Chapter-7

International Legal Environment

Today’s Agenda
 The four heritages of today’s legal systems
 The important factors of jurisdiction of legal
disputes
 Dispute resolution
 Protecting intellectual property rights
 Commercial law within countries
 US laws’ applicability abroad
 Laws regarding the internet
Bases for Legal Systems
 Four heritages form the bases of the legal
systems of the world
 Common Law
 Civil or Code Law
 Islamic Law
 A Commercial Legal System in Marxist-socialist
Economics

The interpretations of every legal system

varie considerably among countries
Common Law
 Derived from English law and found in
England, USA and other countries once under
English influence
 The basis is tradition, past practices, and
legal precedents set by the courts through
interpretations of statutes, legal legislation,
and past rulings
 It seeks interpretation through the past decisions
of higher courts
 The ownership of IP is established by use
 Considered incomplete and not all-inclusive
Code Law or Civil Law
 Derived from Roman law and found in
Germany, Japan, France and in non-
Islamic and non-Marxist countries
 The basis is written rules/codes of law
 It is divided into 3 separate codes:
commercial, civil, and criminal
 The ownership of IP is determined by
registration
 Considered complete, and all-inclusive
 Islamic Law
 Derived from the interpretation of the holy
Koran and found in Pakistan, Iran, Saudi
Arabia, and other Islamic states
 The basis is interpretations of the Koran
 It encompasses religious duties and obligations
as well as secular aspect of law regulating
human acts
 It is a complete system that prescribes the
behavior for all individuals
 It prohibits against the payment of interest
 Its objective is social justice
Islamic Law
 It includes the issues such as property rights,
economic decision making, and types of
economic freedom
 It advocates risk sharing, individuals’ rights and
duties, property rights and the sanctity of
contracts
 It emphasizes the ethical, moral, social and
religious dimensions to enhance equality and
fairness for the good of the society
Marxist-Socialist Tenets
 A commercial legal system in Marxist-
socialist economics of Russia and the
Republics of the former Soviet Union,
Eastern Europe, China etc
 As socialist countries become involved in trade
with non-Marxist countries, it is necessary to
develop a commercial legal system
 The pattern of development varies among
countries because each has a different
background
Marxist-Socialist Tenets

 Central European countries such as Czech

Republic and Poland have moved toward a legal
model with greater ease than some others have
 Russia is moving toward a democratic system
 China is trying to activate private sector within a
mixed economy in a socialist framework
Jurisdiction in International Legal
Disputes
 Determining whose legal system has
jurisdiction when a commercial dispute arises
is a problem of IM
 No judicial body exists to deal with legal
disputes arising between citizens of different
countries
 International courts (World court at Hague)
are operative in settling disputes between
sovereign nations only instead of between
private citizens and companies
Jurisdiction in International Legal
Disputes
 Legal disputes can arise in three situations:
 between governments
 between a company and a government
 between two companies
 The disputes in the last two situations must be
handled in courts of the either party’s country
or through arbitration
 Since no international commercial law exists,
the marketer must look to the legal system of
each party involved
Jurisdiction in International Legal
Disputes
 Jurisdiction of the legal system is usually
determined on the basis of one of the
following:
 Jurisdictional clauses in the contract
 Where the contract was entered into
 Where the provisions of the contract were
performed
 It’s better to include a jurisdiction clause in
the contract
International Dispute Resolution

 If things go wrong in a commercial

transaction, what recourse does the
international marketer have?
 Resolve the dispute informally
 Conciliation or mediation
 Arbitration
 Litigation

13
Resolving the Dispute Informally

 When a problem arises between two parties

over a commercial transaction, the first
option is to resolve the issue informally
 This may be the cheapest form of dealing
with a dispute

14
Conciliation or Mediation
 A nonbinding agreement between parties by
asking a third party to mediate differences
 Mediators carefully listen to each party and explore,
clarify, and discuss various practical options and
possibilities for a solution
 Unlike arbitration and litigation, conciliation
sessions are private and confidential
 The settlements made by the parties can not be
disclosed or used as evidence in any litigation
Arbitration
 Arbitration is used when conciliation fails

