IBT Final Flashcards
Choice of Law
Can determine outcomes and likelihood of winning.
Contract: A choice of law provision is often included in a contract and respected by nations. Otherwise rules tend to determine the nation most closely connected to the transaction or at least having a significant relationship to the transaction. International sales of goods rules have been partly harmonized by CISG.
Tort: Often there are no contracts in these cases and so no choice of law provision. Law of the place where the injury occurred usually seen as proper choice. Where injury occurs in one country but can be attributable to actions in another country (ex. defective toys made in China and sold in US) the decision is important because damages under US law are likely to be much higher.
Choice of Forum
This is a choice of where a case would be tried regardless of what law applies. Typically choice of law and choice of forum are the same, but there can be a case where they differ. For instance, a New york court can be the forum, but could decide that German Law applies.
Personal Jurisdiction
Court’s jurisdiction over the parties to a lawsuit. If a court does not have personal jurisdiction over a party, its rulings cannot be enforced upon that party (except by comity)
Subject Matter Jurisdiction
Whether the facts of the case can be judged by that particular court (territoriality, nationality, international law)
Permanent Establishment
Referred to in the OECD Tax Treaty. Determines whether a person/entity should be taxed and where.
Force Majuere
Clause in contracts that frees parties from liability when an extraordinary event beyond the control of the parties (war, strike, riot, crime, natural disaster) prevents one or both parties from fulfilling their obligations under the contract. In most cases, does not usually excuse total non-performances, but suspends it for duration.
Letter of credit
A promise by the buyer’s bank that it will pay amount in contract to seller if seller produces documents required by contract to produce evidence of shipment/delivery of goods
Parallel imports
Synonymous with grey market goods
Grey market goods
Goods lawfully abiding by IP which originate abroad and compete without permission in domestic markets.
Piracy
Illegal sale, distribution and/or trading of IP protected goods
Concession
Right to exploit a resource in a particular geographic space for a particular period of time, in exchange for a royalty.
Think about what the government wants, and the risk it is taking on. To mitigate risk, gov might want a minimum obligation from foreign company.
Expropriation
Act of nationalizing a foreign investment or industry for a public good. Must not be discriminatory and must pay just compensation for it to be legal.
Sovereign immunity
Notion that a state cannot be sued if the issue takes place in that host state. Sovereignty must be respected y other sovereigns and generally means there is no personal jurisdiction.
Project finance
Non-recourse financing for a specific project rather than an entire company
Service of process
The formal delivery of documents that is legally sufficient to charge the defendant with notice of a pending action. Must conform to laws of both countries involved and give adequate notice. Some countries do not allow service by mail.
Forum non conveniens
A court’s discretionary power to decline to exercise its jurisdiction where another court may more conveniently hear a case. Considers residence of parties, location of evidence and witnesses, public policy, relative burden of court systems, plaintiff’s choice of forum, effect of changing forum.
Comity
Willingness of s foreign court to comply with another court
Recognition
Issue(s) decided do not need to be relitigated, gives domestic effect to judgement
Enforcement
Courts grant party some of all of judgement decreed by foreign court
Branch
No independent juridical status, parent has absolute control and administrative convenience, subjects the parent to all of the branch’s obligations
Subsidiary
Distinct legal personalities separate from parent
Business purpose test
Initially interpreted as allowing payments as long as payments were not directly related to a current or future business deal; eventually narrowed to prohibit payments to create a favorable business environment (eg reduced taxes). Determines the intended impact of the payment on business deals.
Implicit warranties
UCC 2-314(a): a contract implies merchantability
UCC 2-315(a): a contract implies merchantability for a particular purpose if the seller is aware of the particular purpose
UCC 2-316: exclusion and modification of implicit warranties through particular language
CISG
Convention on the International Sale of Goods: Germany and US have ratified the treaty, UK has not. Self-executing.
