Developing Women Entrepreneurs for the Global Marketplace Temple University

Center for International Business Education and Research

June 18, 2003

How to Avoid How to Avoid Common Legal Common Legal

Pitfalls Pitfalls

Presented by:Blank Rome LLP

How to Avoid How to Avoid Common Legal Common Legal

Pitfalls: Pitfalls: Corporate Law Issues . . . Jane K. Storero,

Esquire 

International Trade Issues . . . Barbara D. Linney, Esquire

 Intellectual Property Issues . . . Lisa M.

Casey, Esquire

How to Avoid Common Legal Pitfalls:How to Avoid Common Legal Pitfalls:

CORPORATE LAW ISSUES . . .

Jane K. Storero, EsquirePartner

Blank Rome LLP

Know the Law!

Choice of Entity

Third Party

Subsidiaries

Joint

Ventures/Partnerships

Tax Related Issues

“Permanent

Establishment” Issue

Tax Planning is Key

Joint Ventures/Partnership

s Contractual Agreements

• Partnership

• Joint venture

Terminating Relationships

Terms of payments

• Letter of credit

• Pay in advance

• Pay on account

Risk of Currency Fluctuations

Government Approvals, Permits

and LicensesApproval or Registration

Business Licenses

US Government

Documentation/Authentication

Employment Law Issues

Local Laws and Regulations

Application of US Laws

How To Avoid Common Legal Pitfalls:How To Avoid Common Legal Pitfalls:

INTERNATIONAL TRADE INTERNATIONAL TRADE ISSUES . . .ISSUES . . .

Barbara D. Linney, EsquireBarbara D. Linney, Esquire

Partner Partner

Blank Rome LLPBlank Rome LLP

Know the Law!

Which U.S. Laws & Which U.S. Laws & Government Departments Government Departments

Regulate Export/Import Regulate Export/Import Compliance?Compliance?

U.S. Department of Commerce

• Bureau of Industry and Security (“BIS”)

Export/Import Laws and Export/Import Laws and RegulatorsRegulators

U.S. Department of the Treasury

• Office of Foreign Assets Controls (“OFAC”)

• Customs (revenue functions)

U.S. Department of Homeland Security • Bureau of Customs and

Border Protection (“CBP”)

• Bureau of Immigration and Customs Enforcement (“ICE”)

U.S. Department of Justice

• Criminal Enforcement, Fraud Division

• Bureau of Alcohol, Tobacco, Firearms and Explosives (“BATFE”)

U.S. Department of State

• Directorate of Defense Trade Controls (“DTC”)

U.S. Trade Laws Affect:U.S. Trade Laws Affect:

Commercial production & sales

Military production & sales

Technology exchanges & transfers

Financial transactions

Domestic & international operations

Imports & exports

What Constitutes An “Export”

Actual shipment or transmission out of the United States

“Deemed export” - Release of technology or software to a foreign person in the United States by

• Visual inspection of U.S.-origin equipment and facilities• Oral exchanges of information • Application to situations abroad of personal knowledge

or technical experience acquired in the United States• Unencrypted email transmission of controlled

technology

Export Administration Regulations (“EAR”)Regulate the export and reexport of goods and technology for national security, nonproliferation, foreign policy and short supply purposes.

Antiboycott RulesAntiboycott provisions of the EAR prohibit compliance with the Arab League boycott of Israel.

BISBIS

BIS Export License BIS Export License RequirementsRequirements

A BIS export license or license exemption is required for commercial items controlled for national security, foreign policy (including anti-terrorism), nonproliferation or short supply reasons.

The EAR include the Commerce Control List (“CCL”), which sets forth BIS-controlled items, license specifications and exemptions (15 CFR Part 774).

BIS Documentation BIS Documentation RequirementsRequirements

Exporters must file a Shipper’s Export Declaration (“SED”) for each export to foreign countries or foreign trade zones.

Rules were proposed on October 9, 2002 to require electronic filing of SEDs for items on the CCL and USML through the Automated Export System (“AES”) prior to export.

Antiboycott Rules The EAR and U.S. tax laws contain provisions to

encourage or require U.S. firms to refuse to participate in foreign boycotts that the United States does not sanction (e.g., the Arab League boycott of Israel).

The antiboycott provisions of the EAR apply to all “U.S. persons” – including companies located in the United States and their foreign affiliates.

Generally, the antiboycott provisions contained in U.S. tax laws apply to all U.S. taxpayers (and their related companies).

Antiboycott Reporting Requirements

Reports to the Department of Commerce’s Office of Antiboycott Compliance• Submitted no later than 2 months following the end

of the quarter in which the request occurred.

