Chapter PowerPoint

1. Chapter 7
The International
Legal Environment:
Playing by the Rules
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2. Learning Objectives (1 of 2)
LO1 The four heritages of today’s legal systems
LO2 The important factors in the jurisdiction of legal
disputes
LO3 The various methods of dispute resolution
LO4 The unique problems of protecting intellectual
property rights internationally
LO5 How to protect against piracy and counterfeiting
LO6 The many issues of evolving cyberlaw
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3. Learning Objectives (2 of 2)
LO7 The legal differences between countries and how
those differences can affect international
marketing plans
LO8 The different ways U.S. laws can be applied to
U.S. companies operating outside the United
States
LO9 The steps necessary to move goods across
country borders
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4. Introduction
 No single, uniform international commercial law
governing foreign business transactions exists
 International marketers must comply with the laws
of each country within which it operates
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5. Bases for Legal Systems (1 of 3)
 Common law
 Civil or code law
 Islamic law
 Commercial legal system in Marxist–socialist
economies or states
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6. Bases for Legal Systems (2 of 3)
 Common law is 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.
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7. Bases for Legal Systems (3 of 3)
 Civil or code law is 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.
 Islamic law is derived from interpretation of the
Koran and is found in Pakistan, Iran, Saudi Arabia,
and other Islamic states.
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8. Common Law versus Code Law (1 of 3)
 Common Law
• Based on tradition, past practices, and legal precedents set
by courts through interpretation of past rulings/statutes,
etc.
• Not all-inclusive
 Code Law
• Based on an all-inclusive system of written rules (codes) of
law. Legal system is divided into 3 codes: commercial, civil,
and criminal
• Considered complete “catchall provisions”; some broad
interpretations are possible
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9. Common Law versus Code Law (2 of 3)
 Common Law
• Ownership is determined by use
• Agreements may be binding so long as proof of the
agreement can be established
 Code Law
• Based on an all-inclusive ownership; is determined by
registration
• Agreements may not be enforceable unless properly
notarized or registered
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10. Common Law Versus Code Law (3 of 3)
 Common Law
• Impossibility of performance does not excuse
noncompliance with the provisions of the contract, unless
it was an act of God
• Common law countries are codifying commercial law
 Code Law
• Acts of God are not necessarily limited to acts of nature
but include “unforeseeable human acts” such as labor
strikes or riots
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11. Islamic Law
 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”
 The Islamic system places emphasis on the ethical, moral, social,
and religious dimensions to enhance equality and fairness for the
good of society
 Another principle of the Islamic legal system is the prohibition
against investment in those activities that violate the Shari’ah
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12. 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.
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13. Exhibit 7.1
Lawyers per 100,000 People in Selected Countries
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or distribution without the prior written consent of McGraw-Hill Education.
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 New World of Lawyers in Japan,” Pacific Rim Law & Policy
Journal, 21(2), March 2012, pages 255–275.

14. Jurisdiction in International
Legal Disputes (1 of 2)
 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.
 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.
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15. Jurisdiction in International
Legal Disputes (2 of 2)
 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 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
3. where the provisions of the contract were performed
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16. International Dispute Resolution
 Conciliation
 Arbitration
 Litigation
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17. Conciliation
 Conciliation or mediation is a nonbinding agreement
between parties to resolve disputes by asking a third
party to mediate differences.
 Discussion between parties and mediator are
confidential and statements made by either party
may not be used in future litigation or arbitration.
 It is not legally binding.
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18. Arbitration (1 of 2)
 Parties select a disinterested and informed party as a referee
to determine the merits of the case and make a judgment
both parties agree to honor.
 Some of the active arbitral centers established by countries,
organizations, and institutions:
• The Inter-American Commercial Arbitration Commission
• The Canadian-American Commercial Arbitration Commission
(for disputes between Canadian and U.S. businesses)
• The London Court of Arbitration (decisions are enforceable
under English law and English courts)
• The American Arbitration Association
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19. Arbitration (2 of 2)
 Arbitration clauses require agreement on two
counts:
• The parties agree to arbitrate in the case of a dispute
according to the rules and procedures of some arbitration
tribunal, and
• They agree to abide by the awards resulting from the
arbitration.
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20. 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
 Cost and time
 Loss of confidentiality
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21. Protection of Intellectual Property:
Counterfeiting and Piracy
 Firms spend millions of dollars establishing brand
names or trademarks to symbolize quality and
design, only to be counterfeited and pirated.
 Piracy and counterfeiting lead to lost sales from the
unauthorized use of U.S. patents, trademarks, and
copyrights, which amounts to about $300 billion
annually as well as lost jobs.
 Counterfeited pharmaceutical drugs can lead to bad
publicity and even deaths.
