CH-1-4 Introduction to International Business – International Business Law and Its Environment : Book Guide

This Document Contains Chapters 1 to 4 Chapter 1 Introduction to International Business CASES IN THIS CHAPTER Tarbert Trading Ltd. V. Cometals, Inc. Russian Entertainment Wholesale, Inc. v. Close-Up International, Inc. Dayan v. McDonald’s Corp. In re Union Carbide Corporation Gas Plant Disaster at Bhopal Transatlantic Financing Corp. v. United States Gaskin v. Stumm Handel GMBH Bernina Distributors v. Bernina Sewing Machine Co. DIP SpA v. Commune di Bassano del Grappa TEACHING SUMMARY The three basic forms of international business—trade, licensing of technology and intellectual property and foreign direct investment—are methods of entering foreign markets, but they are not mutually exclusive. They are not mutually exclusive and are often combined. The savvy manager of an international business will seek to create joint ventures and business opportunities to invest, or manufacture, trade via export and imports for goods and services and license its products where appropriate and protectable. However, international business opportunities are fraught with risk, selecting the appropriate methods of entering a foreign market or country must be consider the culture, politics, and economics of the host country. Through the study of international law, one can better identify and manage potential legal risks. CASE QUESTIONS AND ANSWERS Tarbert Trading Ltd. V. Cometals, Inc. 1. Import/export transactions usually require much more documentation than domestic transactions. These include detailed invoices, packing lists, shipping and insurance documents, and specialized certificates. Here, a “certificate of origin” was required by the government of Columbia before the goods could be imported. Does it refer to the country from which the goods were shipped or where they were grown or made? Why do you think Columbia required a “CO”? What is its purpose? Answer: The CO refers to the country where the goods were grown or made, not from where it was shipped. It identifies for the buyer where the goods come from so if goods from country A have a better reputation than those from country B, the buyer will know which goods it is receiving. 2. Suppose that the beans had arrived in Columbia and were then stopped by Columbian customs authorities because of a fraudulent certificate. What do you think might have happened to the beans? What would the risk have been to Cometals and Tarbert? What if the Columbian buyer had already paid for the beans? Answer: They would have been impounded; not allowed to enter the country. Cometals and Tarbert likely would face fines and perhaps criminal punishment. If the buyer had already paid for the beans, the buyer could sue in Columbian court to recover damages as the buyer did not get what he bargained and paid for. 3. Evaluate and discuss the conduct of Cometals and Tarbert. Fraudulent documentation is not uncommon in international trade, especially when parties do not have a history of business together. What are the lessons to be learned by all parties? Answer: Their conduct was illegal and unethical. You need to know the party you are dealing with. If that is difficult or impossible, the risk is greater and may lead to not doing business with them. Agreements protecting yourself are very important in international business. Russian Entertainment Wholesale, Inc. v. Close-Up International, Inc. 1. What are the “limited exclusive” rights granted to the licensees in this case? Answer: Each has the right to copy and distribute DVDs of the film. Krupny could distribute the films in the Russian language and Ruscico could distribute dubbed or subtitled films in various other languages. 2. What is the difference between the rights granted to the plaintiff and those granted to the defendants? Answer: The language to be used in the films they distribute. Krupny can use only the Russian language and Ruscico can use any non-Russian language. 3. Do you agree or disagree with the court’s interpretation of the license agreements? Answer: The court interprets what the licenses provide; it cannot add other language to the agreement. 4. What does this case tell you about negotiating and drafting a licensing agreement? Answer: You must think how the language used in the licensing agreement will apply in practice. Be sure you have covered every possible scenario—especially true where the medium nay change—theatre films, streaming videos, use on tablets, phones, computers, etc. Dayan v. McDonald's Corp. 1. What social or cultural factors affected McDonald's marketing in Paris? Answer: Parisian customs will inevitably affect the franchise agreement, which required the Paris franchisee meet the quality, service and cleanliness standards set by McDonald's USA. A successful franchise requires the franchisee to have the ability or desire to meet those U.S. standards. This case also illustrates the problems of franchising (licensing) over long distances and beyond the day-to-day control of the franchisor. The problems here could have arisen as easily in the case of a manufacturing business and the licensing of technology. 2. How could McDonald's have exercised greater control over its franchisee? Answer: Better training in the U.S., more frequent inspection visits, and closer supervision of the Parisian franchises. 3. What types of products and/or services are most suitable for foreign licensing? Answer: Licensing generally is done as an alternative to foreign investment in plant and equipment where the licensor is unwilling to take the risks of further market penetration. Collecting royalties can be far safer than risking production overseas. Collecting royalties based on sales can be far safer than risking production overseas. U.S. franchisors are getting a firm jump on the European market and have been particularly successful worldwide in franchising fast food restaurants as well as a host of service-related industries. An ability to adapt to local markets has proven to be a crucial factor in the success or failure of U.S. franchisors abroad. As the “Johannes burgers and Fries” article demonstrates, breaking into a foreign market requires franchisors to examine carefully the might of homegrown brands and local tastes. Gas Plant Disaster In re Union Carbide Corporation at Bhopal 1. India gained independence from Great Britain in 1947. Like many developing countries with agrarian economies, independent India embarked on a long period of socialist and protectionist policies. What types of controls do you think developing countries placed on foreign investors? How do you think this defined the relationship between UCC and the Indian government prior to 1984? Answer: This question calls for further student research and opinions. Students may be directed to review restrictions upon foreign investment presently existing in the developing world and contrast it to restrictions existing in 1984. 2. Why do you think UCC might have chosen to produce agricultural pesticides in India rather than export those products to India from plants in developed countries? Answer: This question calls for student opinion, but obvious answers are reduced labor costs in India and relaxed safety requirements, which will reduce the overall cost of production. 3. Why did India require local management and control? Do you think this is still a problem for multinational companies today? What are the advantages and disadvantages of local management, and what problem does it present to the multinational? Answer: This question calls for further student research and opinion. However, it should be noted that local management and control provides employment opportunities for nationals and allows host states to claim some regulatory control over the enterprise. Multinational companies may derive good will benefits from employing locals as well as specialized knowledge of the host state and its market. However, multinational companies may suffer a loss of control of the investment and risk liability when harmful events occur. 4. Had the legal requirements in India concerning the handling of hazardous chemicals been less than that required in the United States, should Union Carbide have ethically followed the higher U.S. standard? Answer: This question might permit students to consider the loyalties and attitudes of Western managers operating in foreign countries. 5. Do you think that a parent corporation , like UCC in this case, should be financially liable for torts committed by its foreign subsidiary? Should the parent be protected by the limited liability of its corporate veil, or should a multinational firm with a “global purpose” be responsible under some theory of “single-enterprise” liability? How would this affect the attitude toward investment world-wide? Answer: This question calls for student opinion. Students may be encouraged to discuss whether multinational corporations have a responsibility above and beyond compliance with the moral minimum as commanded by the law. Transatlantic Financing Corporation v. United States 1. Did the parties agree on what would happen if the Suez Canal had closed? In other words, did they allocate the risk of closure? Would that have changed the result? Answer: No, they did not. It would change the answer for Transatlantic as it could have recovered the extra cost if the contract specified via the Suez canal. 2. What is Transatlantic’s argument? If admiralty law implies that a ship’s journey will be by the “usual and customary” route, why did the court not hold that the contract had become impossible to perform? How does the court define “impossible?” Answer: It argues it expected to use the Suez Canal and as it could not do so, the extra cost should be paid by the U.S. as shipper. The court found it was not impossible to perform the contract as the alternate route was feasible to use and the extra cost was not extreme. 3. Did Transatlantic’s performance become impracticable? How difficult was it for Transatlantic to take the alternate route around Africa? Answer: No. It was a common alternate route and taking it was not impracticable. 4. Suppose it had been bad weather instead of a blocked canal? Would the case outcome have been different? How about a tsunami? What if a government order had prohibited the ship from departing Texas? Answer: Bad weather would not make it any different, although a tsunami probably would because it would be unanticipated and not something that a vessel owner should plan for. A government order blocking the canal would provide a different result; the vessel could collect the extra cost. Gaskin v. Stumm Handel, GMBH 1. Why did Gaskin claim that he was not bound by the forum selection clause included in the contract to which he agreed? Answer: Gaskin asserted that since he did not understand what a forum selection clause was, due to it being in German, he could not have agreed to it. 2. Is a party to contract negotiations obligated to provide translation services to other parties? Answer: Neither party is obligated, but translation services are available worldwide. The local offices of the U.S. Department of Commerce can assist a U.S. firm in arranging translation services abroad. One should clarify this in advance with the host. 3. If the parties to a contract execute two copies of a contract, one in each language, which is the operable and effective document? Answer: Both represent the understanding of the parties, but this may depend in part on the court hearing the dispute. This practice is relatively common and is a requirement for doing business in many countries, notably the former Soviet Union and the People's Republic of China. Bernina Distributors v. Bernina Sewing Machine Co. 1. What were the importer’s two arguments in this case? How did the court address each? Answer: Importer argued that as the contract permitted it to increase price to distributor if the “costs” to the importer had increased, the increased “cost” of paying in Swiss francs was a cost it could pass along. However, the court said the contract “costs” referred to cost of insurance, freight, handling and similar charges, but not the possible fluctuation in currency values. Importer also argued that increased cost made it “commercially impracticable” to fulfill contract and thus it was legally excused from performing. The court said contract was clear that importer was aware of and assumed the risk of currency exchange risk and that UCC provision re commercial impracticability did not include risks assumed by a party to the contract. 