question

What does a Documentary Sale mean?

answer

delivery of the document constitutes a symbolic delivery of the goods and payment is then to occur upon delivery of the documents. The seller delivers a set of predetermined documents to the buyer and the buyer inspects the documents and then makes payment to the seller. Having obtained the documents, the buyer now has legal control of the goods and can obtain physical possession of the goods at the port of importation from the carrier by presenting the documents to the carrier.

question

What if the seller does not trust the buyer to make payment after deliver of the documents any more than after the buyer receives delivery of the goods in a non-documentary sale?

answer

In this case the seller will insist that the buyer engage a bank in the buyer's home jurisdiction that will pay the seller upon the seller's deliver of the documents to the bank. The bank then will seek reimbursement from the buyer in exchange for the documents or debits the buyer's account with the bank and forwards the document to the buyer. Now with the document in hand, the buyer goes to the port to obtain possession of the goods.

question

Documentary Sales consist of at least 3 contracts

answer

1) Sales contract between the seller and the buyer for the goods 2) Letter of credit between the buyer's bank and the seller for payment 3) Bill of lading between the seller and the carrier, which serves as a contract for the transportation of the goods.

question

Do Documentary Sales NEED a letter of credit?

answer

No because the seller can submit the documents directly to the buyer for payment. However, if the seller does not wish to bear the risk that the buyer will not pay against the documents, the seller can demand that the buyer engage a bank to issue a letter of credit.

question

The Sales Contract

answer

A contract for the sale of goods. Like any other contract, it is usually formed through negotiations leading to an offer by the buyer and an acceptance by the seller.

question

Letter of Credit

answer

A contract for the sale of documents. It allows the seller to obtain payment from the buyer's bank upon the presentation of certain documents, usually including a bill of lading, which provides evidence that the goods have been shipped. to obtain a letter of credit, the buyer usually goes to its bank in the foreign nation and asks the bank to issue a credit in favor of the seller. By requiring a letter of credit from the buyer, the seller is able to obtain an assessment of the buyer's creditworthiness by a financial institution in the buyer's home location.

question

How to obtain payment under the letter of credit

answer

Seller must submit the buyer's bank a set of required documents detailed in the LOC, which usually includes a bill of lading, a commercial invoice and an insurance certificate. The seller obtains the bill of lading from the carrier after the seller delivers the goods to the carrier. The seller provides a commercial invoice that details the quantity and nature of the goods that have been delivered to the carrier. The insurance certificate indicates that the goods have been insured during transit. the seller must usually comply exactly with the requirements of the terms of the credit, as failure to submit a required document or the submission of a defective document will result in a refusal to pay by the bank. Once the buyer's bank receives the documents as required by the terms of the credit, the banks must pay the seller. This is known as an unconfirmed letter of credit.

question

In the case of a confirmed letter of credit...

answer

another bank, usually a bank located in the seller's nation, will add its confirmation that it will pay the seller under the letter of credit when presented with the proper document by the seller. This bank is the confirming bank. The seller might insist on a confirmed letter of credit because the seller might not trust the buyer's bank any more than the seller trusts the buyer. Once the confirming bank pays the seller, the confirming bank will then forward the documents to the buyer's bank for reimbursement. The seller is usually in a better position to assess the reputation of the confirming bank and the seller has more effective means of recourse if the confirming bank refuses to pay.

question

Independence Rule on letters of credit established by the Int'l Trading community

answer

This means that payment on letters of credit is required regardless of nonperformance of the underlying sales contract.

question

When the goods are loaded on board the carrier, the carrier will then issue a Bill of Lading to cover the goods, which serves two functions:

answer

1) The bill of Lading is a contract of carriage under which the carrier promises to transport the goods to a certain destination in exchange for a fee paid by the seller to the carrier. 2) The Bill of Lading also determines to whom the carrier should deliver the bill.

question

In a non-negotiable bill of lading (aka a straight bill of lading)....

answer

The carrier is to deliver the goods to the person names as cosign in the bill or to an agent or person designated by the cosign.

question

If the bill of lading is negotiable (aka a yellow bill of lading)...

answer

The carrier must deliver the goods only to the person in possession of the original negotiable bill properly endorsed. The carrier must first obtain the surrender of the negotiable bill of lading before delivering the goods. A negotiable bill of lading thus represents title to and control of the goods themselves because whoever has possession of a properly endorsed bill has a legal right to obtain possession of the goods. In a documentary sales transaction, a negotiable bill of lading must be used.

question

Under the Bill of Lading, when does a carrier undertake responsibility for the goods?

answer

From the moment it takes receipt of the goods until it delivers the goods to the port of discharge or a named place of delivery. The liability of the carrier for any damage to the goods if the carriage is to or form the US is governed by the federal Carriage of Goods By Sea Act (COGSA), which limits the liability of the carrier to 500 per package unless the shipper declares otherwise in the bill of lading.

question

What are Incoterms?

answer

The ICC published a set of rules and definitions to guide the interpretation of commonly used commercial terms, called Incoterms, which parties can adopt by contract. Once adopted, the terms acquire legal force by contract and displace an inconsistent terms in domestic law.

