International Marketing 16th edition Philip R. Cateora, Mary C. Gilly, and John L. Graham McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Introduction 7 • The international marketer must pay particular attention to the laws of each country as no single, uniform international commercial law governs foreign business transactions • Laws governing business activities within and between countries are an integral part of the legal environment of international business. Therefore, securing expert legal advice is a wise decision • The foundation of a legal system profoundly affects how the law is written, interpreted, and adjudicated Roy Philip 7-2 Overview 7 • Bases for today’s legal systems • The important factors in jurisdiction of legal disputes • The various methods of dispute resolution • The unique problems of protecting intellectual property rights internationally • Cyberlaw • Commercial law within countries • U.S. Laws application in host countries • Export restrictions Roy Philip 7-3 Global Perspective The Pajama Caper (1 of 2) 7 • What happens when U.S. law, host-country law, and a multinational company collide? • U.S. embargo (Helms-Burton Act) with Cuba forbids U.S. companies from trading with Cuba. But can this law be enforced in Canada? • Wal-Mart was selling Cuban pajamas in Canada; they were asked to cease selling it by U.S. authorities; but Canadians wanted to buy them • If Wal-Mart did not comply with U.S. law, it would have to pay a $1 million fine, but… Roy Philip 7-4 Global Perspective The Pajama Caper (2 of 2) 7 • …if it did cease selling the pajamas in Canada, Wal-Mart would be subject to a $1.2 million fine under Canadian laws • After discussions with the Canadian government, Wal-Mart resumed selling the pajamas • Canada was upset with the U.S. for imposing its laws on Canadian companies, while the U.S. states that Wal-Mart was violating its laws is not abiding by the boycott against Cuba Roy Philip 7-5 International Marketing 16th edition McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Bases for Legal Systems • • • • Common Law Civil or Code Law Islamic Law Commercial Legal System in MarxistSocialist economies or states 7 Bases for Legal Systems 7 • Common law, derived from English law and found in England, the United States, Canada, and other countries once under English influence • The basis for common law is tradition, past practices, and legal precedents set by the courts through interpretations of statutes, legal legislation, and past rulings. Bases for Legal Systems 7 • Civil or code law, derived from Roman law and found in Germany, Japan, France, and in non-Islamic and non-Marxist countries • Code law is based on an all-inclusive system of written rules (codes) of law. Common Law Code Law Based on tradition, past practices and legal precedents set by courts through interpretation of past rulings/statutes, etc. Based on an all-inclusive system of written rules (codes) of law. Legal system is divided into 3 codes: commercial, civil & criminal. Not All-Inclusive Considered complete “catchall provisions” Some broad interpretations are possible. 7-10 Common Law Code Law Ownership is determined by use Based on an allinclusive Ownership is determined by registration Agreements may be binding so long as proof of the agreement can be established. Agreements may not be enforceable unless properly notarized or registered. 7-11 Common Law Impossibility of performance does not excuse non-compliance with the provisions of the contract, unless it was an act of God. Code Law Acts of God are not necessarily limited to acts of nature but include “unforeseeable human acts” such as labor strikes or riots. Common Law countries are codifying Commercial Law. 7-12 Bases for Legal Systems • 7 Islamic law, derived from the interpretation of the Koran and found in Pakistan, Iran, Saudi Arabia, and other Islamic states Islamic Law 7 • The Koran forms the basis for the Shari’ah (Islamic law) • It includes issues such as property rights, economic decision making, and types of economic freedom • The overriding objective of the Islamic system is social justice • Islamic law prohibits the payment of interest or “riba” • It describes secular aspects of the law regulating human acts. • It describes specific patterns of social and economic behavior for all individuals. Commercial Law in Marxist Economies • A commercial legal system in the Marxist–socialist economies of Russia and the republics of the former Soviet Union, Eastern Europe, China, and other Marxist–socialist states – Legal system centered on the economic, political, and social policies of the state • As each country moves toward its own version of a free market system and enters the global market, a commercial legal system is also evolving from Marxist– socialist tenets. 7 Lawyers per 100,000 People in Selected Countries 7 Exhibit 7.1 Roy Philip 7-16 Marxist-Socialist Tenets 7 • Socialist countries are now more directly involved in trade with non-Marxist countries – Necessitated the development a commercial legal system that allowed engagement in active international commerce • Pattern for development varies among countries – Each has a different background – Development of market-driven economies at different stages • Premise is that law is strictly subordinate to prevailing economic conditions – Fundamental propositions as private ownership, contracts, due process, and other legal mechanisms have had to be developed Roy Philip 7-17 Jurisdiction in International Legal Disputes 7 • No judicial body exists to deal with legal commercial problems arising between citizens of different countries – Legal disputes can arise in three situations • Between governments • Between a company and a government • Between two companies • Jurisdiction is generally determined on the basis of: – Jurisdictional clauses included in contracts – Where a contract was entered into – Where the provisions of the contract were performed • Most clear-cut decisions can be made: – When contracts or legal documents supporting a business transaction include a jurisdictional clause Roy Philip 7-18 Jurisdiction