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Athena X Aureus Tutoring Exam training Study smart, not hard Get your discount at: Apply via: Aureus.nl/tutoring AthenaStudies.nl www.aureus.nl/LINK www.athenastudies.nl & www.aureus.nl study studyassociation associationof ofthe theschool schoolof ofbusiness businessand andeconomics economics Table of Contents Section 1 – The Regulatory Environment .............................................................................................................. 4 Chapter 1 - The Regulatory Environment ................................................................................................................. 4 Chapter 2 - The Netherlands .................................................................................................................................... 7 Chapter 3 - The European Union ............................................................................................................................ 11 Section 2 – Property, contracts and marketing ................................................................................................... 17 Chapter 4 - Property Law ....................................................................................................................................... 17 Chapter 5 - Intellectual property ............................................................................................................................ 21 Chapter 6 - Contracts ............................................................................................................................................. 27 Chapter 7 - Legal forms .......................................................................................................................................... 30 Chapter 8 - International Commercial Contracts ................................................................................................... 33 Chapter 9 - Marketing ............................................................................................................................................ 38 Section 3 – Regulatory Services and Providers.................................................................................................... 43 Chapter 10 - Regulatory Services ........................................................................................................................... 43 Section 1 – The Regulatory Environment Chapter 1 - The Regulatory Environment 1.1 Introduction 1.1.2. Law • Constitution = set of fundamental principles or established practices that define a state’s governance. • A jurisdiction denotes a territory (country) within which a particular legal system applies. A country’s legal system can subdivide law into branches of law: • Private law - relationships between individuals • Public law - regulates the use of powers by which an administration and other public authorities affect companies and people. Business law is an umbrella that covers all that is relevant from private and public law to business. 1.1.5. Legal System Constitution is a written document or unwritten set of principles that outlines the fundamental values and organizational structure of the State. To function properly, a State requires three functions that operate independently. The three powers represent the Trias Politica. • Executive Power – Administers the country, and part of that is identifying whether rules must be changed or created to realize its objectives. • Legislative Power – Creating and Adapting laws. o Right of initiative – right to propose new legislation. • Judiciary Power. 1.1.6. Business System • A market encompasses all potential buyers of a specific type of offering. The companies that have comparable offerings constitute an industry. • Core elements of corporate strategy: o Products o Markets o Competitive advantage. 1.2 External Environment For managers, the regulatory environment is relevant for entering new markets and identifying changes in existing markets. A manager needs information about an external regulatory environment in four strategy-related situations: 1. To develop and evaluate new products or services; 2. To evaluate and select new markets; 3. To decide on the market entry strategy for a new market/country; 4. To formulate plans for the markets in which the company already operates. 1.2.2. / 1.2.3. / 1.2.4. The regulatory environment consists of: • Hard law: laws enacted by legislators, regulations based on acts, and the decisions from court. There rules are binding to all legal subjects in a state’s jurisdiction. o Treaty = agreement between two States (bilateral) or more (multilateral). Become binding by ratification = entering into a Treaty of a country by the signing of the body authorizes there to. o RTA = Regional Trade Agreements. Soft law: co-regulation by creating rules by cooperation between private actors. These rules are not binding but because of their origin considered equally important as hard law. Self-regulation o A company and an industry can develop rules to which compliance is voluntarily. Selfregulation encompasses the rules, processes and institutions created by private organizations, such as companies and industry organizations, to which these submit voluntarily. o Internal – company’s self-imposed rules o External – industry’s rules • • 1.2.6. Solutions Systems offer have two generic options to resolve disputes: litigation in a regular court or out-of-court method. Latter are called alternative dispute resolutions (ADR) methods. It offers multiple benefits over litigation in court. 1.2.7. Services • Advocacy = activity by an individual or group that aims to influence decisions within political, economic, and social systems and institutions. • Lobbying = about managing interests by influencing political and regulatory processes and outcomes. 1.3 Internal Environment The analysis of the internal legal environment or legal function focusses on the five Cs: • Contribution • Costs • Compliance • Corporate Governance = involves the procedures and processes that direct and control an organization. • Competencies. 1.3.2. Contribution We now focus on linking regulation and strategic management, which covers integration of: • Situation analysis: where is the business now • Developing options & Choice of strategy: identifying and deciding between options • Strategy implementation & control: planning actions and managing change 1.3.3. Risk Management • Legal risk / threat = the likelihood that a firm will suffer financial or other damage from a cause that has its basis in regulation. • Table 1.6 (book) provides an overview of legal risks • Supplementary law = refers to the regulations which legal systems have available in case legal subjects have not used the opportunity to regulate differently. 1.4 Regulatory Analysis Companies need to understand the environment in which they operate now, and in the future. A situational analysis is an analysis of a company’s internal and external environment. The findings constitute ‘strategic input’ for decision making. > Table 1.7. defines the elements of the SWOT, the abbreviation for Strengths, Weaknesses, Opportunities, and Threats. See the Book. 1.5 Legal Traditions A legal family is a group of legal systems that are related; usually by a common historical basis. The three main families are ‘common law’, ‘civil law’, and ‘religion based law’. Within one country different legal traditions can co-exist (mixed legal system). 1.5.2. Civil law Civil Law is the tradition has its origin in Roman law. Their system formed the basis for three systematically organized law books (codes): French Civil, Commercial and Crime Codes. In the Civil Law tradition, a legislature creates rules which are documented, codified in books, codes, In a specific structure. These rules provide general principles that must be interpreted and applied by courts. The main characteristics of Civil law systems are: • Legal rules are codified (written down) in a structured manner in specific books; • Private law rules are generally not too detailed but ‘open, e.g., without delay; • Open norms allow judges to take circumstances into account; • Judges are independent; other judge’s (previous) rulings do not bind them. 1.5.3. Common Law This legal tradition is based on the decisions of courts by applying society’s customs and usage. It is based on courts creating rules by deciding cases. The rules appear for the most part in reported judgements. They seem to be more specific and detailed, as they originate from a specific case. The three main characteristics of the Common law traditions are: • Courts’ decisions create law; so this ‘case law’ is the main source of law; • A courts’ ruling applies in similar cases; the precedent or stare decisis principle; • Legislation complements case law, and judges are reluctant to apply ‘open’ legislation. 1.5.4. Religious law • Hindu Law: Rules mainly relate to family law and succession. • Islamic law: a set of rules for life instead of typical legal rules. The rules must be interpreted to find answers for specific answers for specific situations. • Jewish law: Israel’s legal system combines the three traditions. Chapter 2 - The Netherlands 2.1 Introduction 2.1.1 The state The Kingdom of the Netherlands consists of: The Netherlands, Aruba, Curacao and Saint Maarten. Translations of the French codes constituted the first Dutch codes of which some parts still form part of positive law; the total of effective legal rules. The Netherlands is an unitary state that qualifies as a parliamentary democratic constitutional monarchy. The Monarch (Willem Alexander) together with the Ministers make up the Government. They have both executive and legislative power. At each level, the administrative power is controlled by a directly elected body (exception of the Tweede Kamer). > See table 2.1 for the total structure. > See table 2.2 for the Trias Politica of the Netherlands. 2.1.2 Legal system The Dutch legal system belongs to the civil law family. In practice, not all private law is however in the Civil Code. The Cicil code consists of ten books. 2.1.3 Business Environment The Netherlands is an attractive location for international companies, among others because of the well-developed infrastructure in combination with a professional logistics industry. Generally companies will be the most interested in the opportunities to obtain and enforce property and intellectual property rights (trademarks, patents). Taxes are levied at national, provincial and municipal level. An APA (Advance Pricing Agreement) is an agreement on the price that the Dutch entity pays to or receives from a foreign group company for receiving or delivering services or goods. An ATR (Advance Tax Ruling) is an agreement on the amount of future taxes to be paid. Companies are advised to benchmark competitors’ codes of conduct. 2.2. Specific 2.2.1. Introduction The sources of law are the places where the substantive and formal legal rules are. In Dutch law, as in most Civil law systems, the sources are: • Treaties, legislation and regulations; • Case law (jurisprudence or courts’ rulings; • Customary law and general principles of law (unwritten law). A treaty is a binding arrangement concluded in writing between States or between States and international organizations (bilateral or multilateral). The Netherlands cannot independently establish trade barriers as it is bound to apply the EU’s Common Customs Tariff. An extensive network of bilateral investment treaties protect investors based in the Netherlands against the financial damages of nationalization and other governmental measures in other countries. Furthermore, Dutch legal entities are hardly taxed. 2.2.2. Legislative Process See figure 2.4. for the complete legislative process. 2.2.3. Sources of law The Dutch Civil Code (DCC) consists of ten Books for specific areas of law: 1. Persons and Family; 2. Legal Persons; 3. 4. 5. 6. 7. 8. 9. 