The Business Counselor Blog™

Due Diligence on Potential Foreign Sales Agents

In many cases, a firm may lack the sales and distribution network and resources to fully realize the commercial poential of one or more of its products.  In such situation, the firm will look to third parties to provide marketing assistance including sales representatives in foreign markets where the firm is not yet ready to invest in developing its own sales and marketing infrastructure.  While sales representatives can be extremely important partners in foreign markets firms must be mindful of their potential liability for the actions of such representatives under the federal Foreign Corrupt Practics Act and this report details the due diligence procedures that should be followed before signing on with a new representative.

Developments Impacting International Shipping Terms

This report covers several developments regarding the drafting of shipping terms in international sales of goods contracts--the effectiveness of the latest version of INCOTERMS on January 1, 2011 and the lack of progress in attempts to eliminate shipping terms from the Uniform Commercial Code.

Japanese View on Google Library Search Project

Over the last few months there has been strong reaction in Japan to the class-action settlement between Google, the Authors Guild and the Association of American Publishers.  Google had hoped that the settlement would remove a major hurdle to its efforts to create a vast online library by scanning millions of books and making them available for search.  However, as documented in this report, Japanese publishers and authors have expressed real concerns about how their rights might be impacted by developments in the United States.

Income Tax Treaties

When conducting international business activities it's important to take notice of the applicability of U.S. income tax treaties.  In this report I discuss how these treaties work and some of the potential advantages they may provide for your clients.

Foreign Regulation of Inbound Technology Transfer Agreements

Cross-border technology licensing agreements have become an important, often essential, element of the overall business strategy of any firm that seeks to expand its operations globally. In general, a cross-border technology license provides the framework under which an owner of intellectual property rights (or specialized knowledge or expertise that meets the applicable definition of a trade secret) can transfer certain legal rights relating thereto to a business partner in a foreign country while still retaining title and control of such technology. As is the case with purely domestic licenses the owner of the technology—the licensor—will seek to retain control over the licensed subject matter through careful definition of the scope of the licensing include permits uses, territorial restrictions and limits on the terms of the license. Compensation from the licensee, generally in the form of royalties, is also an important component of any cross-border technology license agreement. Additional provisions will be included depending on the type of licensed subject matter with distinctions being drawn between licenses of registered or statutory intellectual property rights (i.e., patents or trademarks) and licenses of "know-how" in connection with a process—such as manufacturing--which may include training and other services from the licensor in order to ensure that the licensee understands and absorbs the proprietary information. Governments around the world has sought to impose restrictions on inbound technology transfers agreements for a variety of reasons. This week we provide you with a report that includes an overview of technology transfer regulations and specific summaries of applicable laws in China, India and Mexico.

Legal Considerations in Operating in Foreign Markets II

In my last post I discussed the complex network of United States laws that companies must understand when engaging in international business activities.  In addition, companies must pay attention to the local laws of the country in which the activities will occur must be considered since United States firms will be expected to comply with the rules and regulations that each jurisdiction has established with respect to the operation of businesses and trade and commerce involving local citizens.  For an overview of some of the areas where local laws come into play, read the following report.

Legal Considerations in Operating in Foreign Markets I

Since commencement of some type of business activities—sales, manufacturing, logistics, financing and/or other operational activities—in at least one foreign country has now become a natural milestone for almost all growing businesses in the United States, the managers of those firms and their attorneys must expand their understanding and expertise to include "international law." 

The United States has an extensive set of laws and regulations pertaining to all aspects of international trade and commerce, including exports, imports, immigration, antitrust, inbound foreign investment, anti-corruption, embargoes, and unfair trade practice by foreign countries and firms that injure United States industries.  Companies will soon find that they are subject to regulation by a number of different agencies, sometimes with overlapping jurisdiction, and that the costs associated with compliance can quickly become material and must be factored into the level of investment necessary in order for the company to launch and maintain cross-border operations.

