Management Chapter 24 Op to magic Can Protect Its Intellectual Property Rights

Chapter Twenty-Four

International Law and Transactions

A MANAGER’S DILEMMA: PUTTING IT INTO PRACTICE

Should U.S. Companies Sell Products Banned in the United States in Other Countries?

Issues Presented: Was the conduct of Dow Chemical and Shell Oil ethical? Was

Standard Fruit’s use of the U.S.-banned pesticide ethical? Were the defendants

arguing inconvenient forum to avoid a jury trial and Texas laws regarding personal

injury and wrongful death? If so, is that ethical? If goods are not consistent with

some sets of standards but are basically okay, is it ethical to sell them? If they are

dangerous, how dangerous is too dangerous? Should it matter whether consumers in

a developing country cannot afford products meeting higher but more expensive

western standards?

Dow Chemical Co. v. Alfaro, 786 S.W.2d 674 (Tex. 1990), is one of many lawsuits that have

been brought by farm workers who allege they were involuntarily sterilized as a result of

exposure to DBCP. Many of these actions were filed in the United States against the companies

that manufactured, sold, or used DBCP. The lawsuits allege, among other things, that Dow and

Even in the face of the EPA ban on use of DBCP in the United States, Standard Fruit

insisted on a continued supply of DBCP for use on its plantations in foreign countries, and even

threatened Dow with a lawsuit for breach of contract if it ceased to supply the pesticide. When

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Dow and Shell have defended against these lawsuits on the basis that their manufacture

and export of DBCP complied with all state and federal laws in the United States. The Federal

Insecticide, Fungicide and Rodenticide Act allows chemical manufacturers to continue to export

pesticides that are outlawed in the United States, and the export of these toxic pesticides

The developing countries that purchase these pesticides often lack adequate resources to

address environmental issues and they continue to use hazardous pesticides. In Costa Rica,

banana plantations have been a leading agricultural sector for many decades. About 95 percent

of the banana production is controlled by three U.S.-based transnational corporations. Banana

plantations consume approximately one-third of the total annual costs of pesticide production.

It can be argued that it was unethical for Standard Fruit to continue to expose its foreign

workers to DBCP after it became aware that its use had been banned in the United States. Even

The doctrine of forum non conveniens is frequently asserted by U.S. corporate defendants

who are sued in the United States by foreign nationals for injuries that occurred in the foreign

nationals’ home countries, even when the foreign forum is not really “more convenient.” The

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When the Alfaro plaintiffs sued in Texas state court, the defendants sought to have the

case moved to federal court. After this motion was denied, the defendants moved to dismiss

the complaint on the basis of forum non conveniens. After five years of court battles, however,

the Texas Supreme Court held that Texas did not recognize the doctrine of forum non conveniens

in wrongful death and personal injury actions. Shortly after the Texas Supreme Court decision,

Multinational corporations continue to expand their sales of dangerous chemicals in

Latin America, even as U.S. and EU laws have banned or severely restricted many of the

pesticides and UN conventions have come into force. In one study of U.S. Customs records, the

Foundation for Advancements in Science and Education found that between 2001 and 2003, 1.7

QUESTIONS AND CASE PROBLEMS

Question 1

Issues Presented: (a) How do the various U.S. trade laws affect a company’s decisions relating

to the purchase of foreign goods? How do these laws influence which foreign country is

chosen to supply the goods? (b) In what ways can a company seek to reduce the tariffs on

goods from a particular country?

(a) A purchaser who wishes to import mineral water must be aware of any differences

in the tariffs imposed on each potential supplier before making his or her purchase decision.

The tariffs imposed on importers from different countries can vary substantially. The importer

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The purchaser must first ask whether mineral water is a product that receives a preference. The

HTS indicates that the general tariff on mineral water is 0.3¢ per liter. However, mineral water

is designated as a good to which the GSP applies (designated by the letter “A” under

Question 2

Issue Presented: (a) Was Iraq immune under the Foreign Sovereign Immunities Act (FSIA)

for breach of a contract entered into by its armed forces? (b) What public policies are

implicated?

(a) Although foreign states are immune from suit in courts of the United States for

many of their acts, there is an exception to this grant of immunity for claims based on an act

outside the territory of the United States in connection with a commercial activity of the foreign

The court reasoned as follows:

To determine whether an entity is an agency or instrumentality—and thus

legally separate from the foreign state—or a mere political subdivision, courts

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Because “the core functions of IMOD—waging war and defending the state—are

inherently governmental,” the court held that “IMOD is a political subdivision of Iraq and thus

Iraq and IMOD are legally one and the same.”

The court then found that the commercial activity exception applied: “Iraq, through

IMOD, engaged—pursuant to the contract—in the preparation for sale and sale of scrap metal

Question 3

Issues Presented: (a) What are some of the crucial considerations that must be taken into

account before engaging in an international business project? (b) How does the Foreign

Corrupt Practices Act limit the activity of Americans abroad?

(a) Attorneys are trained to spot issues, as well as to address them. In-house legal

counsel, or an attorney from an outside firm, should be consulted early in a prospective project,

if only to identify major risks and threshold issues. Efficient use of legal counsel requires that

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confirm the extent to which intellectual property laws (as well as other laws) of the host

jurisdiction offer protection.

