TOP LEGAL ISSUES IN
INTERNATIONAL COMMERCE - what
you should know; what you should do
Brian Whisler, Washington, D.C.
Valerie Marsh, Washington, D.C.
Douglas Darch, Chicago
Pamela Church, New York
Association of Corporate Counsel
Charleston, South Carolina
November 14, 2012
2
About Baker & McKenzie
– Baker & McKenzie’s network of offices spans the globe. With our far-reaching global reach,
our clients know they can rely on us to provide a deep level of local expertise, while bringing
a global commercial perspective to their activities, objectives and legal needs.
Baker & McKenzie’s international
network: the facts
70+ offices
42+ countries covering every major
commercial, financial, and industrial
centre in the world
3,900+ lawyers
Admitted to practice in 250+
jurisdictions
Fluent in 60+ languages
Many of our lawyers speak many
languages, all of our lawyers speak the
‘language of business’
3
– The globalization of financial and commercial markets, the growth in emerging economies, and increased competition have provided attractive advantages—and challenges—for companies conducting business abroad. Today we focus on some of those opportunities and challenges U.S. companies face in cross-border operations.
Agenda
– FCPA, UK Anti-Bribery Act, Anti-Boycott, Export Control—
how to stay out of trouble
– International M&A, Joint Ventures and Technology
Transfer
– Navigating Labor and Employment Issues Abroad
– How to Protect your Intellectual Property in the
International (and Digital) Marketplace
– Privacy and Data Security Concerns, whether you are
doing international business offshore or via the internet.
5 5
FCPA, UK Anti-Bribery
Act, Anti-Boycott, Export
Control
Baker & McKenzie LLP is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common
terminology used in professional service organizations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an
"office" means an office of any such law firm.
© 2012 Baker & McKenzie LLP
Trends in Enforcement
& Corporate Compliance
Brian Whisler Baker & McKenzie LLP
815 Connecticut Avenue, NW
Washington, D.C. 20006
Tel. +1 202 452 7019
Enforcement Trends –
Foreign Corrupt Practices Act
8
The Foreign Corrupt Practices Act
The FCPA (15 U.S.C. §78dd-1 et. seq.) prohibits issuers, domestic concerns, and “other persons” from corruptly offering, authorizing or giving “anything of value” to foreign officials for the purpose of obtaining or retaining business for or with, or directing business to, any company.
Top 20 FCPA Settlements (Millions)
Siemens $800
KBR/Halliburton $579
BAE $400
ENI S.p.A. $365
Technip $338
JGC Corporation $219
Daimler $185
Alcatel-Lucent $137
Deutsch / Magyar Telekom $95
Panalpina $82
Johnson & Johnson $70
ABB $58
Pride International $56
Marubeni Corporation $54
Baker Hughes $44
Willbros $32
Chevron $30
Titan $29
Bridgestone $28
Tyco International $26 9
2007
2008
2009
2010
2006
2005
2011
2012
FCPA - More Aggressive Enforcement
10
US Foreign Corrupt Practices Act Actions
*Through June 30th
FCPA - Key Enforcement Trends
Greater awareness of corporate responsibilities
Increased global enforcement
More global cooperation
Emphasis on prosecution of individuals
Enhanced expectations for compliance programs
UK Bribery Act 2010 – Effective July 1, 2011
– Replaces outdated UK anti-bribery and corruption legal
framework
– Conforms with FCPA (‘77)/OECD (‘97) UN Convention
(05’)
– Provides modern, single piece of legislation criminalizing
bribery, commercial and public
– Designed to enable effective prosecution of bribery
offenses
12
UK Bribery Act - 4 Offenses – Two “active” offenses of bribing and being bribed
– The offer, promise or giving of a financial or other
advantage
– The bribing a foreign public official
– A “passive” offense of requesting, agreeing to receive or
accepting a financial or other advantage
– “Corporate” offense of failure of a commercial organization
to prevent bribery
13
UK Bribery Act (cont.) – Strict Liability for Companies
– Broad interpretation of “commercial organization”
– Corporate liability for any bribery offense committed by ‘associated person’
acting within scope anywhere in the world
– ‘Associated person’ includes: employees, consultants, agents, distributors,
intermediaries, joint ventures or subsidiaries
– Conduct ‘all or part’ of a business in the UK regardless of where incorporated
or where the bribe was paid
– Applies to non-UK organizations/individuals
– Affirmative defense for ‘adequate procedures’ -- organization did everything it
reasonably could have done to prevent bribery in the conduct of its business
14
UK Bribery Act (cont.) Penalties:
– For the individual: unlimited fines and up to 10 years’ imprisonment .
