Module 6: Intellectual Property Rights and

Other Legal Forces

● Legal system of a country is the collection of governing principles, such as written or oral
constitution, and legislation and regulations enacted by governing bodies.
○ Provide for the welfare of the country.
○ Follow one of three distinct approaches found in civil law, in common law, or in religious
law.
● Types of Legal Systems:
○ Civil Law
■ This approach is based on codification, that is, systematic collection of laws designed
to cover all areas of concern, hence, bureaucratic.
■ Derived from ancient Roman Law (influenced by codified religious law such as
Islamic Law and Canon or Christian Law)
■ Most widespread system globally
■ System tends to be less adversarial than found in common law.
■ Apply codified law rather than to interpret law, previous rulings, and tradition.
■ Inquisitorial — judges often actively question the prosecution, the defense, their
witnesses. Judge issues the decisions and trial by jury is less frequent.
■ Napoleonic Law, drafted in post-revolutionary France in 1804, incorporated the
values (liberty and equality) of the French Revolution, into Civil Law. It has
influenced the approach to the law of Spain, Italy, and Benelux countries (Belgium,
Netherlands, and Luxembourg), the Latin American countries, and the former French
colonies, including the U.S. State of Louisiana.
■ The German Civil Law Tradition, based on the application of general laws to
individual cases, has influenced the development of law in Greece, Portugal, Turkey,
Japan, and, partially, in China.
○ Common Law
■ Relies on decisions made by judges in previous cases along with statutes and
regulations made by legislatures.
■ Relationship between judicial decisions and statutes can be complex because the
results of earlier decisions (called precedents) are part of the process, and the law
is always in process.
■ In some areas, judges decide on the meaning and constitutionality of statutes.
■ More adversarial than civil law systems.
■ More flexible because the judge is charged with interpreting law, tradition, and
customs.
■ Judge’s ruling serves to provide increased legal guidance in the form of a precedent
that can be called upon in future cases.
■ Principles of common law systems include:
● The rights of the individual exist alongside those of the state;
● The trial is adversarial;
● The defendant is presumed innocent until proven guilty;
● Case law develops through judgments and precedents;
● Case law co-exists with statute law and—in most cases—a constitution:
● Crimes are punished and civil wrongs are rectified by compensation.
○ Religious Law
■ Religious document or source is the basis of the legal system.
■ In islam:
● Sharia law's fundamental documents are the Qur'an and Sunnah.
 ○ Sharia law relevant to international managers is the prohibition of
charging interest. Instead, equity partnerships are used as a financing
instrument, with the lender assuming a share in the operating risk.
● Some rulings may be developed by jurists (legal experts) guided by religious
documents, reasoning, and opinions from the religious community.
■ Jewish Halakha is based on the Torah and Jewish tradition and informs the law of
Israel.
● Used to settle disputes among members of the faith who voluntarily agree to
be governed by it.
● Legal systems are used in combination, as well.
● The CIA World Factbook’s Field Listing of Legal Systems — Source of descriptions of
countries’ legal systems and also indicates whether they accept the jurisdiction of the United
Nations International Court of Justice.

International Legal Forces

● While businesses must be aware of laws in order to comply with them, they also expect those laws
will assist them when necessary.
● Managers need to know whether the host country’s government will be able to protect the foreign
business with an adequate legal system that can enforce contracts and protect the basic rights of
employees.

Rule of Law
● A country is governed by the rule of law, rather than by the rule of a political dictatorship or a
powerful elite.
● Foreign investment is encouraged because investors know their interests will be protected.

What is International Law?

● Each sovereign nation is responsible for creating and enforcing laws within its jurisdiction.
● Once laws cross international borders, the matter of enforcement is complicated by the necessity of
agreement between nations.
● Same concepts that apply to domestic laws do not always apply to international law.
● International law describes the set of rules nations have agreed to follow. Can be divided into:
○ Public International Law: Law that governs relationships between governments.
■ Governs a dispute between two countries over trade subsidies.
○ Private International Law: Law that governs relationships between individuals and
companies that cross international borders.
■ A contract between businesses in two different countries.

