International Business Law Test 4
Letter of Credit: Definitions
"Account Party"= the buyer, in a normal letter of credit transaction; otherwise the party requesting the letter of credit; "Beneficiary Party"= the seller, in a normal letter of credit transaction; "Issuing Bank"= the bank that issues the letter of credit: typically, buyer requests, bank then decides whether to grant the request, if bank approves the buyer's application for the letter of credit, then bank then issues letter of credit guaranteeing buyer's payment to seller; "Advising Bank"- A bank that acts as an intermediary for transmitting and receiving documents and payment; "Confirming Bank"- same as advising bank, but takes on additional obligation of guaranteeing or confirming the Issuing Bank's Letter of Credit; "Exporter's Bank"- the seller's bank, receives payment into seller's account, may also be used by seller to transmit documents to the Issuing Bank (or Advising or Confirming Bank)
COGSA
"Carriage of Goods by Sea Act"; Only applies to shipments from OR to a US port; Only from time goods actually loaded onto ship; Does not apply to above deck transport: can specifically agree otherwise "Clause Paramount"; Agents of the carrier (loading and unloading)-"Himalayan Clause"; If US port is involved COGSA is going to apply; tackle to tackle unless "warehouse clause" applied; Under "Hague Rules";
Marine Cargo Insurance
"Perils" Clause- Covers normal, fortuitous risks, that may occur to cargo in an ocean voyage, coverage if loss occurs because of a specific peril that is listed in the policy; "All Risk"= all fortuitous risks to cargo during an ocean voyage are covered, excluding those that are specifically listed as exceptions in the policy; Amount of coverage: percentage of loss, deductible; Duration of Coverage: generally from the time goods are loaded onto the vessel until they are unloaded; "Total Loss"- Coverage, up to the max policy amount, for damage that completely destroys the value of all or a part of the insured cargo; "Particular Average Loss"- Damage that results in only partial loss of value of the insured cargo, a "Free of Particular Average" policy does not cover any particular losses; "General Average" Claims- when a ship or portion of a ship's cargo is sacrificed to save the ship or its cargo from real and substantial danger, each owner of the cargo on the ship contributed pro rata to pay for the damage or loss: general average claims can be brought by owners of lost/damaged cargo against other owners of cargo on that vessel, can also be brought by the carrier against owners of that vessel
Montreal Convention
"Strict Liability" for air carrier (based on possession of the goods) v. Warsaw Convention's liability based on negligence of the air carrier; Limitation on liability- $20/kg---> This is an absolute limit, even in the event of intentional or reckless conduct on the part of the air carrier or its employees
COGSA- $/package liability limitation
$500 per package liability;Liability limited only if carrier issues a Bill of Lading; Carrier is liable for full amount of losses due to carrier's: Lack of due diligence, material deviation, or no fair opportunity to raise value above per package limitation; What is "package"?---What is stated on Bill of Lading, commonly accepted groupings= "Customary Freight Unit", any ambiguity is resolved in favor of shipper against common carrier, containerization= shipping containers are not packages
The "10 Rules" of International Credit Transactions
1) Strict Compliance- issuing and confirming banks may reject the documents if they do not conform exactly to the requirements listed in the letter of credit 2) Facial Compliance- issuing and confirming banks are only required to review the submitted documents and compare them to the requirements listed in the Letter of Credit: they are not liable for any other problems, including fraud, they are not required to apply common trade customs or practices 3) Letter of Credit must have an expiration date 4) UCP 21 Day Rule= Beneficiary Party must deliver documents within 21 days of receiving them 5) Banks have a reasonable period of time to review the documents: cannot be more than 3 days under UCC, cannot be more than 7 days UCP 6) Letters of Credit are irrevocable unless clearly states revocable 7) The Insurance Certificate, if called for in LOC, must not be dated later than date of loading, if a specific amount of coverage is not state in LOC, must be CIF plus 10% 8) Banks are not required to know trade or business usage, customs or practices 9) The Commercial Invoice must describe the goods exactly as they are described in the Letter of Credit 10) A Letter of Credit is not transferable, unless it specifically states that it is transferable
COGSA- Material Deviation
Above Deck Carriage (containerization permitted), bill of lading has incorporated "clause paramount" to address above deck containers; Unreasonable Route Change- carrier does not use customary route (defense for route change due to bad weather, etc.)