– For the organization: unlimited fines and potential debarment from government
contracts within the EU
– Consequential penalties
– Reputational damage
– Legal and investigation costs
– Loss of management time
– Loss of key business relationships
– Competitor claims
15
Enforcement Trends –
Export Controls
Export Control Statutes
The basics –
– License required to:
(1) export, re-export or trans-ship certain goods;
(2) engage in certain transactions; or
(3) provide certain services to foreign nationals or
outside the United States.
– Three primary government agencies that provide this
authorization depending on the type of good, service or
transaction.
17
Primary Export Control Statutes
Arms Export Control Act (AECA) – Defense Articles & Services
International Emergency Economic Powers Act (IEEPA) – Dual
Use & Most Sanctions
Trading with the Enemy Act (TWEA) – Cuba
Penalties
• Criminal – “Willful” violations: 20 years
imprisonment and $1 million fine per violation
• Civil – Strict liability, no “willful” intent required:
fines
≤ $250,000 or 2xs value of the transaction
18
Top 10 Criminal Fines In Export Control Matters (Millions)
Company Industry Fine ING Bank N.V. Financial Services $619
Credit Suisse AG Financial Services $536
Royal Bank of Scotland (formerly
ABN Amro Bank, N. V.)
Financial Services $500
BAE Systems PLC Defense Contractor $400
Barclays Bank PLC Financial Services $298
Lloyds TSB Bank, plc Financial Services $217
ITT Corporation Manufacturing $100
JPMorgan Chase Bank, N. A. Financial Services $88.3
Pratt & Whitney Canada Corp. Defense Contractor $75
XE Services (formerly Blackwater) Defense Contractor $42
19
2009
2010
2011
2012
– Broadening of investigations to include new industries and business
lines
– More aggressive and enhanced enforcement by law enforcement
– Increasing fines based on defects in the quality and timeliness of a
company’s internal investigation
– Use of DPAs, NPAs and/or civil settlement agreements in lieu of
prosecution as ways to resolve government investigations
– Export Control Reform effort is currently underway to enhance
coordination and overhaul export control laws
Export Controls - Trends
20
Compliance Trends –
Managing Enforcement Risk
Why Is Managing Risk Important?
Significant litigation exposure and criminal fines
Personal liability (including jail, extradition, director disqualification
and loss of employment) not only for those directly involved, but also
management and board members
Third-party lawsuits (e.g., shareholder actions)
Negative publicity – which can impact reputation and share price as
well as negatively affect customer base and revenues
Costs of investigation and remediation
22
What Are The Benefits?
Reduction of compliance violations and related risks
Mitigation of risk of enforcement
Reduction of fine levels (US Sentencing Guidelines)
Fulfills fiduciary duty to stockholders and gives comfort to
stakeholders such as customers, employees, as well as to
regulators
Represents a core component of corporate and social responsibility
(CSR)
An ounce of prevention is worth a pound of cure – the costs of a
compliance program always will be much less than the alternatives.
23
The Age Of Corporate Compliance
A company’s pre-existing compliance program is a key factor that
prosecutors consider when making enforcement decisions –
including whether the company itself should be charged with
violating the law based on the conduct of its employees.
General principles about business integrity that are included in an
ethics code are no longer enough.
Compliance requirements are routinely inserted into FCPA
settlement agreements and are important considerations in case
dispositions.
24
Case Study: Morgan Stanley
April 2012 – provides the most recent evidence of the benefits of
investing in compliance. Morgan Stanley’s pre-existing compliance
program was highlighted in Government press releases and public
comments as the most significant reason for the declining to prosecute
the bank.