Applies by default if seller is in CISG signatory state. Once applicability is recognized, both parties have to agree to opt out of all or part in contract. If parties don’t agree on alternate choice, CISG applies. Harmonizing reduces ambiguity.
CISG Article 3 (Rome 1)
“Contract shall be governed by the law chosen by the parties”
When no law has been chose, the law of the country where the seller/service provider has his habitual residence
Last shot rule
An acceptance that is not in conformity with the terms of the offer is rejection of the offer and usually treated as counteroffer. Can be expressed explicitly by words of acceptance or implicitly by conduct. If a party fails to reject and performs or partially performs, it is considered accepted.
More present in CISG (UCC is first shot)
Mirror Image Rule
Acceptance with different terms of additional terms is NOT an acceptance by instead a rejection and a counteroffer.
Article 19 of CISG
Knock-out rule
Accepting the agreement of the parties based on the essential terms, different or additional terms are replaced by UCC gap-filling provisions.
CISG Article 19
An offer containing addition, limitation or other modifications is a rejection of the offer and constitutes a counter-offer. If the additional terms do not materially alter the offer, a valid contract is formed and the additional terms enter the contract unless the receiving party promptly objects to their inclusion
Restatement, Conflicts of Law (2nd 1971)
- Where there is specific juridical directive, courts will follow statutory directives of their own state on choice of law
- When no directive, depends on needs of interstate and int’l system, relevant policies of the forum, policies in particular field of law, certainty, predictability and uniformity of result, ease in determination and application of law to be applied
- Paragraph 188 - law governing in absence of effective choice: determined by local law of state which has most significance to transaction and parties, considers place of contract, place of negotiation, place of performance, location of subject matter, domicile, residence, nationality, place of incorporation and business of parties.
Battle of the forms
When two businesses are negotiating the terms of a contract and each party wants to contract on the basis of its own terms
F.O.B.
Free on board, a delivery term.
FOB [destination] means seller must at his own expense and risk transport goods to that place and tender delivery
Incoterms
Express reference supersedes UCC provision. Designed to bridge conflicts that arise across legal systems. Should be explicitly included
Perfect tender rule
UCC - buyer is entitled to reject tender of delivery under a one-delivery contract of sale that fails in any respect to conform to the contract
Avoidance
CISG - buyer cannot reject defective goods and cancel unless a non-conformity substantially deprives the buyer of what it was entitled to expect under the contract, and even then only of the seller foresaw such a result. Buyer cannot demand substitute goods unless non-conformity constitutes a fundamental breach
Force Majeure (CISG)
Article 79. The defaulting party must prove that its failure was due to an impediment beyond its control and it must prove that it could not have reasonably expected to have taken the impediment into account at the time of contract formation.
Impracticability
Not commercially viable, excessively costly. Broader than “impossibility”
Frustration
Obligee says “its not useful for me anymore, so please don’t perform”
Eugenia
Vessel entered Suez Canal when it was “dangerous” – in breach of war clause. Cannot rely on self-induced frustration. Doctrine of frustration applies when parties have made no provision for new situation. To apply frustration, situation must be “radically different” from what was undertaken in the contract. Ruled against charterers.
Exclusive distributor
Principal grants all rights to distributor, and does not distribute itself
Sole distributor
Principle agrees not to appoint any other distributors but can establish itself as a distrubtor
EU Competition Law
Based on Article 101 and 102 of the Treaty of the Functioning of the European Union
Article 101
Prohibits a wide range of vertical and horizontal anti-competitive agreements and practices (hard core restrictions) including:
- Territorial constraints prohibiting a distributor from selling outside of a specific territory;
- Price constraints that prohibit distributor to determine its own price or require a fixed minimum price
- output limitations, collusion on allocation of markets and customers, ability to exploit technology
Article 101 block exemptions
Vertical
Parties that are non-competing and market share does not exceed 30% (hard core constraints are not exempt)
Horizontal
Parties that are competing (substitute products) and market share does not exceed 20%)
Other
Non-competing parties may set maximum price
Non-competing parties can restrict active sales
Does EU competition law apply to agents?
