International Marketing
14th Edition
P h i l i p R. C a t e o r a
M a r y C. G i l l y
John L. Graham
The International
Legal Environment:
Playing by the Rules
Chapter 7
International Marketing 14/e
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
What Should You Learn?
• The four heritages of today’s legal systems
• The important factors in jurisdiction of legal
• Issues associated with jurisdiction of legal
disputes and the various methods of dispute
• The unique problems of protecting intellectual
property rights internationally
What Should You Learn?
• How to protect against piracy and counterfeiting
• The legal differences between countries and
how the differences can affect international
marketing plans
• The different ways U.S. laws can be applied to
U.S. companies operating outside the United
• The many issues of evolving cyberlaw
Global Perspective
The Pajama Caper
• No single, uniform international commercial law
governs foreign business transactions
– The international marketer must pay particular attention to the
laws of each country
• Laws governing business activities within and
between countries
– An integral part of the legal environment of international
• Securing expert legal advice is a wise decision
• The foundation of a legal system
– Profoundly affects how the law is written, interpreted, and
Bases for Legal Systems
• Four heritages form the basis for the majority of
the legal systems of the world
Common law
Civil or code law
Islamic law
Marxist-socialist tenets
• Even though a country’s laws may be based on
the doctrine of one of the four legal systems its
individual interpretation may vary significantly
Lawyers per 100,000 People
in Selected Countries
Exhibit 7.1
Common and Code Law
• Common law
– Seeks interpretation through the past decisions of higher courts which
interpret the same statues
– Applies established and customary law principles to a similar set of facts
– Are recognized as not being all-inclusive
– Ownership is established by use
• Code law
– Legal system is generally divided into three separate codes
– Ownership is determined by registration
– Considered complete as a result of catchall provisions found in most
code-law systems
Islamic Law
• The basis for Islamic law is interpretation of the Koran
• Islamic law defines a complete system that prescribes
specific patterns of social and economic behavior for all
– Property rights
– Economic decision making
– Types of economic freedom
• Among the unique aspects of Islamic law is the
prohibition against the payment of interest
• The Islamic system
– Places emphasis on the ethical, moral, social, and religious dimensions
to enhance equality and fairness for the good of society
Marxist-Socialist Tenets
• Socialist countries are now more directly involved
in trade with non-Marxist countries
– Necessitated the development a commercial legal system that
allowed engagement in active international commerce
• Pattern for development varies among countries
– Each has a different background
– Development of market-driven economies at different stages
• Premise is that law is strictly subordinate to
prevailing economic conditions
– Fundamental propositions as private ownership, contracts, due
process, and other legal mechanisms have had to be developed
in International Legal Disputes
• No judicial body exists to deal with legal commercial
problems arising between citizens of different countries
– Legal disputes can arise in three situations
Between governments
Between a company and a government
Between two companies
• Jurisdiction is generally determined on the basis of:
– Jurisdictional clauses included in contracts
– Where a contract was entered into
– Where the provisions of the contract were performed
• Most clear-cut decisions can be made:
– When contracts or legal documents supporting a business transaction
include a jurisdictional clause
International Dispute
Resolution – Conciliation
• Conciliation is a nonbinding agreement between
parties to resolve disputes by asking a third
party to mediate differences
– Sessions are private
– All conferences between parties and the mediator are
• Although conciliation may be the friendly route to
resolving disputes
– It is not legally binding
– An arbitration clause should be included in all conciliation
International Dispute
Resolution – Arbitration
• Conducted under the auspices more formal
domestic and international arbitration groups
– Organized specifically to facilitate the resolution of commercial disputes
• The popularity of arbitration has led to a
proliferation of arbitral centers
– Established by countries, organizations, and institutions
Inter-American Commercial Arbitration Commission
Canadian-American Commercial Arbitration Commission (for disputes
between Canadian and U.S. businesses)
London Court of Arbitration (decisions are enforceable under English law
and English courts)
American Arbitration Association
International Chamber of Commerce (select Arbitration)
International Dispute
Resolution – Arbitration
• Contracts and other legal documents should
include clauses specifying the use of arbitration
to settle disputes
• Arbitration clauses require agreement on two
– To arbitrate in the case of a dispute according to the rules and
procedures of some arbitration tribunal
– To abide by the awards resulting from the arbitration
International Dispute
Resolution – Litigation
• The best advice is to seek settlement
• 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
– The relatively high cost and time required when bringing legal
– Loss of confidentiality
Protection of Intellectual Property
Rights – A Special Problem
• Companies spend millions of dollars establishing
brand names or trademarks
– To symbolize quality and design
– To entice customers
• Millions are spent on research
– To develop products, processes, designs, and formulas
• Intellectual or industrial properties are among
the most valuable assets
• New technologies developed to prevent piracy
Counterfeiting and Piracy
• Lost sales from the unauthorized use of U.S.