2. What is the effect of the fact that just prior to executing the contract, the dollar had fallen by 7 percent against the Swiss franc? Answer: The importer as buyer pays in the seller’s currency and now it has to pay more dollars to buy the needed amount of swiss francs. 3. In any international business transaction, which party assumes the exchange rate risk? Answer: The risk is assumed by the party whose currency is NOT being used; it is usually the buyer. The seller wants payment in its own currency, so the contract usually places the exchange risk on the buyer. A buyer with a strong negotiating position may be able to have the contract let it use its own currency, but this is not the norm. DIP SpA v. Commune di Bassano del Grappa 1. What was the ostensible purpose of the Italian law? Answer: The espoused purpose of the law was to protect consumers, achieve a balance between supply and demand, ensure free competition, and obtain a balance between different forms of distribution. 2. Do you think the law creates a climate ripe for corruption? Answer: This question calls for student opinion. 3. Why was the law not found to be discriminatory? Answer: Because in awarding licenses, it did not distinguish between Italian and non-Italian businesses (or the origin of the goods sold) but, rather, considered the type of business in relation to its market contribution. 4. Assume that a municipality in a foreign country passes a law limiting the size of retail stores in the city. How might this affect U.S. firms wanting to open stores there? Answer: This question calls for further student research and opinions. Students may wish to consult the example of Wal-Mart in Germany, which sold its operations at a considerable loss due, in part, to the inability to build superstores in the country. A law limiting the size of retail stores could significantly impact U.S. firms looking to expand in that municipality. Larger retailers may find it economically unviable to enter the market, reducing competition and potentially leading to higher prices for consumers. Smaller U.S. firms might adapt more easily, but they could face challenges in achieving economies of scale. The law could also influence site selection, forcing firms to consider different locations or business models. Additionally, this restriction might deter investment from U.S. companies seeking to enter a market with regulatory barriers. ANSWERS TO QUESTIONS AND CASE PROBLEMS 1 Answer: Both cases involve the question of what risky situations make a contract “commercially impracticable to perform”. Such impracticability is a legal excuse for non performance because the contract is considered “impossible” to perform. However, if a party knows of, or should know of, certain risks in performing a contract, but makes no provision for them in the contract, those risks are considered to be assumed by the party performing them. A risk assumed by a contracting party is not considered to be a risk that is impossible to perform. In Transatlantic, the risk is that waring parties could block the Suez Canal and the court found that was a known risk that was foreseeable and was assumed by the shipper planning to use that passage route. In Bernia, the risk was the currency risk that the value of the dollar would fall compared to the value of the Swiss franc costing the importer more dollars. That risk was also a foreseeable risk assumed by a contracting party, the importer, so it was not impossible for it to perform its contract with its U.S. distributor. 2. Answer: Distance and differences in time, language, currency, culture, religion and political and legal systems increase the risks of doing business internationally. Trade represents the least involvement, and thus the least political, economic, and legal risk. For example, exporting requires only a modest capital investment although firms must be careful to comply with applicable export controls. Importing may involve greater risks, including tariff and non-tariff barriers to trade. By contrast, licensing of intellectual property carries the risk of lack of recognition and adequate protection in the licensed foreign market and the possibility of counterfeiting. Foreign direct investment, such as ownership of a foreign firm or facility, has many advantages, including the avoidance of tariff and nontariff barriers, currency fluctuations, improved customer service and access to local natural resources, labor, and manufacturing economies of scale. However, foreign direct investment carries with it the obligations of corporate citizenship and complete involvement in all aspects of the foreign country. 3. Answer: Building trust can occur through meeting with people over meals, socializing with appropriate drinks and food. Sending notes to people, asking about their family and about their work (again, where appropriate) and keeping in touch. Perhaps sharing small gifts or stories about you and your family or your business. Most foreigners like to take their time in getting to know their business partners; they do not want to be rushed. Once you come to know a person you not only may be able to have greater trust, but also greater knowledge of how they might react if problems do arise. 4. Answer: Pro Golf was entitled to terminate its agency relationship with FFA, but it was not entitled to royalties on its trademarked goods because it had not perfected its right to use that trademark under Japanese law. When entering the Japanese market, Pro Golf should have a written agency and distributorship agreement. It did not do the needed research on Japanese customs and laws that should proceed any form of entry into a country like Japan. 5. Answer: First, the court will attempt to discern what the reasonable understanding of the parties was (that may include reference to prior dealings between parties or industry practice). If, where, as here, the meaning of the word differs, the court will then rely on the meaning of the word in the language of the contract. Of course, language problems are inevitable in international negotiations. In the case of sales contracts, as we shall see in later chapters, the use of samples helps greatly. For this reason, reliance on samples in doing business over great distances is very common. Certificates of analysis and the use of local inspection companies are also widely used. It is essential that the parties take the time to familiarize themselves with each other's products. Visits to a supplier's plant or buyer's place of business can be an invaluable learning experience and can serve to significantly reduce the potential for communication problems and misunderstanding. 6. Answer: Planning and commitment are essential because (1) poor planning fails to anticipate the various risks that pertain to doing business overseas, and (2) lack of commitment can undermine a sound, long-term strategic decision to penetrate overseas markets where early losses are sustained. The search for a magic “elixir” can make the grass seem greener overseas. A company that fails in its home market must carefully analyze the reasons for that failure and make a clear-eyed assessment of whether overseas markets offer better opportunities for licensing, exporting, or direct investment. It is entirely possible that foreign markets may offer enhanced opportunities (less competition, lower labor costs, better access to markets, materials or sources), but if a company is failing in its home market, it may not have the planning and commitment to insure a sound, long-term strategy for going global. 7. Answer: This answer will depend on your location. Leading export firms can be found through various publications, state departments of commerce, or world trade clubs in your area. The impact of exports will vary, but the number of jobs created or maintained by exports is certainly a positive indicator for any state’s economy. Various groups (including the AFL-CIO) could provide information as to whether jobs have so far been gained or lost through the ratification of NAFTA and the Uruguay Round of GATT. State departments of commerce often sponsor trade missions and other export-encouraging seminars, workshops, and programs to educate state businesses about the opportunities existing beyond U.S. borders. 8. Answer: This question calls for general discussion among students. It might help to analyze which franchise operations have sold well in foreign countries generally and developing countries in particular. Which brands and products are so well known that they have customer acceptance in different cultures? What has the role of advertising been in establishing that success? Are there any problems with protecting franchise logos (as trademarks) in any foreign countries? 9. Answer: The U.S. Commercial Service is the trade promotion unit of the International Trade Administration within the U.S. Department of Commerce. The U.S. Commercial Services employs trade specialists in 107 U.S. cities and 80 foreign states to assist U.S. companies with exporting and sales efforts. Its services include, market research, sponsored trade events, introduction to qualified buyers and distributors, development of trade leads and counseling and advocacy through the export process. Trade statistics are available through the U.S. Government’s export portal, Export.gov. Statistics include national trade data regarding U.S. merchandise exports, imports and trade balances and state and regional export data as well as country commercial guides, overviews for 13 separate industries, market updates, multilateral development bank reports and a Market Assessment Checklist. MANAGERIAL IMPLICATIONS Derived from an actual business situation, this case has several objectives: To illustrate the interrelationship of our three forms of international business – trade, IP licensing, and FDI, to show that they are not mutually exclusive market entry methods, to examine the advantages and disadvantages of each method to this firm, and perhaps most importantly, to give students their first opportunity in this book to participate in strategic global planning for their firm. The latter may be best accomplished if the class is broken into small groups, each given the role of exploring a different strategy, and then returning to make their presentations and arguments. Because of the breadth nature of this chapter, the instructor and students should think beyond the purely legal issues. Key facts: Quiet-Maid has valuable, patented technology (we do not know how or where patents were obtained). It is currently manufacturing in the United States, and is successful in the U.S. market. Products are large and heavy. We do not know the size or sophistication of the firm, but students can make assumptions. Part 1. Exporting. 