International Business Law
and Its Environment, 6e
By Schaffer, Earle, and Agusti
© 2005 West Legal Studies in Business/Thomson Learning
Introduction to International
Business Law
Chapter 1
© 2005 West Legal Studies in Business/Thomson Learning
Forms of International Business
• Trade
• International licensing of technology and
intellectual property (trademarks, patents
and copyrights)
• Foreign direct investment
3
Trade
• Exporting
• Importing
• Government controls over trade: tariffs
and non-tariff barriers
• Role of trade in services
4
Trade
• Exporting: shipment of goods or the
rendering of services to a foreign buyer
• Importing: process of buying goods from a
foreign supplier and entering them into the
customs territory of a different country
5
Trade: Government controls
over trade
Tariffs: import duties or taxes imposed on
goods entering the customs territory of a
nation
Why impose?
revenue collection, protection of domestic
industry, political control
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Trade: Government controls
• Non-tariff Barriers: all barriers to importing
or exporting other than tariffs ex. product
standards
• Quota: restriction imposed by law on the
numbers or quantities of goods or of a
particular type of good
• Embargo: a total or near total ban on trade
with a particular country e.g. used against
Iraq in 1990
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Trade
• Boycott: a refusal to do business with
certain firms on political or other grounds
8
Trade: trade in services
• Travel, banking, insurance and securities,
professional services (law & architecture)
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Trade: exporting
• Direct: often use foreign sales agents
• Indirect: use export trading companies
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Intellectual Property and
Licensing
• Definitions
– Copyrights: legal rights to an artistic or written
work
– Trademarks: the legal right to use a name or
symbol; that identifies a firm or its product
– Patents: governmental grants to inventors
assuring them of the legal right to produce,
use and sell their invention for a period of
years
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International Licensing
Agreements
• International licensing agreements: contracts by
which the holder of intellectual property will grant
certain rights in that property to a foreign firm to
use for a period of time under certain conditions
in return for a licensing fee
• How does this work as a business model?
• Technology transfer: exchange of technology
and know how between firms in different
countries through licensing
12
Protecting Intellectual Property
is a key issue for your business
• Inventory and secure your intellectual
property as you would a building
• Difficult, Why?
• What is piracy?
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Pro Golf Case
• First Flight v. Pro Golf,
• Facts: Pro Golf negotiated with Wynn to
act as sales representative in Japan.
Wynn incorporated FFA in Japan. Pro Golf
entered into an agreement where FFA
could use First Flight trademark. FFA tried
to sublicense the trademark.
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Pro Golf Case (cont.)
• Progolf terminated the agreement. Pro
Golf learned that they had not properly
registered their trademark in Japan. FFA
sued for breach of contract and Pro Golf
counterclaimed for royalties.
• Holding: Pro Golf was permitted to
terminate its Japanese sales agency with
FFA because it was terminable at will.
15
Pro Golf Case (cont.)
• However Pro Golf was not entitled to
royalties because they had not perfected
their rights to the trademark under
Japanese law.
16
Legal and Political Issues in
Technology Transfer Agreements
• Regulated by some governments
– generally in Asia, Latin America, and the
Middle East
– terms restricted to benefit the developing
country
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Franchising as a form of
Licensing
• Raymond Dayan v. McDonald’s
• Facts: Dayan had franchise to operate
McDonald’s in Paris. There was a serious
problem with QSC (quality, service and
cleanliness standards). McDonald’s
wanted to terminate the franchise but
Dayan objected.
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Franchising as a form of
Licensing
• Holding: After much legal maneuvering on
two continents, McDonald’s was able to
terminate the franchise. Dayan was able to
continue his restaurants under a different
name.
• What is the impact of this on the
franchiser?
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Foreign Direct Investment
• Ownership and active control of ongoing
business concerns including investment in
manufacturing, mining, farming and other
production facilities
• Multinational corporation
• Wholly owned foreign subsidiary
• Joint venture
• Mergers and acquisitions
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The Legal Environment in
Developing Countries
• How different?
