The International

Legal Environment:
Playing by the Rules

What Should You Learn?

The four heritages of todays legal
systems
The important factors in jurisdiction
of legal disputes
Issues associated with jurisdiction of
legal disputes and the various
methods of dispute resolution
The unique problems of protecting
intellectual property rights
internationally
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Global Perspective
The Pajama Caper
No single, uniform international
commercial law governs foreign business
transactions

The international marketer must pay particular

attention to the laws of each country

Laws governing business activities within

and between countries
An integral part of the legal environment of
international business

Securing expert legal advice is a wise

decision
The foundation of a legal system

Profoundly affects how the law is written,

interpreted, and adjudicated
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Bases for Legal Systems

Four heritages form the basis for the
majority of the legal systems of the world

Common law
Civil or code law
Islamic law
Marxist-socialist tenets

Even though a countrys laws may be

based on the doctrine of one of the four
legal systems its individual interpretation
may vary significantly
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Lawyers per 100,000 People

in Selected Countries
Exhibit 7.1

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Common and Code Law

Common law
Seeks interpretation through the past decisions of higher
courts which interpret the same statues
Applies established and customary law principles to a similar
set of facts
Are recognized as not being all-inclusive
Ownership is established by use

Code law
Legal system is generally divided into three separate codes
Commercial
Civil
Criminal

Ownership is determined by registration

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Islamic Law
The basis for Islamic law is interpretation of the
Koran
Islamic law defines a complete system that
prescribes specific patterns of social and
economic behavior for all individuals
Property rights
Economic decision making
Types of economic freedom

Among the unique aspects of Islamic law is the

prohibition against the payment of interest
The Islamic system
Places emphasis on the ethical, moral, social, and religious
dimensions to enhance equality and fairness for the good of
society
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Marxist-Socialist Tenets
Socialist countries are now more directly involved
in trade with non-Marxist countries
Necessitated the development a commercial legal
system that allowed engagement in active
international commerce

Pattern for development varies among countries

Each has a different background

Development of market-driven economies at different
stages

Premise is that law is strictly subordinate to

prevailing economic conditions

Fundamental propositions as private ownership,

contracts, due process, and other legal mechanisms
have had to be developed
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Jurisdiction
in International Legal Disputes
No judicial body exists to deal with legal
commercial problems arising between citizens of
different countries
Legal disputes can arise in three situations
Between governments
Between a company and a government
Between two companies

Jurisdiction is generally determined on the basis of:

Jurisdictional clauses included in contracts
Where a contract was entered into
Where the provisions of the contract were performed

Most clear-cut decisions can be made:

When contracts or legal documents supporting a business
transaction include a jurisdictional clause

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International Dispute
Resolution Conciliation
Conciliation is a nonbinding agreement
between parties to resolve disputes by
asking a third party to mediate
differences
Sessions are private
All conferences between parties and the
mediator are confidential

Although conciliation may be the friendly

route to resolving disputes
It is not legally binding
An arbitration clause should be included in all
conciliation agreements
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International Dispute
Resolution Arbitration
Conducted under the auspices more formal
domestic and international arbitration groups
Organized specifically to facilitate the resolution of commercial disputes

The popularity of arbitration has led to a

proliferation of arbitral centers
Established by countries, organizations, and institutions

Inter-American Commercial Arbitration Commission

Canadian-American Commercial Arbitration Commission
(for disputes between Canadian and U.S. businesses)
London Court of Arbitration (decisions are enforceable
under English law and English courts)
American Arbitration Association
International Chamber of Commerce (select Arbitration)

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International Dispute
Resolution Arbitration
Contracts and other legal documents
should include clauses specifying the use
of arbitration to settle disputes
Arbitration clauses require agreement on
two counts
To arbitrate in the case of a dispute
according to the rules and procedures of
some arbitration tribunal
To abide by the awards resulting from the
arbitration
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International Dispute
Resolution Litigation
The best advice is to seek settlement
Deterrents to litigation
Fear of creating a poor image and damaging public
relations
Fear of unfair treatment in a foreign court
Difficulty in collecting a judgment that may otherwise
have been collected in a mutually agreed settlement
through arbitration
The relatively high cost and time required when
bringing legal action
Loss of confidentiality
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Protection of Intellectual
Property Rights A Special
Problem
Companies spend millions of dollars
establishing brand names or trademarks
To symbolize quality and design
To entice customers