Although some restrictions can apply between principal and agent, others may not apply. In those cases, it is left under the discretion of the courts to determine when an agent can be treated as a distributor under Article 101
Things to consider in distributorships
- Define exclusivity (exclusive, non-exclusive or sole distributorship)
- Define territory
- Defined conditions for termination (termination with clause, termination without clause, no termination only remedy to recover damages)
- Define what constitutes performance
- Limitation on warranty
- Address price and payment (i.e. clearly list requirements for LOC and currency for payment)
- Address taxes, force majeure and confidentiality
Letter of credit
A contract that the buyer’s bank will pay the seller upon receipt of certain documents; there can be multiple banks involved in a transaction to provide additional layers of risk mitigation. It can be revocable or irrevocable; irrevocable is usually required. Some important documents that a Letter of Credit should require are: 1) specifications about the goods, 2) the bill of lading, 3) proof of insurance, 4) 3rd party inspection certificate
Bill of lading
Document prepared and issued by carrier when goods are loaded onto a vessel. The Bill of Lading (B/L) needs to be shown by the buyer to obtain goods from carrier.
Can be: A) Non-negotiable (only deliver to specific person who uses it to pick up goods), B) Negotiable (deliver goods to anyone possessing B/L)
Voest-Alpine v Bank of China
Bank of China rejects to pay Voest-Alpine as per LoC because of typographical discrepancies in the relevant documents. The court finds in favor of Voest-Alpine; Bank of China has to pay them because the typographical differences are not substantive and rest of the document has a “demonstrated linkage to the transaction on its face”
Under what circumstances would a US person be taxed by the US on income from sales abroad, assuming the US and the purchaser’s home state are parties to the OECD tax convention?
US persons/corporations are taxed on worldwide income. If the foreign income is also taxed by a foreign country because that country deems the US person/corporation to have a permanent establishment in their country, then the person/corporation can receive a tax credit from the US government to equalize the tax burden in the use so that total worldwide liability is not more than what it would have been if income was only taxed at the US rate.
Under what circumstances would the foreign person be taxed by the purchaser’s home state?
Under the OECD tax treaty, if the person has a permanent establishment in the purchaser’s home state, he/she/it could have its income taxed their according to that state’s tax rules.
Article 7 of OECD Tax Convention
Country may not tax business profits of a nonresident entity in that country UNLESS it has a “permanent establishment” in that country
Fixed Place of Business
This is one of the criteria for a permanent establishment in a foreign country. It means having a physical place like a mine, office, branch, or factory where your business is being done. Generally, a place must be involved in a continuous business activity for at least 6 months to be considered a fixed place of business
Agency Permanent Establishment
A type of permanent establishment constituted by a “dependent agent” that has sufficient authority to negotiate and conclude contracts on behalf of the foreign organization. An “independent agent”, like a broker, dealers, or commissioned agents does not count as they are considered to be performing business activities in the “ordinary course of their business”.
Business Activity Test
In order for a place of business to constitute a permanent establishment, it is necessary for the enterprise to “carry on” its business activities wholly or partly through it (the “carried on expression”). The activity is not required to be of a permanent nature. However, it is considered necessary for the activity to be carried on on a regular basis, and not only once.
Functionally Separate Approach
The profits to be attributed to the permanent establishment are the profits that the permanent establishment would have earned at arm‘s length as if it were a distinct and separate‘ enterprise performing the same or similar functions under the same or similar conditions, determined by applying the arm‘s length principle under Article 7(2).
DIT Mumbai v. Morgan Stanley
Morgan Stanley had a subsidiary in India that provided outsourced services to Morgan Stanley. The subsidiary did not have fixed place of business in India, ability to conclude contracts for Morgan Stanley, or was carrying on business in India, so Morgan Stanley said that the subsidiary should not be taxed in India as it did not have permanent establishment there. Indian court agreed. This led to update in OECD tax convention about “Service Permanent Establishment.”
