Chapter 7

The International Legal

Environment: Playing By the Rules

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 Learning Objectives 1 of 2
7-1 The four heritages of today’s legal systems
7-2 The important factors in the jurisdiction of legal
disputes
7-3 The various methods of dispute resolution
7-4 The unique problems of protecting intellectual
property rights internationally
7-5 How to protect against piracy and counterfeiting

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 Learning Objectives 2 of 2
7-6 The many issues of evolving cyberlaw
7-7 The legal differences between countries and how
those differences can affect international
marketing plans
7-8 The different ways U.S. laws can be applied to U.S.
companies operating outside the United States
7-9 The steps necessary to move goods across country
borders

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 Introduction
Foreign Business Transaction Law
• No uniform international commercial law exists
• Legal systems in different countries are both disparate and
complex
• Important to comply with the laws in each country in
which the multinational corporation operates

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 Bases for Legal Systems 1 of 6
Four heritages of today’s legal systems
1. Common law
2. Civil or code law
3. Islamic law
4. Commercial legal system
Interpretation of system varies by country
Importance of law also varies
• Number of attorneys per capita

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 Exhibit 7.1 Lawyers per 100,000 People in
Selected Countries

Sources: Randy Peerenboom, “Economic Development and the

Development of the Legal Profession in China,” presentation at Oxford
University, 2006; Council of Bars
and Law Societies of Europe, http://www.ccbe.edu, 2010;
http://www.oab.org.br, 2010; http://www.abanet.org, 2010; Bruce E.
Aronson, “The Brave
Jump New
to long World of Lawyers in
description.
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Japan,” Pacific Rim Law & Policy Journal 21, no. 2 (March 2012), pp.
 Bases for Legal Systems 2 of 6
Common Law
• Derived from English law
• Found in England, U.S., Canada, and other countries once under
English control

• Based on tradition, practices, precedents

• Set by past courts’ interpretations of statutes, legal legislation, and
rulings

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 Bases for Legal Systems 3 of 6
Code Law
• Derived from Roman law
• Found in Germany, Japan, France
• Non-Islamic and non-Marxist countries

• Based on all-inclusive system of written rules of law

• 3 main codes: commercial, civil, and criminal
• All laws are codified, but broad interpretations are possible

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 Bases for Legal Systems 4 of 6
Common Law
• Based on tradition
• Not all-inclusive
• Ownership of intellectual
property based on use
• Agreements binding as long as
proof of agreement is established
• Acts of God interpreted as
unforeseeable occurrences of
nature
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Code Law
• Based on system of written rules
• Catchall provisions with broad
interpretations possible
• Ownership of intellectual
property based on registration
• Agreements not enforceable
unless properly notarized or
registered
• Acts of God interpreted as
unforeseeable occurrences of
nature and human acts
 Bases for Legal Systems 5 of 6
Islamic Law or Shari’ah
• Based on interpretation of the Koran
• Prescribes specific patterns of social and economic
behavior for all people
• Property rights, economic decision making, economic freedom

• Overriding objective is social justice and equality

• Emphasizes ethical, moral, social and religious dimensions

• Prohibits investment in activities that violate Shari’ah

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 Islamic Law and Banking

©Ali Haider/EPA/REX/Shutterstock
Banking in Dubai, UAE, requires an understanding of Islamic law and customs.
Prohibition against the payment of interest and prohibition against
investments in businesses dealing with alcohol and gambling are two of the
tenets of Islamic law that affect banking.
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 Bases for Legal Systems 6 of 6
Marxist-Socialist Tenets
• Pattern for development of economy differs by country
• Found in Russia, Eastern Europe, China, and other socialist states

• Law is subordinate to prevailing economic conditions

• Development of commercial legal system necessary
• Socialist countries trading with non-Marxist countries

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 Jurisdiction in International Disputes 1 of 2
Legal disputes can arise in three situations
1. Between governments
2. Between a company and government
3. Between two companies
Situation 1: Resolved by The World Court at the Hague
Situations 2 and 3: Handled by a court in one of the
countries involved or through arbitration

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 Jurisdiction in International Disputes 2 of 2
Which Law Governs?
• Jurisdiction generally determined by:
1. Jurisdictional clauses included in contracts
2. Where a contract was entered into
3. Where the provisions of the contract were performed

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 International Dispute Resolution 1 of 3
Conciliation
• Resolve dispute by asking third party to mediate
• Discussion during mediation is confidential
• May not be used in future litigation or arbitration

• Not legally binding

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 International Dispute Resolution 2 of 3
Arbitration
• Disinterested and informed party chosen as referee
• Determine the merits of the case
• Make judgment both parties in conflict can honor

• Many arbitral centers each with standardized procedures

• Arbitration clauses require agreement on two counts
• Parties agree to rules and procedures of some arbitration tribunal
• Parties agree to abide by the awards resulting from the arbitration
• Legally binding in most countries

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 International Dispute Resolution 3 of 3
Litigation
• Commonly initiated by a lawsuit; held in formal court
• Most try to avoid litigation
• Fear of creating poor image and damaging public relations
• Fear of unfair treatment in foreign court
• Difficulty in collecting judgment that may otherwise have been in a
mutually agreed settlement through arbitration
• Expensive and requires a lot of time
• Loss of confidentiality

