international law exam 4
tied-purchase clauses
Franchisers must also be concerned about the application of com-petition laws to tied-purchase clauses in franchise contracts. These clauses require the franchisee to buy certain goods from the franchiser. Such pro-visions are sometimes difficult to justify on quay control grounds. Courts will also deny geographic exclusivity if it unduly restricts competition within the host country
As intellectual property became increasingly valuable, the developed world—which created virtually all such property—increased pressure to cure the defects of the Paris and Berne Convention systems.
These efforts bore fruit in the GATT Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which became effective in most nations on January 1, 2000. TRIPS requires its signatories to enact minimum substantive standards of protection and create a viable enforcement mechanism. In effect, TRIPS has caused developing countries to adopt intellectual property laws that approximate those of Europe and North America and has created a system to enforce them.
Notification-Registration Schemes
470
THE GRAY MARKET
471
A. Bourjois & Co. v. Katzel
472
FRANCHISING: LICENSING OUTSIDE THE TECHNOLOGICAL CONTEXT
473
Several observations may be made about franchises:
473
Carlill v. Carbolic Smoke Ball Co.
431
Content-Specific Regulations
432
Securities and Exchange Commission v. Siemens Aktiengesellschaft
433
Advertising Restrictions on "Sin" Products: Tobacco and Alcohol.
434
Marketing Considerations: The Nestlé Infant Formula Case
434
Other Restrictions on Advertising.
434
Origins of the FCPA and Other Antibribery Laws
436
United States of America v. Joel Esquenazi, Carlos Rodriguez
438
The Department of Justice Review Process
441
FCPA Enforcement Actions
442
Foreign Enforcement Actions
442
Territorial Jurisdiction over Non-U.S. Persons
442
Québec (Procureur général) c. Entreprises W.F.H. ltée
443
International Refusal to Enforce Contracts Induced by Bribery
444
World Duty Free Company Limited v. The Republic of Kenya
445
Best Practices for the U.S. Businessperson
446
Apple, Inc. v. Samsung Electronics Co., Ltd.
451
LITIGATION
451
REASONS FOR INTELLECTUAL PROPERTY TRANSFER ARRANGEMENTS
452
Competitive Circumstances
453
Confidentiality and Improvements
454
INTERNATIONAL PROTECTION FOR PATENTS, TRADEMARKS, AND OTHER INTELLECTUAL PROPERTY
454
Paris Convention
455
Patent Application Standardization
455
Diamond v. Chakrabarty
456
Trademarks
458
Domain Names
459
Mobile Communication Service Inc. v. WebReg, RN
459
Copyrights
460
TVBO Production Limited v. Australia Sky Net Pty Limited
462
TRIPS
463
The War of Geographical Indications
465
Geographical Indications under the Doha Development Agenda
468
NONENFORCEMENT OF IPR LAWS
468
ANTITRUST/COMPETITION LAW CONSIDERATIONS
474
In re Independent Service Organizations Antitrust Litigation CSU et al. v. Xerox Corporation
474
trips info
464
New Zealand—Comite Interprofessionel du Vin de Champagne v. Wineworths Group, Ltd.
465
THE DOHA DECLARATION ON TRIPS AND PUBLIC HEALTH
465
Prior-Approval Schemes
469
THE MECHANICS OF IPR TRANSFER REGULATIONS
469
notification-registration
A notification-registration system is more open to technological transfer
Innovation and intellectual property have been recognized as a central driver for growth as well as stock market value.
As market capitalization and the global economy have moved from a manufacturing-based to a knowledge-based economy, the type of assets on companies' balance sheets has significantly shifted from tangible assets to intangible assets (which include IPRs).
There are two main problems with the Paris Convention scheme.
First, the convention does not require any minimum substantive standard of patent protection. Thus, if a nation has no pharmaceutical R&D capability, it can decide that it is "immoral" to permit pharmaceutical patents and deny patent protection to pharmaceuticals. Although as a practical matter such a law is aimed at foreigners—because no locals have pharmaceutical patents—it is in compliance with the Paris Convention.Another drawback of the convention is its lack of an enforcement mechanism. Disputes under the treaty are to be resolved by the International Court of Justice, but most signatory countries either do not recognize the court's jurisdiction over patent issues. Consequently, there is no real procedure for enforcing verdicts other than voluntary compliance.
