Chapter 7

The International Legal Environment: Playing By the Rules

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

 Chapter Learning Objectives

1.
1. The
The four
four heritages
heritages of
of today’s
today’s legal
legal systems
systems

2.
2. The
The important
important factors
factors in
in jurisdiction
jurisdiction of
of legal
legal
disputes
disputes

3.
3. Issues
Issues associated
associated with
with jurisdiction
jurisdiction of
of legal
legal
disputes
disputes and
and the
the various
various methods
methods ofof dispute
dispute
resolution
resolution

4.
4. The
The unique
unique problems
problems of
of protecting
protecting intellectual
intellectual property
property rights
rights
internationally.
internationally. Ways
Ways to
to protect
protect against
against piracy
piracy and
and
counterfeiting
counterfeiting
 Chapter Learning Objectives

5.
5. The
The legal
legal differences
differences between
between countries
countries and
and how
how the
the differences
differences
can
can affect
affect international
international marketing
marketing plans
plans

6.
6. The
The different
different ways
ways U.S.
U.S. laws
laws can
can be
be applied
applied to
to
U.S.
U.S. companies
companies operating
operating outside
outside the
the U.S.
U.S.

7.
7. The
The many
many issues
issues of
of evolving
evolving cyberlaw
cyberlaw
 Introduction
1.
1. No
No single,
single, uniform
uniform 2.
international 2. International
International marketers
marketers
international commercial
commercial must
must comply
comply with
with the
the
law
law governing
governing foreign
foreign laws
business laws of
of each
each country
country
business transactions
transactions within
within which
which itit operate
operate
exists
exists

3. 4.
4. Best
Best to
to get
get expert
expert legal
legal
3. The
The legal
legal systems
systems of
of advice
advice when
when doing
doing
different
different countries
countries are
are so
so business
disparate
disparate and
and complex
complex business inin another
another
country
country
 Bases for Legal Systems
The
The bases
bases for
for the
the majority
majority of
of the
the legal
legal systems
systems of
of the
the world
world include:
include:
(1) Common law, derived from English law and
found in England, the United States, Canada, and
other countries once under English influence

(2) Civil or code law, derived from Roman law and

found in Germany, Japan, France, and in non-
Islamic and non-­Marxist countries

(3) Islamic law, derived from the interpretation of

the Koran and found in Pakistan, Iran, Saudi
Arabia, and other Islamic states

(4) A commercial legal system in the Marxist-

socialist economies of Russia and the republics of
the former Soviet Union, Eastern Europe, China,
whose legal system is based on the economic,
political, and social policies of the state
 Common and Code Law
• 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
• Common law seeks “interpretation through the past decisions of
higher courts which interpret the same statutes or apply
established and customary principles of law to a similar set of
facts”
• Code law is based on an all-inclusive system of written rules
(codes) of law

Under
Under code
code law,
law, the
the legal
legal system
system isis generally
generally
divided
divided into
into three
three separate
separate codes:
codes:
(1)
(1) Commercial
Commercial codecode
(2)
(2) Civil
Civil code,
code, and
and
(3)
(3) Criminal
Criminal code
code
 Islamic Law
• The Koran forms the basis for the Shari’ah (Islamic law)
• It encompasses religious duties and obligations and patterns of
social and economic behavior for all individuals
• 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
• Islamic doctrine advocates risk sharing, individuals’ rights and
duties, property rights, and the sanctity of contract
• Emphasis placed on the ethical, moral, social, and religious
dimensions to enhance equality and fairness for the good of
society
• Prohibits investment in activities that violate the Shari’ah, e.g.,
business dealing with alcohol, gambling, and casinos
Marxist-Socialist Tenets
• With the collapse of
communism, the former
eastern bloc countries have
developed a commercial legal
system to engage in
international commerce

• The Czech Republic and

Poland revised and
reinstituted pre–World War II
commercial legal codes
Marxist-Socialist Tenets
• USSR and China have had to build from
scratch an entire commercial legal
system with respect to private
ownership, contracts, due process, and
other legal mechanisms

• China and Russia differ as Russia is

moving toward a democratic system,
whereas China is attempting to activate a
private sector within a multi-component
or mixed economy, but their legal
systems are still nascent
 Jurisdiction in International Legal Disputes
• 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.