question

Incoterms are limited in scope to what?

answer

Incoterms apply only to matters concerning the duties and obligation of sellers and buyers to a contract of sale relating to the delivery of tangible goods sold. Incoterms are only directly relevant to the contract of sale. Matters such as formation of the contract, warranties, breach and remedies are all outside the scope of Incoterms.

question

In the absence of an explicit agreement between the parties, who assumes the risk of loss and when?

answer

Incoterms state that the risk of los passed from the seller to the buyer when the goods were delivered by the seller into the custody of the carrier. This occurred when the goods passed the ship's rail. Traditionally, after the goods passed the ship's rail, the buyer assumed the risk of loss which is why most buyers buy insurance for the goods from this point forward. In modern maritime transactions however, goods are often delivered by the seller to a point on land where they are stored in a container in a warehouse for subsequent transport by sea or by a combined means of multimodal transport.

question

Free Alongside Ship (FAS)

answer

Seller delivers goods to dock; provides export license. This creates export-import contract. Risk passes when goods are placed alongside vessel. If war breaks out and delivery costs rise, Buyer assumes extra cost.

question

Free on Board (FOB)

answer

Seller delivers gods on board vessel and obtains export documents. Risk passes when goods pass over ship's rail. Only applies to sea-going vessels.

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Free Carrier (FCA)

answer

exactly like FOB term, but for non-sea transport.

question

CIF

answer

Seller delivers goods on board vessel, pays freight and insurance. Risk passes when goods pass over ship's rial; only sea-going vessels. So if war breaks out and delivery costs rise, Seller absorbs extra costs.

question

Carriage & Insurance Paid (CIP)

answer

exactly like CIF but for non-sea transport. Risk passes when goods are placed in custody of carrier.

question

Cost & Freight (CFR)

answer

Seller delivers goods on board and pays freight; Buyer pays insurance. Risk passes when goods pass over ship's rail.

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Carriage Paid To (CPT)

answer

exactly like CFR but for non-sea transport.

question

Delivered at Frontier (DAF)

answer

Seller places goods at B's disposal at frontier. Seller responsible for discharging goods from vessel; Buyer handles import docs. Designed for rail transport but appropriate for ships and other forms.

question

Delivered Ex Ship (DES)

answer

Seller delivers goods on board and pays freight and insurance. Risk passes when goods are on board ship and ship reaches "usual loading point." Only for Sea Transport

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Delivered Ex Quay (DEQ)

answer

Seler delivers goods on board, pays freight and insurance Risk passes when goods are placed at B's disposal on quay; B is importer.

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Deliver Duty Paid (DDP)

answer

Seller does everything; risk passes when goods are placed at B's disposal.

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Payment Against Delivery of Goods

answer

"Net cash" has no meaning other than that there is no credit or deduction. Unless there is express statement that payment is against documents, payment is against delivery of goods.

question

If there is no express provision on payment against docs, then what?

answer

Buyer has option of accepting symbolic delivery of goods (BOL) but pay only after inspection. This creates a risk to the seller because the seller has risk that buyer will not pay upon inspection.

question

Payment against Documents

answer

Buyer can't inspect goods before payment. Buyer would need BOL to receive goods from carrier and then inspect because the carrier only pays to the party with the BOL. Buyer needs to pay the seller as an exchange to get the BOL. Seller would also have to incur the cost of unloading and storage at port of arrive while buyer inspects but CIF only requires seller to pay for carriage and insurance. Risk to Buyer is that buyer will have to pay with receipt of doc even if non-conforming. In a CIF contract, payment is due on delivery (of documents rather than goods).

question

In a CIF contract, buyer's obligation to pay arises when seller has fully performed, which occurs when?

answer

After Seller has delivered goods to carrier, paying for freight, buying insurance and sending bill of lading to Buyer. Property interest in goods passes when Buyer as BOL (bill of lading) If goods are non-conforming, then buyer can sue for breach of contract.

question

In a CIF contract, how can the buyer protect himself against non-conforming goods?

answer

Require third party inspector to provide certificate of quality. Write other provisions into contract (payment upon inspection, for example) Require sample sent in advance.

question

In an Int'l sales transaction, one of the parties will arrange the transportation of goods using what document?

answer

Using a Contract of Affreightment for the transportation of the goods to a named destination. Typically, this duty falls to the seller; it is easier for the seller to arrange everything and charge the buyer. Thus, most export transaction are CIF form. The seller will arrange this transport through an intermediary, a broker, or a freight forwarder.

question

Common Carrier (ship transport)

answer

One that holds itself out to the general public as engaged in the business of marine transport for compensation.

question

Private Carriage (ship transport)

answer

A ship is leased, in whole or in part, by special arrangement. The contract of private carriage is known as a charge party.

question

Under US version of the Hague rules, the Carriage of Goods by Sea Act (COGSA), the limitation of liability is how much?

answer

$500 per package or, for goods not shipped in packages such as bulk cargo, $500 per customary freight unit.

question

Cases involving the liability of air carriers for lost or damaged freight are controlled by what?