TRIPS seeks to remedy some of the acknowledged problems of the Paris and Berne Conventions.
First, unlike the Paris Convention, TRIPS sets minimum standards of intellectual property protection. A nation can no longer comply with international patent treaties if its law provides no effective protection. Second, TRIPS requires signatory countries to ensure that enforcement procedures are available under their laws so as to permit effective action against any act of infringement of intellectual property rights covered by the Agreement, including expeditious remedies to prevent infringements and remedies that constitute a deterrent to further infringements.
royalty
Owners of IPRs transfer them for a variety of reasons. The U.S. firm might grant a license for a fee—such a license fee is called a royalty—to a foreign company
materiality 441
The principal objection to the accounting provisions is that they fail to incorporate any concept of relative importance, known in financial circles as
agency relationship
a business arrangement in which one party, the agent, performs a variety of functions on behalf and at the direction of another party, the principal.
countertrade
a form of trade in which all or part of the payment for goods or services is in the form of other goods or services
Voyageur, Representant, et Placier (VRP)
a type of commercial agent—is entitled to special protection under the French labor code, and every representative is assumed to be a VRP unless the written agreement specifies otherwise.
dependent agent
an employee for purposes of the host country's labor laws. if an agent is dependent, the principal will be vicariously liable to third parties for the agent's acts within the scope of his or her employment.
Intellectual property rights (IPRs) 450
are increasingly becoming an extremely important asset of any large corporation, whether in the United States or in other countries. In today's global economy, IPRs are critical to a company's ability to compete effectively, and they are often a key reason behind a company's dominance in the marketplace. It is no surprise then that IPRs are central to various inter corporate transactions including mergers and acquisitions, licensing, and cross- licensing. In fact, because large corporations have universally recognized the need to build strong IPR portfolios, cross-licensing agreements are proliferating and are becoming a routine part of business operations.
Corruptness 438
can also be satisfied by a reckless or conscious disregard for the consequences of personal actions. Even if payers do not have actual knowledge that they are making a payment to a government official, they are corrupt if they act as if they do not care whether it is going to a government official.
franchise tax
can impose taxes based on the franchiser's worldwide operations even if its local operations fizzle. A business may sometimes avoid such taxes by structuring the franchise agreement in accordance with local preferences.
Chapter 16 end
chapter 17 begin
puffing
vaguene exaggeration—in advertising
The first international property treaty was the International Convention for the Protection of Industrial Property, better known as the Paris Convention. The Paris Convention, originally prepared in 1883 and since revised many times, guarantees that in each signatory country, foreign trademark and patent applications from other signatory countries will receive the same treatment and priority as those from domestic applicants.
"Nationals of each of the [signatory] countries ... shall, as regards the protection of industrial property, enjoy in all the other countries ... the advantages that their respective laws now grant, or may hereafter grant, to nationals ... ." In other words, no signatory country can give intellectual property protection to its own citizens unless it provides the same protection to the citizens of the other signatories. By implementing this principle of "national treatment"—an animating principle of all intellectual property treaties—the Paris Convention targeted dis-crimination against foreigners in obtaining patents.
The Development Agenda of the Doha Ministerial Conference included two issues relating to geographical indications:
(1) creating a multiregister for wines and spirits and (2) extending the higher or enhanced level of protection accorded to wines and spirits under TRIPS to other products.
utility patent
(one that has a broad range of potential applications),
Tax and Labor Regulation and Principal Liability: The Dependent-Independent Distinction
429
REGULATION OF ADVERTISING ABROAD
430
The Distinction Between Independent and Dependent Agents
430
Electra-Amambay S.R.L. v. Compañía Antártica Paulista Ind.