Legal
Legal disputes
disputes can
can arise
arise in
in three
three situations:
situations:
(1)
(1) between
between governments,
governments,
(2)
(2) between
between aa company
company andand aa government,
government,
(3)
(3) and
and between
between two
two companies
companies
 Jurisdiction in International Legal Disputes

• 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
Jurisdiction is
is generally
generally determined
determined inin one
one ofof three
three ways:
ways:
(1)
(1) on
on the
the basis
basis of
of jurisdictional
jurisdictional clauses
clauses included
included in in contracts
contracts
(2)
(2) on
on the
the basis
basis of
of where
where aa contract
contract was
was entered
entered into,
into, or
or
(3)
(3) on
on the
the basis
basis of
of where
where the
the provisions
provisions of
of the
the contract
contract were
were
performed
performed
 International Dispute Resolution
International disputes can be resolved by:

• Conciliation (also known as mediation) is a nonbinding agreement between

parties to resolve disputes by asking a third party to mediate differences

• Conciliation sessions are private and all conferences between parties and the
mediator are confidential

• The arbitration procedure calls for the parties involved to select a disinterested
and informed party or parties as referee to determine the merits of the case and
make a judgment that both parties agree to honor

• In most countries, decisions reached in formal arbitration are enforceable under

the law

• Litigation deals with filing a lawsuit to settle commercial disputes

• Lawsuits should be avoided for many reasons including cost, frustrating delays,
and extended aggravation, and fear of creating a poor image, damaging public
relations, fear of unfair treatment in a foreign court
 Marketing Laws
• When doing business in more than one country, a firm
must comply with different marketing laws

• All countries have laws regulating marketing activities

in promotion, product development, labeling, pricing,
and distribution channels

• 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
Intellectual Property Rights,
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 leads to lost sales from the

unauthorized use of U.S. patents, trademarks, and
copyrights which amount to about $60 billion annually
as well as lost jobs

• Counterfeited pharmaceutical drugs can also lead death

and bad publicity

• There is inadequate protection from products being

counterfeited or pirated as many countries do not
recognize trademarks and patents registered in other
countries
Intellectual Property Rights,
Counterfeiting and Piracy

• 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
 International Conventions
•• Many
Many countries
countries participate
participate in
in international
international conventions
conventions
designed
designed for
for mutual
mutual recognition
recognition andand protection
protection of
of intellectual
intellectual
property
property rights
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.
 Patent Law: The U.S. versus Japan

USA JAPAN

• Operates under “first to invent” rule • Operates under “first to register” rule

• Protects individual inventors • Promotes technology sharing

• Patent applications secret • Patent applications public

• Patents granted in up to 24 months • Patents granted in 4 to 6 years

• Patents valid for 17 years from • Patents valid 20 years from

application date issued
 Green Marketing Legislation and Antitrust Issues

• Multinational corporations also laws on environmental issues such as

industrial pollution, hazardous waste disposal, and rampant deforestation

• Green marketing laws 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 that regulate the
management and recycling of packaging waste

• 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 which lead to less competition and higher prices for consumers
 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

U.S.
U.S. Laws
Laws that
that apply
apply in
in host
host countries
countries include:
include:
(1)
(1) Foreign
Foreign Corrupt
Corrupt Practices
Practices Act
Act (FCPA)
(FCPA)
(2)
(2) National
National Security
Security Laws
Laws
(3)
(3) Antitrust
Antitrust Laws
Laws
 U.S. Laws Apply in Host Countries
(1)
(1) Foreign
Foreign Corrupt
Corrupt Practices
Practices Act
Act (FCPA)
(FCPA)
• The FCPA 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

(2)
(2) National
National Security
Security Laws
Laws
• U.S. firms, their foreign subsidiaries, or foreign firms that are licensees of U.S.
technology cannot sell a product to a country which could affect national security of the
U.S.
• The control of the sale of goods that have a strategic and military value was prohibited
to communist countries that were viewed as major threats to U.S. security

(3)
(3) Antitrust
Antitrust Laws
Laws
• Antitrust enforcement protects American consumers from actions that restricts
competition
• Antitrust legislation also protect American export and investment opportunities against
any privately imposed restrictions to compete on merit
 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

• 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

• Another issue in e-commerce concerns the collection of

taxes on sale of products, i.e., when taxes should be
collected, where they should be collected, and by whom, are
all issues under consideration by countries around the world