answer

federal common law

question

What is a Bill of Lading?

answer

An ancient commercial document from medieval times and in general use since the 16th century. A BOL is defined as a document acknowledging receipt of goods by a carrier or by the shipper's agent and the contract for the transportation of those goods.

question

Problem: To save on costs, seller asks carrier for non-negotiable BOL. Seller didn't get insurance and the goods got lost. Now what?

answer

This was an incorrect BOL and thus violated the sales contract. The buyer does not accept the goods or handed over the risk of loss if he didn't accept the BOL. If BOL doesn't match letter of credit (containing detail on contract) seller cannot be paid from bank.

question

Why is a negotiable BOL more expensive?

answer

Because it allows buyer to give it to another during transit.

question

If the buyer wants the option to sell the goods to someone else during transit, what does he/she need?

answer

A negotiable BOL.

question

Sales contract states buyer pays in "net cash upon delivery." Does delivery mean deliver of goods or documents?

answer

If it means goods, then buyer can inspect the goods before payment. If it means documents, seller can get paid despite destruction of goods. When there is no express provision, buyer can pay against delivery of goods or documents.

question

The Hague-Visy Rules and the COGSA exonerate the carrier from liability if the cargo is....

answer

damaged or stolen by "acts of public enemies."

question

If a through BOL must end with delivery inland, then what kind of law governs under COGSA?

answer

Admiralty law. If most of the trip is overseas then admiralty law governs even if part of it is on land because you need uniformity of law.

question

COGSA is applicable to?

answer

All contracts for the carriage of goods by sea, to or from pros of the United States in foreign trade. Where there is a BOL that forms the contract of carriage, the COGSA will apply.

question

COGSA can be extended to cover?

answer

Third parties and inland carriage through a BOL

question

IF COGSA is found not to apply to inland transport then the applicable law will be what?

answer

State law as well as any applicable federal statutory regime of liability, such as the Carmack Amendment. Where the loss of cargo occurs during land transport in a foreign country, foreign law or an international conventional regime will apply.

question

In deciding choice of law questions, the rule in NY is?

answer

That the "law of the jurisdiction having the greatest interest in the litigation will be applied and that the facts or contacts which obtain significance in defining State interests are those which relate to the purpose of the particular law in conflict." IN short, NY courts balance NY's interest in having NY law apply against a foreign state's interest in having foreign law apply.

question

United Nations Convention on Contracts for the International Sale of Goods (CISG) basic features:

answer

Only applies to sales on contracts on goods. Covers warranties (even though this provision conflicts with the UCC) Applies if contracting member's law applies. Contract preempts CISG. Only deals with tangible rights. Does not apply on right to use ideas. Does not apply to distributorship agreements.

question

For CISG to apply, both parties must be from different states, each of which is a contracting state. If one party is not from a contracting state, then what?

answer

CISG applies if that party recognizes Article1(1)(a) or its own choice of law results in other party who is from contracting state.

question

Under CISG, if a party has more than one place of business, which place do you use for purposes of settling the dispute?

answer

The place of business with closest relationship to contract and its performance is the place of business.

question

Can parties prevent the CISG from applying?

answer

Yes they can contract around it because the contract will preempt the CISG.

question

What two basic aspects of contract does the CISG govern?

answer

The formation and the obligations of the parties.

question

What issues does the CISG not govern?

answer

Validity of the contract, third party rights, property rights int he goods.

question

US invoked the option found in Article 95 to exempt itself form 1(b) of the CISG which means that its courts will apply the CISG if, and only if, what requirement is met?

answer

All parties are from countries that signed the CISG. Even if a traditional choice-of-law analysis leads to the application of US law, it will be without the application of the CISG unless all parties are form countries that signed the CISG.

question

Gaps vs. Exclusions in the CISG

answer

A gap refers to an issue that is governed by the CISG but on which the CISG is silent, whereas an exclusion refers to an issue that is not governed by the CISG but which must be governed by some other substantive law.

question

Article 7 of the CISG states that gaps should be settled how?

answer

In conformity with the general principles on which the CISG is based or in the absence of such principles, through the application of domestic law after a choice of law analysis.

question

Under CISG, offer is effective when?

answer

When it reaches offeree. Seller can withdraw anytime before it reaches buyer but once it reaches buyer, offer is not revocable even if there was no consideration.

question

CISG mail box rule

answer

If offeror impliedly authorized acceptance by mail, once the offer sends letter, offeror cannot revoke.

question

Under CISG, in order for acceptance to be effective and contract formed, there must be?

answer

1) assent to offer 2) communication of assent

question

German Seller sends American buyer a letter by next-day delivery with an offer to sell 150 organizers at $50 each, offer good for 10 days. Later the same day, the seller telephones the buyer and says "I hereby withdraw the offer sent to you by my letter." The buyer receives the letter the next day and writes back, "I accept your offer as it is good for 10 days." What result?

answer

No contract has been made as the offer was withdrawn before it reached the buyer. Since the offer never reached the buyer prior to the withdrawal and the buyer was never aware of the offer, the buyer cannot suffer any harm bits withdrawal.