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 Protection of Intellectual Property Rights:
A Special Problem 1 of 6

Intellectual Property
• Global brand names and trademarks
• Used to symbolize quality of product or company
• Entices consumers to buy good or service

• Important to protect
• Among most valuable assets to a company
• Companies spend millions of dollars on establishing property
rights

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 Protection of Intellectual Property Rights:
A Special Problem 2 of 6

Counterfeiting and Piracy

• Occurs in a range of industries
• Costs companies billions of dollars in lost revenue
• Counterfeit pharmaceuticals most dire; can cause death

• Collusion between manufacturer and illegitimate sellers

• Makes counterfeiting more possible

• Some feel the intellectual property regime has gone too

far in favor of firms; hinders creativity

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 Exhibit 7.2 Piracy Rates for Computer Software,
Top and Bottom Ten
Highest Rates Lowest Rates
Country Rate % Country Rate %
Libya 90 United States 17
Zimbabwe 90 Japan 18
Venezuela 88 New Zealand 18
Yemen 87 Luxembourg 19
Armenia 86 Australia 20
Bangladesh 86 Austria 21
Moldova 86 Sweden 21
Iraq 85 Denmark 22
Azerbaijan 84 Germany 22
Belarus 84 United Kingdom 22

Source: From 2016 BSA and IDC Global Software Piracy Study (Washington, DC: Business Software Alliance); Seventh Annual BSA/IDC Global Software Piracy Study
(Washington, DC: Business Software Alliance), www.bsa.org/globalstudy

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 Protection of Intellectual Property Rights:
A Special Problem 3 of 6

Inadequate Protection
• Leads to loss of legal rights in profitable markets
• Patents, processes, trademarks, and copyrights
• Valuable in all countries
• Lack of adequate protection against foreign exploitation
• Many cases of companies losing rights to own trademark and
having to buy them back
• Patent infringement is commonly used by competitors with no
intent to compensate for use

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 Protection of Intellectual Property Rights:
A Special Problem 4 of 6

Prior Use versus Registration

• Common law: ownership established by prior use
• First to use is typically considered the rightful owner

• Code law: ownership established by registration

• First to register is typically considered rightful owner
• Use of the property does not matter

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 Protection of Intellectual Property Rights:
A Special Problem 5 of 6

International Conventions
• Designed for mutual recognition and protection of IP rights
• Three main conventions
• The Paris Convention for the Protection of Industrial Property
• The Inter-American Convention
• The Madrid Arrangement

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 Protection of Intellectual Property Rights:
A Special Problem 6 of 6

Other Managerial Approaches

• Traditional, but feeble, remedies
• Prevention, engage local representation and diligently register
intellectual property with appropriate agencies
• Pursue negation and alternative dispute resolution
• Complain to authorities of host nation
• Complain to domestic government and World Trade Organization
(WTO)

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 Cyberlaw: Unresolved Issues 1 of 4

Internet law is too vague

• Does not address uniqueness of Internet
• Global in reach, no political or geographic boundaries

• European Union, U.S., and other countries drafting

legislation
• Will cover the myriad legal questions not addressed by current law
• Until complete, businesses at risk
• Might have to rely on host nation’s laws

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 Cyberlaw: Unresolved Issues 2 of 4

Domain Names and Cybersquatters

• Buy and register website names
• Using descriptive nouns, celebrity names, variations on company
trademarks

• Keep domain name to sell later at inflated price

• Hope owner of trademark or name will pay huge dollar amounts
to acquire the URL

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 Microsoft and Censorship in China

© Ng Han Guan/AP Images

Potential customers visit a Microsoft booth in Beijing. When Chinese bloggers use
Microsoft’s service to post messages and type in such terms as “democracy,”
“capitalism,” “liberty,” or “human rights,” they get a yellow light and a computer
warning: “This message includes forbidden language. Please delete the prohibited
expression.” Microsoft has agreed to this sort of censorship, explaining that it is just
following local laws and that the company still provides a most useful service to its
Chinese clients.
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 Cyberlaw: Unresolved Issues 3 of 4

Taxes
• Traditional system taxes economic activity where it occurs
• People can work from anywhere using the Internet
• When and where should these taxes be collected?
• Who should collect the taxes?

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 Cyberlaw: Unresolved Issues 4 of 4

Jurisdiction of Disputes and Validity of Contracts

• Body of cyberlaw gradually being created
• For now, there are two main troubling areas
• Determining whose laws will prevail in legal disputes between
parties located in different countries
• Establishing contractual validity of electronic communications

• Many countries working to address issues

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 Commercial Law within Countries 1 of 3

Marketing Laws
• Countries have unique laws in marketing
• Promotion, development, labeling, pricing, sales, distribution
• Laws vary in strictness by country and industry
• Discrepancies create challenges for marketers and traders

• Hope of common commercial code across countries

• European Union attempting to standardize law

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 Sale of Human Organs

© Pat Roque/AP Images

In the Philippines and other developing countries, you can buy yourself a
kidney on the black market—the global price is around $2,000. However, U.S.
laws prohibit the buying and selling of human organs.

