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Chapter 7 – The International Legal Environment: Playing by
the Rules
Teaching Objectives
This chapter deals with two broad issues involving the legal environment. The first issue is concerned
with the problems that arise with international commercial contracts and settling disputes when they arise.
Since there is no international commercial law or international commercial courts, disputes must be
settled under the laws of one of the countries where the parties of the contract reside or, if an arbitration
clause is included in the contract, by arbitration. Although there is no international commercial law per se,
the agreement to enforce arbitration decisions that exists among a large number of countries does create a
system that approaches international commercial court. The second issue concerns the common law bases
for the U.S. legal system which creates problems for U.S. companies when interpreting the laws in
countries whose legal systems are based either on code, socialist, or Islamic law. A review of the different
legal systems is important for students to appreciate the problems that arise in protecting such things as
intellectual property rights, etc. I continue to discuss socialist law even though most formerly socialist
countries are moving toward a different system. My reasoning is that the legacy of a socialist legal system
continues to influence how businesspeople think about legal matters. The teaching objectives of this
chapter are to:
1) Help students understand the four legal systems of the world’s countries.
2) Appreciate the critical nature of jurisdiction when legal disputes arise and thus, the need for
solutions other than litigation.
3) Understand the difficulty of protecting intellectual property rights and how those rights can easily
be lost if the company depends on its rights as defined in a common law country to protect it in a
code law country.
4) Know that in addition to the commercial laws within in a country, a U.S. company must abide by
certain U.S. laws as well.
Comments and Suggestions
1. We use Case 2-6, When International Buyers and Sellers Disagree, to open the discussion on this
chapter. I have the students read the case in class (it’s short) and then ask them to use facts in the case
to illustrate the various points made in the chapter. This case illustrates the importance of jurisdiction
—whose law applies, the influence of different attitudes toward pig livers if the case were brought in
front of a German court or a U.S. court, the importance of precision in descriptions in a contract, i.e.,
“customary merchandisable quality,” and how the SRC can have influence at all levels. This is a case
where both parties were correct from their individual perspective and yet were not pleased with the
outcome. It also illustrates the importance of arbitration in international legal disputes.
In the discussion of intellectual property rights there are two points to make: 1) gaining legal protection for
patents, trademarks, processes, copyrights, etc. under the legal system of a country and, 2) the
problems of counterfeiting and/or piracy of intellectual property rights. While a company may have
the legal protection of a patent or trademark that law abiding companies honor, there is the ever-
growing problems of piracy and counterfeiting.
We differentiate between piracy and counterfeiting. Although most discussions do not differentiate
between the two, they are two separate problems. When piracy occurs, the pirated product is of the
same quality as an original, for example, a company duplicates a piece of software or copies a video
tape. In counterfeiting, the product is make to look like an original but is not of the quality as the
original. Books, audio and video tapes, movies, and software are often pirated. In such cases, the
product is of the same quality as the original but, of course, the company does not get any revenue
from the sale.
With a counterfeit product, not only does the company not receive revenue from the sale of the
counterfeit product, but if the quality is poor, as is often the situation, damage is also done to the
product image and the use of counterfeit products can cause accidents and product failure. I have seen
counterfeit Levis that look like the real thing but after two or three washings, the poor quality of the
fabric is apparent. Auto and aircraft accidents have been attributed to counterfeit parts sold in the
United States. The only protection companies have against piracy and counterfeiting is through the
cooperation of host countries and efforts by the U.S. government.
Lecture Outline
I. The International Legal Environment: Playing by the Rules
II. Global Perspective—The Pajama Caper
III. Bases for Legal Systems
A. Common and Code Law
B. Islamic Law
C. Marxist-Socialist Tenets
IV. Jurisdiction in International Legal Disputes
V. International Dispute Resolution
A. Conciliation
B. Arbitration
C. Litigation
VI. Protection of Intellectual Property Rights—A Special Problem
A. Counterfeiting and Piracy
B. Inadequate Protection
C. Prior Use versus Registration
D. International Conventions
E. Other approaches for protecting IP
VII. Cyber Law—Unresolved Issues
A. Cybersquatters
B. Taxes
C. Jurisdiction of Disputes and Contracts
VIII. Commercial Law within Countries
A. Marketing Laws
B. Green Marketing Legislation
C. Foreign Countries’ Antitrust Laws
IX. U.S. Laws Apply in Host Countries
A. Foreign Corrupt Practices Act
B. National Security Laws
C. Antitrust Laws
D. Antiboycott Laws
E. Extraterritorially of U.S. Laws
X. Export Restrictions
A. National Security Laws
B. Determining Export Requirements
C. ELAIN, STELA, ERIC, and SNAP
XI. Summary