10. Patrimonial law; Inheritance; Real Rights; Law of obligations; Specific Contracts (7A – Specific Contracts Continued) Transport & Traffic / International Private Law. Book 1 – 2 cover law of persons Book 3 – 8 Cover patrimonial law as they outline the rules of property law and the law of obligations Book 9 stopped The Dutch Civil Code reflects the codification ideal of civil law systems (see table 2.4 for the books). Some rules are merely default rules, supplementary law, in the sense that they apply only if the legal subjects involved do not provide for a different approach. Other rules are mandatory law, leaving the legal subjects or parties no other option than to conform to them. The rulings of courts are collectively referred to as case law or jurisprudence. Judges have to interpret the law before being able to apply the rule. Open or vague norms are words which have no precise meaning, but which are given a meaning by interpreting them within the context of the circumstances and people involved. Contrary to common law, Dutch judges are not bound by decisions in earlier cases, they always decide independently. An appeal or judicial review refers to higher court’s review of a lower court’s factual or legal findings. The system of prejudicial questions is the opportunity for lower courts to ask questions about the interpretation of rules to the Supreme court. 2.3 Soft Law The Dutch Government makes recommendations on for example the transition to sustainable energy, the circular economy, corporate social responsibility, remuneration of executives and innovation. 2.4 Self-regulation The consensus is an essential component of the political and legislative culture. This ‘polder model’ approach reflects in the preferences for self-regulation over acts of parliament as the method to influence companies’ behavior. 2.5 Supervision The Netherlands is typical known for its extensive use of supervisory authorities, which supervise and enforce compliance in a certain market or industry. They have powers to investigate companies, forcing them to disclose information and punishing them. 2.6 Solutions 2.6.1. Courts The legal system of the Netherlands encompasses a juridical system with regular and specialized courts and alternative dispute resolution opportunities. The eleven districts are grouped into four Court of Appeals areas (Hague & Amsterdam, ArnhemLeeuwarden, ‘s Hertogenbosch). The Supreme Court is responsible for hearing appeals in cassation; whether a lower court observed proper application of the law in reaching its decision. The Council acts as 1) safeguard for the quality of the judiciary system by promoting the uniform application of law and 2) spokesperson for the judiciary and supporting courts in their operational tasks. Summary proceedings are available for cases that require prompt action. The sub-district court is competent in first instance for claims below €25000. The Supreme Court in the Hague is a cassation court; it reviews the application of the law but does not review the facts of the case. A bar association is an organization of lawyers which regulates and defends the interest of lawyers. The Netherlands has four specialized courts that offer specific expertise to businesses: 1. Companies court to conclude on mismanagement at the request of shareholders; 2. District Court the Hague for patent, trademark and design right disputes; 3. District Court Rotterdam for shipping disputes; proceeding in English is optional; 4. The Netherlands Commercial Court (NCC) for commercial disputes in English; 2.6.2 Arbitration Arbitration = the resolution of a conflict between legal subjects out-of-court by arbitrators. By arbitration, the parties agree that the arbitrators’ decision (arbitral award) is binding. 2.8 Employment law 2.8.1. Introduction Dutch Employment law is comprehensive, complicated and in a state of constant change. Dutch law recognizes individual and collective labor agreements (CAOs) CAOs are collective agreements between employers and trade unions regarding wages and other conditions of employment. 2.8.2. Employment contracts Dealing with complexities of national employment laws is one of the unavoidable management challenges of most businesses. Under Dutch law, an employment contract meets three criteria: 1. Subordinates, the worker is subject to instructions; 2. Payment; 3. Contracted person personally performs work for some time. Employment contracts can have a definite term, which means the contract is valid during the agreement upon time. Other words: temporary or fixed term contract. A fixed term contract becomes permanent contracts if subsequent agreements exceed a two-year period or when the parties conclude more than three fixed-term contracts. A contract for indefinite term has no expiration date. A non-competition clause is acceptable for a permanent contract. Under this clause one party (usually an employee) agrees not to enter into or start a similar profession or trade in competition against another party. A specific form of an employment contract is the contract between a temp agency and a temp worker. The law refers to this as a secondment agreement (or temporary employment agency agreement). A construction agreement is an agreement under which one of the parties (the constructor) engages himself towards the other party (the principal) to make and deliver a tangible construction on another basis than an employment agreement, in exchange for a price to be paid in money by the principal art. 2.8.3 Termination An employee can terminate an employment contract by notification whereby he or she must respect the contractual or statutory notice term. For termination by notification: • An employer requires the consent of the employee, or; • Approval by the Insitute for Employee insurance (UWV), or; • Request to cantonal court to dissolve the employment contract. For the route by the UWV and the Cantonal Court a reasonable ground is required. The requirements concerning the reasonable ground for termination notification do not apply during the probationary period. Employer and employee also have the option to terminate by notification in case of an urgent cause. Employer and employee can also use the opportunity of termination by agreement. This termination by mutual consent requires a written form. Dutch law uses the concept of transition compensation to define the amount awarded as a severance package for employers’ termination by notification or dissolution in court. See the book for the concrete calculation. In case of bankruptcy the appointed administrator can terminate individual employment contracts, by giving notice, without the need for UWV permission. 2.9 Social Security Social security refers to the system that provides monetary or non-monetary assistance to inhabitants with an insufficient or no income. The Dutch System has two types of insurances. Employees have an insurance against unemployment and incapacity to work. > See table in the book for the Main Social Security Legislation. Chapter 3 - The European Union 3.1 Introduction 3.1.1. Supranational Environment Sovereignty means that a country is independent and free from any outside control or authority over its decisions and policies. Countries can decide to transfer authority to a supranational organization; created by two or more countries that transfer part of their sovereignty in order to enable the organization to make decisions or regulate independently (EU). European States became members by ratifying, formally approving and accepting, the rules of the Treaties (basis of the EU). Conferral transfers national legislative and judicial powers to a supranational organization. 3.1.2. Forms of Integration • Commonwealth is an intergovernmental organization of fifty-three countries. • Economic integration (trade blocs), is a process whereby countries cooperate to either reduce or eliminate barriers to the free flow of products, services, people or capital. • Harmonization is bringing national rules closer or creating common rules. • In a free trade area (FTA) the Member States agree to remove the trade barriers to the free flow of goods and services. • In a custom union, the Member States remove trade barriers to the free flow of goods and services between each other and create a common external trade policy including common tariffs. • The EU creates an internal market. It realizes a free flow of goods, services, persons and capital. • In an economic Union, Member States integrate their economic policies. This can be combined with a monetary union, by a common currency. • A Political Union is the result of a complete economic and political integration of sovereign nations. • The World Trade Organization aims to liberalize trade and to resolve trade disputes between countries. It is an intergovernmental organization and it has no legislative authority. 3.1.3. Historical background • First step: creation of European Coal and Steel company (1952): six members • Signed the Treaty establishing the European Economic Community (1957) • Maastricht Treaty (1992): creation of EU. • Lisbon Treaty (2009): creating of two new Treaties o TEU: principles and structure of the supranational organization o TFEU: How the EU should operate and which competences to use 3.1.4. European Integration The EEA agreement enables three European Free Trade Associations to participate in the EU’s internal market. The EU has FTA’s with different countries. It is a custom union with free flow of goods within the EU Member States and a Common Custom Tariff (CCT); uniform external tariff applied to products imported into the EU. When entered the EU, provided all important formalities, these goods are then free circulation. The Internal market is an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured. However, the development of a single internal market has not yet completed. Fiscal discipline of the Euro is strengthened through the balanced budget rule (% of GDP). EU acts like a political union, however the EU’s foreign Affairs and Security Policy is still governed by intergovernmental cooperation. So the EU cannot act independently. 3.1.5. Competences The three principles which govern the use of the EU’s regulatory authorities are: • • • Principle of conferral: Union shall act only within the limits of the competences conferred upon it by the member states in the treaties to attain the objectives set out therein. Any competence not conferred remains with the Member States. Principle of subsidiarity: The Union shall act only if the objectives of the proposed action cannot be sufficiently achieved by the Member States Proportionality: the content and form of Union action shall not exceed what is necessary to achieve objectives of the Treaties. 3.1.6. Business Dimensions • The integration processes created the world’s largest internal market with over five hundred million consumers and removed most tariff and non-tariff barriers to trade. • The EU is an incredible complex organization with regulatory processes that involve both the supranational EU and the national level of the Member States, EU legislation can have a substantial impact on companies and industries. 3.2. Institutions The EU is not based on the trias politica. Instead, it implemented a governance model in which institutions can combine different powers and are controlled by each other; checks and balances. The Court of Auditors has a mere supervisory function of the EU’s budget and spending. The ECB is the central bank, with a prime aim to maintain purchasing power and price stability. From a business perspective, the most relevant institutions are: • European Council; • European Commission; • Council of the European Union (Council); • The European Parliament (EP); • The Court of Justice of the European Union (CJEU). 3.2.2. European Council (Europese Raad) • What: The European Council is considered as highest body from a political perspective. Members: All Heads of State or Government, the President of the European Commission, the President of the EU and the EU High Representative. • Meetings (summits): twice a year under a rotating presidency of one of the Member States. • Roles: no formal powers but sets out the strategy for the development of the Union and functions as a forum for settling disagreements between the Member States. 3.2.3. European Commission (Europese Commissie) • What: Represents general interest of the Union, operates independently of the Member States. Divided into several departments. • Members: 28 members, appointed by the Council of the European Union, after approval by the European Parliament. President is nominated at a European Council meeting and approved by the European Parliament. • Meetings: Once a week • Roles: Commission has the right of initiative (legislative), is the executive arm and thus responsible for the implementation of the decisions taken by the Parliament and the Council (executive) and have supervision over the Member States (supervisory). Further, it has a quasijudicial function, the enforcement of European competition law. 3.2.4. Council of the European Union • What: Main legislative institution • Members: Presidency rotates every six months among the Member States. Each Member State has a Permanent Representation in Brussels. When the Council meets, it represents the Member States, and therefore one minister from each national government (depending on the subject). • Meetings: Staff members meet within the Permanent Representative Committee (COREPER). Council meets only a few times a year, so COREPER prepares most the Council’s work. • Roles: Council can request the Commission to look into certain issue to develop a legislative proposal. 