question

German seller tells American buyer, "We will give you a nice discount if you order a large quantity of the organizers." The buyer responds by sending in an order for 100 organizers at $50 each. What result?

answer

The proposal is addressed to a specific person but unless the parties have a prior course of dealing that would indicate the quantity and price referred to by the seller (see Article 9 of CISG), no contract has been made since the offer was insufficiently definite as to quantity and price.

question

German seller sends out a sales catalog for hand-held electronic organizers to persons on a mailing list that the seller has obtained from a consumer research company that identifies American buyers who have purchased high-end electronic goods within the last two years. The catalog lists the organizers at $55 each. An American buyer sends in an order for 50 organizers. Is there a contract?

answer

No because there was no offer. The offer has not been addressed to specific persons.

question

Under Article 19 of the CISG, a reply to an offer becomes a rejection and a counteroffer if _____?

answer

The alterations or additions "materially alter the terms of the offer." Otherwise, the new terms become part of the contract, unless the offeror objects without undue delay.

question

German seller sends an offer on a preprinted form to an American buyer. Receives an order form in reply that purports to accept the seller's offer. Standard clauses on the back of the buyer's form subject the contract to the jurisdiction of US courts and contain other material alterations. Buyer draws seller's attention to the choice of forum clause. Seller does not respond and no goods are shipped. Has a contract been formed?

answer

No contract has been made as the acceptance contains terms that materially alter the offer. The buyer's reply is a rejection and a counteroffer under Article 19(1) that the seller has failed to accept.

question

Chinese seller sends an offer on a preprinted form to an American buyer for the sale of antique Chinese furniture and art. The back of the form contains a clause providing for shipment in "commercial furniture crates designed for the safe shipment of art objects and antiques." The buyer sends back reply purporting to accept the seller's offer. On the front of the buyer's form, the buyer has added a clause providing "All furniture and art tone separately packaged and shipped in separate crates." The seller receives the form, reads the buyer's clause and does not object. Has a contract been formed?

answer

Yes, because the buyer's clause does not materially alter the terms of the offer. The buyer's clause is part of the contract.

question

Are replies modifying arbitration clauses rejections/counteroffers?

answer

Yes, the CISG treats the inclusion (or deletion) of an arbitration provision as "material."

question

Under Article 18(3), if an offer ships the goods, what does that mean for acceptance?

answer

The acceptance is effective, without notice to the offeror, the moment the act is performed if it occurs within the time fixed by the offeror or, if no time is fixed, within a reasonable time.

question

Under Article 35(2), goods conform to contract if _____?

answer

1) fit for purpose of which goods of same description would ordinarily be used; or 2) fit for any purpose expressly/impliedly made known to seller and relied upon by buyer.

question

Shipments designated CFR require the seller to pay the costs and freight to transport the goods to the delivery port but pass title and risk of loss ____?

answer

to the buyer once the goods "pass the ship's rail" at the port of shipment. The goods should be tested for conformity before the risk of loss passes to the buyer. In the event of subsequent damage or loss, the buyer generally must seek a remedy against the carrier or insurer.

question

Reasons to Excuse performance of contract under CISG

answer

Frustration, impossibility, force majeure, impediment.

question

Under Art. 79 of CISG, a party is not liable for nonperformance of contract obligation if?

answer

1) impediment was beyond its control (impediment is not what makes it more costly or difficult (financial hardship) but that prevents it. 2) It could not reasonably expect the impediment. 3) It could not reasonably expect to overcome the impediment or its consequences.

question

The Letter of Credit is an undertaking between which parties?

answer

Between the buyer of goods and its bank, stating that the bank will pay the seller against the presentation of certain documents.

question

Why use a Letter of Credit?

answer

1) Gives more assurance to a seller dealing with a buyer it knows nothing about. 2) Buyer can include requirements that it wants int he letter of credit so that the bank only pays against satisfaction of those requirements by seller. Usually BOL and other certificates guaranteeing standard of good.

question

In a letter of credit who is the applicant and who is the beneficiary?

answer

The buyer is the applicant and the seller is the beneficiary. The issuing bank is the applicant's bank.

question

The issuing bank must pay against what?

answer

Against the documents. If not, it is liable for wrongful dishonor. If it pays against nonconforming docs, it cannot be reimbursed.

question

Advising bank (letter of credit)

answer

Issuing bank can get bank in beneficiary's area to check authenticity of credit. Advising bank doesn't have to pay.

question

Transfer and Assignment of credit

answer

Transfer gives obligation to perform, right to be paid and right to enforce payment but assignment doesn't give right to enforce payment. example: buyer has issuing bank open transferrable letter of credit in favor of seller. Seller can then transfer credit to a subcontractor. Subcontractor can submit document to issuing bank and get paid.

question

Back to Back Credits

answer

When seller doesn't want to disclose third party. Seller's bank issues back to back credit naming third party as beneficiary. Third party presents draft and gets paid from seller's bank. Seller's bank submits draft to issuing bank and gets paid.

question

Revolving credits

answer

Applicant allows certain amount of withdrawal by beneficiary in given period. Cumulative: amount not withdrawn in previous time can be added to amount allowed next time.

