CHAPTER 4 : Global Market Environment

This chapter deals with two broad issues involving the legal environment.

• The first issue is concerned with the problems that arise with international commercial contracts and settling disputes when they arise. Since there is no international commercial law or international commercial courts, disputes must be settled under the laws of one of the countries where the parties of the contract reside or, if an arbitration clause is included in the contract, by arbitration. Although there is no international commercial law per se, the agreement to enforce arbitration decisions that exists among a large number of countries does create a system that approaches international commercial court.

• The second issue concerns the common law bases for the U.S. legal system which creates problems for U.S. companies when interpreting the laws in countries whose legal systems are based either on code, socialist, or Islamic law. A review of the different legal systems is important to appreciate the problems that arise in protecting such things as intellectual property rights, etc.

How does the international marketer determine what legal system will have jurisdiction when legal disputes arise?

- Since there is no judicial body to deal with legal problems arising between citizens 

  of different countries, the foreign marketer must look to the legal systems of all the 

  countries involved that is, the laws of his own country and the laws of the country in 

  which he is conducting business.

- In general, a U.S. citizen is subject to the laws of the United States as well as to those 

  of any foreign country in which he lives or works.

- In the case of a conflict, and unless the government of the citizen takes up the citizen’s

  case in an international court, jurisdiction is generally determined by :-

  (1) on the basis of jurisdictional clauses included in the contract,

  (2) on the basis of where a contract was entered into, or

  (3) on the basis of where the provisions of the contract were performed.

- The jurisdictional clause is the most clear-cut and is usually honored. If there is no such

  clause or if it is ineffective, either of the other two methods is used.

Limitations of jurisdictional clauses in contracts.

- In general, jurisdictional clauses, when present in a contract, are honored by the courts.

- For example, it is not unusual for a court to use the law of another country for its
  decisions. However, if the contractual events are not in effect, entered into or executed
  within the state indicated, courts have been known to disregard the jurisdictional clause
  and apply different rules in determining what law governs.

- Since there is no obligation for the courts to uphold jurisdictional clauses, the parties 

  must be reasonable when adding such clauses, or they are liable to have very limited

  actual value.

The reasons why it is probably best to seek an out-of-court settlement in international commercial legal disputes rather than sue.

The most important reasons for avoiding court settlements of international legal disputes is that :-

1. they are time consuming, frustrating, and costly.
2. In addition, court cases are often publicized and may create a poor image of the company;
3. the courts may not be well versed in the problem and thus hand down an unfair decision;
4. and a more fair, less time consuming and less expensive decision can often be reached through arbitration.
5. As a result of the high costs of litigation, the philosophy of most companies is to first “placate,” second to “arbitrate,” and to “litigate” as a last resort.

Illustration the procedure generally followed in international commercial disputes when settled under the auspices of a formal arbitration tribunal.

Arbitration obviously depends upon the willingness of both parties to accept the arbitrator’s rulings, it has been most successful when provision for this method of settlement is included in the contract.

However, there is some question of the legality of enforcing arbitration agreements which have been made prior to a dispute.

While the theory of arbitration is that each of the parties involved in the dispute selects or agrees upon a referee or judge of the case, in actual practice most arbitration is submitted to one of the established arbitration boards and to established rules and procedures.

The general procedure followed by an established arbitration tribunal is that of immediately attempting a conciliation between the parties.

If not successful, each party selects an arbitrator to defend its case, the court appoints a third member (from a list of arbitrators it maintains), hearings of both sides take place, a decision and an award is made. Such decisions have had a great deal of success, i.e., they are upheld by the parties.

INTELLECTUAL PROPERTY RIGHTS

Industrial property rights are rights to the exclusive or limited use of :-

• products,
• processes,
• designs,
• formulas,
• brand names,
• trademarks

which provide a company with advantages over competitors (patents, trademarks, and copyrights)

- Such industrial properties are among the most important assets of a company
  because they symbolize quality, entice consumers, and have a psychological or intangible
  quality which is invaluable.

- Because of this fact and the fact that millions of dollars are spent developing such
  qualities, the international marketer should take special steps to govern these properties
  since the rules governing them vary from country to country.

Most countries of the world follow a code law principle concerning property rights. That is, rights are established by registration, and the first to register a product is its legal owner.

In the United States, the common law principle is observed: prior use established ownership. That is, whoever can establish first use is considered the owner and has legal rights.

Obviously, an oversight in understanding these differences may result in much pirating and the loss of property rights, or at least in the loss of a great deal of time, effort, and/or money.