Sources of International Law

● Comes from several sources,
● The most important of which are bilateral and multilateral treaties between nations.
● Treaties: Agreement between countries. Also known as conventions, covenants, compacts, or
protocols.
○ Result of the efforts of international organizations such as United Nations and World Trade
Organization.
● The United Nations International Court of Justice creates international law when it decides disputes
brought before it by member-nations.
● Customary international law consists of international rules derived from customs and usage over
centuries. Example of customary international law is
○ the prohibition against genocide;
○ the immunity from prosecution of visiting foreign heads of state.
General Legal Concerns in Global Business
● Three (3) Areas of Law: (special concern to international businesses because they affect
business activities in the international setting and not in their domestic setting)
1. Extraterritoriality
2. Performance of contracts in an international setting
3. Litigation in an international setting

1. Extraterritoriality
● Many countries attempt to enforce their laws outside their borders, not by force but through
traditional, legal means. This process is referred to as the extraterritorial application of laws.
● For example, the U.S. government imposes taxes on U.S. citizens and U.S. permanent residents
regardless of the source of income or the residence of the taxpayer. If a U.S. citizen is living in
Madrid and receives all her income from Spanish sources, the United States will still expect to
comply with U.S. tax laws.
● Has been extended to many other arcas in addition to tax and employment law, including antitrust
and environmental laws.
● Alien Tort Statute allows non-U.S. nationals to file lawsuits in U.S. courts
● Charles McArthur Emmanuel, the son of the former dictatorial ruler of Liberia, was convicted of
torture and conspiracy to torture in a Department of Justice case.

2. Performance of Contracts
● Whenever businesses enter into agreements with other businesses, the possibility exists that there
may be problems getting the other side to perform its obligations.
● No worldwide court has the power to enforce its decrees.
● The worldwide courts that do exist, rely on the voluntary compliance of the parties before them.
For example, UN’s International Court of Justice.
● Each nation is sovereign and has its own rules for recognizing decrees and judgments from other
nations.
● When parties are residents of a single country:
○ The laws of that country govern contract performance and any disputes that arise between
the parties.
○ Country’s courts have jurisdiction over the parties; and
○ The courts’ judgments are enforced in accordance with the country’s procedures.
● When residents of two or more countries make a contract:
○ Solutions to dispute resolution are not available.
○ Enforcing contracts that cross international borders is often complicated.

United Nations Solutions

● Many countries have ratified the UN Convention on the International Sale of Goods
(CISG) to solve jurisdictional problems related to contract performance.
● CISG – is a set of uniform legal rules that govern the formation of international sales
contracts and the rights and obligations of the buyer and seller.
○ It applies automatically to all contracts for the sale of goods between traders from
different countries that have ratified it.
○ This automatic application will take place unless the parties to the contract expressly
exclude – or opt out of – the CISG.

Arbitration
● Arbitration is, by agreement, binding, while one country’s court decisions are difficult to
enforce on a nonresident.
 ● International business people often
agree by stipulating in their contract that any disputes will be resolved by arbitration rather
than by litigation.
● Arbitration: A dispute resolution process agreed to by parties in lieu of going to court, in
which one person of a body makes a binding decision.
● At least 30 organizations now administer international arbitrations.
○ The best known of which may be the Mediation Center handles technological,
entertainment, and intellectual property disputes.

3. Litigation
● Disputes in international trade are probably inevitable, and arbitration and other resolution
methods are not successful. So, the parties settle their disagreements through litigation.
● Litigation: Legal proceeding conducted to determine and enforce particular legal rights.
○ Can be complicated and expensive.
● Most lawsuits in the United States entail lengthy pretrial activities, including a process called
discovery.
○ Discovery is the means of finding facts relevant to the litigation, including facts known to
the other side and documents in possession of the other side.
■ Some methods can seem quite intrusive.
■ One reason many people outside the United States dislike litigation in the United
States.
● Litigation of disputes that cross international borders can arise in both state and federal courts in
the United States.
● One of the major problems in cross-border litigation is the question of which jurisdiction’s law
should apply and where the litigation should occur.
○ Each country has elaborate laws for determining the answers to these questions.
● In any other disputed matter, the final decision rests with the court that is being asked to hear the
case.
○ Courts in two countries will attempt to resolve the same dispute or will disagree over which,
judicial system should prevail.
● In more routine business issues the chioice-of-law provisions in the contract specify which law
will govern.
● The choice defaults to the CISG rules if no other provisions have been made.
○ It is prudent to include both a choice-of-law clause and a choice-of-forum clause in
contracts.
● A choice-of-forum clause in a contract specifies where the dispute will be settled.
● Despite legal uncertainties of doing business in other countries, international business activities will
continue to increase in the future, and it is likely that disputes will as well.

