978-1285427041 Chapter 16

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CHAPTER 16

REGULATION OF THE INTERNATIONAL MARKETPLACE

CASES IN THIS CHAPTER

Electra-Amambay S.R.L. v. Compañía Antártica Paulista Ind. Brasileira de Bebidas E Conexos

Carlill v. Carbolic Smoke Ball Co.

Quebec (Procureur general) v. Enterprises W.F.H. Itée

Foreign Corrupt Practices Act Review Opinion Procedure Release 12-02

Securities and Exchange Commission v. Siemens Aktiengesellschaft

World Duty Free Company Limited v.The Republic of Kenya

TEACHING SUMMARY

Having found success within their borders, many businesses often look to introduce their

products and services to markets outside those borders. Doing so, however, requires more than

a good product. It requires adapting any product to the unique culture of that market, a

connection and mechanism to bring the product into the local market, such as through a sales

representative or products distributor, raising the foreign consciousness regarding the product

through advertising, and being aware of how business is done in that market. At any of these

critical junctures, a business may run afoul of not only local custom, but also host country and

home country law. For instance, advertising and consumer protection laws differ around the

globe as do customs regarding bribes. An important law pertaining to bribery of foreign officials

is the U.S. Foreign Corrupt Practices Act (and its revisions) as well as its international

counterpart, the OECD Convention on Combating Bribery.

Additional Background: Introducing Products to Overseas Markets. Among the most

important questions facing a company considering taking a product overseas is whether the

product possesses global potential. Although a successful and established brand may seem

promising, even well-established brands face difficulty entering overseas markets. One senior

consultant has suggested that the company should ask whether the product is D.U.M.B., i.e.,

demonstrable, unique, meaningful, and believable.

First, the company must be able to demonstrate the promise of the product or service, such as

showing a cut-away photo of the promised cushioning in an athletic shoe. Second, there are

often local alternatives to a new, foreign product, and consumers might be loyal to their local

brands. Therefore, a company must build uniqueness into products that are recognized by local

consumers. This somewhat insulates the new product from direct competition and can re-direct

customer loyalty. For example, Coca-Cola is a successful global brand but tastes different in

different regions (containing more or less carbonation and syrup). Thus, it is unique from market

to market. Uniqueness can also help to respond to cultural nuances.

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Chapter 16: Regulation of the International Marketplace

Third, the product must be meaningful in that marketplace. For example, although Americans

may desire low-fat and diet foods, other countries associate low-fat foods or “diet”-labeled drinks

with obesity, rather than slimness. Other cultures that already enjoy low-fat diets find such labels

meaningless. Finally, the promise of the product must be believable. Any claims must be

credible and, if overstated, will be very damaging for products not yet established in the

marketplace.

One example of a D.U.M.B. product is the BMW. The BMW makes demonstrable claims

regarding performance and engineering excellence; the German and American products differ

somewhat, but maintain this promise of quality; the essence of the BMW is meaningful to

American as well as German consumers; and its claims are believable, as the BMW performs

as it promises to. See H. Parker Smith, “Is Your Product D.U.M.B. Enough To Take Overseas?”

14 World Trade, 30 (Feb. 2001).

CASE QUESTIONS AND ANSWERS

Electra-Amambay S.R.L. v. Compañía Antártica Paulista Ind. Brasileira de Bebidas E

Conexos

1. What is the “special character” of Law 194/93 and how is its purpose achieved?

2. How does the court justify not implicating the social order of Paraguay?

2. What are alternative methods for Paraguay to achieve the results it seeks under this

law?

Answer: This question calls for student opinion and additional research.

Carlill v. Carbolic Smoke Ball Co.

1. Give at least three examples of where advertising or the subsequent acts that led to this

suit suffered from vagueness problems.

2. What other factors could have influenced the court’s determination that there was a

promise and not mere puffery?

Chapter 16: Regulation of the International Marketplace

Quebec (Procureur general) v. Enterprises W.F.H. Itée

1. Do you think geography is a valid reason to favor one language over another?

2. Is it appropriate to favor one language over another provided people who do not speak

that language are given the opportunity to conduct normal life functions in a different

language?

3. If French is so important and powerful to millions of people, why does it need legal

protection?

Foreign Corrupt Practices Act Review Opinion Procedure Release 12-02

1. How important are the following two representations made by the Requestors to the

DOJ’s decision?

(a) The Requesters will not give any money directly to the foreign officials, but will pay

expenses directly to the providers.