427
Supersession of Agreement with Representative
427
The European Union also aggressively protects its local agents. European Union (EU) Council Directive 86/653 on agency requires each EU member state to pass consistent national laws on representatives. These include a few mandatory provisions that may seem odd to Americans:
428-429
In 1970, the Patent Cooperation Treaty (PCT) supplemented the Paris Convention by establishing a centralized utility patent application process.
A PCT application is filed on a standard form with the World Intellectual Property Organization (WIPO). The WIPO, a United Nations agency headquartered in Geneva, Switzerland, processes the common application and forwards it to the countries designated by the applicant.
One of the founding concepts of economic liberal capitalism is caveat emptor ("let the buyer beware").
According to this precept, government should not intervene in commercial relations. Buyers should investigate the seller's claims or obtain contractual representations and warranties. If they fail to do so and the seller's claims turn out to be false, the buyer only has himself or herself to blame. Under classic capitalist theory, the "invisible hand" of the market will eventually ferret out consistently dishonest sellers and consistently careless buyers.
Trademark law also protects Internet domain names.
After much international negotiation, in August 1999, the Internet Corporation for Assigned Names and Numbers (ICANN) adopted the Uniform Domain Name Dispute Resolution Policy (UDRP). The UDRP set forth general "first to file" rules for domain names, but excepted bad-faith filings.
Before entering a transaction that raises a possible FCPA issue, an investor can seek an interpretation of these somewhat ambiguous provisions from the U.S. Department of Justice (DOJ). But this process is quite flawed
All documents submitted to the DOJ are subject to the Freedom of Information Act, which permits any American, including a journalist, to request disclosure of documents in the government's possession.
The OECD Convention's restraints are limited to active corruption of foreign public officials and are not as stringent as the FCPA standards. In most aspects, the OECD Convention is consistent with the FCPA and was even amended in 1998 to harmonize its terms with those of the FCPA Convention.
As of November 2012, 34 OECD member countries and six nonmember countries had ratified the OECD Convention, including all major European countries and Latin American economic powers such as Argentina, Brazil, Chile, and Mexico. The OECD Convention is particularly significant because the nations that have ratified it are home to virtually all of the world's large international corporations.
bad faith
At common law, bad faith means intentional wrongful behavior, but in the UDRP, it now includes some negligence without a finding of intent.
language laws 432
Bans any foreign language being used in an advertisement in that host country that doesn't use the national language. can complicate cross-border advertising.
At least 46 countries in the world now also outlaw payment of bribes by their citizens to public officials in other countries.
Because one of those countries is the United States, every American who retains an agent abroad should be familiar with the Foreign Corrupt Practices Act (FCPA).
evergreen contract
But if the parties continue their relationship after the stated term of the con-tract, it becomes an evergreen contract—one that the parties may terminate only by a three-month written notice once the relationship has lasted for three years or more.
fair, reasonable, and nondiscriminatory (FRAND)
FRAND licensing can significantly reduce the risk of patent "hold-up" and the perceived advantages of litigation, for example, keeping competitors out of the marketplace. Unfortunately, FRAND licensing applies only in limited circumstances and has not curbed litigation in a meaningful way. Because companies are learn-ing that litigation is costly and risky, however, the free market may itself correct the inefficiencies of litigation by deterring parties from litigating and pushing them to enter in-licensing and/or cross-licensing arrangements.
permanent establishment
For tax purposes, the principal is often viewed as having opened an office—sometimes referred to as a permanent establishment—once it hires a dependent agent within the host country. Upon such an establishment, the principal's transactions become subject to the host country's corporate tax laws.
priority claim
If at least one of the applicants named in the PCT application is a national or resident of a PCT signatory, the PCT gives the application a priority claim on that invention in all signatory states. With a priority claim, the applicant business has up to 30 months after filing to begin the administrative processing (prosecution) of the application in the countries in which it wishes to obtain protection. This allows the applicant to lock in an application date while giving it time to raise capital on the basis of the patent filing. If capital cannot be raised—which suggests that there is inadequate commercial interest—the applicant can walk away without having spent needless sums in worldwide patent prosecution.
