International Marketing

13 t h E d i t i o n P h i l i p R. C a t e o r a M a r y C. G i l l y John L. Graham

The International Legal Environment: Playing by the Rules

Chapter 7

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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What Should You Learn?

How to protect against piracy and counterfeiting

The legal differences between countries and how the differences can affect international marketing plans
The different ways U.S. laws can be applied to U.S. companies operating outside the United States The many issues of evolving cyberlaw

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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 Considered complete as a result of catchall provisions found in most code-law systems
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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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U.S. Laws Apply in Host Countries

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
Sections I and II of the Sherman Act
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The question of jurisdiction and how U.S. antitrust laws apply

U.S. Laws Apply in Host Countries

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

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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 e-commerce 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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Summary
Businesses face a multitude of problems in their efforts to develop successful marketing programs
Varying legal systems of the world and their effect on business transactions

Political climate, cultural differences, local geography, different business customs, and the stage of economic development must be taken into account Legal questions must also be considered
Jurisdictional and legal recourse in disputes Protection of intellectual property rights Extended U.S. law enforcement Enforcement of antitrust legislation by U.S. and foreign governments
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Summary
The Internet creates a new set of legal entanglements The freedom that now exists on the World Wide Web will only be a faint memory before long
Prudent path to follow at all stages of foreign marketing operations is one leading to competent counsel, well versed in the intricacies of the international legal environment

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