1. Advantages of exporting. Answer: Briefly, some of the advantages might include lower initial start-up costs, ability to control manufacturing quality at home, minimal country risk and exposure to foreign laws. 2. Foreseeable problems/barriers with exporting. Answer: Tariffs, non-tariff barriers (such as compliance with foreign technical regulations and product standards - including environmental and conservation standards), land and water transportation expense (products are both large and heavy and expensive to ship and insure), cargo risk (including rusting from salt water condensation, and from multimodal shipment), supply of service and repairs, maintaining/warehousing finished goods inventory and a supply of spare parts or accessories, currency risk, credit risk to foreign wholesale customers, difficulty of breaking into the market and entering channels of distribution (particularly through foreign retail chains). If firm is capable of doing more, exporting may show a lack of commitment by top management. 3. Factors influencing success in Europe. Answer: Can the product be designed to appeal to European customers and meet European standards? Can they be packaged appropriately for shipment? Most importantly, will Quiet-Maid be able to locate a European distributor to handle warehousing, sales, parts and repairs, returns, and to advise on marketing, advertising, and compliance issues? Is top management truly committed to doing business in outside their home market? Part 2. Manufacturing Joint Venture with Spanish Manufacturer. 1. Why a manufacturing joint venture? Answer: The CEO is probably thinking that Quiet-Maid is not yet ready to “go it alone” in Europe and that it’s safer to do it with a local partner. His plan is to leverage his intellectual property rights in exchange for minority interest share of profits with a Spanish manufacturer. This would provide a European partner who brings to the table what Quiet-Maid is lacking: local manufacturing, local know-how, an understanding of the European market and European customers, an understanding of the European tax and regulatory environment, and access to the Spanish company’s existing European channels of distribution. It brings Quiet-Maid “closer” to its customers and reduces the time from production line to customer. (Think about the risks of international business discussed in this chapter: time, distance, currency and credit risk, etc.) Allows greater foreign market penetration than is capable even with a foreign distributor alone. However this option means that Quiet-Maid is giving up control of manufacturing and other operations, and although Quiet-Maid will no doubt have a say on the board of directors, the CEO will likely be from the Spanish partner. Students should be thinking about what it means to be a minority owner in a distant investment with foreign partners that they may not know very well. 2. Why not start a new subsidiary, presumably one that is “wholly owned?” Answer: Some of this has already been covered. As compared to the alternatives, this would assume that Quiet-Maid has the human and capital requirements necessary to make such a large foreign investment. Does it have people capable of leading its entrance into Europe, including overseeing site selection, construction, personnel, and market entry? Does it have the financial resources to see it through and does it have the necessary banking arrangements for a European investment? Is the firm sophisticated enough to become a “citizen” of Europe and of the country in which it would build its plant? Is it capable of translating its success with consumers in the United States to consumers in Europe, and can it put into place a strategy for success on a new continent? For example, for many years American furniture did not sell well in foreign markets, notably Japan and Europe, because the large, bulky furniture sold in the U.S. did not appeal to foreign consumers with smaller homes and apartments. Smaller, more efficient, front-loading washers became commonplace in Europe many years before becoming accepted in the U.S. Can Quiet-Maid adapt to foreign demand, as well as to foreign environmental standards on washers and dryers? Does it have adequate legal and accounting advice to become a European “citizen?” Finally, does it have the time required to put this plan into operation, or are there some reasons to hasten Quiet-Maid’s attack on the European market? It seems that the CEO does not think Quiet-Maid is ready to take this step alone, and thus favors the joint venture. Part 3. Quiet-Maid reevaluates its joint venture strategy. 1. What Quiet-Maid discovered. Answer: Quiet-Maid discovered that the CEO’s chosen partner was “cooking the books” to cheat Spanish tax authorities. This illustrates the risk of making a foreign investment with a relatively unknown foreign partner. It puts the student into the position of being able to reevaluate the CEO’s plan and to make recommendations accordingly. 2. Risks of this investment with this firm. Answer: Quiet-Maid learned that its future partner might not be so trustworthy. After all, if the Spanish firm is willing to “cook the books” for Spanish tax authorities, how can Quiet-Maid ever trust it to run it’s company, and to show a profit, to which Quiet Maid would be entitled to share? Obviously the risks are too great to proceed with this firm as partner. 3. No joint venture, no wholly-owned subsidiary. Now what? Answer: Students should see this as an opportunity for Quiet-Maid to look for some safer alternative, in other words, to “back up and punt.” Quiet-Maid needs to find some way to enter the European market in a safe and cost-effective manner, and in a way that best leverages its available resources. Clearly its greatest resource is its patented technology on home appliances. Assuming that Quiet-Maid can adequately protect its patents and technology in Europe, it should consider a licensing agreement with a foreign manufacturer. It turns the manufacturing and marketing over to a local firm, overcoming the disadvantages of exporting from the United States, without the risk of making a costly direct investment itself. Of course, most students will still not want to do business with this Spanish company. But if Quiet-Maid does, it will find that policing a royalty based on a percentage of sales is easier than getting its share of profits which can be hidden in expense accounting. ETHICAL CONSIDERATIONS Although students will study ethical considerations in more detail in the next chapter, this may be an opportune time to introduce ethical frameworks to the class. Such frameworks may be generally divided into teleological and deontological frameworks. Teleological frameworks focus on the ramifications resulting from the actions and conduct of individuals. Deontological frameworks focus on duties or obligations in determining whether a given action is right or wrong. There are several ethical theories based upon teleology. Ethical egoism is defined as a theory of ethics recognizing that people act in their own self-interest. A person should act in a manner that best promotes his or her interests unless the net result will generate negative rather than positive results. People should limit their judgments to their own ethical egos and not interfere with the exercise of ethical egoism by others. Another theory within the teleological framework is moral relativism. Moral relativism focuses on determining what is right behavior based upon the time and place of the circumstances. The proper resolution of ethical dilemmas is based on weighing competing factors at the moment and making a determination to select the lesser of evils as the resolution. A final example of a theory within the teleological framework is utilitarianism. Utilitarianism focuses on whether an individual’s action adds to the overall utility of the community. Ethical conduct is that which is likely to produce the greatest overall good not just for the decider but for all persons who will be affected by the decision. There are also several theories within the deontological framework. Divine command theory is defined as a theory of ethics in which resolution of dilemmas is based upon tenets of faith within religious beliefs. Examples include the Ten Commandments in the Jewish and Christian faiths and the Sharia (God’s law) in Islam. These examples share many similarities with the natural school of law, which proposes that there are certain rights of divine origin. The Declaration of Independence is an example in its statement that white males were endowed with certain inalienable rights by their creator. The Categorical Imperative derives from Immanuel Kant’s Foundations of the Metaphysics of Morals (1785). Kant stated that “[o]ne ought to act such that the principle of one’s act could become a universal law of human action in a world in which one would hope to live.” There are no exceptions to these universal standards of conduct, and if one is unwilling to permit others the right to a particular type of behavior, he may not make an exception for himself. Kant also stated that “[o]ne ought to treat others as having intrinsic value in themselves, and not merely as a means to achieve an end.” Furthermore, behavior is only ethical if a person acts out of goodwill and pureness of heart. A final example of deontological thinking is contractarianism. This theory holds that membership in society is imbued with certain duties and responsibilities. Individuals agree to the norms governing society by establishing a contract with other members of society. It is assumed that people will develop social contracts through rational consideration of the results and consequences if there were no rules. These norms should be fair to everyone. This once again assumes rational people will always select that which is the fairest and most equitable resolution of a dilemma without regard for personal consequences. Inequalities in rights and duties are only acceptable if they generate benefits for everyone in society. Students’ opinions should reflect some understanding and consideration of these concepts. SUPPLEMENTAL ACTIVITY: CASE BRIEF ASSIGNMENT Instructors who want to hone the writing and analytical skills of students may wish to require students to write a case brief on a supplemental case and answer a series of questions. This first example is relatively simple, while later examples become more complex. For briefing a case, you may suggest a style of your own, borrowing one from a legal writing text, or hand out the example here. Briefing a Case A case brief reduces a case to its essential components: what it is about and what it means in terms of the law. Case briefs generally comply with the following format: Case Name and Citation: include the name of the case, the year decided, the court that decided the case Facts: a brief recitation of the relevant facts giving rise to the dispute (this may also include a relevant statute or legal rule and a lower court’s decision) Plaintiff and Defendant Arguments: outline the complaint of the plaintiff and defendant and any defenses raised Issue: what is the essential issue before the court (the question the court must answer); phrase in the form of a question (e.g. does U.S. anti-discrimination law apply to U.S.