International Laws and Global Orientations – Part 3
Welcome to the ninth session of the International Socio-Economic Context Course. This class finishes the review of the International Law and Global Orientations Chapter that aims for the identification and understanding of the legal concepts that influence the operations of MNCs.
In this session, importance of property rights as well as the different ways of solving international commercial conflicts will be presented. This information is relevant for any Manager in charge of the business administration but it becomes more complex when different legal systems are involved.
So, by the end of this class you will be able to appreciate the importance of understanding and respecting property rights and how international conflicts might be solved, something that eventually occurs to any MNCs.
As presented by Ajami., & Goddard J. (2015), another crucial area of concern for multinational firms involved in R&D and advanced technology is the protection of such intangible assets as know-how, processes, trademarks, trade names, and trade secrets. These assets generally find protection under legal systems that provide for the creation of patents and copyrights. The dangers involved with such assets are that they could be stolen, used, copied, and sold without proper authority or compensation. As is discussed in Chapter 6, the Trade-Related Aspects of Intellectual Property Rights (TRIPS) was signed during the Uruguay Round of trade negotiations and is a part of the World Trade Organization’s basic framework. Following is a more detailed discussion of intellectual property and highlights of some of the major agreements of the past concerning this topic.
Patents are rights granted by governments to the inventors of products or processes for exclusive manufacturing, production, sale, and use of those products or processes. Patents are the equivalent of the legal ceding of monopolistic power over the subject matter of the patent. They are intended to stimulate the creation of new technology and inventions by providing creators with assurances of gain from the potential benefit from their endeavors. Patents protect the subject from infringement of rights only in the country in which they are registered. Consequently, a multinational firm marketing its products or processes in a number of countries must make sure that its patents are protected in all existing as well as potential market areas.
Trademarks and trade names
Trademarks and trade names are designs, logos, and names used by manufacturers to differentiate and identify their goods with customers. They are considered an integral part of the total product, which is the entire image and package surrounding the product being marketed. Trademarks and trade names have an indefinite life and can be licensed to others, as long as they retain their brand distinction and do not pass into generic de- scriptive use, as happened, for example, with aspirin. Goods that use false trademarks are counterfeit products, and producers and sellers of such goods are subject to prosecution under trademark laws of individual countries. Trademarks are generally not considered infringed on when they are imitated (“knocked off”), as long as the imitation goods are not characterized as the original merchandise.
The inappropriate use of trade names and trademarks creates legal conflicts around the world. In a well-known case, rap star Missy Elliott’s clothing line ran into trouble in Den- mark. The logo on the clothes was too similar to that of the country’s queen. The shoes, bags, and shirts in the collection carry a logo that consists of a crown on the top of the word “respect,” and Missy Elliott’s initials, “M.E.” Queen Margrethe II’s logo consists of a crown on top of the characters “M-2-R,” with the “R” standing for the Latin word for queen (regina). Clothing maker Adidas-Salomon AG was forced to withdraw the line from Danish stores after the royal court said that the logo infringed on the queen’s copyright.
Patent laws and accords
Different countries around the world have different criteria for the proper registration and granting of patents. A multinational firm must take care to comply with the different requirements of each country. For example, the lifetime of a patent may vary from country to country; nations may have different requirements about products or processes having published descriptions, whether they worked or were used prior to patent application, and whether a product is substantially different from previously patented goods. The countries may also differ in the procedures used to resolve conflicts when more than one inventor claims the rights to the same patent. Consequently, ensuring protection of patents can be a complex, lengthy, involved, and expensive process for firms engaged in commerce in a multitude of markets.
The United States, for example, has historically had a first to invent patent-granting policy that requires that any new patent filing be new, useful, and unobvious. Interest- ingly, what is at first deemed obvious is overturned in 30 to 40 percent of the cases.3 In March 2013, the US changed to the more common first to file patent granting policy. Japan, on the other hand, allows patents for minor modifications. This policy has tended to flood Japan’s patent office with new filings. This large amount of patent filings delays the process for getting new patents approved and could also prove detrimental to the level of innovation in the country. In Europe, patents granted by the European Patent Office must be registered and enforced nationally.