patents, trademarks, and copyrights
– Amount to more than $100 billion annually
• The piracy industry has grown so sophisticated
– Many counterfeit goods are indistinguishable from original
• Piracy actually can serve come companies
– Microsoft
• Counterfeit pharmaceuticals
– 2% of the $327 billion worth of drugs sold each year
Piracy Rates for Computer Software
Top and Bottom 20
Exhibit 7.2
Inadequate Protection
• Failing to adequately protect intellectual property
rights can lead to the legal loss of rights in
potentially profitable markets
• There have been many cases where companies
have legally lost the rights to trademarks and
have had to buy back these rights or pay
royalties for their use
– McDonald’s in Japan
• Many businesses fail to take proper steps to
legally protect their intellectual property
Prior Use Versus Registration
• Prior Use – whoever can establish first use is
typically considered the rightful owner
• Registration – the first to register a trademark or
other property right is considered the rightful owner
• A company that believes it can always establish
ownership in another country by proving it used the
trademark or brand name first is wrong and risks the
loss of these assets
• It is best to protect intellectual property rights
through registration
International Conventions
• Three major international conventions
– Paris Convention for the Protection of Industrial Property
– Inter-American Convention
– Madrid Arrangement
• World Intellectual Property Organization (WIPO)
– Responsible for the promotion of the protection of intellectual property
and for the administration of the various multilateral treaties through
cooperation among its member states
• Patent Cooperation Treaty (PCT)
• European Patent Convention (EPC)
• The Trade-Related Aspects of Intellectual Property
Rights (TRIPs)
Marketing Laws
• All countries have laws regulating marketing
Product development
Channels of distribution
• Discrepancies across markets cause problems for
trade negotiators – particularly for managers and
their firms
– U.S. does not allow the buying or selling of human organs
– Some countries only have a few marketing laws with lax enforcement
– Others have detailed, complicated rules that are stringently enforced
Marketing Laws
• There often are vast differences in enforcement
and interpretation among countries having laws
covering the same activities
– Laws governing sales promotions in the European community
• Censorship of advertising is a constant concern
• For many U.S. products with markets in Europe,
meeting EU standards is less expensive than
designing products especially for Europe
Green Marketing Legislation
• Green marketing laws
– Focus on environmentally friendly products and
– Focus on product packaging and its effect on solid waste
• Antitrust
– For better part of the 20th century antitrust laws
Not enforced in most of the world’s countries
U.S. was exception
– EU has dealt severe penalties for antimonopoly, price
discrimination, supply restrictions, and full-line forcing
Green Marketing Legislation
• The U.S. intervenes when non-U.S. companies attempt
to acquire American companies
• At times, companies are subject to antitrust charges in
more than one country
– Nestle’s proposed acquisition of Dreyer’s Grand Ice Cream
– Microsoft
• Enforcement of antitrust in Europe almost nonexistent
until the early stages of EU established legislation
U.S. Laws Apply in Host Countries
• Foreign Corrupt Practices Act
– Makes it illegal for companies to pay bribes to foreign officials,
candidates, or political parties
• National security laws
– Prohibit a U.S. company, its subsidiaries, joint ventures, or
licensees to sell controlled products without special permission
from the U.S.
• Antitrust laws
– Enforcement has two purposes in international commerce
Protect American consumers
Protect American exports and investments against any private restrictions
– The question of jurisdiction and how U.S. antitrust laws apply
Sections I and II of the Sherman Act
U.S. Laws Apply in Host Countries
• Antiboycott law
– U.S. companies are forbidden to participate in any unauthorized
foreign boycott
– Required to report any request to cooperate with a boycott
• Extraterritoriality of U.S. laws
– Especially important to U.S. multinational firms
– Foreign governments fear the influence of American government
policy on their economies through U.S. multinationals
When U.S. laws conflict with those of host country
When U.S. Justice Department restricts of forbids ventures because of
anticompetitive effects
Cyberlaw –
Unresolved Issues
• Domain names and cybersquatters
– Cybersquatters (CSQs) buy and register descriptive nouns, geographic
names, and names of ethnic groups and pharmaceutical substances,
and other similar descriptors and hold them until they can be sold at an
inflated price
• Other cybersquatting abuses that can pose a serious
threat to business include parody sites, protest sites, and
hate sites
• The Internet is not a libel-free zone
– Lawsuits involving libel, defamation, and product liability cause
companies to voluntarily restrict their Web sites to selected countries
Cyberlaw –
Unresolved Issues
• Taxes
– In the past, a company was deemed to have a taxable presence
in a country if it had a permanent establishment there
– The EU Commission
Proposes value-added tax (VAT)
• Jurisdiction of disputes and validity of contracts
– The EU Commission has adopted an e-commerce directive that
will permit online retailers to trade by the rules of their home
country unless the seller had enticed or approached the
consumer by way of advertising
• Businesses face a multitude of problems in their
efforts to develop successful marketing programs
– Varying legal systems of the world and their effect on business
• Political climate, cultural differences, local
geography, different business customs, and the
stage of economic development must be taken into
• Legal questions must also be considered
Jurisdictional and legal recourse in disputes
Protection of intellectual property rights
Extended U.S. law enforcement
Enforcement of antitrust legislation by U.S. and foreign
• The Internet creates a new set of legal
• The freedom that now exists on the World
Wide Web will only be a faint memory before
• 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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