-based businesses operating outside the U.S.?) Answer: A simple answer to the question (e.g. yes, U.S. anti-discrimination law applies extra-territorially Rule: explain the legal reason provided by the court for its decision; note any law relied upon Decision: Who won; What was the remedy Supplemental Case: Eckert International, Inc. v. Government of the Sovereign Democratic Republic of Fiji. Have students find, read, and brief Eckert International, Inc. v. Government of the Sovereign Democratic Republic of Fiji, 834 F.Supp. 167 (E.D. Va. 1993). This case appears in the context of the sometimes precarious nature of newly independent states and the concept of sovereign immunity. Fiji’s new prime minister, who came to power through a coup, sought to terminate a pre-existing commercial contract with Eckert International, an American corporation. Eckert sued Fiji for breach of contract, and Fiji asserted sovereign immunity. Concluding that the contract was commercial in nature, the court found sovereign immunity inapplicable. Chapter 2 International Law and the World’s Legal Systems CASES IN THIS CHAPTER Ventress v. Japan Airlines The Paquette Habana Sosa v. Alvarez-Machain United States v. Campbell Liechtenstein v. Guatemala (Nottebohm Case) Khaki v. Hashim TEACHING SUMMARY This chapter addresses the global context of cross-border interactions, be they business oriented, political, or criminal in character. By citing the many international covenants, treaties, and uniform rules, a strong case can be made that international law truly does exist, although it differs from the American notions of law found in state and federal codes and cases. The corpus of international law consists of treaties, conventions, customs, generally accepted principles among nations, and learned expositions (such as international tribunals and respected scholars). The increase in the number and influence of international institutions speaks to the growing importance of understanding international law which in many ways reflects its European roots. The chapter also explains the difference between private and public international law, the former referring to rules regulating affairs of private firms, organizations and individuals and the latter referring to regulation of conduct between and among states. CASE QUESTIONS AND ANSWERS Ventress v. Japan Airlines 1. What was the purpose of article VIII(1) of the FCN treaty? In what way would this give them greater control of their U.S. operations? Answer: It allows a company from a foreign country (here Japan) to give preference to its own citizens when hiring executives. The firm could them more easily move their executives around (from California to Hawaii or Korea for example) and have executives with similar cultural and training backgrounds that might not occur if executives were from many different countries. 2. What was the basis of the court’s ruling? Does the California whistle blower protection statute “interfere with the employer’s ability to hire their fellow citizens”? Answer: The court found the California law did not interfere with the employer’s ability to hire fellow citizens; it allowed employees to report violations of domestic (U.S./ California) laws. 3. In citing MacNamara v. Korean Airlines, the court refers to the difference between “citizenship” and “national origin.” What is the difference, and why was that important here? Answer: The airline can via the treaty discriminate on the basis of citizenship, but not on the basis of national origin. A person born in Japan who becomes a U.S. citizen is a Japanese by national origin, but an American by citizenship. The Paquette Habana 1. Under what conditions is customary international law a part of U.S. domestic law? Answer: Customary law is a part of U.S. domestic law where there is no contradictory statute or treaty and the only way to resolve the legal issue is by applying customary norms. 2. Which international custom applies to this dispute? Answer: That fishing vessels and their cargo are exempt from capture during times of war. Supplemental Exercise: Have students locate and read the dissent (either in the official reporter or by using Westlaw): a) Why would the dissenters have affirmed the seizure under the U.S. Law of Prize? b) Why were they not persuaded by customary practices under international law? c) Do you find their assertion regarding the power of the president persuasive? Sosa v. Alvarez-Machain 1. What were the three specific offenses mentioned by Blackstone that were recognized as violations of customary international law at the time the ATS was enacted? Answer:. A violation of safe conduct rules, the infringement of the rights of ambassadors and piracy are the three offenses specifically mentioned. 2. Is the Court willing to expand the ATS beyond these original three offenses? According to Justice souter, what types of torts would give rise to jurisdiction under the ATS? Answer: Possibly. If there is a violation of a norm that is accepted by the civilized world and that is well-defined with a specificity comparable to the three mentioned by Blackstone. 3. Do you feel that this decision grants too much or too little power to the federal courts to hear tort claims occurring outside the country? Answer: It grants very little power to the federal courts, but this is in line with the separation of powers concepts found in our Constitution. 4. What foreign policy implications are involved in a U.S. court hearing a case under the ATS? Answer: The court’s decision could be contrary to the policies being pursued through the foreign policies being followed by our legislative and/or executive branches of government. 5. In what way did the Supreme Court’s subsequent decision in Kiobel further limit the application of customary international law? Answer: It said the first two of the three specific offenses, the safe conduct rules and infringement of ambassadorial rights, mentioned by Blackstone could be a basis for applying such law only if they occurred in U.S. territory. If such offenses occurred outside the territory, the customary international law would not be used. United States v Campbell 1 If Congress did not state in the statute that it applied outside the U.S., how did the court arrive at that conclusion. Answer: Courts presume Congress intends laws to apply only within U.S. territory. 2. What is meant by the “Bowman Exception?” Answer: The presumption does not apply regarding crimes that involve fraud against the U.S. or crimes that the U.S. seeks to defend itself from. Liechtenstein v. Guatemala (Nottebohm Case) 1. May individuals bring an action against a nation at the ICJ? Answer: No. ICJ jurisdiction is reserved for disputes between states rather than individuals. 2. On what basis did Liechtenstein file this action [if only states are to be parties before the I.C.J.]? Answer: Liechtenstein filed this action on behalf of Nottebohm because it alleged Guatemala’s disregard of Nottebohm's Liechtenstein citizenship was an affront to it as a sovereign state. 3. Although a nation can determine its own criteria for citizenship, must that be recognized by other nations? Answer: No. If a nation’s criteria do not conform with widely accepted principles, other nations need not recognize such grants of citizenship. 4. Do you feel that this judgment interfered with Liechtenstein’s sovereignty? Why or why not? Answer: No. Nottebohm’s social ties of attachment to a country were to Guatemala, not to Liechtenstein. Liechtenstein granted him nationality status because of the war with Germany—so he could be considered from a neutral state not from a belligerent state. 5. Would this case be considered one of international public or private law? Answer: It is public law because it involves whether one state must recognize the nationality decisions made by another state. While it does affect individuals such as Nottebohm, the case involves a dispute between two states and affects their rights and obligations to other states. Khaki v. Hashim 1. What is riba? Why is riba not permitted pursuant to the Shar’iah? Answer: Riba is the payment of interest by banks on loans and deposits. The Shar’iah states that lenders should only loan money on humanitarian grounds to achieve a reward in the next life or to save their money through a safer hand. The Shar’iah permits the borrowing of money only in cases of dire need and discourages the practice of incurring debts for living beyond one’s means or to grow one’s wealth. 2. What would the effect be on Pakistan if the decision were implemented in Islamic banks? Answer: As such banks have depositors and customers who are not Muslim, the funds of those parties might be withdrawn and potential customers also could decide not to invest in such banks. Consequently, there would be a risk to the economic stability and security of the country. 3. In what other ways have culture and religion influenced modern legal systems? Answer: The answer to this question calls for opinion, but students may want to explore the relevancy of religious and ethical beliefs with respect to commercial practices in general and international trade and other exchanges in particular. ANSWERS TO QUESTIONS AND CASE PROBLEMS 1. Answer: Customary international law does not hold a corporation liable for a violation of human rights. The customary law does hold corporations liable for some crimes, but not for human rights violations. Individuals such as corporate managers or executives could be held liable for human rights violations, but neither treaties nor customary international law holds corporations so liable. 2. Answer: The statute applies extraterritorially because the context of the wording shows that Congress assumed much of the conduct regarding bringing illegal aliens into the U.S. would occur outside the U.S. It is for this reason that the Bowman exception does not apply. That exception relates to statutes involving domestic conduct-where no external conduct was contemplated—while here external conduct is very likely. U.S. immigration offenses are often planned outside the U.S. territory. 3. Answer: Public international law is a body of rules binding nation states in their mutual and global relationships. Recently, this has been extended to cover international organizations. Private international law is the body of rules binding individuals of different nations in their interactions. This falls into one of two categories: (1) mechanisms for resolving disputes between individuals or corporations from different countries or (2) treaties that apply to individuals or businesses subject to different legal systems. International Business Law would borrow from both and pertain to the international body of rules that have developed to order business relationships. 4.Answer: A wide variety of problems lend themselves to resolution through the application of international law. These issues include problems arising between states in their relations with one another and the conduct of states in their relations with individuals. Specific examples include human rights, criminal law and transnational crimes such as terrorism. 5. Answer: Typically, such individuals are speaking from a legal egocentric understanding of law or are speaking in shorthand. Those who claim that international law is non-existent may mean that international law does not possess the characteristics of American law: there is no international constitution; there is no legislatively drafted code; there is no one court system with supreme authority to interpret law, decide disputes, and issue binding decisions. Nonetheless, there is, very clearly, international law. There exist a multitude of international treaties, essentially contracts, between nations setting out standards and legal rules. There exist a variety of adjudication mechanisms, including courts and arbitration venues. There is also a well-developed body of legal understandings, such as those found in customary law that are accepted and enforced globally despite the absence of codification. 