3.2.5. European Parliament • Meetings: Meetings of the whole Parliament, plenary sessions, take place one week per month in Strasbourg, and in between in Brussels. These sessions are prepared in one of the twenty committees. • Roles: Legislative, supervisory and budget functions. It has two roles in the legislative process: 1) request the Commission to develop a legislative proposal and 2) adopting, with the Council, legislative proposals. The committees prepare, amend and adopt legislative proposals prior to the plenary sessions. Furthermore, it supervises the other institutions in many ways. Together with the Council it decides on the annual budget. 3.2.6. Court of Justice of the European Union (CJ) The CJ rules on questions of law relating to the interpretation and application of the Treaties. It consists of a court of first instance, the General Court, the CJ and some specialised tribunals. The judges and Advocates-General are appointed by common consent of the Member States (6-year term). Most relevant to business are the preliminary rulings. CJ may be referred cases from a national court of a Member States, which thus requests an authoritative ruling on the interpretation of any EU legislation. A National court must seek a preliminary ruling from the CJ where a point of EU law is ambiguous or otherwise at issue. Preliminary ruling ensures the uniform application of EU law in all Member States’ courts. Application of European Law is decentralised to national courts. 3.3 Regulatory Environment 3.3.1 Instruments The (community) acquis (europees recht) is the body of common rights and obligations which bind all the Member States together. Applicant countries have to accept the Community acquis before they can join the Union. Applicant will have to transpose the acquis into their national legislation. The two Treaties are considered as the primary legislation. Secondary legislation consists of the legislative products with a basis in the Treaties (e.g. Regulations, Directives and decisions). Recommendations and opinions are not binding and therefore qualified as soft law. A regulation is a legal act of the EU of which the content becomes immediately enforceable as law in all members states simultaneously. 3.3.3. Secondary Legislation Secondary legislation of the EU is found in three types of rules: • Regulations: directly applicable in all Member States without the approval of the Parliaments of those States. The date the rules become effective is stated in the Regulation. • Directives: not immediately binding but require Member States to pass legislation to bring them into effect by the time of their implementation date. Most imply minimum harmonisation (states are allowed to keep, or introduce, stricter rules than the Directives do). Others imply maximum harmonisation (do not allow the Member states to deviate from the content). The implementation deficit refers to the percentage of Directives which have not been transposed into national law after the deadline has passed. Confusion can arise when Countries do not transpose Directives at the same moment. • Decisions: may be issued by institutions of the EU on a specific case. It is binding to the member State, individual, or company to which it is addressed. 3.3.4. Soft Law A recommendation is a non-binding communication of the EU that explains a current policy and recommends further actions to the member States. An opinion explains the current and future EU policies and legislation. 3.3.5. Tertiary Sources The tertiary sources encompass case law, the general principles of EU law, and the rules in international treaties. 3.3.6. Effects To understand the application of EU legislation, the following concepts need to be understood: • Supremacy: principle by which laws of the EU member states that conflict with laws of the EU must be ignored by national courts. • Direct effect: no EU legislation can have direct effect unless it is sufficiently clear, precise and unconditional (right does not depend on the judgment or discretion of an independent body). There is direct horizontal effect, one individual against another, and direct vertical effect, an individual against the State. • Directly Applicable: When Member States’ actions need to transpose the rules into their national legal systems, they are not directly applicable. 3.3.7. Influence EU law affects regulatory environment of its Member Stats but also companies and legislators outside the EU. Companies outside the EU can decide to make their products and processes EU legislation compliant in order to facilitate an entry and subsequent marketing on the internal market. 3.3.8. Self-Regulation The EU considers self-regulation and co-regulation as alternatives to legislation with the advantage of fewer administrative burdens. Self-regulation consists of voluntary agreements of codes of conduct between private bodies. Co-regulation a desired outcome is set down in law, by the decision on how to achieve it is left to businesses, social partners, non-governmental organizations. 3.4 Lobbying In official EU-texts the more neutral words advocacy and interest representation are used to refer to lobbying. People involved in the legislative process in the EU are increasingly turning to industry representatives, associations and others in order to obtain comprehensive information on issues before making a decision. This gives stakeholders the opportunity to provide input in the decision-making process. Lobbying = a strategy to influence legislative or other governmental processes. 3.4.2. Lobby Management Reactive lobbying is the attempt to stop or change a specific legislative development. Proactive lobbying about for example constructive input, or stimulating and convincing those involved to initiate a proposal. 3.4.3. Lobbying the EU The EU has two types of legislative procedures. • Ordinary: the joint adoption of instruments by the Council of the EU and EP on a proposal from the Commission (institutional triangle), and; • Special procedures. The Commission has the right of initiative. The commission differs from ordinary national legislators because 1) the multicultural composition and 2) under resources nature. The development of new legislation can be preceded by two papers: 1) green papers, stimulate discussion on a topic and regulation option, followed by a 2) white paper, in which the planned regulatory approach is outlined. The Directorate General (DG) than drafts legislative proposals after consultations. The Commission sets out legislative, and some non-legislative, initiatives in roadmaps. An impact assessment identifies the economic, social and environmental consequences of the initiative. Public consultations are announced in the roadmaps and offer stakeholders the opportunity to influence the outcome in the early stage of new legislation. Corporate capture refers to the influence of big business on legislation. It expresses the concern that the interest of companies dominates in legislative processes. Organisational charts including names and positions of staff are on the DG’s website. The drafts of new legislation are very detailed, covering policy issue based on stakeholders’ opinion, and therefore offer limited opportunities for successful lobbying in the Commission. After approved, the final proposal can put on the agenda of a Commission meeting for presentation and evaluation in order to finalise and adopt the proposal. The draft is then sent to the EP and Council and forwarded to the Member States’ Parliaments. The role of the parliament was first limited. It can now use a yellow card, which means the commission should (but not obliged) reconsider its proposal. They can be lobbied at by targeting the national ministers who attend the Council meetings in Brussels. The Council sets out committees to carry out certain preparatory work or studies. These members however have an official national government status, and are thus not easy to access for lobbying. In some cases, the Council or Parliament can enact alone, but is so each Member State has a veto right: lobbyists can block such a legislative proposal by convincing one of the Member States’ government to oppose the law. If, within 3 months of receiving amendments, the Council approves all EP amendments, a proposal is adopted. If not, the proposal goes to a conciliation committee, to reach an agreement between EP and Council on a joint text. Trilogues are behind-closed-doors talks to find a way out of a deadlock in an ordinary procedure. The essential lobby targets are the committee’s rapporteur and shadow rapporteur. • Rapporteur has responsibility for a particular topic on behalf of a committee in the EP. • Shadow rapporteur negotiate the topic with the rapporteur. The Ep and Council may entrust the Commission with a legislative act with the power to adopt nonlegislative acts. One example is the delegated act, authorises the Commission to supplement or amend certain non-essential elements of legislation. The second is implementing acts: certain European measures require uniform implementation across the EU, a competence of the Commission. 3.4.4. Monitoring Regulation Companies and lobbyists will monitor, gather information on, the EU’s regulatory plans and initiatives, by using websites, database and documents. Section 2 – Property, contracts and marketing Chapter 4 - Property Law 4.1 Introduction Property is anything that as a value and can be sold or exchanged such as land, buildings, smartphones, machines, copyrights and cryptocurrencies. Property law defines the moment ownership transfers and risk transfer from a seller to a buyer. 4.2 Functions • Strategic Input: Property law is primarily national law. Property laws tend to be rather static, closed systems, so the chance that external regulatory opportunities or threats result from changes in legislation in limited. • Create Value: property rights are strong rights because in law the rights are absolute and exclusive. o Absolute = owner can uphold his property right agains anybody. o Exclusive = signals an owner can prohibit anybody from interfering in his property rights. • Protect value o Right to revendicate property; o A reservation of ownership; o Establishing security rights. • Reputation management: Infringements on others’ property rights should be avoided to avoid negative publicity and the effect of this on the company’s reputation. • Risk management: The main source of risk for companies within the setting of property law are the internal risk of liability for loss or damage of goods sold and, the external risk of changes in property laws. There are different combinations which result in four systems for the transfer of ownership: o Consensual: ownership in principle passes at the moment the agreement originates o Traditio: Delivery of goods is requirement for ownership to pass o Abstract system: Transfer of ownership remains unaffected in case the contracts is or becomes invalid. o Causal system: a valid agreement is a prerequisite for the transfer. In Islamic law, the property of goods ordinarily passes to the buyer as soon as the contract originates from an offer and it acceptance. Reservation of ownership: making the transfer of ownership of the product a company is selling subject to payment, with the possibility to demand return of the products. 