COGSA- "Freight Forwarder"
Agent of the shipper; Common duties- makes shipping arrangements with common carriers, acts as a freight consolidator, processes required documentation; Liability- normally not liable for losses during shipment; if issues a "Forwarder's Bill of Lading", assumes liability even if not actually handling the goods
Harter Act
Applies only to goods shipped from one US port to another US port; Also applies to carrier liability for goods in carrier's possession before they are loaded and after they are unloaded from a vessel; Prohibits enforcement of broad exculpatory clauses which had allowed carriers to avoid liability for damage to goods during shipment
US Constitution Article 1:8
Authorizes Congress: "To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries"
Copyright Protection
Can only copyright the expression of an idea, not the idea itself; work must be original and fixed in a durable medium; Copyrightable works: literary, dramatic, musical, choreographic, pictorial, motion pictures, sound recordings, architectural works, computer programs; Rights of copyright owner: reproduction, derivatives, distribution, sale, rental, lease, lend, public display, public performance; Exemptions (or permitted uses): "First Sale"- copyright owner's right terminates once copyright work is legally sold or a license sold; "Fair Use Doctrine"- small amounts of work can be used for research, education, criticism, and news reporting; "Public Domain"- materials include government publication, generic terms and materials whose copyright has expired; Authorship creates copyright protection "Work for Hire"- employer employs a person to create copyright work; Protection of copyright- period of protection: author's life plus 70 years, if "work for hire"- 95 years from publication or 120 years from creation, whichever is shorter; Notice of copyright: no notice required; however, is recommended to defeat defense of innocent infringement; Registration: establishes public record, allows for damages and attorney fees, allows copyright owner to register with US Customs
COGSA-"Fair Opportunity" to Raise Value of Shipment
Carrier must give shipper opportunity to raise per package limitation; Insert provision on bill of lading: most often, space is provided on the front of the bill of lading for this purpose; shipper will pay a higher freight to the carrier
Licensing of Intellectual Property
Contractual arrangement in which the licensor's patents, service mark, copyrights, or know how are sold or otherwise made available to a licensee for compensation: technology transfer agreements- additionally provides managerial assistance and "know how"
Warsaw Convention
Covers international transportation of goods by air freight; Limitation on liability: $20/kg or 17 SDR/kg; Extended to agents of the air freight common carrier; protection against claims for material deviation; notice of damages: recipient must promptly inspect and written complaint to common carrier must be made immediately if detectable on prompt inspection, or within 14 days from receipt of goods at a maximum
Trademark: Factors that determine "confusion"
Degree of similarity between marks, intent of infringer, similarity of products or service, similarity of marketing of good or service, strength of the mark, evidence of confusion
Trademark
Derived from commercial use of mark: Lanham (Trademark) Act- federal gov't grants exclusive use for ten years from date of registration and renewed for successive periods of ten years so long as mark continues to be used, to prove trademark infringement party must prove another's use of mark confuses consumer
Risk
Documentary Transaction reduces risk, but... Seller still has risk that, where the goods have already been shipped, buyer may not "purchase" the documents: additional expense to seller to recall or divert shipment to another buyer; Buyer has risk that the shipped goods will not be conforming to the contract: can reduce, but not eliminate, by requiring inspection prior to shipment
Foreign Transfer Restrictions
EU- Anti-trust restriction, unfair competition laws, price discrimination, tying agreements, abusive confidentiality provisions, quantitative production restrictions, gray market goods; Registration System or "Prior Approval" System; China- government approval of the agreement: prior approval by ministry of foreign economic relations and trade: restrictions on selection of materials, acquiring tech from competitior, post termination uses of tech, grant back clauses, gray market goods
Agreement of Trade Related Aspects of Intellectual Property (TRIPS)
Enforced by WTO, Principles of national treatment, transparency and most favored nation, applies to trade secrets, patents, copyrights and trademarks
Licensing Agreement: Common Provisions