Before investing significant time and resources into launching new business activities in a foreign country, one must consider the impact of the following domestic laws:

• Export Controls. Under the Export Administration Act of 1979, the Department of Commerce is responsible for implementing and enforcing controls on the transfer of items, technology, and other related services. Exporters must collect and evaluate information regarding foreign customers, comply with all applicable licensing requirements and obtain certifications from customer regarding their intended uses of controlled goods. Other types of export controls are administered by other federal agencies including the Departments of State, Treasury and Energy.
• Anti-Bribery Laws. Compliance with the Foreign Corrupt Practices Act (“FCPA”) is a matter of concern in any foreign sales representative agreement, particularly in situations where local customs may be different from those in the United States Among other things, the FCPA, which is enforced by the Department of Justice with support from the Securities and Exchange Commission, makes it illegal for a United States exporter to "corruptly" pay or offer to pay a foreign public official for assistance in obtaining or retaining business or from paying a representative if the exporter knows that a portion of the payment will go to a public official for the same reason.
• Import Laws. United States Customs and Border Protection, which is part of the Department of Homeland Security, is responsible for the laws and regulations concerning the importation of foreign goods. All goods imported into the United States, with the exception of telecommunications transmissions, business records and data, corpses and certain articles returned from space, must be declared to Customs. The United States also requires that every article of foreign origin or manufacture imported into the United States, with certain specified exceptions, “be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or container) will permit in such manner as to indicate to an ultimate purchaser in the United States the English name of the country of origin of the article.”
• Immigration Laws. United States immigration laws will apply whenever the proposed business activities involve the movement of foreign employees to the United States, as might occur when a United States party forms a domestic joint venture with a foreign firm, or foreign personnel are sent to the United States for training in the manufacture of products of the United States party that will be sold overseas. Visas are necessary for entry into the United States. There are two basic types of visa: non-immigrant visas, which permit foreign nationals to enter the United States temporarily, and immigrant visas, which permit foreign nationals to live in the United States permanently.
• Trade Laws. United States anti-dumping laws address situations where imports are being sold at prices that are below their “normal value” (“dumping”) and where, as a result, material injury is or may be caused to a domestic industry. Another trade law that complements anti-dumping laws is counterveiling duty laws, which accesses whether or not imports are being subsidized by foreign governments and whether or not the effects of the subsidy are causing injury to domestic industries. If serious injury is caused by imports of a particular product, the International Trade Commission will instigate investigations and determine the appropriate measures.
• Antitrust Laws. The federal antitrust laws prohibit practices that restrict trade and competition between business entities and monopolization. Various federal statutes, notably the Sherman Antitrust Act of 1890 and the Clayton Act of 1914 (the "Clayton Act") prohibit contracts, combinations and conspiracies in restraint of trade; monopolization and attempts to monopolize; specified discriminatory pricing practices that injure competition among purchasers of the products; and “exclusive dealing” requirements. Section 7A of the Clayton Act, often referred to as the Hart-Scott-Rodino Antitrust Improvements Act, forbids certain acquisitions of voting securities or assets unless a prior notification has been filed with the government and the specified waiting period has expired. The Federal Trade Commission Act of 1914 outlaws any "unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce." The federal antitrust laws are administered by the Federal Trade Commission and the Department of Justice.
• Tax Laws. United States tax aspects of international business transactions can be broken down into outbound transactions, which are those involving the application of United States taxes to the foreign operations and activities of United States taxpayers, and inbound transactions, which are those involving foreign persons who may be investing or otherwise engaging in business activities in the United States. In addition, United States taxpayers doing business in a foreign country may be subject to taxation in that country and payments of foreign taxes must be taken into account in computing United States tax liability.

The content in this post has been adapted from material that will appear in Going Global: A Guide to Building an International Business (Fall 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.

Employee Contracts for Overseas Service

As the domestic economy continues to be challenged many firms are sending some of their best employees overseas to assist in launching or expanding branch offices in foreign countries where the market appears to be better for the company’s products and services.  The terms and conditions of services in a foreign country should be documented in a formal employment agreement.  Re-location is obviously an important decision for the employee, particularly when his or her family members will be impacted, and the agreement should carefully describe the things that the employer is willing to do to make the transition proceed smoothly and ensure that the employee and, if appropriate, his or her family can live comfortably in the foreign country.  In turn, the employer wants to be sure that its overseas employees understand their duties and responsibilities and comply with the rules and procedures established by the employers for all of its employees and any specific rules and procedures applicable to its employees in the particular foreign country.

The agreement should cover all the issues that are customarily negotiated in any employment contract including place of employment; scope of job duties, include days and hours of employment; compensation and benefits, including salary, bonuses, vacations and holidays and health insurance; ownership and protection of intellectual property rights; and term and termination of the employment arrangement.  Special issues for overseas assignments that should also be covered in this type of agreement include reimbursement for transportation expenses related to the employee and his or her family members; provision of living accommodations in the foreign country; payment of local income taxes; reimbursement of expenses incurred by the employee and his or her family members for language school; insurance coverage on the employee’s activities, including travel to and from the foreign location; medical examinations, medical and hospital care and vaccinations; and procedures for return passage of the employee and his/her family members upon termination of the assignment for any reason.