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 Commercial Law within Countries 2 of 3

Green Marketing Legislation

• Environmental protection of global concern
• Extends beyond just pollution and hazardous waste
• Focuses directly on environmental-friendliness of products

• Germany has most stringent laws

• Regulate management and recycling of packaging waste

• “Ecolabel” in Europe for products that comply with criteria

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 Commercial Law within Countries 3 of 3

Foreign Countries’ Antitrust Laws

• U.S. main enforcer in most of 20th century
• Now used as model for other countries
• European community, Japan, and others

• Focuses on issues to ensure fair commerce

• Antimonopoly, price discrimination, supply restrictions, full-line
forcing are highly penalized

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 U.S. Laws Apply in Host Countries 1 of 5

Home-Country Laws
• Protect country’s political and economic interests
• U.S. law holds true in foreign jurisdictions
• For the firm, its subsidiaries, and licensees of U.S. technology
• Paying bribes, trading with the enemy, commercial ventures that
harm U.S., and unauthorized boycotts are punishable

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 U.S. Laws Apply in Host Countries 2 of 5

Foreign Corrupt Practices Act (FCPA)

• Illegal for companies to pay bribes to foreign officials,
candidates, or political parties
• Stiff penalties for participating in bribery
• Bribery common business practice in many countries
• Still, U.S. strictly adheres to FCPA
• Some argue this disadvantages U.S. companies in “corrupt”
markets

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 U.S. Laws Apply in Host Countries 3 of 5

U.S. Antitrust Laws that Apply in Foreign Markets

• Two main purposes in international commerce
1. Protect American consumers by ensuring they benefit from
products and ideas produced by foreign and domestic
competitors
2. Protect American export and investment opportunities against
any privately imposed restrictions

• Defense of U.S. commerce against threatening foreign

behavior of chief concern

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 U.S. Laws Apply in Host Countries 4 of 5

Antiboycott Law
• U.S. companies can’t participate in unauthorized boycott
• Need to report any request to cooperate with a boycott

• Response to Arab League boycott of Israeli businesses

• Creates challenging situation for U.S. companies
• Blacklisted by Arab League if they trade with Israel
• Punished by U.S. if they participate in boycott

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 U.S. Laws Apply in Host Countries 5 of 5

Extraterritoriality of U.S. Laws

• Causes anxiety for foreign heads of states
• U.S. laws can interfere with economic or political goals

• Multinational corporations (MNCs) are held liable for

activities that violate human rights
• Like doing business with oppressive regimes
• Lawsuits brought to U.S. courts by foreign countries

• U.S. wants more firms to become multinational

• Needs to make more provisions for resolution of conflict

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 Export Restrictions 1 of 4

U.S. Policy on Exports

• Businesses can export without a formal license
• Exports may need a license in certain situations
• Commodities and U.S. technical data, re-exports to other foreign
destinations, U.S-origin parts used to build foreign products
• Controlled by U.S. Bureau of Industry and Security (BIS)

• Exports from U.S. increased drastically over last decade

• Export Administration Regulations (EAR) published

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 Export Restrictions 2 of 4

National Security Laws

• Sale of products cannot affect U.S. national security
• Applies to American firms, their foreign subsidiaries, and foreign
licensees of U.S. technology
• Responsibility extends to the final destination of the product
• Restrictions on weapons of mass destruction (WMD) post-9/11

• U.S. controls exports for a host of reasons

• Protect and promote human rights, enforce foreign policy, address
any national shortages

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 Export Restrictions 3 of 4

Determining Export Requirements

• Exporter responsible for making determination
• If item can be exported, must choose appropriate license
• Depends on the product, where it is going, and its use

• General license
• Not subject to EAR control; lists product, value, and its destination

• Validated license
• Obtained only through a formal application
• Authorizes exportation with specific limitations of Export
Administration Regulations (EAR)

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 Dual-Use of Technology Exports

©yuyangc /Shutterstock
China successfully test-fired a new type of long-range ground-to-ground missile within its
territory as tensions between China and Taiwan continue to rise and wane. Additionally,
China and the United States have both shot down their own “errant” satellites with missiles.
Much of the electronic technology used in long-range missiles is dual-use; that is, the
technology can be used for both nonmilitary and military applications. It is the exporter’s
responsibility to ensure that the final user of restricted dual-use products complies with
export restrictions.
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 Export Restrictions 4 of 4

Acquiring Export Licenses

• Four electronic services facilitate paperwork and expedite
process
1. ELAIN
2. STELA
3. ERIC
4. SNAP

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 Appendix of Image Long Descriptions

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 Appendix 1 Exhibit 7.1 Lawyers per 100,000 People in
Selected Countries
China: 10
Japan: 20
South Korea: 25
Sweden: 50
Czech Republic: 70
France: 70
Turkey: 75
Netherlands: 80
Hungary: 100
Switzerland: 110
Germany: 175
United Kingdom: 260
Brazil: 310
Spain: 350
Italy: 360
United States: 375
Numbers are approximate.

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