Reports to the Internal Revenue Service• Submitted annually with income tax return.

EAR PenaltiesEAR PenaltiesCriminal

Individuals: Fines of up to $250,000, up to 10 years in prison, or both

Corporations: The greater of $1,000,000 or 5 times the value of the exports or reexports involved

Civil

Fines of up to $10,000 per violation Seizure of the regulated item(s) Denial of export privileges

Antiboycott PenaltiesCriminal

Firms: Fines of up to $50,000 Individuals: Fines of up to $50,000, imprisonment of

up to 10 years, or both

Civil Fines of up to $12,000 Denial of export privileges Exclusion from practice

Tax Penalties Antiboycott violators may also incur tax penalties

including fines and imprisonment

Executive Orders & Regulations under International Economic Emergency Powers Act (“IEEPA”), Trading with the Enemy Act (“TWEA”), U.N. Participation Act, etc.

Economic and trade sanctions against targeted foreign countries, individuals & entities and international terrorists & narcotics traffickers.

IEEPA embargoes apply to “U.S. Persons” worldwide“U.S. Person” includes U.S. corporations and other business entities, U.S. citizens and permanent residents, and any other persons while in the United States

OFACOFAC

Comprehensive EmbargoesComprehensive Embargoes

Countries

Other

Cuba

Iran

Libya

Sudan

Terrorists (individuals, entities & organizations)

Taliban

Foreign narcotics kingpins and traffickers

Limited Country Embargoes Burma/Myanmar (new investment ban)

Iraq (blocked funds)

Liberia (ban on diamond trade)

North Korea (limited embargo)

Sierra Leone (ban on diamond trade)

Syria (ban on certain donations and financial transactions)

Other Limited Embargoes Balkans (persons who threaten

stabilization of Western Balkans)

Yugoslavia (certain residual blocking regulations)

Zimbabwe (blocking property of President Mugabe and senior government officials who threaten political and economic stability of Zimbabwe)

Non-Proliferation (weapons of mass destruction)

OFAC Penalties

Criminal

Fines of up to $1,000,000 Up to 12 years in prison Fines & imprisonment

Civil

Fines of up to $275,000 per violation Detention, seizure and forfeiture of

shipments

Arms Export Control Act (“AECA”)

International Traffic in Arms Regulations (“ITAR”) Regulate the manufacture and export of defense articles, services and technical data.

DTCDTC

“Defense Articles” – i.e., articles listed on the U.S. Munitions List (including models, mockups or other items that reveal Technical Data)

“Technical Data” – directly related to Defense Articles

“Defense Services” – (includes furnishing of “Technical Data” to foreign persons)

Exclusive Jurisdiction of DTC

DTC PenaltiesCriminal

Fines of up to $1,000,000 per violation 10 years in prison Fines & imprisonment

Civil

Fines of up to $500,000 per violation Detention, seizure or forfeiture of vessels and

shipments Debarment (prohibition from participating in

the export of defense articles, services or technical data)

Two bureaus organized under DHS’s Border and Transportation Directorate as of March 1, 2003 serve as primary enforcement agencies protecting the nation’s borders and homeland security investigation and enforcement.

Bureau of Customs and Border Protection – activities include immigration inspection, Border Patrol and customs enforcement at the border.

Bureau of Immigration and Customs Enforcement – includes investigation and enforcement functions of Immigration and Naturalization Service, Federal Protective Services, and customs.

Department of Homeland Department of Homeland SecuritySecurity

Customs PenaltiesCriminal

Knowing entry of goods falsely classified or undervalued, or underpayment of the duty legally owed.

• Firms: Fines of up to $500,000 per violation• Individuals: Fines of up to $250,000 per violation,

imprisonment of up to 2 years, or both.

Referral to other U.S. agencies for prosecution of other export/import laws.

Civil Fines (vary depending on offense)

• Recordkeeping penalties may reach up to $100,000 or 75% of the appraised value of the merchandise, whichever is less.

Seizure and/or forfeiture of merchandise.

Prosecutes criminal violations of all export/import laws.

Responsible for civil and criminal enforcement of the antibribery provisions of the Foreign Corrupt Practices Act (“FCPA”).

Responsible as of March 1, 2003 for firearms and explosives regulation and enforcement – BATFE.

• Implements import control provisions of AECA and laws regulating commerce in explosives and crime control.

• Regulates importation of explosive materials and military items.

U.S. Department of JusticeU.S. Department of Justice

Foreign Corrupt Practices Act Foreign Corrupt Practices Act (“FCPA”)(“FCPA”)

The FCPA contains two basic prohibitions:

Direct payments or gifts to foreign government officials to obtain or retain business.• Applies to any individual firm, officer, director,

employee, or agent of the firm and any stockholder acting on behalf of of the firm.