These complexities and intricacies have led to the emergence of international agree- ments regarding the mutual recognition of patents on goods and processes of member countries. The largest of these is the Paris Convention, which provides for the protection of patents and trademarks. This convention, also called the Paris Union, was established in 1883. Under its terms, members agree to recognize and protect the patents and trade- marks of member countries and allow for expedited (that is, a six-month priority period) registration for enterprises having filed in home countries that are members of the union. Similar patent agreements exist between the United States and Latin American countries in the Pan American Convention of 1929 and in sub-regional groups, such as the European Community and Sweden and Switzerland. In these nations, filing for patents in one of the member countries automatically confers protection in all member countries. Notably absent are many Asian nations whose compliance is mandated under TRIPS.
Trademarks are generally used without consent when a product with a worldwide reputation is not registered in all potential markets. Thus, with its reputation at stake, a multinational firm is faced in such situations with either having to litigate to regain use of its trademark or trade name or having to buy back that identifying symbol or name. While registration of all trademarks and trade names prevents these problems, such action becomes very expensive, especially if the firm markets several product lines in many markets where registration requirements differ substantially. For example, in some countries trademarks are registered only after they have been used, while in others, they cannot be used until they are registered.
To deal with these problems, cooperating international entities have made attempts to synchronize registration processes in recent years. The Madrid Agreement of 1991 pro- vides for the protection of trademarks in a centralized bureau in Geneva, the International Bureau for the Protection of Industrial Patents, which is a part of the World Intellectual Property Organization (WIPO). Currently, 185 countries are members of WIPO. Reg- istrations under this agreement have the benefit of being effective in many nations and potentially all members of the Madrid Agreement. Once the trademark is properly registered in its home country, an application may be made for international registration, at which point the trademark is published by the international bureau and communicated to the member countries where a firm is seeking patent protection. It is then up to the member countries to decide within twelve months whether or not they wish to refuse acceptance of the mark, and, in that case, they must outline the grounds for such refusal.
Copyrights give exclusive rights to authors, composers, singers, musicians, and artists to publish, dispose of, or release their work as they see fit. The people in the music busi- ness face problems with the illegal use of their material—piracy, which is the unlawful duplication of copyrighted material including sound recordings to make bootleg tapes and records. A major area in which copyrights are routinely infringed is computer software. Many developing countries are known to illegally copy computer software and sell it at reduced prices in the local markets. This was a primary reason for the inclusion of intel- lectual property protection in trade agreements under the WTO.
Copyright protection is sought by creators of works of art, literature, and music to ensure that no one wrongly reaps the benefit of their creative efforts through the sale, use, or licensing of those works. Copyright protection is divided into two categories: that which protects the right of creators to economic benefits or returns from their work and that which protects the creators’ moral right to claim title to the work and to prevent its being altered without consent or published without permission.
International copyright protection is covered under the Berne Convention of 1886 for the Protection of Literary and Artistic Works, which has 150 signatory countries. To be covered under the Berne Convention, material must be published or generally made available in a member country. The author or artist need not be a citizen of that member country to be afforded copyright protection. Thus, artists from nonmember countries, such as the United States, gain coverage by publishing simultaneously at home and abroad.
A similar agreement that also provides for international copyright protection is the Universal Copyright Convention (UCC) of 1952, sponsored and administered by the United Nations Educational, Scientific, and Cultural Organization (UNESCO). Members of the UCC are accorded national status within each other’s borders; that is, non-citizens holding copyrights are entitled to the same protection against copyright infringement as national citizens. Many members of the Berne convention are also sig- natories of the UCC.
Resolving Business Conflicts
The problem of business conflicts is particularly complex in the arena of international busi- ness, primarily for three reasons. First, the contracting parties are generally not as familiar with each other as are parties from the same country, and they are subject to the jurisdiction of their own countries and laws. Thus, an injured party cannot claim redress in the domestic courts against the defaulting party if the latter is based in a foreign country.
Second, international transactions operate in a relatively uncertain environment and face the risks of fluctuations in prices and exchange rates, changes in laws and regula- tions, transit risks, and so on. The possibilities of transactions not being completed to the satisfaction of both parties are higher than in a domestic environment.
Third, business ethics, practices, and cultures vary considerably across countries. Language is often a barrier, and there is always a distinct possibility of a misunderstand- ing because of a communication gap between the two parties. Communications are also hampered by the fact that the parties can be at a great distance from each other during the life of the transaction.
Despite the insertion of all precautionary clauses into a contract, disputes may emerge. Usually, the method adopted to deal with such situations is either arbitration or litigation, but there are some interim dispute resolution methods that are quicker and less expensive: adaptation, renegotiation, and mediation.