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22. Exhibit 7.2
Piracy Rates
for
Computer
Software,
Top and
Bottom
Highest Piracy Rates Lowest Piracy Rates
Zimbabwe 91% United States 18%
Georgia 90 Japan 19
Moldova 90 Luxemburg 20
Libya 89 New Zealand 20
Venezuela 88 Australia 21
Bangladesh 87 Austria 22
Yemen 87 Denmark 23
Armenia 86 Sweden 23
Belarus 86 Germany 24
Iraq 86 United Kingdom 24
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Source: From 2013 BSA and IDC Global Software Piracy Study, Business Software Alliance.
Reprinted with permission. Seventh Annual BSA/IDC Global Software Piracy Study (Washington,
DC: Business Software Alliance), www.bsa .org/globalstudy. One hundred and twenty six
countries and regions are ranked.

23. The three faces of piracy and/or reform
©MikeClark/AFP/GettyImages
©ChristianSchwetz/APImages
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©StanHonda/AFP/GettyImages

24. Intellectual Property Rights:
Inadequate Protection
 The failure to protect intellectual property rights adequately
in the world marketplace can lead to the legal loss of rights
in potentially profitable markets.
 Patents, processes, trademarks, and copyrights are valuable
in all countries, but some companies have found their assets
appropriated and profitably exploited in foreign countries
without license or reimbursement.
 There have been many cases in which companies have
legally lost the rights to trademarks and have had to buy
back these rights or pay royalties for their use.
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25.  In the United States, a common-law country,
ownership of intellectual property rights is
established by prior use.
 In many code-law countries, ownership is established
by registration rather than by prior use.
• For example, a trademark in Jordan belongs to whoever
registers it first in Jordan. So there are “McDonald’s”
restaurants, “Microsoft” software, and “Safeway”
groceries all legally belonging to a Jordanian.
Intellectual Property Rights:
Prior Use versus Registration
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26. International Conventions
 Many countries participate in international
conventions designed for mutual recognition and
protection of intellectual property rights.
• The three major international conventions include:
• The Paris Convention for the Protection of Industrial Property,
commonly referred to as the Paris Convention, includes the United
States and 100 other countries
• The Inter-American Convention, includes most of the Latin
American nations and the United States
• The Madrid Arrangement, which established the Bureau for
International Registration of Trademarks, includes 26 European
countries
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27. Other Managerial Approaches
 The traditional but weak remedies for American companies
operating in countries such as China are several:
• prevention, that is, engage local representation and diligently register
IP with the appropriate agencies
• pursue negotiation and alternative dispute resolution
• complain to the Chinese authorities
• complain to the U.S. government and World Trade Organization (WTO)
 Multinational companies such as Microsoft, Philips, and
Warner Brothers are coming up with other alternative
approaches based on the factors that motivate consumers to
engage in piracy.
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28. Cyberlaw: Unresolved Issues
 Existing Internet law is vague or does not completely
cover such issues as the protection of domain
names, taxes, jurisdiction in cross-border
transactions, and contractual issues.
 The European Union, the U.S., and many other
countries are drafting legislation to address the
myriad legal questions not clearly addressed by
current law.
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29. Cybersquatting
 Laws being considered deal with cybersquatters—those
who buy and register descriptive nouns, geographic
names, ethnic groups, pharmaceutical substances, and
other similar descriptors and hold them until they are
sold at an inflated price.
 The practice of registering a domain name that is the
trademark of another person or company
• Cybersquatters hope that the owner of the trademark will pay
huge dollar amounts to acquire the URL.
• Some cybersquatters misrepresent themselves as the trademark
owner for fraudulent purposes.
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30. Microsoft booth in Beijing
©NgHanGuan/APImages
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31. Taxes
 A typical tax system relies on knowing where a
particular economic activity is located
 But the Internet enables individual workers to
operate in many different countries from a computer
 When taxes should be collected, where they should
be collected, and by whom are all issues under
consideration by countries around the world
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32. Jurisdiction of Disputes and
Validity of Contracts
 Since existing laws relating to commerce do not
always clearly address the uniqueness of the Internet
and its related activities, a body of cyberlaw is being
created.
 Two of the most troubling areas are:
• determining whose laws will prevail in legal disputes
between parties located in different countries
• establishing the contractual validity of electronic
communications
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33. Commercial Law within Countries:
Marketing Laws
 All countries have laws regulating marketing activities in promotion,
product development, labeling, pricing, and channels of distribution
 In Austria, premium offers, free gifts, or coupons are considered as cash
discounts and are prohibited
 Premium offers in Finland are allowed as long as the word free is not used
 French law permits sales only twice a year, in January and August
 The various product comparison laws, a natural and effective means of
expression, are another major stumbling block
 Although the goal of full integration and a common commercial code has
not been totally achieved in the European Union, decisions by the
European Court continue to strike down individual-country laws that
impede competition across borders
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34. Healthcare marketing
©JohnGraham©JohnGraham
©PatRoque/APImages
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35. Green Marketing Legislation
 Multinational corporations also face a growing
variety of legislation designed to address
environmental issues.