Representatives who personally organize, pursue, and set the schedule for the marketing program—that is, those who have great discretion in organizing their time and work—are more likely to be considered independent.
If, on the other hand, the U.S. principal creates the marketing program in detail and the representatives simply carry it out, the representatives are likely to be dependent. Similarly, agents who have an obligation to follow the specific instructions of the principal are likely to be dependent.
In litigation, an IPR owner plaintiff typically asserts infringement of one or more IPRs by products sold or manufactured by the accused infringer. The accused infringer can assert defenses of noninfringement, inva-lidity, and/or unenforceablility
In addition, the accused infringer can counterclaim and assert the accused infringer's own IPRs against the plaintiff. In the United States, federal district courts have exclusive jurisdiction over pat-ent cases. And because, like all trials, patent trials involve resolution of issues of fact, juries often decide these cases. All appeals in patent cases are heard by the Court of Appeals for the Federal Circuit, which sits in Washington, DC. An unsatisfied patent litigant can further appeal decisions from the Federal Circuit to the Supreme Court of the United States, but such appeals are discretionary and the Supreme Court hears very few patent
The Antibribery Provisions. 437
In essence, the FCPA's antibribery provisions prohibit U.S. firms from "corruptly" paying or offering to pay a "foreign official" for assistance in obtaining or retaining business. They also prohibit payments to a person, such as a foreign agent, when the payer had reason to know that a portion of the payment would go to a public official.
There are two main problems with the Paris Convention scheme.
In the 1990s, the developed nations determined to resolve these two defects of the Paris Convention. The result was the TRIPS Agreement, discussed later
The most rapidly growing method of doing business abroad is to transfer intellectual property rights (IPRs) to a foreign business in exchange for a fee or other form of remuneration.
Intellectual property rights are rights to technological know-how or artistic work. Like the simple engagement of a representative discussed in the preceding chapter, IPR transfers need not involve any capital investment abroad. They usually involve manufacturing or merchandising a product or service in the foreign country. By engaging a foreign party to do this manufacturing or merchandising, the U.S. investor can avoid the substantial risks and legal entanglements of capital investments abroad, discussed in chapters to follow.
TRIPS requires every member of the World Trade Organization (WTO) to abide by the Paris and Berne Conventions—including the recent protocols to those treaties—and apply the treaties' national treatment requirements so that all foreign IPR owners receive the same protection as local nationals.
It establishes 50-year copyright protection pursuant to the Berne Convention. All WTO members must recognize the patent holders' right to assign or license their patents and the term of patent protection must be at least 20 years.
"just cause."
Just cause is often difficult to establish. The Act states that even nonperformance or violation of the contract is not considered just cause unless the principal can prove that the breach affected it in a "substantial manner.
Host countries regulate transfers of IPRs through a variety of direct and indirect means. Governments will be more or less protective of intellectual property, depending on its economic interests.
Nations that generate intellectual property tend to favor strong protection, and those that do not create such property tend to oppose it. This conflict has been played out in international treaty negotiations where these nations work out common interests.
geographical limitations
One common type of restriction is geographical limitations. For example, a licensor of a "name brand" doll may limit the licensee's sale of that doll within a specific nation.
output or customer restrictions
Other potential restrictions include output or customer restrictions, especially if the licensor plans to use the licensee as a source of products for the licensor's own distribution requirements.
Patent
Patent protection is also now available for "any new inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step (nonobvious), and are capable of industrial application (useful)." TRIPS even established minimum standards for trade secret protection after the model of uniform trade secret statutes in the United States.
Chapter 17
Protection and Licensing of Intellectual Property
grant back
Reasoning that the licensee would not have had the opportunity to develop these useful technologies without the know-how supplied by the licensor, the licensor may seek a grant back to itself of ownership in or at least the right to use—often without compensation—such new technology.
prior approval
Requiring substantive prior approval from a government agency is a more intrusive type of regulatory scheme. Some prior-approval schemes delegate specific types of authority to government entities and contain relatively objective standards. In others, the laws are written in general terms and vest broad interpretive powers in the bureaucracy. Some nations call for the exercise of this discretion by giving government officials a broad range of reasons for disapproving a transfer of technology.