in International Legal Disputes 7 • Determining whose legal system has jurisdiction when a commercial dispute arises is another problem of international marketing. • The World Court at The Hague and the International Court of Justice resolve international disputes between sovereign nations of the world rather than between private citizens. Jurisdiction in International Legal Disputes 7 • The World Court can adjudicate disputes between governments, but disputes in situations 2 and 3 must be handled in the courts of the country of one of the parties involved or through arbitration. • When international commercial disputes must be settled under the laws of one of the countries concerned, the paramount question in a dispute is: Which law governs? Jurisdiction in International Legal Disputes 7 Jurisdiction is generally determined in one of three ways, on the basis of: 1. jurisdictional clauses included in contracts 2. where a contract was entered into, or 3. where the provisions of the contract were performed International Marketing 16th edition McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Conciliation 7 • Conciliation is a nonbinding agreement between parties to resolve disputes by asking a third party to mediate differences – Sessions are private – All conferences between parties and the mediator are confidential • Although conciliation may be the friendly route to resolving disputes – It is not legally binding – An arbitration clause should be included in all conciliation agreements Roy Philip 7-23 Arbitration (1 of 2) 7 • Conducted under the auspices of one or more formal domestic and international arbitration groups – Organized specifically to facilitate the resolution of commercial disputes • The popularity of arbitration has led to a proliferation of arbitral centers – Established by countries, organizations, and institutions • Inter-American Commercial Arbitration Commission • Canadian-American Commercial Arbitration Commission (for disputes between Canadian and U.S. businesses) • London Court of Arbitration (decisions are enforceable under English law and English courts) • American Arbitration Association • International Chamber of Commerce (select Arbitration) Roy Philip 7-24 Arbitration (2 of 2) 7 • Contracts and other legal documents should include clauses specifying the use of arbitration to settle disputes • Arbitration clauses require agreement on two counts – To arbitrate in the case of a dispute according to the rules and procedures of some arbitration tribunal – To abide by the awards resulting from the arbitration Roy Philip 7-25 Litigation 7 • The best advice is to seek settlement • Deterrents to litigation – Fear of creating a poor image and damaging public relations – Fear of unfair treatment in a foreign court – Difficulty in collecting a judgment that may otherwise have been collected in a mutually agreed settlement through arbitration – The relatively high cost and time required when bringing legal action – Loss of confidentiality Roy Philip 7-26 Protection of Intellectual Property Rights – A Special Problem 7 • http://www.wipo.int/about-ip/en/ - What is intellectual property? • Companies spend millions of dollars establishing brand names or trademarks to symbolize quality and design and to entice customers • Millions are spent on research to develop products, processes, designs, and formulas • Intellectual or industrial properties are among the most valuable assets • New technologies developed to prevent piracy Roy Philip 7-27 International Marketing 16th edition McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Counterfeiting and Piracy 7 • Lost sales from the unauthorized use of U.S. patents, trademarks, and copyrights – Amount to more than $100 billion annually • The piracy industry has grown so sophisticated – Many counterfeit goods are indistinguishable from original • Piracy actually can serve come companies – Microsoft • Counterfeit pharmaceuticals – 2% of the $327 billion worth of drugs sold each year Roy Philip 7-29 Piracy Rates for Computer Software Top and Bottom 20 7 Exhibit 7.2 Roy Philip 7-30 A Marketing Solution? 7 • “Piracy is not a moral issue. It isn't. It's an economic issue. Piracy doesn't flourish in developed countries where the cost of legitimate software doesn't outweigh its benefits. But it flourishes in developing countries, where the cost-benefit ratio is different. Authentic software will never be as an inexpensive as pirated goods. But when its value helps to close the gap between price and usability, more people will pay the appropriate price.” - Steven Schwankert (InfoWorld, 2006) China’s Piracy today 7 • “Apart from cracking down on violators of software piracy, the Chinese government has also tried to tinker with related laws in recent months to strengthen its protection of intellectual property rights. Two such laws include the Foreign Trade Law and the Regulations on the Management of Foreign Investment in the Commercial Sector (FICE Regulations). The FICE came into force from June 1, 2004, while the new Foreign Trade law came into force from July 1, 2007.” - Asia News Microsoft Today 7 • Microsoft is doing what it can to fight software piracy by providing information: http://www.microsoft.com/piracy/knowth efacts/ • By providing contact numbers in many countries: http://www.microsoft.com/piracy/reporti ng/out.aspx Inadequate Protection 7 • Failing to adequately protect intellectual property rights can lead to the legal loss of rights in potentially profitable markets • There have been many cases where companies have legally lost the rights to trademarks and have had to buy back these rights or pay royalties for their use – McDonald’s in Japan • Many businesses fail to take proper steps to legally protect their intellectual property Roy Philip 7-34 Prior Use Versus Registration 7 • Prior Use – whoever can establish first use is typically considered the rightful owner • Registration – the first to register a trademark or other property right is considered the rightful owner • A company that believes it can always establish ownership in another country by proving it used