• Examples: foreign exchange, controls on
trade, licensing and investments
• Bhopal discussion
• Reform and privatization
• Transition to market economies
21
In re Union Carbide Gas Plant
Disaster
• UC India Limited incorporated under the
laws of India. 51% owned by UCC , 22%
owned by the Indian government, the rest
owned by Indian citizens. 1984 gas leaked
from the plant. Over 2000 individuals died.
Indian government passed the Gas Leak
Disaster Act giving the government the
exclusive right
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In re Union Carbide Gas Plant
Disaster
• To represent victims. India files suit in
federal court.
• Issue: Does the federal court in the U.S.
have jurisdiction over UCC for the gas leak
in Bhopal, India?
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In re Union Carbide Gas Plant
Disaster
• No, on the basis of Forum NonConveniens (inconvenient forum) the court
found that UCC had limited participation in
the project. Most of the witnesses and
documents were in India. The Ct. of
Appeals upheld the District Court.
However, the UCC agreed to submit to the
Indian court’s jurisdiction.
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International Framework for
Trade
• Trade liberalization: efforts of governments
to reduce tariffs and non-tariff barriers
• General Agreement on Tariffs and Trade,
1947
– Sets rules on how member nations will
regulate international trade
• WTO: 1995 came into existence
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How do you manage the risks of
international business?
• Consider “ The management of
international business is the management
of risk.”
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Managing Risk: Risk
Assessment
• Market entry strategy
• Shifting the risk
• Using the contract to fix responsibility,
allocate risk and price accordingly
• Payment and credit risk, property risk,
delivery risk
• Managing distance and communications
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Managing Risk
• Managing language and cultural
differences
• Managing currency and exchange rate risk
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Managing Risk
•
•
•
•
Political risk? Terrorism?
Causes?
How to handle?
Foreign courts and foreign law? See DIP
SpA v. Commune di Bassano challenging
Italian retail licensing requirements. What
result?
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DIP SpA v. Commune di
Bassano
• Three applicants for retail store licenses
were denied by the local mayor. These
can be denied if both the mayor and the
local committee believe that the market is
already being served.
• Does the Italian retail law violate Articles
85,80 and 30 and thus is anti-competitive?
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DIP SpA v. Commune di
Bassano
• Holding: The law is not invalid under the
Treaty of Rome and the laws of the EU.
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DIP SpA v. Commune di
Bassano
• “…it is sufficient to observe that rules such
as those contained in the Italian Act make
no distinction according to the origin of the
goods distributed by the businesses
concerned, that their purpose is not to
regulate trade in goods…
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DIP SpA v. Commune di
Bassano
• And that the restrictive effect which they
might have on the free movement of
goods are too uncertain and indirect for
the obligation which they impose to be
regarded as hindering trade between
member states.”
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Managing Risks
Currency/Exchange Rate Risks
*
delivery risk
*
marine risk
Transaction Risks
*
litigation risk: Gaskin
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Gaskin v. Stumm Handel
• Facts: Gaskin, a U.S. citizen entered into
an employment contract with a German
firm. The contract was in German and the
representative explained the terms of the
contract to him because he could not read
German. The contract included a forum
selection clause of Germany.
35
Gaskin v. Stumm Handel
• Issue: Is the forum selection clause in the
contract designating the courts of
Germany enforceable?
• Yes. Gaskin isl precluded from proceeding
in a U.S. court.
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Gaskin v. Stumm Handel
• Why did the court rule for the defendant?
• What circumstances might have altered
the result?
• What advice do you have for the plaintiff
for the future?
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Political Risks
• Managing political risk
• Managing risk of foreign law and courts:
choice of law and forum clauses
• Risk of international hostilities
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Ethical Issues
•
•
•
•
Bribes?
Child labor?
Different working conditions and wages?
Corporate response?
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Ethical Issues
• “The law is a floor…but ethical codes and
personal values call on us to exceed that
which is required by law.”
• Do you agree?
• Source of ethics?
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Conclusion
• Knowledge of global environment: stay
current by reading from many sources
• Trade, licensing and investment
• How to manage risk? Good research,
understand risk, know the law and use a
contract to protect you and help you
manage risk.
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