6. Answer: International conventions tend to harmonize national laws by creates uniform and widely accepted bodies of law. Harmonization benefits business by making applicable law more uniform and predictable Harmonized laws are not identical, but they can be considered similar, generally having the same objective. As business and individual life becomes more global in nature, firms and individuals seek laws that are similar or harmonious. As laws are interpreted and enforced nationally, they are more national than international. 7. Answer: This question calls for an opinion regarding the efficacy of corporate codes of conduct and the extent to which they may replace government regulation. 8. Answer: Compliance with corporate codes of codes may be promoted through effective communication with employees, incorporation into corporate culture, adoption of disciplinary measures for assuring compliance and development of a system for measuring effectiveness. 9. Answer: Corporations are accountable to all of their stakeholders, including shareholders, employees, customers, members of the supply chain, the governments of their home and host states and the community at large. Human rights are of increasing concern globally and firms that are unconcerned or nonresponsive will lose favor. 10. Answer: Transnational business crimes are a major problems calling for global solutions. Typical crimes include bribery and corruption, tax evasion, customs fraud, criminal violations of export control laws, financial crimes, and criminal violations of environmental laws, securities laws, and antitrust laws 11. Answer: Territoriality refers to jurisdiction over all persons, places and property within the territory, airspace or territorial waters of a state. Nationality requires individuals and corporate citizens comply with the laws of the state of their nationality no matter where they are located in the world. The protective principle allows jurisdiction of noncitizens for acts done abroad on the basis of a country’s need to protect its national security, vital economic interests and governmental functions. It has been used as a basis for the prosecution of accused terrorists. Passive personality jurisdiction gives a state the right to hear cases stemming from crimes committed against their own citizens by foreign citizens outside of their own territory. It also has use in the prosecution of terrorism. The universality principle permits any state to prosecute perpetrators of the most heinous and universally condemned crimes regardless of where they occurred or the nationality of the victims or perpetrators. Universal jurisdiction has been reserved for piracy, war crimes and crimes against humanity. Terrorism has been omitted from this list due to difficulties in achieving a uniform international definition or proscription. The Convention Against Torture and Other Cruel, Inhuman or Degrading Treatment recognizes universality by calling upon signatories to enact laws punishing those who commit torture and exercise jurisdiction if the victim was one of their citizens, if the act occurred in their territory or if the offender was later found in their state. 12. Answer: The International Court of Justice hears cases brought by nations against other nations. Individuals and private corporations are not parties to cases before the court. The court has jurisdiction over all cases brought by nations under the UN Charter or involving treaties, conventions, international obligations, or questions of international law. The Rome Statute of the International Criminal Court (122 parties as of 2013), is a 2001 treaty that created the International Criminal Court, which sits at The Hague, Netherlands. It is independent, and not a part of the United Nations. The court hears three types of crimes: genocide, crimes against humanity (attacks against civilians through murder, slavery, forced deportations, torture, rape and sexual violence, disappearances, apartheid and other persecutions on the grounds of religion, race, ethnicity, national origin, political beliefs, or gender), and war crimes. The European Court of Justice hears disputes from EU members and conflicts between member nation laws and the EU Treaty. Its role is similar to the U.S. Supreme Court’s role re federal and state laws. INTERNET EXERCISE 1. Using “constitution finder” or some other electronic resource, have students locate the U.S. and U.K. constitutional provisions pertaining to free speech and press. Also ask students to compare and contrast these provisions with the constitutional provisions (i.e., the First Amendment counterparts) of other countries and to analyze the facts of the case under these provisions. Some examples that demonstrate a variety of protections and models include the constitutions of Germany (the German Basic Law), Romania, and Canada. Would the result be different? Why? MANAGERIAL IMPLICATIONS 1. Students may discuss numerous methods by which to demonstrate respect for a foreign state’s culture, environment, natural resources and local laws. Some examples include affirmation of the OECD Principles, adoption of codes of conduct adopted by other private organizations and respect for such principles expressed in the company’s own code of conduct. 2. The United States may assert jurisdiction using the territoriality and passive personality principles. South Korea may exercise jurisdiction utilizing the nationality principle. Canada may exercise jurisdiction using the protective and passive personality principles. Finally, Saudi Arabia may exercise jurisdiction utilizing the territoriality principle. An action arising from the abduction asserted pursuant to the Alien Tort Statute will fail due to the holding with respect to arbitrary arrest in the U.S. Supreme Court’s opinion in Sosa v. Alvarez-Machain. 3. Students should distinguish between legal and ethical ramifications, particularly in developing countries that are largely unregulated. One’s domestic law, however, may still restrain certain business practices abroad. Furthermore, regardless of whether regulations exist, business practices considered unethical may invite negative customer response at home. ETHICAL CONSIDERATIONS The first scenario primarily implicates the theories of moral relativism and utilitarianism. Moral relativism is implicated to the extent that one may contend that the sale of lifesaving (but expired) pharmaceuticals is acceptable given the time and place of the sales. Utilitarianism is implicated to the extent that the sale of such pharmaceuticals adds to the overall utility of the community. Ethical conduct is that which is likely to produce the greatest overall good not just for the decider but for all persons who will be affected by the decision. In this case, the alternative would be the destruction of the pharmaceuticals. Why not utilize the remaining life of these products to save lives in the developing world? The second scenario primarily implicates moral relativism and the related topic of cultural relativism. The quotation attempts to justify bribery on the basis that it may be acceptable given the time and place in question. Cultural relativism is defined as the belief that different practices and accepted behaviors in different cultures should be respected rather than subject to condemnation. Cultural relativism would serve as an additional ground supporting bribery in certain circumstances if such practices were the cultural norm in business transactions. TEACHING SUGGESTION/COOPERATIVE LEARNING ACTIVITY In light of the U.S.’s belief that there should exist some international legal mechanism for addressing international crimes (such as crimes against humanity) but its disagreement with the present ICC draft, have students draft a new statute. This may be done through two complimentary mechanisms. In one group, students will use the existing statute as a guide and correct it, so to speak. In another group, students will work without the language of the statute, drafting clauses to address jurisdiction, specific procedures, parties, checks and balances, and appeal. SUPPLEMENTAL ACTIVITY: CASE BRIEF ASSIGNMENT Trans-Orient Marine Corp. v. Star Trading & Marine, Inc., 731 F.Supp. 619 (S.D.N.Y. 1990). Have students find, read, and brief Trans-Orient. This case is in the context of a change of Sudanese government via military coup. Questions: 1. What was the critical international legal issue addressed by the court? Answer: Was the change in Sudan a change in the state or in the government representing the state. The court said only in the government. 2. What is the difference between a “succession of state” and a “succession of government”? Answer: Succession of state means old state no longer exists. 3. How does this effect contracts to which the state is a party? Answer: Contract liability continues for a new government in the same state, but not for a new state where the old state is gone. Reid v. Covert, 354 U.S. 1 (1957). To further investigate the hierarchy and connection between the U.S. Constitution and international law, have students locate and read Reid v. Covert, 354 U.S. 1 (1957). In Reid, two civilian wives were accused of killing their husbands, members of the U.S. army. Defendant Covert killed her husband on a military base in the U.K. and defendant Smith killed her husband on a base in Japan. Pursuant to Status of Forces (SOF) Agreements between the U.S. and those countries, the wives were prosecuted by military tribunals. The defendants claimed that they could not be tried by the military courts. The court agreed, noting that when the U.S. acts against its citizens abroad, those citizens continue to be protected by the Constitution and the Bill of Rights. 1. What was the SOF agreement and what was its import in the instant case? Answer: The SOF, or a Status of Forces Agreements, was an executive agreement (entered into by the president) between the U.S., Japan, and the U.K. providing that crimes committed on foreign military posts would be tried and punished by U.S. military authorities. 2. What specific constitutional rights were the wives allegedly deprived of? Answer: The right to a jury trial and a public trial by one’s peers, pursuant to the Fifth and Sixth Amendments. 3. To which portion of the Constitution did the court point in laying out the hierarchy of the SOF and the Fifth and Sixth Amendments? Answer: Article VI, the Supremacy Clause. Chapter 3 Resolving International Commercial Disputes CASES IN THIS CHAPTER Scherk v. Alberto-Culver Asahi Metal Ind. v. Superior Court of California, Solano County Pebble Beach Company v. Caddy Iragorri v. United Technologies Corp. & Otis Elevator Co. M/S Bremen v. Zapata Off-Shore Co. Finnish Fur Sales Co., Ltd. v. Juliette Shulof Furs, Inc. TEACHING SUMMARY Dispute resolution in international disputes must be cognizant of various cultures, legal systems, and mechanisms for resolution. In terms of procedure, international legal disputes begin with questions of jurisdiction, venue, and conflict of laws. The recent popularity of the Internet (advertising items on Web sites and on-line ordering and contract-negotiation) has added a wrinkle to these issues. Alongside procedural issues are practical choices of which available mechanism or forum is best suited for the parties. In business disputes, parties may choose to have their dispute heard in their home or foreign court, or instead select mediation, arbitration, or inquiry. The choice of where to hear a dispute, what law applies to resolving it and how a decision will be enforced are factors that need to be considered. If an international business dispute is against a foreign government or one of its agencies, special defenses may shield the governmental organization from liability. CASE QUESTIONS AND ANSWERS Scherk v. Alberto-Culver 1. What were the Court’s reasons for upholding the arbitration provision? Answer: The clause was consistent with U.S. legislation embodied in the Arbitration Act. Second, the contract was clearly international in its scope and subject matter and thus the parties were free to select a forum other than U.S. courts for the resolution of disputes. 