(b) The amount spent on hotels and meals will not exceed the GSA rate (which is the

maximum per diem allowance that U.S. federal employees are entitled to receive as

reimbursement for expenses incurred while on official trip within the continental United

States).

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Chapter 16: Regulation of the International Marketplace

2. Is this opinion sufficient to safeguard the identities of the parties involved in the

proposed visit?

3. What role do DOJ’s prior Opinion Releases play in this decision?

Securities and Exchange Commission v. Siemens Aktiengesellschaft

1. How did Siemens’ penalties relate to the caps on fines discussed earlier in this chapter?

2. Why was a German company subject to the U.S. FCPA? Do you think FCPA

enforcement is effective if the foreign officials accepting the bribes are not held

accountable?

3. Why did Siemens’ internal efforts to stop corruption not result in more lenient treatment

from the U.S. government?

World Duty Free Company Limited v. The Republic of Kenya

1. How does the tribunal support its conclusion that bribe payments are unacceptable

under international public policy? What role does the Convention on Preventing and

Combating Corruption that is approved by the African Union play in the tribunal’s

reasoning?

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Chapter 16: Regulation of the International Marketplace

2. How important is it that Kenyan and English law also prohibit bribe payments?

3. What does the tribunal mean when it says that the bribe and the 1989 Agreement were

“one overall transaction”?

ANSWERS TO QUESTIONS AND CASE PROBLEMS

1. Answer: Demblans is an independent agent, or, as more often termed in the U.S.,

an independent contractor. Basic agency principles should be considered, such as: is the

2. Answer: This also focuses on the agent/independent agent distinction, and

illustrates that real life does not always fall easily into pre-established categories. The scheduling

3. Answer: This recalls the Carbolic Smoke Ball decision and the punctiliousness of

Chapter 16: Regulation of the International Marketplace

4. Answer: If Borges does not develop a new advertising campaign for a nation

5. Answer: On its face, the situation simply suggests knowledge, business success,

6. Answer: Under the worst case scenario, the rumors might be true, and sex could

7. Answer: A $10,000 payment would itself be financially immaterial to a

MANAGERIAL IMPLICATIONS

Entering a new foreign market is often made easier by hiring a products distributor or a general

consumer goods distributor based in that country. As discussed in this chapter, such a distributor

might be an agent or an independent contractor, and students should assess the benefits of each.

One should note, however, that “incentives” and lavish gifts bespeak of bribes. Companies should

have in place and enforce policies that prohibit or establish controls for such “gifts”. Consequently,

managers should consider the legal and ethical limits to such transactions (under the FCPA and

the OECD Convention), the ramifications of acts of agents or independent contractors doing

business “as usual” but on the firm’s behalf, and any mechanisms that would distance the firm

from any illegalities (including which mechanisms would be ineffective in doing so).

ETHICAL CONSIDERATIONS_____________________________________________________

1. This consideration calls for an opinion.

2. This consideration calls for an opinion. Students may wish to update this story as

developments warrant, including allegations that Saudi Arabia threatened Prime Minister

Blair with making it easier for terrorists to attack London unless the corruption investigation

was closed and efforts to launch an investigation of this transaction by U.S. law

enforcement officials. The closing of the investigation was rejected by High Court in April

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Chapter 16: Regulation of the International Marketplace

2008. In an action brought by the anti-bribery groups Corner House Research and the

Campaign Against Arms Trade, the Court condemned the discontinuation of the

investigation as an “abject surrender” and a threat to the reputation of British justice.

However, the House of Lords reversed the High Court in July 2008. In his opinion, Lord

Bingham stated that the only issue for determination was whether the refusal to

prosecute was a proper exercise of the Serious Fraud Office’s discretion rather than

whether the decision was right or wrong. Lord Bingham concluded that the decision was

“courageous” in its conclusion that saving British lives outweighed the public interest in

pursuing a conviction against BAE. Lord Bingham concluded that a responsible decision-

maker would have reached the same conclusion when confronted with such “an ugly

and obviously unwelcome threat.” As a result, the U.K. Serious Fraud Office did not

reinstitute the investigation. This result was condemned by anti-corruption groups

throughout the United Kingdom who characterized it as a threat to the rule of law, a legal

license for international blackmail, and symptomatic of the government’s reluctance to

combat corruption. For its part, BAE announced it would adopt a new ethics program,

which included a global code of conduct, monitoring procedures, and increased

employee training and stakeholder consultation.

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