4.3 Dutch Property Law Property law and the law of obligations together constitute patrimonial law. The distinctions between the types of property rights are specifically relevant within the context of transfer as the type of right defines the legal requirements to transfer the property. The law defines two types of property: things, corporeal objects which can be subjected to human control, and Patrimonial rights, all rights which represent a value for business. Dutch law defines ownership as the most comprehensive right on things. Ownership can only be used for things and is not applicable to intangibles, such as the intellectual property rights. A legal subject does not own an intangible right but is the ‘holder’/’is entitled to’ the right. Property rights are absolute rights; they work against anybody (exclusivity). The exclusivity of a right means that the law enables an owner or holder to ‘exclude’ anybody from the right. Closed systems means that the only rights that are available are those ones explicitly made available by the Civil Code. Other rights are personal rights, which are the rights on a specific performance by a specific legal subject (claim). 4.3.2. Ownership Ownership is the core of property law and other property rights are derived from it. It is the most comprehensive rights; freedom to use it, within the limits of the law, as one likes and it includes ownership of anything generated by the thing or object. Dutch law defines that ownership of land encompasses for example the building permanently attached to the soil and the plants and trees connected to the soil. To change this there are two opportunities: 1) superficies, become owner of buildings/works of vegetation on ground owned by another legal subject and 2) leasehold, results in the right to use the immovable thing. 4.3.3. Components Components are relevant for assessing which things are included in the ownership right. The owner of a thing is the owner of all the components of that thing (principle of unity). 4.3.4. Movable or Immovable Immovable: land, unextracted minerals, plants growing on land buildings and works sturdily united with land, either directly of by incorporation with other buildings or works. Movable: everything that is not immovable. 4.3.5. Registered Property Registered Property is all property which is subjected to a mandatory entry in the land registry for the creation and transfer. This can apply to both things and rights. For the transfer, Dutch law requires delivery by a notarial deed, a document with a legal purpose, followed by its entry in the registers. 4.3.6. Dismembered rights Property law enables legal subjects to split parts of their ownership right to create a partial right, dismembered right. All dismembered rights are absolute and exclusive rights, and remain on a property even when the ownership is transferred. • Security rights: can be used in business for risk management purposes. o Mortgage: On registered property, immovable, ships and airplanes. o Pledge: For all other property such as stocks, shares, trademarks. They are both based on the principle that the property on which the right is established can be sold by the unpaid creditor to whom the right was given. • Enjoyment rights: Used to create and give other a patrimonial right: for free or in exchange for a payment. o Superficies and leasehold (mentioned before) o Usufruct: give somebody the right to reap the ‘fruits’ of a stock-portfolio or orchard. o Apartment: right on a specific apartment in a building with several apartments. 4.3.7. Transfer From a business perspective, the moment at which ownership is transferred is the moment in time at which value is realized by a seller and the moment at which the buyer has obligation to pay. From a legislative perspective, the moment at which ownership transfers is defined by rules or by agreement between parties. From an insurance perspective, a buyer must take out an insurance cover from the moment he becomes the legal owner of the purchased good. From an accounting perspective, for a claim to be recorded, it must exist. Transfer based on a sales contract is a particular title. Examples of under general title are a merger or inheritance whereby all property is transferred. The law sets specific requirements for different types of property. • The owner must be qualified to dispose of the property (right of disposal). • There must be a valid title, legal relationship that justifies the transfer, such as a contract. Valid means the title is not void or nullified because it was voidable. Void means the title never existed. • Delivery must take place; giving possession. In Dutch Law, there are several ways for delivery: • The movable physically moves from seller to buyer • Symbolic delivery by bringing the buyer in a position in which he or she has control over the property (e.g. handing over the keys). • Constitutum Possessorium: a detentor, who is in possession of a thing owned by another legal subject, holds it on the basis of a legal relationship other than the transfer of ownership. • Brevi Manu: When the buyer already holds the property of the seller (e.g. lease). The property remains where it is but the buyer becomes owner. • Longa Manu: in situations in which the thin is not in the possession of the seller or buyer, but by a third party (e.g. warehouse). The third party becomes holder for the new owner. Goods can be sold during their transportation using a bill of lading, document issued by a carrier to a shipper, listing and acknowledging receipt of goods for transport and specifying terms of delivery. 4.2.8. Claims A claim is the right on the obligation of performance that a legal subject has towards another legal subject. They usually have a value and therefore are patrimonial rights. The delivery requirement can be met in three ways: • Claim by name: claim on a known, identifiable creditor which can be embodied in paper. The delivery requirement is met by a written deed of assignment, transfer of the right by one legal person to another. Silent assignment is also an option available by law. • Claim to bearer: the name of the creditor is not fixed. The debtor must simply pay to the person who shows the paper and demands the payment. The delivery requirement is met by handing over the paper which embodies the claim. • Claim to order: must be written and must have the name of the creditor stated on paper, followed by ‘or to order; it can be transferred for which the delivery requirement is met by handing over the paper and writing the name of the new creditor. 4.3.9. Financing • Factoring: selling account receivables to a third party at a discount to improve liquidity. o Advance factoring: the business owner sells his receivables in the form of invoice to the factor. The factor collects the full amount from the customer and pays the balance amount due to the business owner after deducted the charges. • Securization: is a structured finance technique. The basis is a transfer of assets or claims, incorporation of a legal entity financed by issuing and selling shares. 4.5. Mergers and Acquisitions • Acquisition: is the purchase of the controlling interest or ownership of another company. • Merger: two companies combining and becoming one entity • Takeover: purchase of a smaller company. • Restructuring or divestment refers to the process of selling off a company or parts of it. Control of companies which have the legal form of a limited can be obtained by purchasing all or at least the majority of their shares by a share purchase agreement. • A statutory merger is a merger process between two or more companies specifically defined in the law in which one company continues to legally exist, while all other cease to exist as they are integrated into the ‘acquiring’ company. A controlled auction process is a type of sales process where various potential buyers submit purchase offers for an acquisition target. (see table 4.3. for all the steps). 4.6. International Dimensions 4.6.2. Civil Law Civil Law Systems distinguish between movable and immovable property. Civil Law systems differentiate between ownership the right, and possession, being in control of the good, and detentor, who holds the good under control with permission of the owner. 4.6.3. Common law Common law-style contracts are the most used types of contracts in international financing practice. There are differences between Dutch civil law concept and mortgage in common law. The common law mortgage can also be established on movables. Furthermore, in common law, the owner loses ownership when establishing a mortgage and becomes owner again after completing all payments of the loan. In the USA’s, failure to make mortgage payment can result in foreclosure, allowing the mortgage to declare that the entire mortgage debt is due and must be paid immediately. Legal title = actual ownership of the property. The equitable title = enjoyment of the property. Lien = right to retain the property until payment of debt. Pledge transfers as a security an asset to the creditor and gives the right to sell the assets if the debtor does perform according to the agreement. A charge is comparable to pledge with the difference that the asset involved remains with the debtor. A mortgage consists of the transfer of the ownership of an asset to secure a debt. 4.6.4. Islamic Law It is forbidden under Sharia Law to pay for receive interest. There are two types of mortgage, both involving the lender purchasing a property and either selling it to the buyer at a higher price or renting it. The payments for the lease are used to pay the sukuk holders, which is a sharia compliant bond. It is not simply a claim to cash flow but an ownership claim Chapter 5 - Intellectual property 5.1. Introduction 5.1.1. Overview The right which protect the results of intellectual accomplishments are collectively called intellectual property rights. IP rights are absolute and exclusive (they exclude others) patrimonial rights on intangibles. The main IP rights are: • Patent rights: protect inventions that are new, non-obvious solutions and industrially applicable. • Trademark right: can be obtained for signs which function for distinctive identification of products and services. • Geographical indications: rights to state that certain agricultural products and foodstuffs come from a specific region. • Copyrights: protect creative expressions and usually originate automatically at the moment of creation of the protected work by the maker. • Design rights: on a new external appearance of a product. • Database rights: original databases are protected by copyright and some by database right. All rights require substantive investment and some call for formal requirements (exception for copyright and database). • Trade secret: valuable piece of confidential information that gives an enterprise a competitive advantage. IP Rights: • Create value o Licensing agreement = contract between an owner of intellectual property rights and another who obtains to use that right in a specified manner during a specified period. o Cross-licensing = agreement between two IP owners to licence-in and pay by licensing out. • Protect value • Strategic input: Information which can serve as strategic input is collected externally and internally by an IP audit. IP regulation, due to their economic importance, are extensively regulated international, so an analysis for strategic input at multiple levels needs to be done. • Reputation management: A settlement refers to a compromise agreement by opposing parties in a dispute which avoids the need of a public court case. Large settlements for patent holders have stimulated competitors to protect their revenues from IP rights and have also stimulated IP owners to litigate IP infringement. • Risk management: A company’s IPRs are resources which company directors manage on behalf of stakeholders. This requires directors to create a governance and risk management system which maximizes value creation with IPs and reduces the risk of value destruction by improper IP management. 5.2 Interventions - Patents 5.2.1. Principles Patent rights protect inventions (products or production processes). A patent is an exclusive right, allowing the holder of the right to forbid someone else from using the invention for commercial purposes in a particular jurisdiction. It loses it absolute and exclusive character after is expires (generally 20 years). An intervention is a technical solution to a problem in the form of a product or process. Legal systems require three substantive requirements to be met for an invention to be protected: • Novelty or prior act: before the application, nowhere in the world anything was made public about the product or process • Inventive step or non-obviousness: the invention may not be obvious to a professional in the field of the application • Industrial application: the product or process can be made or used in business. 