 Global concern for the environment extends beyond
industrial pollution, hazardous waste disposal, and
rampant deforestation to include issues that focus
directly on consumer products.
 Green marketing laws focus on environmentally
friendly products and product packaging and its
effect on solid waste management.
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36. Foreign Countries’ Antitrust Laws
 The European Community, Japan, and many other
countries have begun to actively enforce their
antitrust laws patterned after those in the United
States
 Antimonopoly, price discrimination, supply
restrictions, and full-line forcing are areas in which
the European Court of Justice has dealt severe
penalties.
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37. U.S. Laws Apply in Host Countries
 Leaving the boundaries of a home country does not
exempt a business from home-country laws.
 What is illegal for an American business at home can
also be illegal by U.S. law in foreign jurisdictions for
the firm, its subsidiaries, and licensees of U.S.
technology.
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38. Foreign Corrupt Practices Act
 Makes it illegal for companies to pay bribes to foreign
officials, candidates, or political parties
 Stiff penalties can be assessed against company
officials found guilty of paying a bribe or of
knowingly participating in or authorizing the
payment of a bribe
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39. U.S. Antitrust Laws that Apply
in Foreign Markets
 Antitrust enforcement has two purposes in
international commerce:
• Protect American consumers by ensuring that they benefit
from products and ideas produced by foreign competitors
as well as by domestic competitors
• Protect American export and investment opportunities
against any privately imposed restrictions
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40. Antiboycott Law (1 of 2)
 The antiboycott law was a response to the Arab
League boycott of Israeli businesses.
 Under the antiboycott law, U.S. companies are
forbidden to participate in any unauthorized foreign
boycott; furthermore, they are required to report
any request to cooperate with a boycott.
 If they trade with Israel, the Arab League will not do
business with them, and if they refuse to do business
with Israel in order to trade with an Arab League
member, they will be in violation of U.S. law.
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41. Antiboycott Law (2 of 2)
 The Arab League boycott of Israel has three levels:
• A primary boycott bans direct trade between Arab states
and Israel
• A secondary boycott bars Arab governments from doing
business with companies that do business with Israel
• A tertiary boycott bans Arab governments from doing
business with companies that do business with companies
doing business with Israel
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42. Export Restrictions
 Export licensing controls apply to exports of
commodities and technical data from the United
States; re-exports of U.S.-origin commodities and
technical data from a foreign destination to another
foreign destination
 Most items requiring special permission or a license
for exportation are under the control of the Bureau
of Industry and Security (BIS) of the Department of
Commerce
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43. National Security Laws
 American firms (as well as firms in other countries), their
foreign subsidiaries, or foreign firms that are licensees of U.S.
technology cannot sell products to a country in which the sale
is considered by the U.S. government to affect national
security.
 The events of September 11, 2001 added another set of
restrictions related to weapons of mass destruction (WMD).
 Exports are controlled for the protection and promotion of
human rights, as a means of enforcing foreign policy, because
of national shortages, to control technology, and for a host of
other reasons.
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44. Determining Export Requirements
(1 of 3)
 The first step when complying with export licensing
regulations is to determine the appropriate license for the
product.
 The general license permits exportation of certain products
that are not subject to EAR control with nothing more than a
declaration of the type of product, its value, and its
destination.
 The validated license, issued only on formal applications, is a
specific document authorizing exportation within specific
limitations designated under the EAR.
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45. Determining Export Requirements
(2 of 3)
 Three steps necessary to determine the type of license
required and/or if an item can be shipped are as follows:
• The exporter is responsible for selecting the proper
classification number, known as the Export Control
Classification Number (ECCN) , for the item to be exported.
The ECCN leads to a description in the Commerce Control
List (CCL) , which indicates the exportability status of the
item.
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46. Determining Export Requirements
(3 of 3)
• The exporter must decide from the CCL if the items have
end-use restrictions and if the product has a dual use, that
is, if it can be used in both commercial and restricted
applications.
• The exporter is responsible for determining the ultimate
end customer and end uses of the product, regardless of
the initial buyer.
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47. Chinese air force command center
©RogerRessmeyer/Corbis
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48. ELAIN, STELA, ERIC, and SNAP
 Four electronic services facilitate the paperwork and
reduce the time necessary to acquire export licenses:
• ELAIN (Export License Application and Information
Network)
• STELA (System for Tracking Export License Applications)
• ERIC (Electronic Request for Item Classification)
• SNAP (Simplified Network Application Process)
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49. Summary
 Businesses face a multitude of problems in their efforts to
develop successful marketing programs.
 A primary marketing task is to develop a plan that will be
enhanced, or at least not adversely affected, by political
climate, cultural differences, local geography, different
business customs, the stage of economic development, and
other environmental elements.
 The myriad questions created by different laws and different
legal systems indicate that the 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.
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