Intellectual Property
● Intellectual property (IP): A creative work or invention that is protectable by patents,
trademarks, trade names, copyrights, and trade secrets.
● Rights to intellectual property can be protected by patents, trademarks, trade names,
copyrights, and trade secrets, depending on the jurisdiction. (all describe safeguards to property
rights)
● Treaties, agreements, and conventions have helped nations standardize some aspects of
intellectual property rights.
● The World Trade Organization’s Trade-Related Aspects of Intellectual Property Rights
(TRIPS) council works with the World Intellectual Property Organization (WIPO), a self-
funding UN forum with 191 members, to develop an intellectual property (IP) system that operates
for every nation’s benefit.
 ○ WIPO has:
■ divisions related to each type of IP (brands and designs, global issues, development,
innovation and technology, cultural and creative industries)
■ administrative and legal functions.
■ mediates IP disagreements.
● WIPO and TRIPS also incorporate the earlier International Convention for the Protection of
Industrial Property of 1883 (the Paris Union).

Patents
● Every country has its own understanding of patents.
● Patents: A government grant giving the inventor of a product or process the exclusive right to
manufacture, exploit, use, and sell that invention or process.
● How governments protect IP can vary widely.
○ In the European Union, a patent is:
■ an understanding of rights between the inventor and the public."
■ patent goes to the first person to register an invention.
■ definition of novelty is much narrower than the U.S.
■ the innovation must be absolutely novel and not available to the public in any form.
○ In the United States, a patent is:
■ viewed more narrowly as a property right that “excludes others from making, using,
offering for sale, or selling the invention".
■ divided into three types: utility, design, and plant.
● A utility patent is for an innovative, useful invention or process, and it gives
the patent holder 20-year protection against use by others.
● A design patent is for an aesthetic, nonuseful creation, and it runs for 14
years.
● The plant patent is for innovations among growing things, such as mutants
(genetically modified foods) and hybrids, and it runs for 20 years.
■ the first inventor has the right to the patent.
● Patents are complex and can present the IP owner with massive challenges.
○ The European Patent Organization (EPO) has taken a major step toward the
harmonization of patents, greatly reducing their complexity.
■ The U.S. Supreme Court ruled, that patent rights become exhausted when the
patented item is sold by another company under license.
○ The Global Intellectual Property Center of the U.S. Chamber of Commerce has
developed an IP index to measure different countries' momentum toward effective IP
environment rights, one in which IP is safe from theft.
○ An added complexity of the patent environment is the spread of so-called patent trolls.

Trademarks
● Trademarks: A shape, color, design, phrase, abbreviation, or sound used by merchants or
manufacturers to designate and differential their products.
● For instance, the Apple logo, Starbucks’ mermaid, Hello Kitty’s kitten and heart, and the FedEx
logo with its arrow are all protected trademarks.
● Trademark protection in most of the world is covered by the Madrid Agreement of 1891.
○ This agreement operates as a central filing system, with one application and one fee, but it
does not standardize or harmonize actual trademark competition.
○ It is administered by the World Intellectual Property Organization (WIPO), which issues an
international registration that is then presented for acceptance in each location where the
company seeks protection of its mark.
 ● The General Inter-American Convention for Trademark and Commercial Protection for the
Western Hemisphere, an agreement of the Organization of American States, also acts to protect
trademarks.
● The Office of Harmonization in the Internal Market (OHIM) is responsible for the recognition
and protection of proprietary marks in all EU countries, including trademarks belonging to
companies based in non-EU member-countries

Trade names
● Trade name: A name used by a merchant or manufacturer to designate and differentiate its
products.
○ It is protected by WIPO and TRIPS.
● It is often different from the legal name of the business, and it may be the same as a brand name.
● A business may use a trade name for many reasons, including to focus the consumer on its product
line, to distance itself from negative publicity, and to do business in multiple geographic or product
areas with one legal corporation.
● Businesses may have many trade names.
● Goods bearing illegal trade names, or false statements about their origin, are subject to seizure
upon importation into countries that are members of WIPO or have signed the WTO’s TRIPS
agreement.