5.2.2. Levels of Regulation Patent rights are national, but it is by treaties and conventions that countries have created additional patent management opportunities (table 5.1): • Dutch patent law: The law states substantive requirements for a Dutch patent, however it does not define what inventions are (but what are not). The patent right can be crosslicensed; parties exchange licenses on each other’s patents. • European Union: the current EU system of national filing and enforcing patents is complicated and costly. In 2012, the representatives of the EU member states agreed to create a unitary patent and a European patent court. • Europe: The European Patent Convention enables to acquire a national patent in 38 countries via the EPO (offers a centralised procedure for examining patent applications). • International: The World Intellectual Property Organisation (WIPO) in Geneva is specialised agency of the UN. 5.2.3. Strategies Figure 5.1 of the book presents the main strategic issues that international managers face for patents. 5.3 Branding - Trademarks 5.3.1. Principles Trademarks allow companies to distinguish their goods and services from those of their competitors. Trademarks and geographical indications (IGs) protect the legal concept distinctive sing; signs enabling manufacturers of products and services to differentiate their offerings from others in the market. In general, the substantive requirements are: • Object of the trademark right must be a sign; • The sign is capable of representation; • The sign serves to distinguish a product or service. Formal requirements are an application, for one or more classes, and subsequent registration in a trademark register. Trademark has three types: 1. Individual trademark – distinguishes the goods and services of one particular company from those of another. 2. Collective trademark – identify the products and services of a group of companies or members of an association. 3. Certification marks – indicate that goods or services comply with the certification requirements of a certifying institution or organization, they are a sign of supervised quality. Trademarks can lose distinctiveness by dilution. Dilution occurs when a brand becomes a generic word in a language’s vocabulary for a particular class of products. 5.3.2. Levels of Regulation Trademarks are in principle acquired and enforced on a national basis, but, by treaties, legal opportunities were created at other levels: • National: trademarks are to be filed for at a national Trademark or IP office. • Benelux: The Benelux has a Benelux convention on intellectual property (BCIP). A national trademark for one of the three countries is not possible. Lack of distinctiveness is the most common ground for a refusal to register a sign as trademark. Furthermore, the applicants must indicate one or more classes of goods which the trademark will be used. • EU: opportunity to obtain a Community Trademark (CTM) by a single direct or indirect application at the Office for Harmonisation in the International Market (OHIM). The EUs systems is a dual system; EU and national law co-exist, but are not identical. A CTM confers on its proprietor exclusive rights. A CTM is dealt with for the whole area of the EU as a national trade mark registered in the Member State in which the proprietor has his seat or domicile. • Geographical indications: a name or sign used on certain products to link them to a specific geographical location or origin. The protected Designation of Origin is available for a product that is produced, processes and prepared in a defined area using recognised know-how. A Protected Geographical Indication can be granted to products whose reputation or characteristics are linked to production in the area. Traditional Speciality Guaranteed promote and protect names of quality agricultural products and foods. • International: The WIPO administers the Madrid Agreement and Protocol, which enables cost effective filing and renewal of trademarks in the Member States. • Global: The WTO’s TRIPS agreement and the Paris Convention for the Protection of Industrial Property offer owners of well-known trademarks the opportunity to request cancellation of an existing infringing trademark, when they are not yet registered in a country. 5.4. Creativity - Copyrights 5.4.1. Principles A Copyright is a non-registered right: there is no administrative, formal, procedure required to go through in order to become the ‘owner’ of this right. It generally comes into existence automatically at the materialization, by the making, of a work that meets the substantive requirements for protection: it should be an original creative product of the mind embodied in a concrete appearance. Copyrights protect works that exist in some form and are original. See the book for a list of examples. The minimum duration of protection set by the Berne Convention is the authors’ lifetime plus 50 years from his/her death. However, within the EU the protection is seventy years after the author has passed away. In copyright law, related rights are the rights of creative work not connected with the work’s actual maker. 5.4.2. Levels of Regulation The legal basis for copyright regulation at various levels and the organisations are as follows: • Netherlands (Auteurswet): A copyright originates automatically by embodying a creative, original ‘product of the mind’, in some physical means of expression. The substantive requirement of originality of the work is however not stated explicitly. A copyright cannot be seized by creditors of the maker and remains outside of bankruptcy. Licensing is not regulated in the ‘Auteurswet’: the general rules of patrimonial law apply. • EU: The EU succeeded in realizing significant harmonization of the substantive copyright laws. However, there are still differences between Member State systems. • International: The enjoyment of protection in countries other than the country of origin is automatic and not subjected to registration formalities (Berne Convention). 5.5. Exterior – Design Rights A design is from a legal perspective, the ornamental or aesthetic aspect of a product, which can be two- or three-dimensional. In general, a sign must be ‘new’ or ‘original’ to be protected. It can be obtained by registration or by bringing a product on the market. Excluded are forms which are primarily the result of technical requirements. The Substantive requirements for design registration are: • Novelty; • Individual character; • Non-functionality. Protection if registered is 5 years from the date of the filing of the application with four renewals of five years. 5.5.2. Levels of Regulation Levels of regulation are: • Benelux: The Benelux Convention on Intellectual Property (BCIP) distinguishes between drawings and models. Requirements are: a design must be novel, no identical designs are available. It must have an individual character, if the overall impression on the user differs from any design that has been disclosed before. Designs shall only be regarded as identical when their characteristics differ only in terms of insignificant details. • EU: A Community Design Registration is comparatively inexpensive to acquire. If formal requirements are met, the design is registered. The EU facilitates two types of protection: o Registered Community Design: by filing with the OHIM o Unregistered Community Design: requires no formalities but comes into existence by disclosing a design product to the public. o International: The Hague Agreement system gives the owner of an industrial design the possibility to have a design protected by filing a single application with the WIPO. 5.6. Other IP and Related Rights 5.6.1. Database Right A database is a structured collection of data which can be used to create information products. Under the Database Directive, two types of rights were created: harmonized copyright and a specific standalone right. People who made substantial investment in the database, can be protected. 5.6.2. Geographical Indication A Geographical Indication identifies a good as originating from a particular territory or region. Only producers of products of a particular geographical region have the right to apply and use a GI for a product from that region. 5.6.3. Trade Name Right Trade name: name under which one or more business are run. Two relevant Dutch Acts are the Trade Names Act and the Trade Register Act. Substantive requirements are that the name can be pronounced, is sufficiently distinctive and is used for business purpose. Formal requirement is registration in the trade register. 5.6.4. Chip Rights The TRIPS agreement requires protection of semiconductors, chips, for at least ten years. 5.6.5. Plant Breeder’s Right A plant breeder’s right is an exclusive and absolute right granted to a plant breeder to cultivate and trade in a new plant variety. 5.6.6. Trade secret A trade secret (undisclosed information) refers to technical or commercial business information which has an economic value and for which reasonable steps are taken to keep it secret. Secret in the sense that it is not generally known or easily accessible. The holder of a trade secret is not the owner of an exclusive right over its creation. Competitors may discover, develop and freely use the same formula. 5.6.7. Domain Name An internet domain name is a unique Internet address in a simplified form, designed to enable users to localize and visit a website or use an e-mail. All trademarks can, in principle, be registered as a domain name. ICANN = Internet Corporation for Assigned Names and Numbers. 5.6.8. Portrait rights The portrait right allows a depicted person to prohibit the publication or copying of the photo or footage on which he/she is shown. The depicted is not entitled to an exclusive right on his appearance. Unlawful use of a portrait can lead to commercial damage, resulting in remedies being awarded to the person whose portrait right was unlawfully used. 5.7 IP in Business Planning Ineffective IP management can result in missed opportunities, unintentional or intentional infringements of others IP rights, contractual disputes, etc. We now evaluate the role of IP in business planning: • Mission and vision: in which the importance of IP to a company can be emphasised. • Objective setting: IP objectives can be • • • • o Exclusivity: defending an IP based competitive advantage o Design access: agreements to use others’ IP rights o Revenues: additional revenues by licensing or transferring IP rights o Design freedom: invalidating other companies’ IP rights Strategic analysis: IP situational analysis forms the input for developing objectives and strategies. Strategic choice: a distinction will be made between SME’s and MNC’s: o MNC: the essential strategic choices involve the combination of countries and IP rights to be obtained, renewed and protected. o SME: don’t have well developed management competences and networks to create such portfolio’s. A strategy based on collaboration can be instrumental to acquire the knowledge, skills and investments. Strategic Implementation: requires a multidisciplinary approach, involving cooperation between different functions. Often support of a IP law firm will be needed. Control: Objectives and markets must be monitored to identify deviations and infringements and if needed corrective action is to be considered. Chapter 6 - Contracts 6.1 Introduction 6.1.1. Principles In all legal traditions, contracting is based on a party making an offer and another party accepting it. An offer which is accepted results in an agreement. Legal systems consider contract-based obligations as binding and, when not performed, make them enforceable by offering remedies and enforcement institutions. Contract laws in all legal traditions have four identical principles: 1. Party autonomy - principle that legal subjects have the freedom to decide on how and about what they conclude contracts; 2. Consensualism – means that concensus suffices for the formation of a contract; 3. Binding obligations; 4. Relativity – means a contract only binds the parties. 