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
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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…
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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
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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
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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
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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
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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)
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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
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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
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7-29
Piracy Rates for Computer
Software Top and Bottom 20
7
Exhibit 7.2
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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
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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
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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
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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
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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
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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
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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
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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