Grant Provisions (describe the rights of licensee, along with restrictions): limitation of the right to copy, clearly state licensor has title to intellectual property, no "reverse engineering", termination of rights of licensee, Exclusivity= exclusive right of licensee in specified territory, Use restrictions, duration of grant, geographic restrictions, goods not to re-enter into licensor's country; Preamble= includes identification of contracting parties and nature of agreement; Recitals: list of rights that are being transferred; Definitional terms= clarification of terms used throughout agreement; Channels of Distribution: licensor defines the appropriate avenues for sales of licensed product; Covenant not to compete= licensee not to compete with licensor- heavily scrutinized provision of agreement by gov'ts; Reservation of Rights of Licensor= licensor reserves all rights not expressly transferred to licensee; Grant Back Provisions= licensor attempts to reserve future rights to improvements of goods; Royalty Clause= initial licensing fee; percentage of sales (gross or net sales); Accounting and Record Keeping= sales of goods and costs associate with goods; "Best Effort" Clause= generate maximum sales; Indemnification Clause= indemnified for any liability stemming from licensor's title or product; Disclaimer or Limited Liability Provisions; Warranty and Representation Clauses; Infringement Clause; Confidentiality Clause; Validity or No Challenge Clause= prohibit licensee from challenging the validity or exclusiveness of licensor's intellectual property; Restriction on Assignment and Subleasing by Licensee; Non-Partnership Clause or Independent Contractor Clause= licensee not acting as agent or partner of licensor; Choice of Law Clause; Termination Clause= termination from quality control, non-payment of royalties, violation of specific clauses
COGSA- Notice of Damage
If damage visible, written notice to carrier at the port of discharge at the time (or before) goods are taken from the carrier; If damage not visible, written notice to carrier within 3 days of taking goods from the carrier; Statute of Limitations for bringing legal action against the carrier= 1 year from the date of taking goods from the carrier
Exterritorial Enforcement and Gray Market Goods
Importation of counterfeit goods prohibited; "Gray Market Goods"- refers to imports bearing a genuine trademark but imported by a party not authorized to import: legally produced under license, then unauthorized importation into US, if legally produced by foreign subsidiary of US parent company, and then imported into US, there is no legal remedy for trademark owner
Trade Secrets
Information (or device); used in a business, competitive advantage, secret; Ex's: formulas, customer lists, blueprints, stock-picking formula, research, pricing info, marketing techniques; Economic Espionage Act of 1996: cannot sell government or business secrets
Trademark Dilution
Lessening of the capacity of a famous mark to identify and distinguish goods or services, regardless of the presence or absence of competition between the owner of the famous mark and other parties or the likelihood of confusion; Types of Dilution: "Tarnishment"- trademark linked to shoddy quality or is portrayed in unsavory context "Blurring"- diminishing the selling power and value by unauthorized use; Elements: Senior mark must be famous, distinctive, junior mark used in commerical use, used after senior mark becomes famous, must cause dilution
COGSA Exemptions (17)
Neither the carrier nor the ship shall be responsible for loss of damage arising from: 1) Neglect or default of master or employees in the navigation or in management of ship 2) Fire 3) Perils of Sea 4) Act of God 5) Act of War 6) Act or omission by the shipper or owner of the goods 7) Act of public enemies 8) Strikes, lock-outs, or labor stoppage 9) Arrest, restraint or seizure under legal process 10) Quarantine 11) Riots and other civil disruptions 12) Saving lives or property at sea 13) Loss in weight or bulk from defect in goods 14) Insufficiency of packing 15) Insufficiency of marking 16) Latent defects 17) "Q Clause"- grants the carrier a general exemption for any damages that arise from a cause that was not the "actual fault" of the carrier of those of the agents or servants of the carrier; *If the loss or damage was not caused by one of the enumerated exemptions and is not susceptible to "Q Clause", the per package liability limitation applies
Hamburg Rules
No major trading nation has adopted; Favors the shipper more than Hague or Hague/Hague Visby rules: Applies not only when goods are actually on the ship, but also to all other times that goods are under the control of the common carrier
Cyber Marks
Online trademarks, domain names, "Anti-cybersquatting Consumer Protection Act" amended to lanham act
COGSA- Misdelivery of Goods
Presumption in favor of shipper, fraud in documents
Intellectual Property Licensing
Pros to Transferring Intellectual Property Rights Abroad- avoid costs of exporting, lessen problems with host country laws, minimal capital contribution in form of direct investment, avoid tariff problems, minimize legal risks: must still be concerned about host country laws, especially the protection of intellectual property rights
Standby Letter of Credit
Purpose is to guarantee seller's performance, rather than buyer's payment; Ex. To guarantee repayment of monies advanced to seller to be used in production of goods for the buyer, to guarantee warranties made by seller
The Documentary Credit Transaction