6.1.2. Contractual pluralism Within the EU, the Member States’ contract systems are by no means identical (contractual pluralism), which can hinder cross-border trade by increasing transaction costs. The contract law systems of the Member States can be clustered in: 6.1.3. Contracting Process • Pre-contractual liability – a party, under certain circumstances, is liable to compensate the costs and losses of the other party that result from breaking off the negations. • Capacity – ability to perform legal acts. • Will-reliance – refers to the question of whether somebody is bound to a statement that is not according to that person’s will. • Legal traditions have force majeure concepts – Unlikely events that make the performance impossible such as flood or earthquake, may serve the ward off a remedy like compensation for non-performance. • Three types of remedies for breach of contract: o Demand performance of the contractual obligations; o Compensation for costs and damage; o Court removes the binding character from a contract by setting it aside. 6.1.4. Types of contracts • Sales contracts that transfer ownership or right; • Services contract that involve the performance of an intangible performance. 6.1.5. Business contracts > See table 6.2. for types of business contracts. 6.2 Dutch Contract Law 6.2.1. Introduction The Law of Obligations is considered an ‘open system’, while property law is the opposite. An obligation is a performance to be made, which in the case of non-performance, is enforceable. The four main statutory obligations are: • Management of another’s affairs: e.g. when a passer-by takes measures to stop a fire in your office, you have to pay the costs he had to make. • • • Undue Payment: a person who has transferred property or made a payment to another without a reason is entitled to reclaim it from the recipient. Unjustified enrichment: enrichment which is not legally justified. Unlawful act: allows competitors to take legal action and demand compensation for any behavior which unlawfully damages their interests. The Dutch law distinguishes two sources of obligations: contracts and the law. The Dutch Law of obligations recognizes party autonomy and consensualism and as a result, allows for substantial freedom of contract. It reflects the fact that the majority of the rules on obligations are defaults. A party can invoke reasonableness and fairness in court to add content to a contract or, in exceptional circumstances, prevent a party from relying on a contractual clause. 6.2.2 Pre-contractual Risks Dutch law recognizes the requirement of reasonableness and fairness. Parties involved must behave in a way which takes the justified interest of the other party into account. Breaking off negotiations can conflict with reasonableness and fairness and thus constitute improper social conduct, which can function as the basis for a compensation claim. Another risk is a letter of intent: a written statement expressing the intention to enter into a formal agreement managers might think this is not binding. 6.2.3 Formation risks From a business perspective, the moment the contract is defined as binding, is important. Two potential risks are: • Voidness: the legal act or contract has no legal effects; it does not exist and no obligations can originate from it. • Voidable: a valid legal act or contract has a defect, which could result in the act or contract being annulled and thus to become void. > See table 6.6. for more information 6.2.4 Non-Performance • Non-performance refers to a lack of, a non-timely, or an incomplete performance. • Force Majeure refers to a cause of non-performance that was outside the control of a party. • Clause is a provision in an agreement or general conditions on a specific subject. 6.2.5. Dispute Resolution Risks In case the words of a contract do not perfectly reflect the parties’ intentions, they become a potential source of risk. Interpretation in Dutch law is based on the will-reliance theory. The obligations are what the parties have consensus about, which refers to the will and the intention of the parties to be decisive. The text of the contract is not decisive; a judge has the task to see through the words of the contract to detect the real intentions of the parties. In case a topic is not covered in a contract, the court can use reasonableness and fairness to assess what actually should have been in the contract. 6.3 Common Law English law is the legal language of international businesses. English law considers the contract as an exchange of promises. The general theory of contract is based on case law. English contract law is occasionally supplemented by the rules of equity. The core concepts of English Law are: promise & consideration: parties make a promise to each other which must have a value to meet the ‘consideration’ requirement. • Pre-contractual Risk: English law does not recognize reasonableness and fairness. • Formation Risk: requirement of a promise supported by a consideration to realize an enforceable contract. It means both parties must give up something of monetary value. Under • English law, an offer is freely revocable (herroepbaar) before acceptance no difference if there is a deadline or not. Non-Performance: Common law respects autonomy and responsibility. The parol evidence rule prevents a party to a written contract to present anything to support a deviation from or specific interpretation of the contract. Contracts do not run the risk of being changed. o Force Majeur is broader than Act of God. 6.4 Islamic Law Contracts must fully respect the moral principles and values expected of all Muslims. • Pre-contractual: Quran refers to good faith, justice and honesty as imperative prerequisites in all Muslim transactions. • Formation: Contracts can only be concluded by adults of sound judgement. Written and verbal contracts can be valid, if the offer and the acceptance are performed at the same meeting session, without any interruption or venue change. Party autonomy is limited by specific principles. Contracts with uncertain elements or speculation are prohibited (e.g. derivative, type of security). Trade in claims is prohibited as it involves trade in money, and money cannot function as a source of profit. • Non-Performance: the Riba prohibition does not allow charging or paying interest because it results in societal injustice. • Dispute Resolution: Parties’ behavior or agreements that go against religious regulations are invalid and cannot rely on enforcement. The Islam prohibits any exploitation of another party’s genuine misfortune. Chapter 7 - Legal forms 7.1 Introduction Law considers an enterprise as an organizational structure with the objective of sustainable participation in economic activities. Legal systems distinguish legal forms with and without legal personality. A business without legal personality is a business run by a natural person. Natural persons: 1. Sole ownership; 2. General Partnership; 3. Limited Partnership. Legal persons: 1. Private Limited Liability; 2. Public Limited Liability; 3. Association; 4. Cooperative; 5. Foundation; 6. Limited Liability partnership. See the book for explanation on all the persons mentioned above. Holding company: business organization in which a legal person holds interests in a number of other legal persons. Corporate Governance: deals with the rights and responsibilities of a company’s management, its board, shareholders and various stakeholders. 7.2 Dutch Law 7.2.2 Sole Ownership Dutch law differentiates between three types of contract based forms of cooperation: 1) non-public partnership, 2) partnership under a common firm, and 3) limited partnership. A sole trader is the simplest way to set up and run a business. A sole trader must be registered with the Chamber of Commerce. Sole owners are bound by and liable for all consequences of their acts and all their property is available for resource by creditors. 7.2.3. Partnership A partnership is a relative simple way for two or more natural persons to set up and run a business. They are based on agreements. A partnership lacks legal personality. The liability of the partners in a non-public partnership is less extensive than in the forms which are now introduced: • Partnership under common firm: presents itself to the outside world under a common identity. A written contract is not compulsory, but essential in practice. Partners are joint liable; each liable up to the full amount of an obligation of the partnership. • Limited/silent partnership: consists of active partners, run the business and liability is identical to the latter, and sleeping partners, only finance the business and therefore the financial risk is limited to the loss of the contribution. 7.2.4. Legal Persons All legal forms require a set of internal regulations at the moment of incorporation, which are documented in the articles of association. • • • • Association: a legal person with members aiming to realise a common goal other than meeting the tangible needs of its members. It is not allowed to distribute profits among the members. Cooperative: special form of association. It is a taxable entity and therefore also benefits from the participation exemption and the Dutch treaty network. It is able to distribute profits to its members without being subject to withholding tax on dividends. Foundation: legal person without members, established with a certain amount of capital to achieve a goal stated in its articles of association. Making profits is allowed but the allocation is restricted. Private and public limited company’s: legal persons based on capital acquired by issuing shares. The articles of association are the primary rules governing the management of a limited and the document is generally filed with a state or other regulatory agency. One of the legal questions with business relevance is the representation question, which refers to the authority to act and realise legal effects on behalf of another person. 7.2.5. Limited Liability The Dutch Act on simpler and more flexible laws of private limited liability companies resulted in more freedom in structuring the Dutch limited liability company. • Minimum capital of €18000 is abolished. • Before the Flex BV, the voting right could be denied to shareholders by means of issuance of depositary receipts for shares. They we’re limited to dividends. The Flex BV provides an alternative, because the BV’s articles of associations can limit or exclude certain shares from dividends and voting rights. • General meeting will be allowed to give specific instructions to the managing board. • Greater flexibility in how to appoint and dismiss managing and supervisory directors. 7.2.9. Executive liability Executive is the Anglo-Saxon term for the person who has the administrative authority in the organisation. Legal systems differentiate between an internal liability to the company and an external liability towards legal subjects outside the company. Executives’ behaviour is regulated by articles of association, employment, or other types of contracts. The relationship between an executive director and a listed company is based on an agreement. 7.2.10. Corporate Governance Public limited companies tend to have three bodies: board, the shareholders and the supervisory board. As their interest differ, this can give rise to the so called agency problems. To avoid this, corporate governance law, self-regulation and practices attempt to regulate the relationships between the three bodies. Dutch stock listed companies are by law subjected to the Corporate Governance Code. See table 7.5 in the book for an overview of the legal forms 7.3 Common Law All legal traditions offer the three generic form and to differentiate between contractual and incorporation based legal forms. • Civil law: rules are in the law of obligations, Commercial Codes, specific acts. The term company tends to be employed for both partnerships and limited companies. • Common Law: corporate law, the law of business associations or companies’ law. Confusion between civil law and common law concepts can result from the fact that under English law, all human beings are endowed with a legal personality. In civil law, legal personality is reserved for legal forms which are created by incorporation. • Islamic law: Sharia did not regulate legal persons. Nowadays all regular legal forms are available in Islamic jurisdiction. 7.3.2. Sole Ownership • Sole Ownership enterprises do not qualify as companies. • The partnership has three types: ordinary, limited, and limited liability partnership. 7.3.3. Corporate Governance The UK Corporate Governance Code stipulates a set of principles of good corporate governance aimed at companies listed on the London Stock Exchange. The principles primarily serve the interests of shareholders. The Role of the governance mechanism is to put the right managers in place, give them room to implement their chosen strategy and monitor their progress. 