Another key license provision is the clause that sets forth the licensee's obligation to keep the licensed technology confidential so that third parties cannot exploit the technology
Such provisions are critical when the IPR being licensed is a technology that is protected primarily by trade secret procedures rather than patent law.
copyrights
The Berne Convention for the Protection of Literary and Artistic Works, better known as the Berne Convention, deals with the granting of copyrights among signatory nations.
In contrast, agents who are given a task to perform, but have no obligation to follow the principal's instructions in carrying out that task, are more likely to be viewed as independent.
The EU Agency Directive, for example, simply defines an independent agent as someone with "continuing authority to negotiate the sale or purchase of goods" on behalf of the principal
account-ing and record-keeping provisions 441
The FCPA also requires public U.S. companies to "make and keep books, records, and accounts, which in reasonable detail, accurately and fairly reflect the trans-actions and dispositions of [their] assets." It further requires an investor to "devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances" that all transactions are properly authorized and that access to assets is tracked
As previously noted, registered trademarks are assured national treatment by the Paris Convention.
The Paris Convention also confers a right of priority to a trademark holder if the foreign registrations are made within six months after the original registration. In contrast, trademark prosecution is usually based on the law of the country where registration is sought.
Europe has a centralized multinational trademark registration system. The Community Trademark Regulation, administered by the European Union Intellectual Property Office (EUIPO), has allowed a single trade-mark registration enforceable throughout the EU.
The Trademark Regulation also provides a unified enforcement authority, the Office for Harmonization in the Internal Market. Infringement in any member state can be prosecuted through this office.
The retention of a representative often leads to principal liability and triggers tax and labor law requirements.
The burdensomeness of these regulations frequently increases upon a finding by the host country that the representative is a dependent agent rather than an independent agent.
The Paris Convention also gives a patent holder in any signatory country a right of priority.
The convention provides that the date of an applicant's foreign application is deemed to be the same as the date of the applicant's original application on the same invention, so long as the foreign application was filed before the first anniversary of the original application. Because in most countries the first to file is the patent holder, this principle prevented a "race to the patent office" in other countries after the original filing.
INTELLECTUAL PROPERTY RIGHTS: TRANSFER ARRANGEMENTS 453
The heart of any international IPR transfer is a grant of license that permits the other party to use the relevant right. The conditions of that use and the compensation to the licensor form the balance of the agreement.
Right to Use and Conditions of Use 453
The licensor often agrees to provide services to facilitate the anticipated activities, such as assistance in set-ting up an assembly line or other training and technical support. The licensor generally seeks to restrict the licensee's use of the transferred IPR.
grease payments
The routine governmental action exception (some-times called the "grease payments" exception) is limited. For instance, payments made to foreign customs officials to store shipments longer than otherwise permitted were deemed to fall outside of the exception. Few government actions do not involve some discretion, particularly in countries outside the United States.
IPR transfers are becoming so common that numerous firms are emerging to facilitate transactions between IPR owners and potential purchasers.
These include (1)international IPR clearinghouses, which provide IPR strategy advice, valuation, and infringement analysis; (2) international IPR brokers, which handle IPR auctions and brokerages; (3) IPR aggregation funds for open source software; and (4) firms that identify and acquire patents for the purpose of preventing violations and litigation costs.
cybersquatting
This "first to file rule" led to the practice of cybersquatting, which is the register-ing of a domain name with the intent to profit from the goodwill of a trademark belonging to another
Under U.S. law, a primary importance of the distinction between agents and independent contractors is that third parties can generally sue the principal for acts of an agent, but not for those of an independent contractor
This distinction is important to principals because they wish to avoid paying for their representatives' injuries to third parties. The substantive terms of the agreement, which are developed between the principal and the agent, are what determine whether an agency or an independent contract exists.
gray market or parallel trade
This importation of merchandise produced and sold abroad and then imported back into the United States for sale in competition with the U.S. trademark owner is referred to as the... The products imported back are gray market goods or parallel imports.
counterfeit goods
This piracy is very big business. The FBI has estimated that U.S. businesses lose over $250 billion per year to counterfeit goods.
language politics
This term describes the situation, found in regions of a few countries, where laws require that companies conduct business in a certain language. A U.S. franchiser that brings its standard English-language package into such an area may be subject to significant civil penalties.