 The procedure is to select a disinterested and

informed party as referee to determine the
merits of the case and make judgment that
both parties agree to honor
 Although informal arbitration is workable, most
arbitration is conducted under the auspices of
formal domestic and international arbitration
groups
 These arbitration groups have formal rules
Arbitration
 Formal arbitration decisions are enforceable by
law
 The success depends on the willingness of both
parties to accept the arbitrator’s rulings
 Arbitration clauses require agreement on two
counts:
 The parties agree to arbitrate according to the
rules & procedures of some arbitration tribunal
 They agree to abide by the outcome resulting
from the arbitration
Litigation
 Although the best advice is to seek settlement
out-of-court, the injured party may take the
issue to a public court, finding no other
alternatives
 The cost, frustrating delays, and extended
aggravation are the primary reasons to avoid
lawsuits
 Rule of Thumb:
Placate (if fails), Conciliate (if fails),
Arbitrate (if fails), Litigate
Other 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
 High cost and time required when bringing
legal action
 Loss of confidentially
Protection of Intellectual Property Rights:
A Special Problem
 Companies spend billions of dollars
establishing brand names as a mark of
quality and developing products, processes,
designs, and formulas that provide
companies competitive advantages
 But these companies have experienced the
infringement of their IP rights
 Thus, companies keep a constant vigil
against piracy and counterfeiting
IP Rights: Patent, Trademark, and Copyright

 Patent– gives an inventor exclusive right to

make, use, and sell an invention for a
specified period of time
 Trademark– is a distinctive mark used to
distinguish a product from competing ones
 Copyright– establishes ownership of a
written, recorded, performed, or filmed
creative work
Counterfeiting and Piracy
 Counterfeit and pirated goods come from a
wide range of industries
 More than 10 million fake Swiss timepieces
carrying famous brand names such as Cartier
and Rolex are sold every year, netting illegal
profits of at least $500 million
 In some African and Latin American nations,
as much as 60% are counterfeit
 Piracy industry is so sophisticated that it
can produce as good as real products
Inadequate Protection
 The failure to protect IP rights can lead to
the legal loss of rights in potentially profitable
markets
 Some companies find that their patents,
processes, trademarks, and copyrights are
appropriated and exploited in foreign countries
without license
 Even some companies have legally lost the
rights to trademarks and have had to buy back
these rights or pay royalties for their use
Inadequate Protection
 An enterprising Japanese registered McDonald’s
‘golden arches’ trademark. After a lengthy and
costly legal action with a trip to the Japanese
Supreme Court, McDonald’s was able to regain it
 A South Korean company legally uses the ‘Coach
brand’ on handbags and leather goods
 Marketer must understand that:
 Some countries do not follow common-law
principle that ownership is established by prior
use, and
 Registration and legal ownership in one country
does not necessarily mean ownership in another
Prior Use versus Registration
 Prior Use- in common law countries, IP
rights are established by prior use; whoever
can establish first use is considered the
rightful owner
 Registration- in code law countries,
ownership is established by registration; the
first to register a trademark or other property
right is considered the rightful owner
 China has improved its IP rights like ‘first to invent’
is the owner of IP
Commercial Law within Countries
 A marketer must remain alter to the different
legal systems,
systems when doing business in more
than one country
 This problem is acute for a marketer who
formulates a marketing plan to be
implemented in several countries
 Although differences in languages and customs
may be accommodated, legal differences may pose
problems for a marketing program
Marketing Laws
 All countries have laws regulating production,
labeling, pricing, advertising, distribution etc
 Usually, the discrepancies across markets
cause problems for trade negotiators, but
particularly for managers and firms
 The US does not allow the buying and selling of
human organs
 Some countries have only a few marketing
laws; others have detailed, complicated rule
to follow
Marketing Laws
 There are vast differences in enforcement
and interpretation laws among countries
 In Austria, premium offers (free gifts, coupons) are
prohibited, whereas in Finland these are allowed as
long as the word ‘free’ in not used and consumers
are not coerced into buying
 In Germany, comparisons in ads are always subject
to competitor’s right to go to the courts and ask for
proof of any superiority
 China is experimenting with a variety of laws
to control how foreign companies do business
Green Marketing Laws

 They focus on environmentally friendly

products and on product packaging and its
effect on solid waste management
 Germany has passed the most stringent green
marketing laws regulating management and
recycling of packaging waste
 EU countries have set certain criteria that
make products more environmentally friendly
than similar products
Cyberlaw: Unresolved Issues
 Since the Internet is so new and it crosses
international boundaries easily, many of the
related laws are not finished in many countries
 Marketer understand the related laws

 Some contemporary issues are:

 Domain names
 Taxes
 Jurisdiction of disputes and validity of contracts

30