Millions are spent on research

To develop products, processes, designs, and
formulas

Intellectual or industrial properties are among

the most valuable assets
New technologies developed to prevent piracy
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Counterfeiting and Piracy

Lost sales from the unauthorized use of U.S.
patents, trademarks, and copyrights
Amount to more than $100 billion annually

The piracy industry has grown so sophisticated

Many counterfeit goods are indistinguishable from
original

Piracy actually can serve come companies

Microsoft

Counterfeit pharmaceuticals
2% of the $327 billion worth of drugs sold each year
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Piracy Rates for Computer

Software Top and Bottom 20
Exhibit 7.2

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Inadequate Protection
Failing to adequately protect intellectual
property rights can lead to the legal loss of
rights in potentially profitable markets
There have been many cases where
companies have legally lost the rights to
trademarks and have had to buy back
these rights or pay royalties for their use
McDonalds in Japan

Many businesses fail to take proper steps

to legally protect their intellectual property
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Prior Use Versus

Registration
Prior Use whoever can establish first use is
typically considered the rightful owner
Registration the first to register a trademark or
other property right is considered the rightful
owner
A company that believes it can always establish
ownership in another country by proving it used
the trademark or brand name first is wrong and
risks the loss of these assets
It is best to protect intellectual property rights
through registration
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International Conventions
Three major international conventions
Paris Convention for the Protection of Industrial Property
Inter-American Convention
Madrid Arrangement

World Intellectual Property Organization (WIPO)

Responsible for the promotion of the protection of intellectual
property and for the administration of the various multilateral
treaties through cooperation among its member states

Patent Cooperation Treaty (PCT)

European Patent Convention (EPC)
The Trade-Related Aspects of Intellectual Property
Rights (TRIPs)

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Marketing Laws
All countries have laws regulating marketing
activities

Promotion
Product development
Labeling
Pricing
Channels of distribution

Discrepancies across markets cause problems

for trade negotiators particularly for
managers and their firms
U.S. does not allow the buying or selling of human organs
Some countries only have a few marketing laws with lax
enforcement
Others have detailed, complicated rules that are stringently
enforced
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Marketing Laws
There often are vast differences in
enforcement and interpretation among
countries having laws covering the same
activities
Laws governing sales promotions in the European
community

Censorship of advertising is a constant concern

For many U.S. products with markets in
Europe, meeting EU standards is less
expensive than designing products especially
for Europe
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Green Marketing Legislation

Green marketing laws
Focus on environmentally friendly products and
Focus on product packaging and its effect on
solid waste management

Antitrust
For better part of the 20th century antitrust laws
Nonexistent
Not enforced in most of the worlds countries
U.S. was exception
EU has dealt severe penalties for antimonopoly, price
discrimination, supply restrictions, and full-line forcing

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Green Marketing Legislation

The U.S. intervenes when non-U.S. companies
attempt to acquire American companies
At times, companies are subject to antitrust
charges in more than one country
Nestles proposed acquisition of Dreyers Grand Ice Cream
Microsoft

Enforcement of antitrust in Europe almost

nonexistent until the early stages of EU
established legislation

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Cyberlaw
Unresolved Issues
Domain names and cybersquatters
Cybersquatters (CSQs) buy and register descriptive nouns,
geographic names, and names of ethnic groups and
pharmaceutical substances, and other similar descriptors and
hold them until they can be sold at an inflated price

Other cybersquatting abuses that can pose a

serious threat to business include parody sites,
protest sites, and hate sites
www.walmartsucks.org

The Internet is not a libel-free zone

Lawsuits involving libel, defamation, and product liability cause
companies to voluntarily restrict their Web sites to selected
countries
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Cyberlaw
Unresolved Issues
Taxes
In the past, a company was deemed to have a
taxable presence in a country if it had a
permanent establishment there
The EU Commission
Proposes value-added tax (VAT)

Jurisdiction of disputes and validity of

contracts
The EU Commission has adopted an ecommerce directive that will permit online
retailers to trade by the rules of their home
country unless the seller had enticed or
approached the consumer by way of advertising
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