Provisions can be inserted into a contract to enable the agreement to be adapted to changing circumstances over the life of the transaction, which is particularly important when the contract involves a long-term commitment by both parties. There are several issues for which the adaptability of a contract is desirable so that both parties enjoy some flexibility in the performance of their respective obligations. Typically, in long-term contracts, flexibility is sought in such issues as prices and delivery schedules. Most contracts contain a force majeure clause, which absolves the parties of their obligations under the contract if they are prevented from carrying them out by circumstances beyond their control.
If a dispute arises during the life of the contract over some provisions, the two involved parties can renegotiate the contract. In certain instances, the contract itself contains a proviso to the effect that under certain circumstances, if the parties differ, they will rene- gotiate certain parts of the contract. Renegotiation has obvious advantages. Apart from saving court fees and other charges involved in formal dispute-resolution procedures, renegotiation can be an ongoing process that need not disrupt the continued progress of business under the contract.
Mediation is a method of dispute resolution using the offices of a third party known as the mediator. The actual mediation proceedings are generally less formal and rigid than arbi- tration, but the nature of individual mediation proceedings does vary. Mediation, if carried out in a non-confrontational and relatively cooperative manner, can be an effective way to resolve commercial disputes without resorting to the long and relatively difficult methods of arbitration and litigation. What is important is the cooperation of the two parties in the mediation proceedings, because they are not bound by the verdict of the mediator, whose role is essentially to moderate and balance the discussion and suggest ways to reach a com- mon ground on a mutually agreeable basis. Of course, mediation can become a long and tedious process if both parties adopt a confrontational approach and especially if the issues involved are complex and the mediator is relatively unfamiliar with them at the outset.
In summary, the international businessperson operating in overseas environments is faced with a multitude of complex, differing, and sometimes conflicting bodies of law regarding allowable forms of ownership and business activities. Thus, it is crucial that the firm ensure adequate coverage by its own legal staff or by retaining effective local counsel. In doing so, the company can take the greatest amount of precaution to avoid problems that can arise in international legal disputes.
Local court, local remedies
If disputes are not resolved by the informal methods, parties to the contracts have at least two possible paths of dispute resolution to pursue, commercial litigation and international arbitration, which assume that other methods of dispute resolution have been ineffective. Before these methods can be used, another established rule of international law holds that recourse to international legal forums is pursued only after the parties have exhausted local possibilities for achieving relief. These local remedies include the use of local courts or action by national governmental and administrative bodies. This rule applies only to actions between private parties, however, and not to those between states and individuals, because a state cannot be said to have local remedies to exhaust. The exhaustion rule protects the interests of both the foreign national and a host state. By respecting the sovereignty of states and the primacy of national jurisdiction in international disputes, the rule gives the states the necessary flexibility to regulate their internal affairs. At the same time, the rule requires states to recognize their international responsibility to offer justice to foreign nationals. Thus, the rule protects the interest of the multinational by promising either effective local remedies or a remedy in an international forum.
In arbitration, parties to a dispute agree to take their case to a third party in the form of an agency of independent arbitration. They submit whatever documents of evidence they feel are relevant and agree to accept the judgment of the arbitrators, waiving their rights to appeal through court systems.
Arbitration has several advantages over litigation. It is a speedier process than court procedures; the parties have a say in the choice of expert arbitrators, as compared to arbitrary judicial assignments; and the parties can have private adjudication. Results are achieved faster and less expensively in arbitration, because the proceedings are less complex and less formal than in litigation. The main drawback of international arbitra- tion is that its use precludes further appeals, because there is no parallel in arbitration to appellate courts within judicial systems.The use of arbitration by international parties is backed by laws and governmental treaties that allow for the recognition and enforcement of awards made through arbitration.
In this session, the intellectual and property rights were presented, the differences between trademarks and trade names, patent laws and accords as well as copyrights were introduced.
Also, the different ways of resolving conflicts by adaptation, renegotiation and mediation were explained
By differentiating the several concerns of potential conflicts it is evident that the knowledge and operation according to the Law is essential when running an international business. The session finally presents international arbitration as a proven way to conciliate between parties in conflict.
- Ajami R., & Goddard J. G. (2015). International Business: Theory and Practice. Routledge (255-265)
- Jus Mundi (March 11, 2022). London Court of International Arbitration (LCIA). Jus Mundi. https://jusmundi.com/en/document/wiki/en-lcia
- LCIA (July 4th, 2018). The LCIA found to be the leading institution in the appointment of female arbitrators. LCIA.