question

Confirmed Letter of Credit

answer

Seller's bank is obligated to pay, even if buyer breaches. Under a confirmed LOC, the seller poses virtually no credit risk.

question

Revocable Letter of credit

answer

Opening bank can modify or cancel credit.

question

Independence principle of LOC

answer

"LOC is independent from the underlying sales contract." Holds that breach or nonperformance of the sales contract alone is no defense to payment under the letter of credit. The documents that must be submitted for payment under the LOC are linked to the performance of the sales contract because they are evidence that conforming goods have been shipped out but the documents themselves (not the performance of the contract that they evidence) trigger the duty to pay under the credit. Buyer's remedy is to sue the seller for breach of the underlying sales contract, not to withhold payment under the LOC.

question

Strict compliance principle of LOC

answer

"Requires that document submitted for payment must conform to the terms of the credit."

question

Primary purpose of LOC is?

answer

To assure the seller of merchandise of prompt payment against documents. The general rule is that an obligation to present documents is complied with if any of the documents attached to the draft content the required description.

question

In a LOC, unless the name of the intended beneficiary is unmistakably clear despite an obvious typographical error, any difference in the name constitutes noncompliance (and therefore results in the bank having the option to withdrawal payment)

answer

This from BNI bank case where the buyer misspelled the name in the LOC as Sung Jin when the seller's name was actually Sung Jung. Seller didn't correct it. Bank didn't pay because the name didn't conform and the judge ruled in favor of the bank because this was not an "obvious typographical error" but a material difference in Korea.

question

(LOC) where fraud occurs, a confirming bank that has already paid is entitle to payment if?

answer

If it is a holder in due courts (i.e. It had no notice of fraud)

question

Non-establishment forms of doing business

answer

Seller hires an agent, distributor, or contract manufacturer (i.e. a 3rd party authorized by the US seller to manufacture the seller's products for sale abroad) in a foreign market. These non-establishment forms allow the US company to achieve greater control but still less control than if the US company actually acquired partial or total ownership of business entity in the foreign market that will manufacture the seller's product.

question

Permanent presence abroad

answer

Subsidiaries, branches, joint ventures, acquisition, investment. Greatest risks are expropriation and host country regulation.

question

Contract manufacturing

answer

A form of licensing under which the seller authorizes a third party to use its intellectual property in order to manufacture its products.

question

Trade in services licensing

answer

Franchising is another form of licensing under which the owner will allow a third party to use its intellectual property to provide services or a combination of services and products.

question

In choosing a local entity to distribute its products, the seller generally has two options:

answer

The seller can engage (1) an independent foreign agent; or (2) an independent foreign distributor.

question

Independent foreign agent

answer

An entity in a foreign country that solicits orders for the goods but does not take title to the goods. As the agent does not take title to the goods, the agent does not bear the risk that the local buyer will not pay. This risk remains with the seller. The agent will obtain sales orders on behalf of the seller in the foreign country and forward those orders to the seller. The seller completes the transaction by selling directly to the buyer so there is no need to store the goods in the foreign country. The buyer usually pays the seller directly and some portion of the sales price will be given the agent as a commission in addition to a regular salary. The foreign agent usually does not have the power to bind the seller, but as principal agent relationship exists between the seller and the agent, whether the agent can bind the principal may depend on the law of the foreign jurisdiction.

question

Independent foreign distributor

answer

Unlike an agent, buys the goods from the seller for resale in the foreign country. As the foreign distributor takes title to the goods, the distributor assumes the risk of being unable to resell the goods. The distributor must usually arrange for a place of storage for the goods. Since the seller has already sold the goods to the distributor, buyers of the product are buying directly from the distributor. A distributor usually has no power to bind the seller. A foreign distributor must usually make a greater financial commitment than a foreign agent. While an agent may be a small company or even an individual, a distributor is usually a larger company with more resources.

question

Control difference between agent and distributor

answer

Role of the agent is to find a buyer and not to set the terms of the sale, the agency relationship allows the seller-principal to control the price of the goods and the parties to whom the products are sold. By contrast, an independent distributor takes title to the goods for resale and so the seller may lose control over the sales price and the customers to whom the products are sold. (seller may try to limit this but it would be undermining inherent features of the distributor relationship and even local laws may restrict the ability of the seller to limit the freedom of the distributor). ALSO, the ability to appoint subagents or sub distributors is a major difference. An agent normally does not have the power to appoint a subagent but a distributor, as principal in his/her own right, can enter into its own arrangements with third parties for distribution unless the contract provides otherwise.

question

Downsides to having great control (by seller)

answer

1) Generally, the greater the degree of control, the more likely the seller will be subject to liability laws under the laws of the foreign nation. 2) An additional consideration is that where the agent/distributor is an employee, the sale of the product by the employee might subject the seller to the income tax laws of the foreign nation. 3) Another consideration is the seller's liability for the action of the sales representative. Defending a lawsuit in a foreign nation is a substantial burden that most sellers wish to avoid. 4) A final issue concerning control relates to the conduct of the agent/distributor that may implicate the seller in illegal activity. Foreign agents and distributors have been known to make bribes to government officials in order to obtain business, engage in tax evasion and use company funds for personal purposes.