The decision not to prosecute was based on evidence of: • Rigorous internal controls
• Regular training and reminders on FCPA policy and compliance
• Internal policies addressing the corruption risks associated with the giving of gifts, business
entertainment, travel, lodging, meals, charitable contributions and employment, that were
updated regularly to reflect regulatory developments and specific risks
• Compliance program monitoring and auditing
• Extensive pre-retention due diligence on business partners and stringent controls on payments
to business partners
25
Case Study: Merck-Medco
U.S. ex rel. Hunt v. Merck-Medco Managed Care, LLC et al.,
336 F. Supp.2d 430 (E.D. Pa. 2004)
Merck-Medco acted “knowingly” under the FCA – that is, with “deliberate ignorance” – by failing to have in place a compliance program sufficient to detect and prevent the submission of false claims to the Government.
• The company’s management failed to satisfy their obligations to ensure that information and reporting systems exist that are reasonably designed to provide timely, accurate information sufficient to allow it to make informed judgments about compliance with the law.
26
DOJ Principles Of Federal Prosecution
The U.S. Department of Justice considers the existence of a pre-
existing compliance program when determining whether to
prosecute a business organization.
Thus, the DOJ will assess a company’s compliance program when
determining whether to bring criminal charges against the company.
An effective compliance and ethics program can mitigate a
company’s risk exposure.
27
US Sentencing Guidelines – 7 Elements Of Compliance
Corporations are directed, at a minimum, to:
• (1) Establish standards and procedures to prevent and detect criminal
conduct;
• (2) Ensure leaders understand and oversee the compliance program in
order to verify its effectiveness and the adequacy of support for the
program and that specific individuals are vested with the authority and
responsibility to implement the program;
• (3) Use reasonable efforts to deny leadership positions to people who
have engaged in illegal activities or other misconduct;
• (4) Communicate periodically the standards and procedures of the
compliance program to the employees, and conduct effective training
programs;
28
US Sentencing Guidelines – 7 Elements (Cont’d)
• (5) Monitor and audit employee conduct, evaluate the effectiveness of
the compliance program, and maintain reporting mechanisms for
employees who become aware of misconduct;
• (6) Provide incentives for employees to perform in accordance with the
compliance program, and impose disciplinary measures against
personnel who engaged in criminal conduct, and
• (7) Respond quickly to allegations of criminal conduct and modify
aspects of the compliance program, if necessary.
29
What Are Regulators Looking For?
Case Examples –
• Pfizer H.C.P. Corp. (2012)
• Johnson & Johnson (2011)
• Panalpina, Inc. (2010)
30
What Are Regulators Looking For?
DOJ’s FCPA settlements provide guidance on the essential
components to an effective compliance program. Recent settlement
agreements have required a company to create a compliance
program, or enhance its existing compliance program, to include
certain essential components.
31
What Are Regulators Looking For?
An effective compliance program should include:
• Code of Conduct
• Internal controls
• Standards & procedures
• Senior corporate official oversight
• Training
• Reporting system
• Disciplinary procedures
• Third-party pre-retention due diligence
• Standard anti-corruption contract provisions
• Periodic compliance program testing
32
What Are Regulators Looking For? (Cont’d)
A Code of Conduct that clearly articulates company policy against
violations of the FCPA and other applicable anti-corruption laws
Internal controls to ensure fair and accurate books, records and
accounts are kept
Standards & procedures applicable to directors, officers, and
employees and, where necessary and appropriate, outside parties
acting on behalf of a company in a foreign jurisdiction (including
agents, consultants, representatives, distributors, teaming partners
and joint venture partners)
Senior corporate official oversight with the authority to report matters
directly to the Audit Committee of the Board of Directors
33
What Are Regulators Looking For? (Cont’d)
– Training and other mechanisms to communicate a company’s
FCPA and anti-corruption policies and standards and procedures
to all directors, officers, employees and, where necessary and
appropriate, agents and business partners that includes:
• Periodic training for all directors and officers, and,
where necessary and appropriate, employees,
agents and business partners; and
• Annual certifications with regard to this training by
all directors and officers, and, where necessary and
appropriate, employees, agents and business
partners
34
What Are Regulators Looking For? (Cont’d)
– Reporting system for suspected criminal misconduct available to
directors, officers, employees, and, where necessary and
appropriate, agents and business partners
– Disciplinary procedures that address violations of the FCPA, other
applicable anti-corruption laws, and the company’s compliance
code, standards and procedures
– Third-party pre-retention due diligence and oversight
35
What Are Regulators Looking For? (Cont’d)
Standard anti-corruption contract provisions in agreements,
contracts, and renewals with all agents and business partners which
may include:
• (a) anti-corruption representations and undertakings relating to compliance with
the FCPA and other applicable anti-corruption laws;
• (b) rights to conduct audits of the books and records of the agent or business
partner to ensure compliance with the foregoing; and
• (c) rights to terminate an agent or business partner as a result of any violation of
anti-corruption laws or breach of representations and undertakings related to
such matters
Periodic compliance program testing to evaluate effectiveness in
detecting and reducing violations of anti-corruption laws and the
company’s compliance code, policies, and procedures
36
Compliance Requires Appreciation Of Risks
U.S. regulators expect companies to assess their specific risks and
that standards and procedures be developed “on the basis of a risk
assessment addressing the individual circumstances” of the company,
including:
• Its geographical organization
• Industrial sectors of operation
• Involvement in joint venture arrangements
• Degree of government oversight and inspection
37
U.S. Regulators Credit Compliance
The Government evaluates a company’s existing compliance program when assessing vicarious liability – charging decisions/settlement exposure
Morgan Stanley
Other Precedent
38
Questions?