Service Permanent Establishment
Type of permanent establishment constituted if a non-resident entity provides services within the other Contracting State for a period of 183 days or more within a 12-month period, and more than 50 percent of the gross business revenues of the enterprise consists of income derived from the services performed in that State by the individual
Permanent Establishment for e-Commerce
A website has no Permanent Establishment. However, if servers or other computer equipment are located in a fixed place, the party owning them could have a Permanent Establishment there based on the “fixed placed of business’ concept
“At the disposal of” principle
If location is considered as a Permanent Establishment if a foreign enterprise has an exclusive right to use it “at its disposal” to carry out business activities and does so on a regular basis
Permanent Establishment
“Fixed place of business through which the business of an enterprise is wholly or partly carried on.” (place of management, branch, office, factory, workshop, mine,..) Not including auxiliary or preparatory activities such as: storage, display, purchasing, maintenance
Not including agency or servers
Export Administration Regulations
(EAR) regulate export and reexport of most commercial items, although it does not control all goods, services and technologies.
Any item that is sent form the US to a foreign destination is an export.
To determine whether your export requires a license you must consider:
- What are you exporting?
- Where are you exporting?
- Who will receive your item?
- What will your item be used for?
For this you must know if your item has an Export Control Classification Number (ECCN), these numbers are listed in the Commerce Control List (CCL).
ECCN
Export Control Classification Number
CCL
Commerce Control List
Section 301 of the Trade Act of 1974
Allows US exporters to commence proceedings which may result in sanctions against foreign governments that unreasonably and unjustifiably restrain their exports.
License or franchise contract
A party other than the developer of the patent, copyright, or trademark contractually engages with the developer in order to use its product/IP under agreed circumstances. The licensor wants to protect its IP and retain high royalties while the licensee wants flexibility to manufacture the product and keep revenue from sales.
Supply of knowhow
How the licensor will teach the licensee the technology.
Commercially valuable knowledge that may or may not be a patentable trade secret. One cannot claim exclusive rights to knowhow.
Grant-back
Licensee will inform licensor of any technological improvements they
make. Licensor will own those improvements.
What is the purpose of intellectual property? What are the challenges of international IP protection?
Intellectual property protection is used to safeguard the innovations of one party from being exploited by another without the consent of the first. IP protection incentivizes innovation, research, and development. If the inventors cannot capitalize on their innovations, why bother?
In an international context, IP is decided nationally, making global protection difficult.
Developing countries have little incentive to uphold IP legislation. Companies from developed countries would otherwise hold their domestic markets and restrict growth of national, although pirated, industries.
Territoriality of IP
IP is only protected according to national law and may not be protected overseas, so IP holders have to acquire patent rights in a number of markets, an expensive process.
Often, patent protection enforcement in developing markets is lax. Some developing countries refuse to grant patents on specific products, like pharmaceuticals. Thailand is one such country, and a thriving generic drug industry has taken root.
1970 Patent Cooperation Treaty
Designed to achieve greater uniformity and less cost in the international patent filing process.
By filing one international patent application under the PCT, applicants can simultaneously seek protection for an invention in 148 countries throughout the world. US is signee.
1883 Convention of the Union of Paris
The most fundamental agreement concerning the treatment of foreigners under national patent law. The “right of national treatment” (Article 2) prohibits discrimination against foreign jurisdictions within twelve months of their home country patent applications, so an inventor does not have to file international patent applications simultaneously. US is signee.
Trademark
Images or branding used to mark commercial goods. Companies invest a lot into their trademarks, so they are protected from another party’s use.
International trademarks, like international patents, require multinational registration.
Copyright
Protects the work (typically artistic in some way) and derivative works (e.g. movies based on books) of the copyright holder for 70 years after the author’s death (US law).