the trademark or brand name first is wrong and risks the loss of these assets • It is best to protect intellectual property rights through registration • http://www.audioholics.com/news/industry-news/dvdpiracy-china-black-market Roy Philip 7-35 International Conventions 7 • Three major international conventions – Paris Convention for the Protection of Industrial Property – Inter-American Convention – Madrid Arrangement • World Intellectual Property Organization (WIPO) – Responsible for the promotion of the protection of intellectual property and for the administration of the various multilateral treaties through cooperation among its member states • Patent Cooperation Treaty (PCT) • European Patent Convention (EPC) • The Trade-Related Aspects of Intellectual Property Rights (TRIPs) Roy Philip 7-36 International Marketing 16th edition McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Marketing Laws (1 of 2) 7 • All countries have laws regulating marketing activities – – – – – Promotion Product development Labeling Pricing Channels of distribution • Discrepancies across markets cause problems for trade negotiators – particularly for managers and their firms – U.S. does not allow the buying or selling of human organs – Some countries only have a few marketing laws with lax enforcement – Others have detailed, complicated rules that are stringently enforced Roy Philip 7-38 Marketing Laws (2 of 2) 7 • There often are vast differences in enforcement and interpretation among countries having laws covering the same activities – Laws governing sales promotions in the European community • Censorship of advertising is a constant concern • For many U.S. products with markets in Europe, meeting EU standards is less expensive than designing products especially for Europe Roy Philip 7-39 Green Marketing Legislation 7 • Green marketing laws – Focus on environmentally friendly products and – Focus on product packaging and its effect on solid waste management • Antitrust – For better part of the 20th century antitrust laws • Nonexistent • Not enforced in most of the world’s countries • U.S. was exception – EU has dealt severe penalties for antimonopoly, price discrimination, supply restrictions, and full-line forcing Roy Philip 7-40 Foreign Countries’ Antitrust Laws 7 • The U.S. intervenes when non-U.S. companies attempt to acquire American companies • At times, companies are subject to antitrust charges in more than one country – Nestle’s proposed acquisition of Dreyer’s Grand Ice Cream – Microsoft • Enforcement of antitrust in Europe almost nonexistent until the early stages of EU established legislation Roy Philip 7-41 International Marketing 16th edition McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. U.S. Laws Apply in Host Countries (1 of 2) • • • 7 Foreign Corrupt Practices Act – Makes it illegal for companies to pay bribes to foreign officials, candidates, or political parties – DPC charged with violating FCPA in China National security laws – Prohibit a U.S. company, its subsidiaries, joint ventures, or licensees to sell controlled products without special permission from the U.S. Antitrust laws – Enforcement has two purposes in international commerce • Protect American consumers • Protect American exports and investments against any private restrictions – The question of jurisdiction and how U.S. antitrust laws apply • Sections I and II of the Sherman Act Roy Philip 7-43 U.S. Laws Apply in Host Countries (2 of 2) 7 • Antiboycott law – U.S. companies are forbidden to participate in any unauthorized foreign boycott – Required to report any request to cooperate with a boycott • Extraterritoriality of U.S. laws – Especially important to U.S. multinational firms – Foreign governments fear the influence of American government policy on their economies through U.S. multinationals • When U.S. laws conflict with those of host country • When U.S. Justice Department restricts of forbids ventures because of anticompetitive effects Roy Philip 7-44 Cyberlaw – Unresolved Issues (1 of 2) 7 • Domain names and cybersquatters – Cybersquatters (CSQs) buy and register descriptive nouns, geographic names, and names of ethnic groups and pharmaceutical substances, and other similar descriptors and hold them until they can be sold at an inflated price – President Obama’s initiative • Other cybersquatting abuses that can pose a serious threat to business include parody sites, protest sites, and hate sites – www.walmartsucks.org • The Internet is not a libel-free zone – Lawsuits involving libel, defamation, and product liability cause companies to voluntarily restrict their Web sites to selected countries Roy Philip 7-45 Cyberlaw – Unresolved Issues (2 of 2) 7 • Taxes – In the past, a company was deemed to have a taxable presence in a country if it had a permanent establishment there – The EU Commission • Proposes value-added tax (VAT) • Jurisdiction of disputes and validity of contracts – The EU Commission has adopted an e-commerce directive that will permit online retailers to trade by the rules of their home country unless the seller had enticed or approached the consumer by way of advertising Roy Philip 7-46 Summary (1 of 2) 7 • Businesses face a multitude of problems in their efforts to develop successful marketing programs – Varying legal systems of the world and their effect on business transactions • Political climate, cultural differences, local geography, different business customs, and the stage of economic development must be taken into account • Legal questions must also be considered – – – – Jurisdictional and legal recourse in disputes Protection of intellectual property rights Extended U.S. law enforcement Enforcement of antitrust legislation by U.S. and foreign governments Roy Philip 7-47 Summary (2 of 2) 7 • The Internet creates a new set of legal entanglements • The freedom that now exists on the World Wide Web will only be a faint memory before long • Prudent path to follow at all stages of foreign marketing operations is one leading to competent counsel, well versed in the intricacies of the international legal environment Roy Philip 7-48