40 40
International M&A, Joint
Venutures and
Technology Transfer
Cross-Border M&A, Joint Ventures and
Technology Licensing
Valerie Marsh Baker & McKenzie LLP
815 Connecticut Avenue, NW
Washington, D.C. 20006
Tel. +1 202 452 7066
Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common
terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or
equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm.
International Transactions Activity
42
– Key Emerging Markets: BRIC Countries
(Brazil, Russia, India and China)
– Next Wave:
– MIST Countries (Mexico,
Indonesia, South Africa and Turkey)
– CIVETS Countries (Colombia, Indonesia,
Vietnam, Egypt, Turkey and South Africa)
– Others
43
Transaction Continuum Select the appropriate type of relationship
Traditional M&A Outsourcing Corporate Alliances Greenfield
Partial
Acquisitions
Controlling
>50%
Full
Acquisitions
Contract
Services
Contractual
•licensing,
supply/
distribution
•resource
sharing
Investment
Non-
Controlling
<50%
Equity
Joint
Ventures
Establishment
of Wholly-
Owned
Subsidiary
Increasing Degree of Integration
Increasing Degree of Control
Increasing Degree of Commitment
Non-Equity Equity
Cross-Border M&A: Sample Differences in Deal Terms
SPA Provision United States Europe
No Undisclosed
Liabilities
Representation
99% 40%
Purchase Price
Adjustment Included
82% 49%
Indemnification back to
first dollar/Euro once
threshold met
31% 72%
Arbitration to Resolve
Dispute
18% 71%
Sources: ABA “Deals Point Study” (M&A Market Trends Subcommittee) for 2011 (U.S.) and 2010 (Europe)
44
Cross-Border M&A: Differences in Deal Process – Increasing focus on anti-corruption compliance in cross-border deals has created a dual
work stream for diligence – traditional corporate diligence and a separate anti-corruption
diligence.
– Corruption problems at target (FCPA, UK Anti-Bribery Act, local laws) can
i. destroy target’s business model and value once purchased by U.S. buyer,
ii. create civil and criminal liability for U.S. buyer and its officers, and
iii. cause U.S. buyer to be debarred from government contracts even for division not involved in
the acquisition.
– Anti-corruption diligence goes beyond traditional legal evaluation of compliance to
include corporate intelligence and, where needed, forensic accounting review.
– Strategic and financial buyers are utilizing this type of diligence given risks to buyers of
acquiring non-compliant assets.
– Anti-corruption diligence is coordinated by specialists under the review of the corporate
diligence team.
– Buyers are considering privilege issues when retaining forensic accountants and many
choose to retain them through counsel.
45
Cross-Border M&A: Sample Traps for the Unwary
1. Labor Issues
a. work council information rights and approval rights
b. undertakings / rights for continued employment (even in asset deals)
c. statutory payments, bonuses and social taxes; atmosphere of non-
compliance
d. difficulty of enforcing non-compete provisions
2. Pensions
a. substantial valuation differences
b. underfunding obligations
3. Currency
a. exchange rate fluctuations
b. currency conversion restrictions (trapped cash)
46
Joint Ventures: Protecting Your Client’s Interests
What key diligence needs to be done to support the
strategic rationale for the transaction?