7.4 Islamic Law 7.4.1. Corporate Law • Under Islamic Law, religious obligations apply identically to enterprises and natural persons. Companies must combine profitability with compliance to ethical and religious principles such as respect for employees, people, and society. 7.4.2. Legal Forms • Companies divide into two types: o Property company o Contract company Capital Work Personal • Juristic person = a legal entity that exists separately from the individual that incorporate it. 7.4.3. Corporate Governance • Islamic systems generally impose a two-tier governance system on limited liability companies. 7.4.4. Director’s liability • The Sharia law principles of accountability, trust, fairness and transparency are considered to impose additional fiduciary duties on directors of all types of company, for example to avoid conflicts of interest and to act in the best interests of the company. Chapter 8 - International Commercial Contracts 8.1 Introduction Litigation involves the submission of a dispute to a court of law. There are three typical legal challenges, which are a source of risk from a business perspective: • Where proceeding should be brought: risk is that a dispute must be decided upon in a foreign court. The question is, which law to apply? If the contract is a purely domestic one, the judge will apply the local law. However, if the contract is international, a problem needs to be solved • Which law is governing the contract: Unless the question is raised, the judge will apply the local law. When the issue of the governing law is raised, the judged cannot ignore it but must decide the question before going on to deal. • Risk related to recognition and enforcement of judgements, and arbitral awards, handed down by foreign courts, or arbitrators, outside their jurisdiction. 8.2 Applicable Law With respect to the law applicable to a contract, two potential case positions for sales and services contracts and one position specifically for sales contracts can be identified: • The parties made a choice The choice by the parties is expressed in a choice of law clause; a provision in which the parties specify which law will be applied to resolve any disputes arising under the contract. The EU Member States have harmonised their national IPL rules by Regulations on the law applicable to contractual obligations (Rome I). Rome I: o International contracts between consumer and companies: governed by the law of the country where the consumer has habitual residence. o Not possible to be deprived of the strong protection of Dutch law by a choice of law for another legal system, even when agreed upon by the parties in the sales contract. • The parties made a choice and excluded CISG The ‘Vienna Convention on the International Sales of Goods’ is part of Dutch Law and applies to international sales of goods contracts, not to services, unless its application contractually excluded by the parties. CISG regulates parties’ legal rights, duties and available remedies. o CISG applies when companies involved are in contracting states o Or when as a result of a referral rule the law of a country which is a signatory applies. One of the reasons to eclusion is the fact that the avoidance of a contract requires more than a simply non-performance; it requires avoidance a fundamental breach. • Parties made no choice The principle is that the law of the country of the seller or service provider governs a contract in which no choice for an applicable legal system was made. 8.3 Competent Court Competence refers to the ‘ability’ of a court to exert jurisdiction on a dispute on which a decision is requested. The forum selection clause in a contract determines the process by which parties to the contract will have their disputes resolved and the venue for such dispute resolution. The specific forum selection clause that best meets the interests of the parties, should be decided on several conditions. Forum non conveniens is a common law doctrine whereby courts may refuse to take jurisdiction over international matters where there is a more appropriate forum available. Within the EU, the IPL competence rules are harmonized by the EEX regulation. It offers the opportunity (article 23) to choose the court that should have jurisdiction in case of a dispute. In case parties have not chosen, or the choice was not according to formal requirements, the defendant will be sued in the courts of the Member State in which he/she is domiciled (art. 2 EEX). A person domiciled in a Member State may be sued in another Member State in matters relating to contracts in general, in the courts for the place of performance of the obligation in question (where the goods are delivered). With consumer contracts, the consumer may only be brought in the courts of the Member State in which the consumer is domiciled. 8.3.2 Arbitration Arbitration is an agreement to refer a dispute to the decision of privately appointed judges called arbitrators. Arbitration requires an agreement in the form of an arbitration clause in the contract or a later so called compromise. Advantages or arbitration: speed, economy, informality, specific industry expertise. Arbitration can be ‘ad-hoc’, meaning the parties appoint arbitrators as a dispute arises. 8.4 Carriage Contracts 8.4.1. Regulation Companies can make use of four types of carriage for transportation of goods: 1. Truck 2. Rail 3. Plane 4. Ship Three principles of relationship between carrier and sender: 1. Carrier must deliver the goods without damage and in time 2. The liability of carriers is maximized 3. Claims for damage and litigation are subject to time limits. 8.4.2. CMR (vervoersovereenkomst) It only applies to road transport contract in which the place of taking over the goods is in a different country than the designated place of delivery. 8.5 Risk Transfer 8.5.2 Incoterms The ICC in Paris and the UNIDROIT in Rome are both organizations supporting international business with miscellaneous, contract related and other services. The incoterms are standard commercial terms for the use in international contracts for the sale of goods. They rule: tasks, costs and risks involved in the delivery of goods from sellers to buyers. It can be binding by 1) including the term in the body of a sales contract or by 2) the applicable general conditions. Incoterms define which party has the obligation to make carriage or insurance arrangements, when the seller delivers the goods to the buyer, and which costs each party is responsible for. The moment of delivery is the moment where the risk transfers from seller to buyer. There are four categories of Incoterms, see table 8.3 in the book. 8.4.2. Any mode of transport. • Ex Works: minimum responsibility to the seller, who has to make the goods available, suitably packaged, at the specified place. Risk transfers to buyer at the moment he is informed by the buyer. • Free Carrier: where the buyer arranges the main carriage. Risk transfers at the seller’s premises, when the goods have been loaded on the means of transport. • • • • • Carriage Paid to: seller is responsible for arranging carriage to the named place, but not for arranging insurance cover for the buyer for the transport of the named place. Risk transfers at point where the goods are taken in charge by the first carrier. Carriage and insurance paid to: as with the one before, delivery takes place and risk transfers from seller to buyer, before the main carriage, at the point where the goods are taken in charge by the first carrier. The seller is responsible for arranging carriage and insurance. Delivered at Terminal: seller is responsible for arranging carriage and for delivering the goods, unloaded from the arriving conveyance, at the named place. Risk passes when the goods, once unloaded, are placed at the disposal of the buyer at the named terminal. Seller is responsible for export clearance procedure. Delivered at Place: seller is responsible for arranging carriage and for delivering the goods, ready for unloading form the arriving conveyance, at the named place. Risk passes, when the good are placed at the disposal of the buyer, while still on the arriving means of transport at the named place of destination. Delivered Duty Paid: maximum of obligations of the seller; all transport, formalities and costs involve in bringing the goods to the premises of a buyer. Risk transfers from seller to buyer when the goods are made available to the buyer. 8.5.4. Waterway • Free alongside Ship: seller delivers goods, cleared for export, alongside the vessel at a named port, at which point risk transfers to the buyer. • Free on Board: seller delivers the goods, cleared for export, on board the vessel nominated by the buyer at the named port of shipment. Once loaded, the risk passes to the buyer. • Cost and Freight: seller must pay the costs and freight to bring the goods to the port of destination. Risk is transferred to the buyer once the goods are loaded on the vessel. • Cost insurance and Freight: seller also contracts for insurance cover against the buyer’s risk of loss or damage to the goods during the carriage. 8.7 International contracting 8.7.1. Structure Contracts tend to consist of five parts: • Heading: indicates what the type of agreement is. • Description of the parties • Whereas: describes why the parties have decided to enter into an agreement. • Body (‘now therefore’…): describes the content of the agreement. Usually in the last part, the parties will include a choice of law and forum clause. • Names of the companies and their representatives, dates of signing. 8.7.2. Clauses Legal problems are likely to arise in the course of any business, especially in the performance of all but the most straightforward contracts. All kinds of clauses are included in the body or general conditions. • Exemption clause: limiting a liability risk • Indemnity clause: provision under which one party commit to compensate the other for any harm, legal liability or loss arising out of the contract. • Warranty: promise about a product made by either a manufacturer or a seller. • • • • • • • • • Time-is-of-the-essence-clause: make sure that a deadline is met and if not, breach of contract is constituted. No-waiver clause: to avoid the inability to use the right in the future by not exercising when it could have been used. Reservation of ownership: to subject the transfer of ownership to the performance of a specific suspensive condition which usually is the payment. Advanced payment clause: manages risk of non-payment. When performance cannot be attributed if it is not due to fault, we call this force majeur. Common law differentiates between ‘Acts of God’ and acts of humans such as strikes and terrorists attacks. An act of God is an act caused exclusively by the violence of nature. Liquidation damages clause: amounts of compensation for a failure to perform is assessed beforehand and defined (in common law). Attorney fees clause: in the event of litigation, the losing party is to reimburse the prevailing party’s costs for legal support. Nullity clause: ensures that problems with a clause in a contract will not affect the rest. Entire agreement clause: defines that the written contract reflects everything the parties agreed upon and invalidates all other sources of obligations. Change of control clause: opportunity to terminate a contract for example when the other party is taken over, or economic conditions change dramatically. 8.9 Dutch Contract Law The layered structure of the DCC (no distinction in private and trade law) means that the substantive rules for sales and services contracts are distributed over different books. 8.9.2. Types of Contracts Sales (7.1 BW): contract whereby one should give a thing and the other pay a price. Dutch law differentiates (article 7.5) between sales contracts between companies and consumer sale. The extra protection of consumers is based on article 7.6. Article 7.400 BW defines a contract for services. 8.9.4. Obligations • Sales and services contracts are bilateral contracts; the obligation of one party is what the other has a claim on. The seller’s obligation is to transfer the ownership of a thing and to ensure the thing is actually delivered. • Deliver means the actual transportation of the property to the buyer in order to give the buyer possession. • When the thing does not possess the qualities, the buyer was expecting on the basis of the contracts, the seller’s performance constitutes to non-conformity. • For B-to-B sales contracts the conformity article is supplementary law, and companies thus have the freedom to deviate from it. Party autonomy also leaves room to include in a sales of goods contracts additional requirements for invoking non-conformity. 