In hiring a representative, a firm should therefore determine whether the arrangement would be characterized under local law as creating a dependent agency or an independent agency.
Unfortunately, this distinction is not based on any single definitive test. Instead, courts review a variety of factors and determine whether, on balance, the parties have created a dependent agency. The more flexibility and discretion the representative has, the more likely the representative is to be considered independent.
exclusive rights
When exploitation of the licensed IPR requires significant financial or other resources of the licensee, it will often demand exclusive rights in the IPR within some geographic area in order to enhance its chances of earn-ing an adequate return on its investment.
commission override
Whenever a principal makes a sale in a territory or a market sector reserved for the representative, the principal must pay the agent a commission, whether or not the representative actually participated in the sale, no matter what the representative agreement provides.
"knowing requirement" 438
is also sometimes unclear. Although Congress has made clear that "mere foolishness" is insufficient for liability, the standard is intended to cover "any instance where 'any reasonable person would have realized' the existence of the circumstances or result and the [person] has 'consciously chosen not to ask about what he had reason to believe he would discover.'
license
limited permission to use the U.S. firm's trademarks, copyrights, or know-how in making products for sale in the vicinity of the foreign company's country. Alternatively, the U.S. company might provide the IPR and physical components to a foreign manufacturing plant that will fabricate the product for re-export back to the U.S. concern.
THE FOREIGN CORRUPT PRACTICES ACT 435
makes it illegal for US firms and their representatives to engage in corrupt practices overseas
biopiracy
meaning they extract plants and animals indigenous to the emerging nation for research (with the help of local knowledge), alter the plant or animal (such as through genetic engineering), and then obtain patents related to this research without providing the host country with compensation or affordable access to the inventions.
Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Convention)
obligated each member state of the Organization for Economic Cooperation and Development (OECD) to enact a law making the bribery of foreign public officials a criminal act. The OECD Convention mirrors the accounting provisions of the FCPA, which require that public companies' accounting systems detect and report corrupt payments.
Independent contractors
often called independent agents outside the United States, perform general tasks for the business, but retain substantial discretion and independence in carrying them out. Consultants to a corporation are often independent contractors. 426
design pat-ents,
patents protecting the ornamental features of an article of manufacture.
If a company can gain a monopoly by defining its IPR broadly, there is a great incentive to broad patents
patents. And the government authorities with the power of grant-ing patents are extremely busy and do not have the resources of those seeking the patents
Puerto Rico Dealer's Act
provides an example of the Spanish-American civil law that strictly limits the termination of an agency. Regardless of whether the parties have reserved the right to terminate in the terms of their agreement, the Dealer's Act prohibits the principal from terminating the agreement or from refusing to renew without "just cause."
antibribery
provisions authorize criminal punishment. The law's prevention function is accomplished through provisions that seek to detect illegal payments by examining the accounting and record-keeping systems of the enterprise.
Field of use limitations
restrict the applications for which the licensee may employ the IPR. For example, the licensor of a laser technology might permit one licensee to use the technology only in connection with specified medical applications, while retaining for itself the right to use the technology for communications applications and other uses.
Structure of the FCPA 437
seeks to punish bribery of foreign officials through civil and criminal penalties and to establish internal accounting mechanisms that will prevent such bribery
Franchising
seldom involves technological complexity. It is an arrangement in which the licensor permits the licensee to sell certain goods under the licensor's trademark or service mark under the terms of a franchising agreement.
geographical indications
where a product, particularly a wine or liquor, is marketed by reference to a geographic region.
product liability
—responsibility to consumers for defects in one's product—the agent-principal relationship is not a critical consideration.