question

Exclusive agreements involving a distributor, as opposed to an agent, can create what kind legal issue?

answer

Antitrust or competition law issues. The distributorship involves an agreement between two independent business entities; if the agreement provides for exclusive territorial rights, the agreement may be considered to be an undertaking to divide markets that run afoul of local antitrust laws.

question

Before doing business in a foreign nation, a seller must do what?

answer

Ensure that all intellectual property protections (trademarks, patents and copyrights) are in place.

question

An agreement between seller and agent/distributor should establish what, with regards to intellectual property?

answer

1) Seller is the sole and exclusive owner of the IP rights in the product and the A/D only has the right to obtain sales order or to sell the products under the authority of the seller. 2) Agreement should provide that A/D will not make any claims to the IP in the products and must not copy, alter, develop, or use any of the IP rights in the product for its own purposes. 3) The A/D should also agree to notify the seller of any violations of its IP rights in the territory and to assist the seller in enforcing its rights. 4) The seller will also likely disclose other confidential business information that may not qualify as IP under applicable law so the seller should have confidentiality agreements in place for this kind of information. 5) Agreement should also provide that the A/D will share confidential information with its own employees on a need to know basis.

question

Technology Transfer

answer

Refers to the process by which an owner of technology gives access to its technology to another. Access can consist of complete ownership through a sale or assignment of the technology or the transfer of a more limited right such as a right to use the technology through a licensing agreement.

question

Smaller firms may wish to enter into a technology licensing agreement. What is this and why would they do it?

answer

It's a distribution technique and the license is a vertical one between the firm holding the technology and the other firm who wishes to use the technology and market the resulting products. They would do this so they could enter a foreign market quickly with no investment and with an immediate financial return.

question

What is a horizontal license and why would firms enter into this agreement?

answer

Made by a firm with certain technology in order to induce another firm with complementary or related technology to enter into a cross-licensing arrangement so that both firms gain access to the other's technology. Horizontal licensing is even used between competitors so that a range of technologies can be applied to develop new products on the cutting edge of the market. NOTE: Horizontal licensing in this case is an alternative to a joint venture; cross-licensing may be easier and cheaper than entering into and operating an international joint venture.

question

What is a patent under US law?

answer

It is a monopoly granted to the owner of an invention or process that is novel, useful and non-obvious. The monopoly is granted for 20 years and allows the owner to exclude others from making, using or selling the invention without the patentee's permission.

question

What are the two basic systems for granting patents and what are the differences between them?

answer

The examination system (followed by USA) and the registration system (followed by most other countries). The difference between the two is that the examination system requires a determination of the validity of the patent prior to granting it whereas the registration system does not. Under the examination system, the patent-granting authority will examine the prior art and statutory criteria to determine whether the patent application qualifies for patent protection. Under the registration system, a patent is issued went he application, with accompanying documents and fees is registered. The issuance of the patent occurs without a determination of its validity. The validity of the patent is determined when and if there is a challenge to the patent. The merits of the registration system are its low costs and speed of the issuance process.

question

Two principles of Patent law established by the Paris Convention

answer

National Treatment- holds the a nation cannot discriminate against foreigners in connections with patents or trademarks but must provide them with treatment equal to that received by domestic owners Right of Priority- an applicant who files a patent application in a Paris country will receive priority for any additional patent applications it wishes to file for the same invention in other Paris countries for a 12-month period.

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What is a trademark?

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Any word, name, symbol, device, or combination thereof, that is capable of distinguishing goods from those of another. Novelty is the hallmark of patents but distinctiveness is the hallmark of a trademark.

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How doe the US establish trademark rights?

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The US uses a first-to-use rule in establishing trademarks whereas some other countries use a first to register approach.

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The basic right of copyright ownership is...

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the right to prevent unauthorized copying without permission. Copyright exists in the work so long as it is original and fixed in a tangible medium of expression.

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Aside form TRIPS, the most important international treaty concerning copyright is...

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The Berne Convention.

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Basic features of the Berne Convention are?

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National treatment and the requirement of the minimum substantive standards of protection.

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Bernke Convention differs from US copyright law in what distinct what?

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US views copyright law as consisting of economic rights, the right to profit from the copyrighted work. Bernke adds moral rights, including the right to be known as the author, to prevent others from distorting it or form using it in a derogatory way. These rights are non-assignable.

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Know How

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Knowledge that has commercial value. Know How may be entitled to protection as a patent, trade secret, or other form of intellectual property. Can also be protected through contract.

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Trade Secrets

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All forms and all types of financial, business, scientific, technical, economic, or engineering information, whether tangible or intangible if the information derives independent economic value, from not being generally known to, and not being readily ascertainable through proper means by the public.

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What is FDI?

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An investment that is made to acquire a lasting interest in an enterprise operating in an economy other than that of an investor, the investor's purpose being to have an effective choice in the management of the enterprise.

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One of the biggest concerns of a foreign investor is?