Copyrights
● Copyrights: Exclusive legal rights of authors, composers, software creators, playwrights, artists,
and publishers to publish and dispose of their work.
○ protected under the Berne Convention of 1886.
● A copyright protects tangible property. So the idea itself is not afforded copyright protection; the
idea has to be written, filmed, drawn, or somehow expressed.

Trade secret
● Trade secret: Any information not generally known to the public and that a business wishes to
hold confidential.
○ It may include formulas, processes, patterns, designs, or other information or sets of
information that could give a company an economic advantage over its competitors.
● The company maintains the value of its trade secrets by not allowing them to be publicly known,
and it must exercise reasonable efforts to ensure that they are not disclosed.
● While protection of trade secrets is not subject to expiration after a set period of time, there is no
guarantee of secrecy if another party independently discovers the information.
● Trade secrets are the most common form of IP protection that international businesses pursue,
rather than patents, trademarks, or copyrights.
● Trade secrets have several advantages:
○ they do not require any registration process, nor do they require that the process or
innovation be shared with the government.
○ Protecting a trade secret is usually less costly than initiating a patent.

Standardizing Laws around the world

● The advantages of standardization is that business flows much better when there is a uniform set
of rules.
● Worldwide agreement on a body of laws, known as harmonization, is progressing slowly, though, in
most areas.
● Incoterms: Predefined commercial terms established by the International Chamber of Commerce.
○ It can be used to describe the duties and obligations of commerce.
 ● International Institute for the Unification of Private Law (UNIDROIT) is an independent
intergovernmental organization that studies how to modernize, harmonize, and coordinate private
law, especially commercial law, between countries.
● In the tax area, conventions, or treaties, among nations, on taxes and their payment tend to be
similar, with patterns and common provisions found among them.
● The U.S. approach focuses on protection on consumer welfare, whereas the EU policy has
developed out of concerns for the integration of EU members.
● As trade restrictions have dropped and the trade environment has become more liberalized thanks
to the World Trade Organization, concerns have increased that competitive practices may function
as barriers to trade.
○ Legal scholars predict that efforts made by the WTO will have to be long term and that, in
the present, more informal agreements and bilateral agreements are likely to be more
effective.
● UN Convention on the International Sale of Goods (CISG) provides some uniformity in
international sales agreements for those parties who elect to use it.
● UN Commission on International Trade Law (UNCITRAL) addresses accounting and
bankruptcy standards and has made progress to standardize them worldwide with the Model Law
on Cross-Border Insolvencies.
● Platforms that have successfully promoted harmonization:
1. International Electrotechnical Commission (IEC) – promotes standardization of
measurement, materials, and equipment in almost every sphere of electrotechnology.
2. International Organization for Standardization (ISO) – recommends standards in
other fields of technology.
3. International Telecommunications Union (ITU) – provides global telecommunications
standards.
● Most government and private purchasing agreements around the world demand products that meet
IEC, ITU, and ISO specifications.

Some Specific National Legal Forces

● Competition and antitrust law are laws that function as trade obstacles, tort, and liability laws, and
some miscellaneous laws.

Competition Laws
● Intended to prevent inappropriately large concentrations of economic power, such as monopolies.
● Actions to enforce competition laws or antitrust laws usually are brought by government
against business, but one business may also sue another.
○ Competition Laws: another term for antitrust law, used by the European Union and other
countries.
○ Antitrust laws: laws that prevent inappropriately large concentrations of power and its
abuse through price fixing, market sharing, and monopolies.
● The U.S. Department of Justice is charged with enforcing U.S. antitrust laws, while in the European
Union, the EU Commission is responsible for enforcing competition policy.
● A number of important differences in antitrust laws, regulations and practices still exist between
the United States and the European Union.
○ One difference is the per se concept of the U.S. law, under which certain activities, such as
price fixing, are said to be illegal “per se.”
■ This means that they are illegal in and of themselves, even though no injury or
damage results from them.