Payments or gifts to foreign government officials through intermediaries.

• Applies to any individual who is a citizen, national, or resident of the United States, or any business entity that has its principal place of business in the United States, or which is organized under the laws of the United States.

FCPA PenaltiesFCPA PenaltiesCriminal

Firms: The greater of a fine of up to $2 million or twice the gross pecuniary gain to the violator

Individuals: Fines of up to $250,000 per violation and imprisonment for up to 5 years

Fines imposed on individuals may not be paid by their employer or principal

Civil Fines of up to $10,000 per violation Subject to suspension and debarment proceedings

Firearms and explosives regulation reorganized under the Department of Justice as of March 1, 2003.

Implements import control provisions of AECA and laws regulating commerce in explosives and crime control.

Regulates importation of explosive materials and military items.

BATFEBATFE

BATFE Penalties

Unlawful import of items from USMIL or making false statements or concealing material facts in a registration or permit application.• Fines of up to $1,000,000, imprisonment for up to 10

years, or both.

Unlawful manufacture, import or dealing in commercial explosives or making false statements or concealing material facts in records.• Fines of up to $10,000, imprisonment for up to 10

years, or both• Seizure or forfeiture of explosive materials.

Other Crimes and Penalties

Export/import violations may trigger simultaneous prosecution for other crimes (e.g., false statements, mail/wire fraud, conspiracy, and aiding & abetting).

Additional criminal penalties may be imposed for these violations.

Violation of export/import regulations may also result in penalties such as suspension and debarment from obtaining future government contracts.

Alternative Fines Act

The Alternative Fines Act, 18 U.S.C. 3571, contains provisions that enhance the penalties for certain federal crimes.

Under the Act, if a person derives pecuniary gain from the offense, or if the offense results in pecuniary loss to a person other than the defendant, the defendant may be fined up to the greater of twice the gross gain or twice the gross loss.

Some of the statutory penalties for export/import violations may be subject to increase under the Act.

Some “Red Flags” The customer is reluctant to offer information about the

end-use of the item, or the buyer is evasive and unclear about whether the purchased product is for domestic use, for export, or for reexport.

The product's uses do not fit the buyer's line of business (i.e., sophisticated technology for a small bakery).

The customer wants to pay cash for a very expensive item when the terms of sale would normally require financing.

Delivery dates are vague, or deliveries are planned for out of the way destinations.

A freight forwarding firm is listed as the product's final destination.

You can avoid legal pitfalls!

Know the law.

Know your products.

Know the destination of your products.

Know your customers.

How To Avoid Common Legal Pitfalls:How To Avoid Common Legal Pitfalls:

INTELLECTUAL PROPERTY INTELLECTUAL PROPERTY ISSUES . . . ISSUES . . .

Lisa M. Casey, EsquireLisa M. Casey, Esquire

Associate Associate

Blank Rome LLPBlank Rome LLP

Know the Law!

General Concepts to Keep in General Concepts to Keep in Mind, EverywhereMind, Everywhere

Identify IPProtect IP – EarlyMaximize Return

Most Common Forms of IP

Copyrights

Patents

Trademarks

Domain Names

Trade Secrets

Copyrights (and Wrongs)

“Work for Hire”• Early• In writing

AssignmentsMoral RightsBenefits of Registration

• Necessary to file an infringement suit

• Option of statutory damages

Do you own what you think you

own?

Do you own your Web site?Do you own your Software?

Patents Paris Convention Allowance United States Patent Strategy

• Quality over quantity• Consider a provisional patent

application

Patent Cooperation Treaty (PCT) • One initial application for protection

in multiple countries • Not a cost-saver, nor is it a global

application, but it buys you time

Trademarks

Avoid infringing marks and names of other businesses

International Registration• Madrid Protocol

Interplay with Domain Names

Domain Names and Web Site

Domain Names• Trademark owners’ rights • <.com>, <.biz>, <.org>,

<.info.>, <.au>, <.uk>, <.everything>?

Web Sites• EU Data Protection Directive• Consult counsel to advise you

on local host country e-commerce laws.

Trade Secrets

Procedures to maintain secrecy

Detecting Infringing Conduct

Maximize Your IPLicensing

and other Business Ventures

Low risk method to capitalize IP assets

Generate income from unused IPExploit other markets by

allowing licensee to apply the existing technology to a different market

You can avoid legal pitfalls!

Identify Protect Know the law

QuestionsQuestions