While investigating these various issues, legal counsel will likely obtain information on

Because of the possibility of changes in Varoom’s foreign investment laws, Optomagic

should seek to include a provision in its contract with its Varoomian counterpart that would

allow renegotiation of the particular terms that were agreed to as a result of existing Varoomian

foreign investment laws (e.g., payment of taxes, export of a percentage of production, and

employment compensation requirements) if those laws are amended to allow greater benefits to

(b) The Foreign Corrupt Practices Act would probably be violated if Dr. Ayantuga were

included in the project as an investor or a paid consultant. Because countries other than the

United States do not have laws prohibiting practices such as these, it may seem that such

Question 4

Issues Presented: (a) What are the crucial concerns for an American company attempting to

protect its intellectual property rights abroad? (b) What U.S. laws apply to the transfer of

various technologies and products to an international joint venture? (c) What conditions

should be imposed on a foreign contribution to a joint venture? To a letter of credit signed

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in respect to such venture? (d) What are some of the options for a U.S. company in the area

of contribution to a joint venture?

(a) Optomagic must familiarize itself with Varoom’s new patent and trademark

registration laws to determine how Optomagic can protect its intellectual property rights in the

proposed joint venture. The absence of a copyright law in Varoom is worrisome because it is

(b) The contribution, licensing, or other transfer of Optomagic gizmo components by a

U.S. company to a foreign joint venture are all subject to the Export Administration Act. A

general license may be available without application or Department of Commerce review if the

(c) The proposed contribution by Varoom Medical of 950 million baninis should be tied

to a pre-agreed exchange rate or stated in an internationally recognized stable currency so that

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(d) If Varoom does not offer reliable protection for Optomagic’s intellectual property

rights, Optomagic should consider contributing pre-designed or constructed components to the

joint venture to minimize the disclosure of sensitive processing or production information. If

Question 5

Issues Presented: (a) What hiring decisions must be considered in the context of a joint

venture? (b) What U.S. laws apply to the training of technicians in such an endeavor? (c)

What are the advantages of hiring resident expatriate management personnel? What are

some of the considerations that must be made when forming a staff for a joint venture

located abroad?

(a) Joint-venture employees should be hired by mutual decision according to skill and

pursuant to standardized testing or similar standards. Employment of relatives or friends in

return for favors or to enhance personal networks may be a more acceptable practice in some

cultures than in others, where nepotism is frowned upon. To avoid clashes on this subject with

(b) The Export Administration Act applies to the transfer of information by a U.S.

business or person to a foreign entity. The training of foreign joint-venture technicians in a U.S.

facility involves the transfer of information and, where that type of information is subject to

Export Administration Act controls, the training program itself can require an export license.

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(c) Resident expatriate management personnel are important to foreign projects that

require on-going reliable communication with foreign headquarters, or involve new technology

and new management techniques. Visiting technicians or supervisors cannot substitute for

resident, on-the-spot guidance or for clear, reliable, international communication. Visiting

Question 6

Issues Presented: (a) What alternatives exist to repatriating foreign currency? (b) What U.S.

laws might apply to the export of foreign products to the United States?

(a) Optomagic can reinvest local currency earnings to expand its Varoomian ventures in

anticipation of a possible freely convertible currency being established in the future.

Alternatively, Optomagic may engage in countertrade, whereby it would trade its share of the

joint-venture products (or local currency proceeds from local sales) with another Varoomian

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(b) Laws that might apply to exports of Optomagic gizmos to the United States from

Varoom include the trade and tariff laws discussed in this chapter, as well as U.S. laws and

regulations that establish standards for certain types of products (e.g., food, drugs, infant

Question 7

Issue Presented: Is a state law that prohibits the importation into or sale of products made

from kangaroo preempted by the federal Endangered Species Act of 1973?

In the trial court and the court of appeal, Adidas argued that California Penal Code

Section 653o should be construed as applying only to those species currently federally listed as

endangered. However, both courts concluded that Section 653o’s plain language dictated a

contrary result, as the statute applies to “any . . . kangaroo” product.

Adidas argued that Penal Code Section 653o and the Endangered Species Act of 1973

touch on matters implicating foreign affairs. The Endangered Species Act was passed in part to

ensure that the United States could meet its international conservation treaty obligations. The

court noted that the U.S. Supreme Court had addressed an exercise of a state’s traditional

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principles of interpretation to determine whether it should be interpreted to preempt Penal

Code 653o.

In this case, the court found that the Act’s legislative history, confirmed a vision of a

joint cooperative state-federal approach to wildlife preservation. With that in mind, it turned to

Section 6(f) of the Act, which provides that:

Any State law or regulation which applies with respect to the importation or

exportation of, or interstate or foreign commerce in, endangered species or

The court concluded that Section 6(f) did not expressly preempt the California law

because the inclusion of the savings clause negated field preemption and there was no conflict

preemption because simultaneous compliance with both the federal law and the state law is

possible.

However, the court concluded that Adidas had to show that it relied on an

“authoritative” message of a federal policy against state regulation and “clear evidence of a

conflict” between state and federal goals, and that Adidas had failed to meet this burden of

proof:

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“failure to prohibit” as equivalent to “authorization.” But if that were so, there

would be no room for state regulation, despite an evident federal intention that

there be significant room for such regulation. Either an action would be

prohibited by federal law, in which case state regulation would be superfluous,

or it would not be prohibited by federal law, in which case state regulation

Question 8

Issue Presented: Does an individual have a right under the Federal Tort Claims Act

(FTCA) to sue the United States for injuries suffered in a foreign country regardless of

where the tortious act or mission occurred?

The U.S. Supreme Court noted that the FTCA “was designed primarily to remove the

sovereign immunity of the United States from suits in tort and, with certain specific exceptions,

to render the Government liable in tort as a private individual would be under like

circumstances.” The FTCA gives federal district courts jurisdiction over claims against the

United States for injury caused by the wrongful act or omission of a Government employee

As a result, recognition of additional domestic causation left open a question as to

whether the exception to sovereign immunity applied to Alverez’s claim. The Court also noted

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