The International Legal Environment:

Playing by the Rules

Dr. John V. Padua

International Marketing15th edition

Philip R. Cateora, Mary C. Gilly, and John L. Graham

7Learning Objectives• Bases for today’s legal systems• The important factors in jurisdiction of

legal disputes• The various methods of dispute resolution• The unique problems of protecting

intellectual property rights internationally• Cyberlaw• Commercial law within countries• U.S. Laws application in host countries• Export restrictions

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7Bases 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 country’s laws may be based on the doctrine of one of the four legal systems its individual interpretation may vary significantly

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7Common 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 – Considered complete as a result of catchall provisions

found in most code-law systems4Roy Philip

7Islamic 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 5Roy Philip

7Jurisdiction 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 clause6Roy Philip

7Litigation• 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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7Protection of Intellectual Property Rights – A Special Problem

• http://www.wipo.int/about-ip/en/ - What is intellectual property?

• Companies spend millions of dollars establishing brand names or trademarks to symbolize quality and design and 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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7Counterfeiting 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

– http://hwrms.com/blog/?p=453 – fun pirated products

– http://torrentfreak.com/top-10-most-pirated-movies-on-bittorrent-100629/

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7Inadequate 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– McDonald’s in Japan

• Many businesses fail to take proper steps to legally protect their intellectual property

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7Prior 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

• http://www.audioholics.com/news/industry-news/dvd-piracy-china-black-market 11Roy Philip

7Marketing Laws (1 of 2)• 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 12Roy Philip

7U.S. Laws Apply in Host Countries (1 of 2)

• Foreign Corrupt Practices Act– Makes it illegal for companies to pay bribes to foreign

officials, candidates, or political parties• National security laws

– Prohibit a U.S. company, its subsidiaries, joint ventures, or licensees to sell controlled products without special permission from the U.S.

• Antitrust laws– Enforcement has two purposes in international

commerce• Protect American consumers• Protect American exports and investments against

any private restrictions– The question of jurisdiction and how U.S. antitrust laws

apply• Sections I and II of the Sherman Act 13Roy Philip

7U.S. Laws Apply in Host Countries (2 of 2)

• Antiboycott law– U.S. companies are forbidden to participate in any

unauthorized foreign boycott– Required to report any request to cooperate with a

boycott• Extraterritoriality of U.S. laws

– Especially important to U.S. multinational firms– Foreign governments fear the influence of

American government policy on their economies through U.S. multinationals• When U.S. laws conflict with those of host

country• When U.S. Justice Department restricts of

forbids ventures because of anticompetitive effects 14Roy Philip