• Key Business Relationship and Contracts
• Manufacturing or other facilities
• IP Management
• Market penetration
• Products
The Key Driver is Compatibility
47
Joint Ventures:
Process to Assess Compatibility
Non-operational matters
• Reputation
• Legal compliance
• Ongoing Disputes
• Organizational compatibility
• Geographic stability
Assessment method:
“Traditional” due diligence
Operational matters
• Alignment of goals
• Business cultures
• Financial resources
• Operational savvy
• Leadership commitment
Assessment method:
“Comparative” due diligence 48
Joint Ventures: Common Problems…in the International Context
49
Selected common problems areas
• Purpose of venture
• Capital contributions
• Management structure
• Deadlock
• Termination
International JV Structure
Direct Investment/Control by JV
Partners
Investment/Control via intervening
USCo
50
US
Corporation
Foreign JV
Foreign JV
Partner US
Corporation
USCo JV
Foreign JV
Partner
Foreign
Subsidiary
of JV
Joint Ventures: Protecting Your Client’s People Against Risks
51
US individuals serving on the JV boards or as officers of
foreign entities
• Subject to civil and criminal exposure
‒ US law
‒ Foreign law (tax, bribery, insolvency, data protection,
environmental, conflicts of interest)
Joint Ventures: Protecting Your Client’s People Against Risks (cont.)
52
US individuals serving on the JV boards or as officers of
foreign entities
• Provide training with respect to local laws
• Remain informed regarding Company’s operations and finances
and take reasonable steps to secure compliance with laws
• Ensure timely and accurate preparation of financial accounts
• Obtain professional advice in a timely manner (particularly in
connection with the company’s possible insolvency)
• Indemnification
• D&O insurance
Joint Ventures: Protecting Your Client’s Interests
53
Foreign Corrupt Practices Act (“FCPA”)
DOJ/SEC have expanded the universe of third party business
partners subject to an "appropriate level" of due diligence
Technology Transfer: Licensing technology may
be a means of fast, efficient entry into a new
market
54
Advantages:
• Exploiting marketing know-how of local partner
• Reduced start-up cost and resource commitment
• Collaboration in R&D
• Quick return on investment
• Transition to direct market presence in future?
Technology Transfer
55
Risks and Challenges:
• Exposing existing trade secrets and know-how to third party in countries
offering limited IP protection or a history of lax enforcement practices.
• Difficulty in capturing title to and control of improvements-both legally
and practically-reassignment may not be enforceable, and how do you
know what has been developed?
• Lack of meeting of minds in terms of long-term objectives of parties-
repurchase and reversion rights, buy-out options, restrictions on
termination?
• Compulsory licensing or “march in” rights of governmental or quasi-
governmental institutions.
Technology Transfer
56
Due Diligence and Planning is key:
• What do you know about the local partner and its affiliates? What entities will
need to gain access to your technology? Will your local partner have
resources it needs? Who needs to be bound? How will you circumscribe
use?
• Identify field of use narrowly; and what technology will be made available
and what will not-e.g.- Future Improvements? imbedded 3rd party IP, specific
versions, excluded IP etc..
• Consider milestone conditions to delivery of key or core IP.
• Consider exclusivity carefully, in particular with regard to IP shared with other
divisions.
• Protocols for qualification and clearance of individual recipients.
Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common
terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or
equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm.
QUESTIONS
57
58 58
Navigating Labor and
Employment Issues
Abroad
Baker & McKenzie LLP is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common
terminology used in professional service organizations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an
"office" means an office of any such law firm.
© 2012 Baker & McKenzie LLP
Global Employment Global HR Landscape
Douglas Darch Baker & McKenzie LLP
300 E. Randolph, Suite 5000
Chicago, IL 60601
Tel. +1 312 861 8933
Agenda
– Global Issues
– EMEA
– North America
– Latin America
– China
– Hong Kong
– Australia / New Zealand
60
Global
– Correlation between increased perceived threat of globalization and tightening of labor laws
– Labor liberalizations difficult to get off the ground
– Dichotomy between need for more flexibility by companies and tightening of local legal frameworks
– Challenges for labor relations in companies: speed versus long term planning
– The “Global versus Local” equilibrium
– Unions mobilizing across borders
– How to prevent IFAs?