2. What needs of international businesses were served by the Court’s holding? How were these needs addressed? Answer: The most important needs addressed by the Court were orderliness and predictability in international transactions and the prevention of a multiplicity of litigation. These needs were addressed by enforcing a clear and unambiguous arbitration provision and dismissing the litigation. 3. What factors would Alberto-Culver need to have shown in order to have overturned the arbitration provision? Answer: Alberto-Culver would have been required to demonstrate that there was credible claim that any international conflict of laws problems would arise in the case. Asahi Metal Ind. v. Superior Court of California, Solano County 1. Why did the Court refuse to hold that the California courts had personal jurisdiction over Asahi? Answer: Asahi was located in Japan. It had no offices or agent’s property in California. The court also noted that submitting to a foreign court's jurisdiction was burdensome. 2. What activities would Asahi need to have engaged in order for the Court to determine that it had purposefully availed itself of California law? Are some of these activities more important than others? If so, which ones? Answer: The Court listed several factors. These included the absence of offices, agents, employees or property in California, the lack of advertising or solicitation of business in the state, the absence of a distributor in the forum, and the lack of a product designed for the forum. The Court did not prioritize these activities in its purposeful availment analysis. 3. Did the Court give adequate weight to California’s interest in the safety of products distributed in the state? Why or why not? Answer: Yes. The injured California resident had already been compensated by Cheng Shin. The Court found that California’s assertion of jurisdiction over Asahi was slight as the instant claim was one of indemnification rather than tort (e.g., safety of consumers). The claim on which indemnification was based took place in Taiwan, the components were shipped from Japan to Taiwan, not California, Asahi was not a California resident, it was not clear that California law would govern the dispute, and it was not shown that California was a supremely convenient forum for litigation. Pebble Beach Company v. Caddy 1. On what basis did the court hold that Caddy had insufficient minimum contacts with the United States such as to support the exercise of personal jurisdiction? Answer: He did not purposely avail himself of privilege of doing business in U.S. and did not do “something more” to have minimum contacts there. 2. Is the court's focus on the passivity of Caddy’s website valid? What factors determine whether a website is interactive or passive? Answer: Yes. It was not possible for people from U.S. to register with him online—not interactive. An active website lets user register and pay online; they do not have to contact offline. 3. Is the Internet sufficiently different from non- electronically-based businesses to merit different treatment for purposes of jurisdiction? Why or why not? Answer: No. There still needs to be some action in the jurisdiction to meet minimum contacts test. Iragorri v. United Technologies Corp. & Otis Elevator Co. 1. What were the court’s reasons for refusing to apply forum non convenient to the case and requiring refilling of the litigation in Colombia? Answer: The plaintiffs believed that Connecticut was the proper forum for their case because defendants’ principal place of business was Connecticut and because plaintiffs were permanent, long-time residents of Florida. The appeals court agreed with plaintiffs’ contention that Connecticut was the proper forum. The court noted that “heightened deference” must be given to the plaintiffs’ choice of forum when there is no evidence that plaintiffs had engaged in forum-shopping and when plaintiffs were concerned for their physical safety in Cali, Columbia. Moreover, because the claims were based on product liability, Connecticut was convenient for the defendants because all design, manufacturing, and operations of the elevators were in Connecticut. 2. Does the court’s opinion reward forum shopping to the extent the plaintiffs were likely to receive a larger damages award in the United States than in Colombia? Why or why not? Answer: No. As previously noted, there were legitimate reasons for Connecticut serving as the forum for the litigation. An increased damages award is a possibility but was not determinative. 3. The court cited concern regarding the unstable political situation in Colombia as a reason for refusing to apply forum non convenient. Given the changes that have occurred in the country in the past decade, would the court reach the same conclusion today? Answer: This question calls for student opinion. However, students may be requested to review analyses of the Colombian judicial system prepared by the U.S. government and the World Bank in formulating their opinions. M/S Bremen v. Zapata Off-Shore Co. 1. What was the Court’s holding with respect to the general enforceability of forum selection clauses? Answer: The Supreme Court noted that "we cannot have trade and commerce in world markets and international waters exclusively on our terms governed by our laws and resolved in our courts." As a practical matter, if U.S. companies were to do business internationally, foreign businesses must know that U.S. courts will make U.S. businesses stick to their bargains, however unwise. Zapata was here characterized as a "sophisticated" company that should have been aware of the risks it was taking. 2. How would you define “public policy reasons” or “serious inconvenience” for purposes of refusing to uphold a forum selection clause? What factors would you take into consideration? Answer: This question calls for student opinion. Finnish Fur Sales Co., Ltd. v. Juliette Shulof Furs, Inc 1. What was the court’s holding with respect to the enforceability of the choice of law clause? Answer: The court analyzed the “Conditions of Sale,” which expressly states that Shulof “shall stand surety as for his own debt…. If he has made the bid on behalf of another person, he is jointly and severally liable with the person for the purchase.” The transaction was governed by Finnish law. In other words, by participating in the auction, Shulof agreed to the conditions of sale and the application of Finnish law to the transaction. According to the court’s analysis, this did not offend New York policy because Finland had substantial contact with the transaction and found Shulof personally (jointly and severally) liable for the debt. 2. What factors did the court utilize in its decision to uphold the choice of law provision? Answer: The court focused on the considerable contacts between the transaction and Finland. The bids were made in Finnish marks, the subject matter of the contract originated in Finland, the plaintiff was a Finnish resident, the sale, payment and delivery took place in Finland and Shulof was a sophisticated businessperson who voluntarily travelled to Finland to participate in the auction. 3. How would you define a “fundamental” public policy that would cause a court to refuse to enforce a choice of law provision? Answer: This question calls for student opinion. QUESTIONS AND CASE PROBLEMS 1. Answer: Jurisdiction refers to the power of a particular court to hear and decide a dispute. In order for a court to hear a case, it must possess both personal and subject matter jurisdiction. Minimum contacts refer to a sufficient connection between the party and the forum before a court may constitutionally exercise jurisdiction. This concept is derived from U.S. Constitutional principles of due process. 2. Answer: The U.S. Court of Appeals for the Second Circuit vacated the district court’s judgment and remanded the case for further proceedings. The court determined that the record developed by the district court was insufficient for it to determine whether Viewfinder’s publication of the photographs was fair use within the protections of the First Amendment. The record is unclear as to the percentage of Feraud’s designs that were posted on first View. This determination was crucial to determining whether the publication of the designs constituted “fair use” under U.S. copyright law. The court also held that the record was unclear as to the manner of protection afforded Feraud’s fashion shows by French law as well as the protections afforded to alleged infringers generally, and photographers specifically, under French law. The determination of whether the protections provided by French law were sufficiently comparable to that required by the public policy of New York was a question best addressed by the district court on a fully-developed record. 3. Answer: No. The subsidiaries of Goodyear did not have the necessary “ continuous and systematic” affiliation with the state of North Carolina so they could not be sued there. 4. Answer: Yes. The court found the “stream of commerce” doctrine used in the Asahi case applied here. The English machine manufacturer knew or should know that the machine distributed nationally in the U.S. could end up in New Jersey even though it took no steps to advertise or have a presence in New jersey. 5. Answer: The favor ability of a suit in U.S. courts depends on the interests of the litigants. Often times, litigants may favor the use of juries, the possibilities of jury awards, punitive damages, and procedural rules, which are part of the U.S. system. Other times, it represents a single forum to which business partners can agree. European consumers, however, would not likely favor suit in U.S. courts (although U.S. businesses would) due to decreased consumer protections. 6 Answer: No. The clause was enforceable because there was no fraud and it was reasonable for the cruise line to require all passengers (likely from different countries) to sue the line in one place. Further, Paris was a reasonable choice, particularly since the cruise was in French Polynesia even though Seung was from California. The expense to the potential plaintiff in bringing such a suit or hardship in travelling is not a reason to deny the choice of forum clause. 7. Answer: There is no correct answer to this question. The reciprocity requirement has been subject to much criticism. These criticisms include the absence of similar requirements in English common law and U.S. statutes and common law, the holding of the interests of private litigants hostage to the government’s interest in promoting reciprocity and gridlock as foreign states refuse to recognize one another’s judgments due to the absence of reciprocity. For further discussion of reciprocity, students may review law review articles including William S. Dodge, Breaking the Public Law Taboo, 43 Harv. Int’l L.J. 161 (2002) and Vishali Singal, Note, Preserving Power Without Sacrificing Justice: Creating an Effective Reciprocity Regime for the Recognition and Enforcement of Foreign Judgments, Commanding International Judicial Respect: Reciprocity and the Recognition and Enforcement of Foreign Judgments, 59 Hastings L.J. 943 (2008). 