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That a host country might unexpectedly seize or expropriate the foreign investors business assets in the country of investment.

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Hull Formula

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Traditional US view that no government is allowed to expropriate private property, for whatever purpose, without payment of prompt, effective and adequate compensation.

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Current Law Regarding expropriation

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Under Int'l law, a State is responsible for injury resulting from: (1) a taking by the state of the property of a national of another state that (a) is not for a public purpose, or (b) is discriminatory, or (c) is not accompanied by a provision for just compensation.

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Multilateral Investment Guarantee Agency

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Designed to enhance the flow of capital to developing countries by providing insurance against the risks associated with investing in such countries. Investors can purchase insurance against the inconvertibility of local currency, expropriation, breach of contract, war and civil disturbance, even terrorist acts and political sabotage.

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Creeping Expropriation

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Term used for unreasonable interference with an investment that is not a physical taking.

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Three common methods of business valuation

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1) The present value can be measured by estimating future earnings based on the past and present earnings. 2) The replacement value of the assets of the business can be determined. 3) The book value (i.e. original cost) of the assets can be used.

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NAFTA (US, Canada, Mexico) Nat'l Treatment

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Each NAFTA party will treat investors and investments from other NAFTA parties no less favorably than it treats its own investors and investments, in like circumstances, with respect to such matters as the establishment, acquisition, operation and sale of investments.

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NAFTA Most-Favored Nation Treatment

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A NAFTA party may not treat an investor or investment from a Non-NAFTA country more favorably than an investor or investment from a NAFTA country with respect to such matters as the establishment, acquisition, operation and sale of investments

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NAFTA Minimum Standard of Treatment

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Assures a minmum absoltue standard of treatment of investments of NAFTA investors based on long-standing principles of customary international law.

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Performance Requirement NAFTA

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Prohibits a NAFTA party from imposing or enforcing certain performance requirements, such as export requirements and domestic content rules, in connection with the establishment, acquisition, expansion, etc. of investments. It also prohibits using the specified performance requirements as conditions attached to advantages such as subsidies, including tax incentives.

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Expropriation under NAFTA

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A NAFTA party cannot directly or indirectly nationalize or expropriate an investment of an investor or another NAFTA party except: 1) for a public purpose, 2) on a non-discriminatory basis, 3) in accordance with due process of law, 4) on payment of compensation equivalent to fair market value.

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Foreign Corrupt Practices Act (FCPA) two sets of obligations

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Antibribery provision proscribes the making of improper payments to foreign government officials and certain other persons. The books and record provision requires that issues (as determined by the SEA of 1934) keep accurate records and do no disguise improper payments as something innocuous. There is no private cause of action under the FCPA.

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Can an issuer, domestic concern or any covered person under the FCPA, circumvent it by using an intermediary to make a payment?

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No.

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FCPA has a scienter or mens rea requirement that the covered person made the payment with an evil motive, intent or purpose, in order to:

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1) wrongfully influence the recipient to abuse his or her official position or to influence someone else to do so 2) for the purpose of wrongfully directing business to the payor or to wrongfully obtain favorable legislation or regulations.

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FCPA "grease payment" exception

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Exception allowed for when the payment is a facilitating payment to secure the performance of a ROUTINE government action.

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FCPA does not apply to payments made to private persons but covers only payments made to?

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Foreign officials, political parties, party officials or candidates for political office. An officer or employee of a foreign government or any instrumentality thereof acting in an official capacity will qualify as a foreign official. IN a transition economy such as China, where it is difficult to distinguish between private and public sectors, the issue of persons to home payments are prohibited, can be difficult to determine.

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How to violate the FCPA

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Payment MUST BE MADE in order to assist the PAYOR in obtaining, retaining, or directing business to any person. This is the so called Business-Purpose test. Note that under the FCPA, the recipient the payment must be a foreign government official, party official, or candidate for political office but the business gained does not have to be with the foreign government.

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Is commercial bribery prohibited by the FCPA?

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No, commercial bribery (e.g. kickbacks to foreign private entities) is not covered by the FCPA but it may still be illegal under the domestic laws of some foreign countries.

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FCPA exception

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"facilitating or expediting payment...to expedite or secure the performance of a routine governmental action."

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Affirmative defenses to FCPA

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1) Payment was lawful under the written laws of the foreign official's country (unlikely to ever happen) 2) Payment was "a reasonable, bona fide expenditure, such as travel and lodging expenses, incurred...and directly related to promotion, demonstration or explanation of products or services or execution or performance of a contract"

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Knowledge is required for vicarious liability under the FCPA but what if employee makes a bribe and the company doesn't know?

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Employee can still be prosecuted individually.

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Who can bring actions for FCPA violations?

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Only the SEC and the DOJ. No private cause of action under FCPA.

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Bribing private officials is ok, it's only a problem if done corruptly. What does that mean?

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"The offer, promise to pay, payment or authorization of the payment must be intended to induce the recipient to misuse his official position or to influence someone else to do so." "An act is 'corrupt' if done voluntarily and intentionally, and with a bad purpose of accomplishing either an unlawful end or result, or a lawful end or resent by some unlawful method or means."