Obviously, uniform laws would help since the international marketer must necessarily consider the world as his or her market and should have a means of obtaining worldwide intellectual property rights.

The advantages to the international marketer arising from the existence of the various international conventions on trademarks, patents, and copyrights.
 

The obvious advantage to international marketers arising from the existence of the various international conventions on trademarks, patents, and copyrights is that :-

1. their product, their sales, their profits are more easily protected, i.e., the marketer may register the product at the same time in many countries, thus avoiding piracy, eliminating time-consuming patent procedures and bureaucracy.
2. in addition, such conventions make an attempt at establishing uniform requirements. Obviously, the situation is difficult when different countries have different attitudes toward the rights of individuals.
3. In most countries, the individual may not obtain exclusive monopoly of a product without manufacturing and selling that product (as an individual may in the United States) but must share the product with the citizens of the country. The patent will revert to public domain if the product isn’t manufactured within a specified time. Thus, conventions aid the businessperson by enabling him or her to more easily patent the product, to jog his or her memory that laws are not uniform and that he or she needs a worldwide basis of protection, and to eliminate much time.
4. In addition, conventions serve as the machinery for obtaining these rights and as a possible means of establishing uniform worldwide industrial property rights laws.

For more info, you can reach here  http://www.internationalpropertyrightsindex.org/   or
                                                   http://www.wipo.int/portal/index.html.en

As a reference :-

From the MalayMail
Date : 18 April 2011

 

Malaysia is second best in intellectual property rights in Asean



Submitted by pekwan on Wednesday, March 17th, 2010
Institute for Democracy and Economic Affairs (IDEAS) International Property Rights Index (IPRI) Local


Kharleez Zubin
Wednesday, March 17th, 2010 10:33:00


KUALA LUMPUR: If Malaysia wants to move up the economic property ladder, then one of the measures is to protect intellectual property rights, according to a rights organisation.


A recently-released international comparative study that measures the significance of both physical and intellectual property rights found that Malaysia ranked second among Asean countries, behind Singapore.


Malaysia’s standing was 41st in the 2010 International Property Rights Index (IPRI) which ranks 125 nations, the equivalent of 97 per cent of the world’s GDP. Last year Malaysia was pegged at 36.


The Institute for Democracy and Economic Affairs (Ideas), a Malaysian-based non-governmental organisation said this in conjunction with the release of the IPRI last week.


Ideas, which was renamed from Malaysian Think Tank and founded by Tunku Zain Al-'Abidin Tuanku Muhriz, said the findings was by Ideas and 62 other international organisations including Ideas' partner, the Washington-based Property Rights Alliance. According to Ideas associate, Kwek Kon Yao, the IPRI used three primary areas of property rights to create a composite score: legal and political environment, physical property rights, and intellectual property rights.


Malaysia saw its IPRI score drop from 6.3 in 2009 to 6.1 this year, one of a handful of countries to record a decrease in IPRI score by 0.2 points or more."

Why is conciliation a better way to resolve a commercial dispute than arbitration?

- Although arbitration is generally regarded as the best means of settling international 

  disputes, a preliminary effort at conciliation is the best method for resolving disputes

  with a Chinese business partner.

- In fact, some Chinese companies may avoid doing business with companies that go first

  to arbitration when differences arise.

- Conciliation is considered by the Chinese to be far friendlier than arbitration or litigation

  in settling disputes. The Chinese believe that when a dispute occurs, friendly negotiation

  should be used first to solve the problem; if that fails, then conciliation should be tried. - The Chinese are less threatened with conciliation but, unfortunately, neither side is

  bound to a conciliation settlement, as would be the case under arbitration.

Differentiation between conciliation and arbitration.

The main difference between conciliation and arbitration is that :-

1. neither side is bound to a conciliation settlement as would be the case under arbitration. Conciliation can be either formal or informal. Informal conciliation can be established by both sides agreeing on a third party to mediate. In China, formal conciliation is conducted under the auspices of the Beijing Conciliation Center that assigns one or two conciliators to mediate. 
   
   
2. If agreement is reached, a conciliation statement based on the signed agreement is recorded. Although conciliation may be the friendly route to resolving disputes in China, it is not legally binding so an arbitration clause should be included in all conciliation agreements. 
   
   
3. Experience has shown that having an arbitration clause in the conciliation agreement makes it easier to move to arbitration if necessary. For companies doing business in China, settlement of disputes should follow four steps; first informal negotiation; if this does not work, conciliate, arbitrate; and finally, litigate.