8. Answer: The court of appeals affirmed the district court's dismissal of the case on the ground of forum non convenient. Applying the doctrine of comity, the court concluded that “Mexico, as a sovereign nation, has made a deliberate choice in providing a specific remedy for this tort cause of action.” The Mexican government balanced competing objectives involving costs, and the interests of victims, of consumers, of manufacturers, and of various other economic and cultural values. The court held that it would be inappropriate for a U.S. court to denounce this legitimate policy choice by holding that Mexico provides an inadequate forum for Mexican tort victims. Having concluded that Mexico was an adequate forum, the court then agreed with the district court that almost all of the private and public interest factors weighed in favor of Mexico as the appropriate forum. This conclusion was based on the facts that the plaintiff, the driver and the victim were Mexican citizens, the accident occurred in Mexico, the car was purchased in Mexico and neither the car nor the air bag was designed or manufactured in Texas. 9. Answer: The district court dismissed Hy Cite’s complaint for lack of personal jurisdiction. The court held that bad business bureau did not have “continuous and systematic general business contracts” with Wisconsin due to the absence of an office, agents and employees, and a substantial amount of business in the forum. The court found the lack of targeting of Wisconsin Internet users to be indicative of a lack of general personal jurisdiction. The court also rejected the exercise of specific personal jurisdiction. It held that bad business bureau did not purposefully avail itself of the benefits and protections of Wisconsin’s laws because it received no donations or advertisements from Wisconsin residents and did not advertise in Wisconsin or target its residents. Furthermore, bad business bureau did not engage in intentionally harmful behavior expressly directed at Wisconsin residents. Rather, the harmful conduct, if any, was the complaints written by consumers and posted by them on the Web site. Managerial Implications 1. Answer: Yes, I would include mandatory, binding arbitration provisions in the contract with United States law and venue governing the transaction. My plans would not change. If I am a U.S.-based corporation, I want to negotiate for the choice of law and forum. However, I would also negotiate to have a foreign court automatically recognize and enforce the arbitration verdict under the various international treaties, such as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. 2. Answer: The existence of a Web site, alone, will not confer foreign jurisdiction in Alaska. The question, however, makes it appear that the consumer has now purchased the product from the company. Depending upon the essence of the consumer’s claim (and the facts related to the purchase), there may be other reasons that subject the business to jurisdiction in Alaska. Students should note that, if clearly stated, a B2B forum selection clause is enforceable, but B2C clauses are sometimes enforceable in the U.S., but not abroad. They should also note that while permitting on-line ordering may increase sales, it will also increase the likelihood of being subjected to the jurisdiction of a foreign court. The more interactive a Web site becomes, the more it will subject its owner to jurisdiction in the fora of foreign customers. Additionally, recognizing that New York has become an international hub, the New York State Rules of Civil Procedure provide that parties, regardless of any connection to New York, may choose New York as their forum. Generally, however, a forum chosen must have some reasonable connection to the dispute. Therefore, unless Tibet has some reasonable connection to the claims (i.e., the customers targeted and sold to are Tibetan), this selection of forum will not be enforced. Intellectual property disputes are less likely to be resolved through arbitration because the property owner has limited right to appeal and is less likely to recover significant damages or be able to stop the infringement. If the competitor was Dutch, arbitration in Paris or another neutral site might be a good option as the Netherlands would enforce the award. Ethical Considerations The answer to this scenario depends on the ethical theory one applies to the question. For example, applying the theory of ethical egoism, it is clear that Union Carbide acted in its own self-interest in forcing the litigation to India. Applying the teleological framework of moral relativism, it may be contended that the terms of the settlement were proper given the location of the catastrophe and financial circumstances of the largely poor and undereducated victims of the gas leak. Applying utilitarianism, the financial well-being of the victims may have been enhanced had the litigation been permitted to proceed in the United States, although it is equally possible that this well-being would have been diminished by procedural delays and appeals. On the other hand, if one determines that the greater good resides with those interested in the continued financial well-being of Union Carbide, then the outcome was ethically defensible. Applying deontological frameworks, in particular, the categorical imperative, it may be seriously questioned whether anyone would want Union Carbide’s conduct to serve as an example for confronted with similar catastrophes in the future. Furthermore, the settlement may be viewed as a means to the end of preserving the company’s assets and shareholder value at the expense of the victims. Finally, applying contractarianism, it may be asked whether Union Carbide abided by its duties and responsibilities to the community, especially given the lethal nature of its product and the information gap between itself and the surrounding inhabitants. TEACHING SUGGESTIONS / COOPERATIVE LEARNING ACTIVITIES 1. Internet Jurisdiction An interesting issue of late is whether a company that maintains an Internet presence is, by virtue of that presence, subject to the jurisdiction of various fora. While the law is still evolving, courts have begun to follow a “spectrum analysis.” The spectrum analysis considers the extent of interactivity and affirmative commercial aspects of sites Provide students with the names of two-four Web sites, or make up your own, that fall on this spectrum of activity (i.e., an informational site that does not allow on-line orders, a site that provides an e-mail address and answers questions, an on-line store, such as www.amazon.com). a) Ask students to assess whether a customer in Germany could sue the respective businesses in Germany. b) Do any of the sites include forum selection or choice of law clauses? Internet Exercises 1. Arbitration continues to enjoy popularity as a method of international dispute resolution. Nonetheless, the arbitration process will be only as good as the arbitration clause drafted agreeing to it. Dividing students into groups (perhaps as part of a larger contract negotiation exercise), ask paired groups to negotiate and draft an arbitration clause. One helpful link to various international ADR sites is: http://www.cpradr.org/ 2. Once a party obtains a foreign arbitral award, it still must be able to enforce that award. As apparent from jurisdictional cases concerning due process and minimum contacts, countries may enforce awards to differing extents and under differing circumstances. To provide some clarity, several countries adhere to the UN Conventions on Arbitral Recognition and Enforcement. Using www.google.com, find the text of U.N.C.A.R.E. and apply it to one of the cases discussed in Chapter 3 or one of your own. Ask students to research and consider whether the arbitration award would be enforced under this convention. Chapter 4 The Formation and Performance of Contracts for the Sale of Goods CASES IN THIS CHAPTER Asante Technologies, Inc. v. PMC-Sierra, Inc Solae, LLC v. Hershey Canada, Inc. Chicago Prime Packers, Inc. v. Northam Food Trading Co. Harriscom Svenska, AB v. Harris Corp. TEACHING SUMMARY Historically, sales law was first the province of merchants. Indeed, businessmen are credited with developing one of the first bodies of law, via Lex Mercatoria, a necessary creation to manage trade with far-off individuals. Nevertheless, the domestic laws of various countries often continued to develop along different lines. Thus, legal rules pertaining to the creation and completion of contracts differ from country to country. As international merchants sought to take advantage of global sales opportunities, the legal differences sometimes created problems. Consequently, countries came together to create the CISG to standardize certain international contract principles. The CISG was ratified by the United States in 1988 and applies to commercial contracts for the sale of goods between buyers and sellers located in different countries, both of which have ratified the CISG. The CISG is not applicable to consumer contracts, liability for injury or death caused by defective products, or the sale of services. The CISG allows trade usages to fill in the gaps of a contract and it also permits minor alterations in an acceptance of an offer to contract to become part of the contract terms. The CISG is designed to permit flexibility in arriving at contract terms. Various remedies for breach of contracts are detailed in the CISG. Students familiar with the UCC will note both similarities and differences in comparing the CISG to the UCC. CASE QUESTIONS AND ANSWERS Asante Technologies, Inc. v. PMC-Sierra, Inc. 1. What were the court’s holdings with respect to place of business, choice of applicable law and pre-emption of state contract law? Answer: The court was not persuaded that Unique Technologies was an agent of PMC, holding that “a distributor of goods for resale is normally not treated as an agent of the manufacturer.” As a result, Asante’s dealings with Unique did not establish PMC’s place of business in the U.S. The court ruled that the federal court had concurrent jurisdiction with the state court and that the CISG applied because the “opt out” provision in the contract to use U.S. law was legally inadequate. 2. On what basis did the court conclude that the parties had not sufficiently evidenced an intent to opt out of the CISG? What language would you have included in the purchase and confirmation orders to clearly evidence such an intent? Answer: The parties were not specific enough in their selection. The selection of the laws of British Columbia or California did not serve to eliminate the application of the CISG as it is the law in both jurisdictions. The parties should have specifically designated the domestic law they sought to apply. For example, if the parties desired to select California state law, they could simply have designated the Uniform Commercial Code as adopted by the State of California in the choice of law clause. 3. What reasons did the court give for pre-empting state contract law in favor of the CISG? Answer: The court held that the goal of developing uniform international contract law served to pre-empt state contract law. The application of state contract law would frustrate the goals of uniformity and certainty embraced by the CISG. Solae, LLC v. Hershey Canada, Inc. 1. What was the court’s holding with respect to the inclusion of the forum selection clause in the parties’ contract? Answer: The court concluded that the contract was created when Solae sent its order confirmation to Hershey in response to Hershey’s purchase order. As the order confirmation did not contain the forum selection clause it could not be included in the parties’ contract absent subsequent consent from Hershey, which was not forthcoming. 2. What are the requirements for the formation of a contract pursuant to the CISG? Answer: According to the court, a contract exists for purposes of the CISG when the parties “sufficiently agree” on the identity of the goods, their quantity and the price. Pursuant to CISG Article 11, the contract does not need to be memorialized in writing in order to be effective and enforceable. 