8.9.6 Consumer protection The objective of consumer law is to repair the power and information asymmetry between manufacturers and consumers. Most statutory private law provisions on consumers are mandatory law. The legal risks for companies with respect to consumer sales contracts result from: • mandatory statutory provisions: high costs of court proceedings, risk of negative publicity. • courts which tend to protect consumers against companies • • rules of self-regulation rules enforced by supervisory boards: o Authority for Consumers and Markets: authorised to take action against national and cross-border infringements of consumer law provisions. o Netherlands Authority or the Financial Markets Chapter 9 - Marketing 9.1 Introduction The marketing philosophy holds that achieving organizational objectives depends on knowing and providing what target markets want. As an organizational function, marketing is usually concentrated in a marketing department. A marketing process generally starts with analyzing the (marketing) environment. • • • Target group = potential customers at wich marketing directs its offerings and activities. Competitive advantage = what a business chooses to distinguish a product or service from competitive offerings. Marketing mix = product, place, price, promotion. 9.1.2 Levels or regulation Law and other regulations intervene to control and regulate certain types of activity deemed to be harmful to the general public interest or fair competition. The EU is committed to the protection of consumers. The EU’s CSR policy aims at improving trust in business (e.g. OECD, ICC’s code). In some countries, marketing is subject to detailed legislation. In others, it is more self-regulation; marketers organize themselves in associations or institutes. 9.1.3. The Netherlands The Netherlands has no Act that exclusively regulates marketing. Most of marketing activities are regulated in general statutory provisions, statutory provisions that result from EU directives that protect consumers, in the Advertising Code of Practice. 9.2 Non-contractual liability Liability means legal responsibility of acts or omissions which the law considers unacceptable. Legal systems tend to work with two types of bases for liability: • Contractual liability: result of the consequences the law attaches to non-performance or the contractual conditions as agreed upon by parties. • Non-contractual liability: it results from acting, or not acting. o Fault-based: legal subject who damaged is to blame for what was done o Strict: based on risk, irrespective of intent or fault on the side of the legal subject which acted (e.g. parents for children). Common law works with over seventy types of ‘torts’. 9.2.2. Dutch Law The Dutch legal system relies on the general principle that everybody who, through hi fault, causes damage to another, must compensate the damage. Non-contractual liability is based on a general rule as the basis for demanding a court to stop or prevent certain behaviour, or compensation for the damage. There are a few requirements for an unlawful act: • Unlawfulness of the act, which can be constituted in three ways: o Violation of a right o Breaching a duty imposed by law o Breaching a rule of proper social conduct (open norm) • Attributable to the actor. • Material or immaterial damage. The injured person has a right of compensation for damage that does not consist of material loss. • • Only damage in consequence of can be compensated. Relativity; a judge will assess whether the rule that was breached was intended to protect the damaged interest. 9.3 Marketing communications Promotion is one of the instruments (4P’s) which marketers have at their disposal to realize marketing objectives. Consumers want to be informed; but as weaker party they welcome regulatory protection. 9.3.2. Advertising Advertising is characterized by the fact that the communication has its objective to get attention to create awareness to promote sales. Companies need to manage miscellaneous risks (e.g. misleading advertising, violating IP rights, contractual conditions with suppliers). Advertisement regulation and enforcement in the Netherlands is expressed in a wide range of statutory and self-regulatory rules and regulations, all relating to commercial communication. • Dutch Civil Code • Dutch Advertising Code Foundation • Advertising Code Committee (for complaints about advertising). • Authority for Consumers and Markets and the Authority for the Financial Markets: supervisory authorities. • Dutch Media Authority Misleading advertising is any advertising which in any way deceives or is likely to deceive the persons to whom it is addressed or whom it reaches. Comparative advertising is any advertising which identifies a competitor or goods or services offered by a competitor. 9.3.3. Direct Marketing The communication of any advertising or marketing material which is directed to particular individuals is an instrument in the promotions mix which is called direct marketing. 9.3.4. Social Media The EU is firmly opposed to restrictions of access to use of social media; freedom of expression. Some countries provide guidance on how existing advertising rules should be applied to the use of children in peer-to-peer marketing. The Dutch Advertising Code contains a specific Advertising Code Social Media. This provides guidance for compliance when marketing via social media. 9.3.5. Unfair Trade Practices The Directive on Unfair Commercial Practices was transposed into the Dutch Law. As a full harmonisation directive, it blocked the opportunity for the Member States to impose stricter rules. The AFM and ACM are Dutch supervising authorities which can force a violator to perform a certain action/penalty. Commercial practices are unfair if a trader acts contrary to the requirements of professional diligence and the ability of the average consumer to take a decision on the basis of sufficient information is noticeably limited or may be noticeably limited. 9.3.7. Personal Selling Personal selling is person-to-person, interactive communications used to ultimately persuade another legal subject to act in a certain way (acceptance of an offer). Employers are liable for the damages which employees suffer during work and for the damages employees inflict upon third parties; unlawful behavior (vicarious liability). In order for employees to effectively enforce instructions on social media, it is advisable to have a social media policy. To avoid the risk of liability or reputation damage as a result of representatives’ actions, they should be extensively trained in the regulatory risk of their work including internal reporting policies. 9.4 Product Regulation is in the interest of both seller and buyer: rules which protect consumers create trust which consumers need as a basis for buying. However, rules have a national basis, and therefore differ. The EU and industries co-operate to harmonize standards. Product liability rules define the conditions under which producers are liable for injuries or death caused by their defective product. EU Member States’ liability rules enable a consumer to hold a producer liable if the latter’s defective product causes damages. In the EU, the ‘product recall’ rules are the result of the General Product Safety Directive. In the Netherlands, the Directive was implemented by the ‘Commodities Decree General Product Safety’. 9.5 Place 9.5.1. Distribution Theory differentiates between direct distribution (sales contracts) and indirect distribution by using intermediaries or middlemen. Companies are accountable not only for their own actions, but also for their third-party suppliers and partners. 9.5.2. Selective distribution Exclusive distribution agreement is an agreement under which the distributor will enjoy an exclusive sales territory within which it is protected from competing sales by the supplier and/or distributors appointed in other territories. The distributors, in return, agree to supply only other distributors who are within the approved selective distribution system or end users. 9.5.3. RSCM Responsible Supply Chain Management stimulates that companies manage the social, including human rights, and environmental dimensions of the processes and parties in their supply chains. 9.5.4. Carriage contracts Transportation or carriage contracts cover the physical transport of goods to a destination, involving a carrier. 9.6 Pricing 9.6.2. Value Added Tax VAT is chargeable on most of the EU-based companies’ sales and purchase except exports to countries outside the EU. It affects the ultimate market price; the pricing tactic. 9.6.3. Transfer pricing • Inter-company or transfer pricing denotes the pricing policies among associated enterprises resident in different countries. Pricing can be used to reduce profits in countries with high taxes and favour of countries with lower corporate taxes. • National tax authorities apply arm’s-length principle; they only approve a pricing policy if prices would be the same for independent parties under comparable circumstances. 9.7 Entry Strategies Two interrelated decisions are important; market entry and the distribution strategy. Market entry strategy defines the method chosen to enter and thus operate on the new market. 9.7.2. Agents and Distributors A company can export by selling directly to customers or by involving a local or regional agent or distributor. An agent has express or implied authority to act to another (the principle), so as to bring the principal into contractual relationships with other parties. He is under control of the principle, and binds the principle with his acts. A commercial agent is a person/company who mediates against payment on the formation of contracts in the name and for the account of the principle. They are remunerated by a commission fee based on the amount of sales. In case of a termination of the contract, he is entitled to goodwill compensation. Distributor buys products or product lines, warehouses them, and resells them to retailers or direct to end users. They usually provide strong manpower and cash support and usually a range of services and a reasonable notification term. In practice, a distributor seems to receive more compensation than an agent, as a result of the long notification time. 9.7.3. Franchising Franchising is an arrangement where one party grants another party the right to use trademark or trade-name as well as certain business systems and processes, to produce and market a good or service according to certain specifications. It gains rapid (inter)national expansion of business and earnings at minimum capital outlay. The franchise, different to agents, will enter into contracts in his name and for his own account. 9.7.4. Wholly owned subsidiary This can be realized by two strategies: • Greenfield investment: establishment of a subsidiary in a new market which is completely owned by a foreign parent company • Acquisition: buying a local company in the new market. 9.8 Competition Law Competition law promotes or maintains market competition by defining and regulating anticompetitive behavior. According to the OECD guidelines for MNC’s, these companies should refrain from entering or carrying out anti-competitive agreements among competitors. 9.9 Cartels Cartel = agreement between undertakings or concerted practices, which has as the objective or effect the prevention, restriction or distortion of competition. Section 3 – Regulatory Services and Providers Chapter 10 - Regulatory Services 10.1 Legal Function 10.1.2. Legal management Companies and academics demonstrate an increasing interest in managing Legal. Legal management is the discipline that studies the application fo managerial concepts on Legal. > See table 10.2 for Drivers of Change 10.1.3. Legal Services Managers continuously face so-called “make-or-buy” decisions. See table 10.3 for five categories of reasons for buying legal services. 10.2 Contribution 10.2.1. Framework See table 10.6 in the book. 10.2.2. Creating value The TMF index identified five major trends that affect global compliance. 1. Global Financing Transparency 2. Rapid Growth of Regulatory Compliance Obligations 3. Data Privacy 4. Cybersecurity 5. Ethics and Compliance including anti-bribery and anti-money laundering. References: Law & Self-Regulation, Nico A. Jansen, 2020 Student Edition.