Purpose: Further reduce risk by obtaining a third party guarantee of buyer's (or in some instances, seller's) performance
Trade Dress
Refers to overall image and appearance of the product; Same protection as trademark; issue is consumer confusion
Trademarks- Registration
Register with US Patent and Trademark Office; Requirements: mark is currently in commerce; or applicant intends to put it into commerce within 6 months; registration allows use of "r" symbol
Due Diligence
Review host nation's approval system and policies: some nations will not enforce certain provisions in Licensing Agreement; Review registration requirements domestically, and in host nation; Review the actual licensee and any "history" regarding honoring or violating IP rights
Chronology of Typical Letter of Credit Transaction
Sales contract formed b/t seller and buyer: contract calls for buyer to provide guarantee of payment by obtaining a Letter of Credit-> Buyer applies to Issuing Bank for a Letter of Credit-> Issuing Bank approves buyer's application and issues a Letter of Credit: Letter of Credit guarantees payment to seller, but only if all conditions in Letter of Credit are complied with, the conditions are based upon information provided by buyer in the application, the application and approval result in a contract between buyer and Issuing Bank-> Issuing Bank sends Letter of Credit to: exporter's bank, if no confirming or advising bank is involved- exporter's bank may also function as the Advising or Confirming Bank; Advising Bank, if contract between seller and buyer does not call for confirmation or; Confirming Bank, if contract calls for confirmation of the Letter of Credit-> Confirming bank examines LOC and issues an Letter of Confirmation-> Seller makes arrangements for shipment: often through a Freight Forwarder-> Goods are loaded onto the vessel: seller receives bill of lading from common carrier-> The required documents are submitted to the Exporter's Bank: Bill of Lading, Inspection Certificate, Certificate of Insurance, any other documents that may be called for in the contract b/t seller and buyer, and in the Letter of Credit-> Exporter's Bank forwards documents to the Advising or Confirmation Banks (including the "draft")-> Confirming/Advising Bank examines documents to ensure they conform exactly to LOC-> Confirming/Advising Bank usually air mails documents to Issuing Bank->Issuing Bank examines documents to ensure they conform exactly to what is called for in their Letter of Credit-> Issuing Bank forwards to buyer the documents necessary for buyer to take possession of the goods when they arrive: at a min. Bill of Lading-> Issuing Bank forwards payment to Exporter's Bank-> Exporter's Bank credits the seller's account at the bank
COGSA- Due diligence in preparation and inspection of the ship and in making the ship seaworthy
Ship used must be appropriate for the type of carriage, properly equipped for the reception, carriage and preservation of the goods, common carrier must man the vessel with a competent crew properly trained to operate the vessel, carrier must properly and carefully load, handle, and stow goods
Service Marks
Similar to trademark but used to distinguish services of one person/company from another
Trade Names
Trade name applies to companies and are protected by federal law as well
Intellectual Property Law of United States
Trademark: any word, name, motto, emblem, symbol, or device or any combo that identifies goods and distinguishes them from those manufactured or sold by others; Copyright= a form of protection provided to authors of "original works of authorship" fixed in a tangible form of expression; Patent= inventions that are "novel, and non-obvious"; Trade Secrets= any device or info that is used in a business and gives its owner a competitive advantage
Licensing Agreement: Common "Problematic" Provisions
Tying Provisions- requires the licensee to purchase supplies from the licensor or certified supplier; Territorial Restrictions- regulate where licensee may sell good or service. May violate anti-trust laws of host nation; Choice of Law- designate the law of licensor or licensee as country to resolve dispute
Hague-Visby Rules
US has not adopted; Considered an update of Hague Rules: common carrier liability limit raise to $1,000; Applies only to shipments from a port located in a country that has adopted the rules
International Property Rights Protection
WIPO (World Intellectual Property Organization); Paris Convention- deals with business/industrial property, establishes rights of priority and national treatment, Compulsory Licenses- grants trademark and patent rights to third parties if they are not in use; Berne Convention on Copyrights- establishes rights of copyright owner
Patent Rights
What is patentable? Utility, Novelty, Non-obvious; Infringement- without authority makes, uses, offers to sell or sells a patented invention or a imports patented invention; "Doctrine of Equivalents"- need not be exact copying of an invention; Protection of patent rights: generally, 20 years from date application filed with US Patent and Trademark Office; Patents for Software are now available: although most software is protected through copyright law; Patents for Business Processes