Today, most of the copyright activity surrounds the misuse and piracy of digital works (think Napster). Like patents, copyright protection is given on a national basis. The UCC, however, allows for copyright reciprocity. The UCC also established a minimum term of 25 years after the author’s death.
Trade-related intellectual property rights (TRIPs)
TRIPs is a WTO agreement that sets down minimum standards for many forms of international IP regulation. Part the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) in 1994.
TRIPs requires WTO members to provide copyright rights, covering content producers including performers, producers of sound recordings and broadcasting organizations; geographical indications, including appellations of origin; industrial designs; integrated circuit layout-designs; patents; new plant varieties; trademarks; trade dress; and undisclosed or confidential information.
TRIPs stirs up controversy in the developing world, who see relaxed IP law as a key component of their development, especially with regard to pharmaceuticals. Allowed for a transition period of up to ten years to meet minimum standards. Has an “escape clause” whereby developing countries can exclude certain industries (pharma, IT etc.) from patentability. TRIPs depends upon individual nations to implement the law, so developed countries
may not enforce the law.
Special 301
A component of the US Trade Act that promotes adequate IP for US organizations overseas, whereby the US may threaten to act unilaterally to protect its interests. Basically, diplomatic pressure to keep the developing world TRIPs compliant.
US Trade Representative (USTR) set up several “watch lists” of countries with lax IP practice, and plans were established to fix the problems. The USTR also has lists of companies, particularly websites (Taobao, Baidu etc.), that pirate published material.
IP and NAFTA
NAFTA Chapter 17 contains a comprehensive set of IP rights. Related, but more extensive than TRIPs or other preceding conventions. Mexico has progressed substantially in its IP enforcement. US and Canada are the primary beneficiaries. NAFTA assures the availability of patents. Previously, in Mexico, this was not always clear. Under some circumstances (after several reasonable attempts), NAFTA does allow compulsory licensing, a process by which companies can pay to use another’s IP without the second party’s consent. Protects trade secrets and knowhow licenses.
Piracy
Illegal sale, distribution and/or trading of IP protected goods. Many states have enacted criminal statutes to combat increased counterfeiting of goods and services.
Grey market goods
Goods lawfully bearing patents, trademarks or copyrights which originate abroad and which compete without permission in domestic markets. Grey market is legal.
Important to distinguish grey market goods (legitimately produced overseas but imported via unauthorized distribution channels) and overruns (goods produced without authorization by a license)
When are gray market goods imports permitted? Why?
Customs permits gray market goods to enter US when (i) the foreign and domestic trademark owners are the same person or affiliated and (ii) foreign goods made under license from a US trademark owner (“authorized use” exception)
Trademark Counterfeiting Act of 1984
Criminal penalties are established for anyone who intentionally traffics or attempts to traffic in goods or services.
Establishes temporary restraining orders, injunctions, and ex-parte seizure orders, among others.
Digital Millennium Copyright Act 0f 1998
Extends protection to works protected under the World Intellectual Property Organization Copyright Treaty.
Three types of anti-circumvention violations: (i) a ban on circumvention itself –programs created with the objective of getting around digital right management tool–, (ii) a ban on trafficking technology, service, product, device or component designed to circumvent copyright protection, and (iii) additional provisions that apply to persons with access to a copy of the work.
The Tariff Act
Section 526 prohibits importation of foreign manufactured merchandise bearing a US trademark without the express consent of the US trademark owner (the language of the statute is ambiguous).
Traditional concession
tend to reflect a static bargaining model in which a fixed set of rewards is divided in a single set of negotiations between two parties. On specific issues one party ‘wins’ and the other party ‘loses” for the life of the contract.
Modern concession
1) the process of an on-going negotiation over the life of the contract; 2) changing sets of rewards for each party; 3) the interests and influence of parties other than host country and the investing firm, whose influence is often felt only after the concession agreement has been negotiated.