The content in this post has been adapted from material that will appear in Going Global: A Guide to Building an International Business (Fall 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.

European Patent Convention Substantially Revised

Substantial revisions to the European Patent Convention (EPC), the first in over 30 years, went into effect on December 13, 2007.  The EPC establishes the European Patent Organization, which consists of a European Patent Office (EPO) and a managing body called the Administrative Council. The task of granting European patents is carried out by the EPO, under the supervision of the Administrative Council.  The European Patent Organization is financed through the imposition of fees and through payments and special contributions by the Contracting States. The purpose of creating the European Patent Organization as a centralized system was to avoid the duplication of effort and improve the overall quality of the patent inspection.

Much of the substantive law in the EPC is based on the Strasbourg Convention, particularly as regards the subject matter of a patent application. Under the EPC, a European patent will be granted for any inventions, in all fields of technology, provided that they are new, involve an “inventive step,” and are susceptible to industrial application.  Excluded from the relevant definition are discoveries, scientific theories and mathematical methods; aesthetic creations; schemes, rules and methods for performing mental acts, playing games or doing business, and programs for computers; and presentations of information.  The EPC also provides that European patents will not be granted with respect to inventions the commercial exploitation of which would be contrary to "ordre public" or morality, provided that such exploitation shall not be deemed to be so contrary merely because it is prohibited by law or regulation in some or all of the Contracting States; plant or animal varieties or essentially biological processes for the production of plants or animals, however, this exclusion does not apply to microbiological processes or the products thereof; or methods for treatment of the human or animal body by surgery or therapy and diagnostic methods practiced on the human or animal body, however, this exclusion does not apply to products, in particular substances or compositions, for use in any of these methods.

An invention is considered to be new if it does not form part of the state of the art and is considered as involving an inventive step if, after having regard to the state of the art, it is not obvious to a person skilled in the art.  An invention is considered as susceptible of industrial application if it can be made or used in any kind of industry, including agriculture.  The right to a European patent belongs to the inventor or his successor in title. If the inventor is an employee, the right to a European patent is determined in accordance with the law of the country in which the employee is mainly employed; if the country in which the employee is mainly employed cannot be determined, the law to be applied will be that of the country in which the employer has his the place of business to which the employee is attached.  If two or more persons have made an invention independently of each other, the right to a European patent therefor belongs to the person whose European patent application has the earliest date of filing, provided that this first application has been published.

An application for a European patent may be filed with the EPO, or branch office, or at the competent patent authority of a Member State, which will forward it to the EPO's main office.  Under the recent revisions the application may be filed in one of the three official languages (i.e., English, French or German) or, if filed in any other language, translated into one of the official languages. Throughout the proceedings before the EPO, such translation may be brought into conformity with the application as filed. If a required translation is not filed in due time, the application will be deemed to be withdrawn.  An application for a European patent must contain the following:

1. A request for the grant of a European patent on a special EPO form;
2. A description of the invention;
3. One or more claims;
4. Any drawings referred to in the description or the claims; and
5. An abstract.

Disclosures in the patent application must be sufficiently clear and complete to allow the invention to be carried out by a person skilled in the art.  Claims must be clear and concise and be supported by the description of the invention.  The abstract, preferably in not more than 150 words, serves mainly for use as technical information only and may not be taken into account for any other purpose, in particular not for the purpose of interpreting the scope of the protection sought.

Applicants are allowed to request the grant of a European patent for one or more of the Contracting States and the application must contain the designation of the Contracting State(s) in which protection is sought.  Initially, Contracting States had to be positively designated in the request for grant; however, this practice caused problems since, in principle, a later designation made after the filing date of the European patent application was inadmissible.  In order to make the entire process more efficient, the EPC now provides that applicants are deemed to have designated all the Contracting States that are parties to the EPC at the time that the application is filed; however, applicants have the option of withdrawing designations and may do so at the outset, upon filing the application, if they so wish. 