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FCPA prohibits improper advantage, which means?

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A company getting something it's not entitled to. This includes reducing its taxes because then he company is getting rid of one of its legal obligations.

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In an international dispute involving foreign defendants, the most important issue is usually what?

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Whether the court can assert territorial jurisdiction over the defendant. Whether a US court can assert jurisdiction over a foreign defendant usually depends on whether the defendant has minimum contacts with the United States.

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New York Convention

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Allows for an arbitration decision entered in any member state, to be enforced in any other member state

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Exceptions to NY Convention

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Incapacity of parties or invalidity of agreement to arbitrate Decisions on matters beyond scope of arbitration agreement Award isn't yet binding or has been suspended in country whose laws govern Subject matter can't be settled by arbitration in country where recognition is sought. Recognition/enforcement would be contrary to public policy of country where recognition is sought.

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Advantages of Arbitration

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More conclusive than other forms of non-judicial dispute settlement because the decisions of the arbitral panels are binding upon the parties. The disputing parties retain greater control in the arbitration process than they retain in the judicial process because they appoint the arbitrators. Therefore, the parties can select people with specialized knowledge of the matters at issue. Less formal and therefore less contentious.

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Disadvantages of arbitration

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Arbitration panels do not have the authority to conduct discovery or subpoena witnesses. The parties themselves pay for the entire cost of the arbitration, which includes compensation for the arbitrators as well as administrative costs.

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NY Convention defenses to enforcement

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1) The parties to the agreement were under some incapacity. 2) The agreement is invalid under the applicable law of the arbitration or under the law of the country where the award is to be made. 3) The defendant was not given proper notice or was otherwise unable to present its case. 4) The award exceeds the powers of the tribunal. 5) The composition of the arbitral tribunal was not in accordance with the agreement of the parties or of the law in the country in which the arbitration took place. 6) The award is not binding because it has been set aside or suspended by a competent authority in the country in which the award was to be made. 7) The subject of the arbitration is not capable of settlement by arbitration according to the laws of the country where the award is to be recognized and enforced. 8) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration.

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Party attacking an arbitral award must defeat a presumption that the arbitral body acted within its power and must prove what?

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That recognition and enforcement of the award are contrary to the public policy of that country. Defense should be limited to awards contrary to principles of law and awards violative of fundamental principals of law.

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Federal Arbitration Act (FAA) allows vacated of an arbitral award when?

answer

1) Where the award was procured by corruption, fraud or undue means. 2) Where there was evident partiality or corruption in the arbitrators 3) Where the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause, or any other misbehavior by which the rights of the parties may have been prejudiced. 4) Where the arbitrators exceeded their powers 5) If it exhibits a "manifest disregard of the law"

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Standard for Manifest Disregard of the Law

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It is present where the arbitrator knew of the relevant legal principle, appreciated that this principle controlled the outcome of the disputed issue, and nonetheless willfully disregarded the governing law by refusing to apply it.

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Three Components to Manifest Disregard standard

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1) Court considered whether the law that was ignored was clear and made explicitly applicable to the matter before the arbitrators. (Misapplication of an ambiguous law does NOT constitute manifest disregard). 2) If the law is clearly and plainly applicable, then we must find that the law was improperly applied, leading to an erroneous outcome. (If proper application would have lead to the same outcome, then no vacatur) 3) This is the subjective element, the knowledge actually possessed by the arbitrators.

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Forum Selection clauses are generally accepted and enforced UNLESS

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The challenger could clearly show that enforcement would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or overreaching. Moreover, a contractual choice of forum clause should be held unenforceable if enforcement would contravene a strong public policy of the forum in which suit is brought, whether declared by statute or by judicial decision.

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How to determine between a mandatory forum selection clause and a permissive one

answer

Look at whether the clause only mentions jurisdiction or specifically refers to a venue. A reference to specific venue indicates mandatory language.

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Reasons to deny a forum selection clause

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1) formation was induced by fraud or overreaching 2) the complaining party will, for all practical purposes, be deprived of his day in court because of the grave inconvenience or unfairness of the selected forum. 3) The fundamental unfairness of the chosen law may deprive the plaintiff of a remedy 4) Enforcement would contravene a strong public policy of the forum state.

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3 Choice of Law approaches in the absence of an agreement by the parties

answer

1) Lex Loci 2) Most significant Relationship test 3) Governmental interest analysis

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Lex Loci

answer

Traditional approach. The applicable law is where the contract was made.

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Most significant relationship test

answer

Seeks to balance the different interests and expectations of the parties involved in the dispute. 7 factors in this include: 1) Needs of the interstate and international systems 2) Relevant policies of the forum 3) Expectations of the parties 4) Policies of interest states 5) The basic policies underlying the particular field of law. 6) The certainty, predictability and uniformity of the result 7) Ease of applying the law.

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Governmental Interest Analysis

answer

Requires court to make a preliminary analysis of the interests of the involved state and a determination of whether the conflict is a true conflict, an apparent conflict, or a false conflict. If there is a true conflict, the court will apply the law of the forum with the greatest interest in the dispute.

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