) Accounting guideline convergence is expected in 2015 LO5 7-15