– Challenges of managing globally diverse workforces
61
EMEA
– Ongoing economic volatility + Euro crisis = uncertainty
– Reform of employment laws in Italy, Spain, Hungary, Belgium,
UK
– But…EU still highly regulated
– The labor relations clusters
– Increased litigation – more creative arguments
– Social media challenges / opportunities
– Ageing workforce / retirement + pensions challenges
– Stressed workers + performance issues + health and safety
– Diversity / discrimination / equal pay
– The increased role of EWCs
62
Czech Republic
– Changes to terms / renewal of fixed term contracts
– Extension of probationary period for managing employees
– Reduced severance payments for terminations for
organizational reasons
– Reduction of mandatory consideration for non-compete
63
Germany
– Right to amend variable compensation structures
becoming less enforceable
– Changes to labor leasing laws
– Strengthening of privacy and data protection principles in
social media in the workplace / monitoring
– Increasing activity of works councils and trade unions;
parallel CBAs
64
Netherlands
– Proposed change in legislation re dismissal laws
– Recent change in collective labor law
– Tax fines for severance payments not long before the
pensionable age
65
UK
– Move towards greater flexibility for businesses
– Increased UD service / reduction in comp = more creative
litigation arguments?
– Fees to bring Tribunal claims and other Tribunal reforms
– Possible TUPE / collective redundancy reform to shorten /
simplify processes
– Private sector equal pay claims inc. audits
66
North America
– Heightened regulatory landscape
– Focus on employer corporate compliance
– The increased role of wage and hour lawsuits
– Class action lawsuits on the rise
– Mandatory arbitration – defense against class actions
– Globalization of labor relations
– Social media challenges / opportunities
– Managing fiduciary risk
– Employer risk in worksite management
67
Latin America
– Stricter regulations on the management of overtime
– Enforcement of data privacy laws
– Developments in discrimination
– Reforms to maternity and paternity leave
– Tougher salary negotiations with unions
– Workday and workweek reductions
– Review of employee classification
68
Argentina
– Inflation = salary increases and unemployment
– Possible increase in statutory severance packages
– Prohibition on changing terms and conditions
– Increase in litigation
69
Brazil
– Statutory termination notice increase to 90 days
– Inflation = union issues on the rise
– Union participation in collective dismissals?
– New rules on electronic time control
– Superior Labor court jurisprudence
– More flexible labor laws on the horizon
70
China
– Industrial action on the increase (Labor Unrest)
– “Democratic management" of companies a national priority
– Agency workers – new law to change how employers can
engage staff
– New social insurance requirement for foreign workers
– Working Hours / Overtime
71
Hong Kong
– Mobile workforce issues
– Wage and hour issues
– Local and global compliance challenges
– Global employment companies for expatriates
– Executive remuneration
72
Australia / New Zealand
– China dominance in manufacturing = decline = restructure
and redundancy
– Collective labor issues and disputes
– Executive remuneration with particular focus on bonus
arrangements
– Adoption of UK principles concerning implied terms with
reference to executive employment contracts
– National occupational health and safety laws
– Increase in workplace stress related claims
73
Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common
terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or
equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm.
QUESTIONS
75 75
How to Protect your
Intellectual Property in the
International (and Digital)
Marketplace
Baker & McKenzie LLP is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common
terminology used in professional service organizations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an
"office" means an office of any such law firm.
© 2012 Baker & McKenzie LLP
How to Protect your Intellectual Property in
the International (and Digital) Marketplace
Pamela Church Baker & McKenzie LLP
1114 Avenue of the Americas
New York, NY 10036
Tel. +1 212 626 4976
77
Leveraging Intellectual Property in the Global
Economy – How?
– Create and Identify
Technology
Marks/Brands
Protectable Expression
– Secure and Protect
Patents
Trademarks
Copyright
Domain names
Trade Secrets
– Structure Ownership and Use
Tax Efficiency
Effective Enforcement
– Monitor
Competitors’ IP
Global Trends
Changes in Law
78
Trademark Registration: Why, Where, What
and How?
In some countries
it is precondition:
to enforce trademark
to record trademark with Customs
to record license of trademark
to advertise or market product
79
Where to Register?
80
The Most Dangerous Countries in the World
for Trademarks?