3. Did the court improperly excuse Hershey’s failure to object to the forum selection clause given the parties’ extended dealings (which included conditions of sale containing a forum selection clause)? Why or why not? Answer: No. Hershey did not consent to the forum selection clause simply by receiving and paying for the goods. The CISG requires affirmative assent to material changes to an otherwise enforceable contract. Unilateral attempts to modify such agreements without such affirmative assent are not enforceable. Chicago Prime Packers, Inc. v. Northam Food Trading Co. 1. What was the court’s decision with respect to Chicago Prime Packer’s claim for breach of contract? Answer: The court concluded that Northam failed to timely inspect the goods and notify Chicago Prime Packers of deficiencies within a reasonable time. As a result, Northam could not avoid payment on the basis that the tendered ribs were spoiled. 2. What should Northam have done in order to avoid the result in this case? Answer: Northam should have realized that the CISG was applicable to this transaction. As a result, it should have examined the ribs or caused them to be examined in conformity with the requirements of CISG Article 38, specifically, “within as short a period as is practicable in the circumstances.” Once the non-conformities were discovered in the tendered ribs, Northam should have given notice to Chicago Prime Packers in conformity with CISG Article 39, specifically, within a reasonable time after discovery. 3. Is the court’s opinion overly harsh given that Northam was only a trading company and not the end user of the product? Why or why not? Answer: No. The CISG places the obligation to inspect the goods for non-conformities and notify the seller of such non-conformities upon any party in the distributive chain that seeks to avoid its contractual obligations. Harriscom Svenska, AB v. Harris Corp. 1. On what basis did the court deny Harriscom’s claim of breach of contract against RF Systems? Answer: The force majeure clause in the distributorship agreement excused RF Systems from performance on the grounds of government interference, specifically, the U.S. government’s prohibition against all sales of military equipment to Iran. 2. How much “government interference” should be required in order to invoke a force majeure clause? Answer: This question calls for student opinion. However, it should be noted that the court required at a minimum that the interference is beyond the control of the party seeking to excuse performance. 3. Who should bear the risk in transactions with customers in risky locations such as Iran, the seller or the buyer? Answer: This question calls for student opinion. This discussion provides an opportunity to discuss risk shifting provisions in contracts and the role of political risk insurance. ANSWERS TO QUESTIONS AND CASE PROBLEMS 1. Answer: A key doctrine within the Shari’a is the prohibition upon gharar, meaning risk or uncertainty. Future activity is deemed gharar because it is uncertain anyone except God. One of the consequences of this prohibition is that courts applying the Shari’a such as those in Saudi Arabia will not enforce the sale of anything uncertain or unknown. Thus, the object of the contract must be certain, defined and in existence. This prohibition applies to the calculation of damages. Damages will be awarded for actual physical harm to property caused as a result of a breach as well as compensatory damages as long as they are precise, accurate and certain. However, Saudi law denies any recovery for unrealized gains or future profits lost due to contractual default because of their speculative nature. The result would be different pursuant to the CISG. The CISG permits recovery of consequential damages arising as a reasonably foreseeable consequence of the breach. Article 74 of the CISG limits consequential damages to those that the parties “foresaw or ought to have foreseen at the time of the conclusion of the contract.” This includes lost profits as well as other consequential damages arising from the breach. 2. Answer: The non-delivery of the boots was not excused. Such an occurrence was foreseeable but was not noted in the contract. In any event, the defendant could not show that the boots on the train were the boots specified in the contract. The contract did not make clear that the boots had to come from any particular Korean manufacturer. The court found for the distributor. Just because the currency exchange fluctuation would make the contract far more costly for the importer, it did not render the contract impracticable or invalid, as contemplated by CISG. Rather, it is merely a risk incidental to international business. International trading partners are expected to be aware of such risks and plan for them accordingly. 3. Answer: Delchi was permitted to recover for its attempts to remedy the nonconformities in the goods, expediting of the replacement compressors from Sanyo, handling and storage of the nonconforming goods and some lost profits that it was able demonstrate with reasonable certainty. All of these damages were the foreseeable result of the seller’s failure to deliver conforming goods. Delchi was prohibited from recovering lost profits for additional sales in Italy due to its inability to provide documentation regarding such sales and the lack of a causal connection between such lost sales and the seller’s breach. The court looked to documents and testimony to determine costs incurred and lost sales and lost profits. 4. Answer: Neither the 250% increase in the price of raw materials nor the delay in shipping caused by a longshoreman's strike will act to release Acme Widgets from its promised performance. The risk of a price increase should be contemplated by a business. Further, it is very possible that a strike was certainly foreseeable, although it is possible that one could make an argument that under particular facts, one could not and should not have foreseen a strike. Instructors might want to ask students how a force majeure clause might have altered the outcome of this case. 5. Answer: No. The contract between the parties included an exhaustive list of force majeure circumstances that would discharge the parties from the contract (and rescue them from liability). That the buyer’s lack of foreign currency, however, was among those exculpatory forces, therefore, does not apply here. Furthermore, it is the buyer who is obligated to send instructions to the bank to pay the seller. The buyer here did not do so and thus its failure to pay is not discharged. The Tribunal ordered the buyer to pay the seller. 6. Answer: No. The court said the German plaintiff Goede did not prove it was a party to the transaction. The U.S. firm Mint signed the contract and paid the money so the contract was between two U.S. firms even though the user was in Germany. 7 Answer: These questions call for student opinions but are designed to provoke discussion with respect to the meaning of the term “non-conforming goods” and emphasize that the term includes deficiencies in one of the parties’ performance in addition to defects in the tendered goods. 8. Answer: In their article Nominating Manfred Forberich: The Worst CISG Decision in 25 Years?, Professors Joseph Lookofsky and Harry Flechtner define the “homeward trend” as the tendency of courts interpreting the CISG to project the domestic law in which the interpreter was trained (and with which he or she is likely most familiar) onto the international provisions of the Convention. This trend is contrary to CISG Article 7(1), which requires that the Convention be interpreted with “regard” for its international character and for “the need to promote uniformity in its application”. According to Lookofsky and Flechtner, Manfred Forberich “represents the most extreme example of what is likely the most dangerous error that tribunals applying the CISG can make.” In reaching its conclusions, Lookofsky and Flechtner noted that the court made no reference to foreign CISG case law, CISG commentary, or to any other recognized source of guidance on the CISG. Lookofsky and Flechtner conclude that this “patently improper approach to interpreting and applying the CISG . . . is a depressing development that tends to bring international disrepute on the CISG jurisprudence of U.S. courts” and demonstrates that “it is high time that more law schools require (or at least encourage) their students to learn something about the Convention, just as those lawyers and judges already practicing in the real world must take the steps necessary to bring themselves up to CISG speed.” MANAGERIAL IMPLICATIONS Students might consider: 1) differences in negotiating contracts with the Japanese, Chinese, and Germans; 2) strategies for reducing risk to both buyer and seller, particularly the buyer's risk of receiving nonconforming goods (use of laboratory analysis and inspection reports from independent firms); 3) the use of standard forms for purchase orders and confirmations; 4) the potential for a force majeure; and 5) the rights of the parties on breach. ETHICAL CONSIDERATIONS This question calls for an opinion from students. Students may utilize the discussions of ethics set forth in the ethical considerations section of Chapter 1, the discussion of ethics in Chapter 2 and the discussion of the purpose of the CISG set forth in Chapter 4 to answer this question. TEACHING SUGGESTIONS / COOPERATIVE LEARNING ACTIVITIES This chapter provides an excellent opportunity for experiential education. 1. Students, working alone or in groups representing various countries (both members and non-members of CISG), can negotiate and/or draft an “international” contract for the sale of some item (cases of scotch, cans of beans, clothing). Ultimately, the two groups would deliver a single contract. An instructor may enact several guidelines (such as all contracts must include a choice of law clause, must contemplate future disputes) for students or may leave students to their own devices. 2. If the instructor chooses the option of contract negotiation between groups or students representing two countries, the instructor can require students to present their work in the form of a portfolio. Within this portfolio, student groups would log all negotiations, including written or verbal offers, the time, place of negotiations, other content discussed, and the final contract. Instructors may also wish to forbid face-to-face negotiations between groups, so as to underscore some of the problems that may arise in international negotiations when parties must communicate via e-mail or letter. This will teach students to be very precise in their communications. This may be accomplished through a course chat room or through e-mail (with students including copies of all letters or printouts of all e-mails). 3. Instructors may also wish to require students to negotiate with partner students also taking International Business Law at another institution. This, also, would require/ensure long-distance negotiations (as all documents would pass by fax, e-mail, or mail, and all negotiations through these means or phone) and implicate the trust issues that such businesses commonly face. 4. Finally, after reviewing contracts, instructors may wish to create a contract dispute (perhaps goods were not delivered, were damaged, or were not of the type contemplated by one party). Student groups would then respond to questions with reference to both their contract and CISG. Solution Manual for International Business Law and Its Environment Richard Schaffer, Filiberto Agusti, Lucien J. Dhooge 9781285427041