Once the application has been filed, it is then subject to an examination and search procedure. The EPO will then decide whether to refuse or grant the European patent.  The EPO will publish the application as soon as possible (a) after the expiry of a period of eighteen months from the date of filing or, if priority has been claimed, from the date of priority, or (b) at the request of the applicant,  before the expiry of that period. The application will be published at the same time as the specification of the European patent when the decision to grant the patent becomes effective before the expiry of the period referred to in the previous sentence. Within nine months of the publication of the fact of the grant of the European patent in the European Patent Bulletin, any person can give notice of opposition to the patent so granted.

Once granted, the European patent takes effect as the equivalent of a national patent in all, or if requested, a designated number, of the Member States that adhere to the Convention. Any infringement of the European patent is thereafter dealt with by the national courts.  The term of the European patent is twenty years from the date of filing of the application.  Any Contracting State may, if the European patent as granted, amended or limited by the EPO is not drawn up in one of its official languages, prescribe that the proprietor of the patent shall supply to its central industrial property office a translation of the patent as granted, amended or limited in one of its official languages at his option or, where that Contracting State has prescribed the use of one specific official language, in that language. The period for supplying the translation ends three months after the date on which the mention of the grant, maintenance in amended form, or limitation of the European patent is published in the European Patent Bulletin, unless the Contracting State concerned prescribes a longer period. The EPC, which allows an applicant to acquire a "bundle of rights" with obvious savings in costs and administrative time, has been quite successful, although the lack of a common appeal structure from decisions that are made by national courts regarding patent litigation can, in theory, lead to variations in the treatment of a European patent among Member States.

The content in this post has been adapted from material that will appear in Technology Management and Transactions (Fall 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.

 

Outsourcing Pre-Employment Verification Activities

One of the most common and interesting forms of outsourcing arrangement being used by U.S.-based companies is reliance on a foreign partner to provide contact center and back-office processing services such as pre-employment and education verification services.  Obviously one of the most important parts of the contract is the description of the services to be provided to the client by the vendor and the parties should prepared a detailed schedule of services that includes objective measures of the anticipated “service levels” as well as an overview of possible incidental services that are not specifically described yet are likely to be required in order for the goals and objectives of the contract to be achieved.  The description of services should be accompanied by a schedule of fees and appropriate details regarding the manner in which the vendor intends to provide the personnel necessary to achieve the mutually agreed service levels.  The parties should be prepared to discuss any changes in the level of services due to increased or decreased demand by the client and/or changes in applicable laws and regulations.  The vendor should be prepared to provide the requisite training for its personnel and render reports to the client regarding the level and quality of services provided under the agreement. Among other things the reports should cover employee work hours and absenteeism and the volume and quality of work performed by vendor employees based on mutually agreed performance metrics.  Weekly and quarterly business reviews should also be conducted.  Finally, a procedure should be established for reviewing possible requests by the client to the vendor for new services during the term of the contact including preparation and review of a written proposal for new services that include an analysis of the additional resources that the vendor would need to devote to the relationship.

Other key issues that need to be covered in this type of agreement include communication procedures, including designation of relationship managers by both parties; identification of key vendor personnel who will be dedicated to performance of the activities contemplated under the agreement; allocation of ownership and usage rights with respect to any intellectual property that may be created or exchanged during the relationship; force majeure procedures; billing and payment procedures; representations and warranties; dispute resolution procedures; events of default and termination procedures; notice procedures; and governing law.  A number of schedules will need to be prepared in conjunction with the agreement covering matters such as scope of services and designated service levels, fees, services location(s), implementation plan and schedule, reporting requirements, vendor key personnel and program team staffing; and data security procedures.

While the parties obviously contemplate a long-term relationship with significant investments on both sides the form wisely provides for a “pilot period” during which the parties can evaluate how the services are being provided and whether they can establish procedures and protocols that will allow them to achieve the goals and objectives for the contract.  One of the key planning tools for the contract is the preparation and acceptance of an implementation plan and schedule that will be appended to the contact as an exhibit.  The plan and schedule should include acceptance tests that would need to be completed before the services can begin.  The pilot period would commence on the “implementation completion date,” which is the date that the acceptance tests are completed.  The parties should schedule a full-scale review of service provision to be completed on or before the end of the pilot period.  Assuming that the arrangement continues beyond the pilot period the agreement should specify the initial term of the contract and procedures for renewal and extension.  In that regard it is very important for the client to insist on “termination assistance” that ensures that the services will continue to be available for a reasonable period following a decision to terminate in order to allow the client to make arrangements for a new vendor or performance of the outsourced services on its own.

The content in this post has been adapted from material that will appear in Going Global: A Guide to Building an International Business (Summer 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.