The International Legal

Environment:
Playing By the Rules

Chapter 7

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
LO1 The four heritages of today’s legal systems
LO2 The various methods of dispute resolution
LO3 The unique problems of protecting intellectual property
rights internationally
LO4 How to protect against piracy and counterfeiting
LO5 The many issues of evolving cyberlaw
LO6 The legal differences between countries and how those
differences can affect international marketing plans
LO7 The steps necessary to move goods across country
borders

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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 operate

7-3
Bases for Legal Systems
 Common Law
 Civil or Code Law
 Islamic Law
 Commercial Legal System in Marxist-Socialist
economies or states

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Bases for Legal Systems
 Common law, 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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Bases for Legal Systems
 Civil or code law, 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.

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Common Law Code Law

Based on an all-inclusive
Based on tradition, past
system of written rules
practices and legal
(codes) of law. Legal
precedents set by courts
system is divided into 3
through interpretation of
codes: commercial, civil &
past rulings/statutes, etc.
criminal.

Considered complete
“catchall provisions” Some
Not All-Inclusive
broad interpretations are
possible.

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Common Law Code Law

Based on an all-
Ownership is inclusive Ownership is
determined by use determined by
registration

Agreements may be
Agreements may not
binding so long as
be enforceable unless
proof of the
properly notarized or
agreement can be
registered.
established.

7-8
Common Law Code Law

Impossibility of Acts of God are not

performance does not necessarily limited to acts
excuse non-compliance of nature but include
with the provisions of the “unforeseeable human
contract, unless it was an acts” such as labor strikes
act of God. or riots.

Common Law countries are

codifying Commercial Law.

7-9
Bases for Legal Systems
 Islamic law, derived from the interpretation
of the Al Quran and found in Pakistan, Iran,
Saudi Arabia, and other Islamic states

7-10
7-11
Islamic Law
 The Al Quran 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”
 It describes secular aspects of the law regulating
human acts.
 It describes specific patterns of social and economic
behavior for all individuals.
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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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7-14
LAW IN MALAYSIA
 Malaysia, which consists of Peninsular
Malaysia, Sabah and Sarawak is one political
unit, but is NOT governed by the same set of
laws.

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LAW IN MALAYSIA
 WHAT IS A “STATE”?

• Legal systems are administered almost entirely on the basis of

the political unit known as the State.
• For international purposes, Malaysia is one state. Within
Malaysia, however, there are 13 States altogether – Kedah,
Perlis, Kelantan, Terengganu, Penang, Perak, Pahang,
Selangor, Negeri Sembilan, Johor, Malacca, Sabah and
Sarawak and the Federal Territories of Kuala Lumpur, Labuan
and Putrajaya.
• Every state has a government and has rules which lay who
shall govern and how Malaysia has a WRITTEN constitution
7-16
International Law
 Body of law which is composed for its greater part of
the principles and rules of conduct which States feel
themselves bound to observe, and consequently
commonly do observe, in their relations with each
otherSubdivided into:

1. Public international law

2. Private international law

7-17
Public international law

 Law that prevails between States

 Example:

1. Climate Change – UNFCCC & Kyoto Protocol

2. Transboundary movement of toxic wastes – Basel
Convention
3. Antarctic Region – Antarctica Treaty

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7-19
Private international law

“Conflict of laws” – every country

there will be a different version of
laws. It consists of the rules that guide
a judge when the laws of more then
one country affect a case.

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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 disputes can arise in three situations:
1. between governments,
2. between a company and a government,
3. and between two companies

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 https://news.justia.com/google-employees-no-
longer-restricted-to-arbitration-for-legal-disputes-
starting-march-21/

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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?
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Jurisdiction in International
Legal Disputes
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, or
3. where the provisions of the contract
were performed

7-24
International Dispute Resolution
 Conciliation or mediation is a non-binding
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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International Dispute Resolution

Arbitration
 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.

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International Dispute Resolution
Litigation
Litigation is the term used to describe proceedings initiated
between two opposing parties to enforce or defend a legal
right. Litigation is typically settled by agreement between the
parties, but may also be heard and decided by a jury or judge
in court.

 Fear of creating a poor image

 Fear of unfair treatment in a foreign court
 Difficulty in collecting a judgment
 Cost and time
 Loss of confidentiality

7-27
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 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

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Protection of Intellectual Property

7-29
http://www.myipo.gov.my/en/home/

7-30
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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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

7-32
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

No other 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

7-33
Cybersquatting
 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
• Microsoft.pt, Yahoo.pt, Altavista.pt, Shop.pt,
Shopping.pt!

7-34
 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.
7-35
Jurisdiction of Disputes and
Validity of Contracts
 Since existing laws relating to commerce do not
always clearly address the uniqueness of the
Internet, 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

7-36
Commercial Law within Countries:
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

7-37
Green Marketing Legislation
 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

7-38
Patent Law
 USA
• Operates under
“first to invent” rule
• Protects individual
inventors
• Patent applications
secret
• Patents granted in up to
24 months
• Patents valid for 17 years
from application date
issued
 Japan
• Operates under
“first to register” rule
• Promotes technology
sharing
• Patent applications
public
• Patents granted in 4 to 6
years
• Patents valid 20 years
from application date
issued
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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
which lead to less competition and higher
prices for consumers

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7-41