Trade obstacles
● Trade obstacles are not only political and financial but legal as well.
 ○ Every country has laws on these subjects.
● The stated purpose of tariff is to raise revenue for the government, but it may serve the additional
objective of keeping certain goods out of a country.
○ Quotas limit the amount of source of imports.
● The United States has many options in dealing with trade obstacles abroad.
○ It can impose retaliatory barriers on products from countries imposing barriers against U.S.
goods.
○ It sometimes used tariffs and quotas. It also uses a form of quota called voluntary
restraint agreement (VRAs) or voluntary export restraints (VERs).

Tort Law
● Tort: An injury inflicted on another person, either intentionally or negligently.
● One important area of torts, especially in the international arena, is product liability.
● Product liability: A standard that holds a company and its officers and directors liable and
possibly subject to fines or imprisonment when their product causes death, injury, or damage.
○ Such liability for faulty or dangerous products was a growth area for the U.S. legal
profession beginning in the 1960s.
○ In the 1980s, that boom spread to Europe and elsewhere.
○ In the United States, product liability cases are heard by juries that can award plaintiffs
actual damages plus punitive damages. As the name indicates, punitive damages have the
purpose of punishing the defendant, and if the plaintiff has been seriously injured or the
jury’s sympathy can be otherwise aroused, it may award millions of dollars to “teach the
defendant a lesson”
● Manufacturers of products are often held to a standard of strict liability.
● Strict liability: A standard that holds the designer or manufacturer liable for damages caused by a
product without the need for a plaintiff to prove negligence in the product’s design or manufacture.
● The European Union allows companies to use “state-of-the-art” or “developmental risks” defenses,
which allow the designer/manufacturer to show that at the time of design or manufacture, the
most modern, latest-known technology was used.

Miscellaneous Laws
● People working abroad must be alert to avoid falling of local laws and police, army, or government
officials.
● The law of the home country plays no role in a foreigner’s arrest, so make an effort to know the
local laws.
○ In many majority Muslim nations, for example, alcohol is strictly forbidden. Violators may
face a range of consequences, including being flogged, imprisonment, or deported.

Foreign Corrupt Practices Act

● During the 1970s, revelations of questionable or dubious payments by U.S. companies to foreign
officials rocked governments in the Netherlands and Japan.
● Foreign Corrupt Practices Act (FCPA): U.S. law that prohibits payments to foreign government
officials in order to receive special treatment.
○ Key provisions of the act prohibit bribery of foreign officials and set requirements for
transparency of accounting transactions.
○ The FCPA makes it unlawful to bribe foreign government officials to obtain or retain
business.
○ One is that there are a number of uncertainties about the terms used in the FCPA.
■ According to the FCPA’s drafters, the act does not outlaw grease, which refers to
facilitating payments made solely to expedite nondiscretionary official actions like
customs clearance.
 ■ The Department of Justice (DOJ) and the Securities and Exchange
Commission (SEC) often pursue companies in situations that might encourage
corruption, in a process called sweeping. When a company is reported to have
engaged in corruption, DOJ and SEC will look closely at it and at other companies in
the industry and related industries, and the travel and expense claims of their
agents.
■ The FCPA was amended in 1998 to incorporate anti-bribery conventions developed
by the OECD.
● Ethisphere Institute is leader in setting the standards of ethical business practice.
● Among the most noteworthy of new agreements on bribery is the UN Convention against
Corruption and the United Kingdom Bribery Act.
○ Businesses and national governments worldwide are placing more value on ethical business
behavior and developing improved ways to monitor it, and changes in the political
environment influence levels of transparency.
■ One challenge of increasing ethical behavior is that, ethical behavior actually occurs
at the level of the individual manager, who in the international context often has a
great deal of discretion.
■ Training in the value of ethical, transparent approaches to doing business is critical.

Accounting Law
● U.S. accounting practice is guided by the Securities and Exchange Commission (SEC) and the
Financial Accounting Standards Board (FASB) and follows standards known as Generally
Accept Accounting Principles (GAAP).
● While most other countries, including those in the European Union, follow standards issued by the
International Accounting Standards Board (IASB) known as the International Financial
Reporting Standards (IFRS).