81
What to Register, and Register For? – Do clearance searches
– Distinctiveness / descriptiveness thresholds vary wildly around the world. Just because a mark is purely descriptive doesn't mean you are free to use it in (for example) India.
– Where possible, create standard well-thought out templates describing your goods and services, which are tried and true.
– Be aware of when the English mark does or doesn't protect the local translation or transliteration; choose a translation rather than letting the market create one for you.
82
TM “Oops” Moments…
– Dairy Association: Almost introduced “Got
Milk?” campaign into Mexico with translation
meaning “Are you lactating?”
– Coors: “Turn it Loose” slogan translated into
Spanish as “Suffer from diarrhea”
– Pepsi: In Taiwan, “Come alive with the Pepsi
Generation” translated to “Pepsi will bring your
ancestors back from the dead”
– American Airlines: wanted to advertise its new
leather first class seats in the Mexican market
and translated its "Fly In Leather" campaign
literally, which meant "Fly Naked" (vuela en
cuero) in Spanish.
83
Priority Filing Strategies? Using Multi-
Jurisdictional TM Regimes?
84
How to Register?
– Domestic applications with local trademark authorities; vs.
– International registrations under Madrid Protocol
When you can use it; when you can’t
Advantages are obvious in terms of cost savings at the front
end
Extending a mark to China via Madrid may in some cases
allow applicant to use goods / service descriptions that would
be rejected if used for a domestic application
Multi-Class applications allowed
– Community Trade Mark (European Union)
– Advantages of Paris Convention Priority
85
Case Study: China
86
China
– Civil law jurisdiction: few rights conferred by use in
China, and even fewer by use outside of China
– No provision under PRC Trademark Law prohibiting bad
faith applications per se
– Prohibition against trademarks "... that harm socialist
morality or practices or that have other adverse effects..."
(PRC Trademark Law, Article 10(1)(8)), but acceptance
of oppositions based on Article 10(1)(8) is patchy.
– Proliferation of trademark pirates
87
Just how bad are the pirates?
Local pirate applying for 900+ trademarks, over half of which are
targeting one foreign company’s trademarks
Local pirates registering trademarks that US company is using on
products manufactured in mainland but exported elsewhere for
sale, and then threatening to sue
Local pirates increasingly seeking to cancel US companies’
marks, e.g, on non-use grounds
88
China – General Principles
– Register early and register widely
– Filing widely in Classes of interest may reduce future oppositions
– Don’t assume descriptive marks are unregistrable
– Be aware that China currently has no requirement to show evidence
of use or intent to use at time of filing
– Don’t forget to develop Chinese counterpart marks
– Allows for registration with Chinese customs-creates a firewall at the
point of export from China
89
China – Opposing Pirate Filings
Well-known mark provisions
Protection available for well-known marks registered in China,
supposedly across Classes, but:
very difficult for US companies to obtain recognition of well-known
status;
each case is decided on its merits, so successful outcome in one
case does not guarantee success in later cases; and
confusion requirement means that authorities can easily distinguish
cases based on different fact patterns (e.g., goods at issue are
different)
Paris Convention Protection also theoretically possible for well-known
marks not registered in the PRC, for similar goods / services (in practice,
forget it)
90
Putting it in perspective - China
Application to register one mark in one Class costs a
little over $1,000 in straightforward cases.
Opposition in one Class costs US $2,000-3,000 per
case minimum.
If the pirate successfully registers a key mark, there's
no guarantee that the mark can be acquired cheaply
(initial demands of RMB1 million ($160,527) and up are
common).
How Counterfeiters are Evolving
Patents - Germany
94
• No major M&A or corporate transactions without an issue on employee inventions
• Like in the US, the employee inventor is considered to be the first owner of his or her invention
• Until 2009 employee invention remained with employee subject to a notification process within statutory period
• Now presumption is employer claims right, but there are statutory provision on remuneration
• If not complied with, employee has claims on license fees generated or portion of purchase price proceeds from sale of company
Patents - China
• Inventor employee required to be remunerated for Chinese
patents
• Remuneration component is not specified by law but can be
quite onerous
• Employer and employee can agree on separate compensation
arrangement
• Chinese employees only beginning to be aware of these rights
95
The Rise of
Social Media
Marketing
The E-Commerce Market (Retail) in the U.S.
– Big and growing: $200 billion in 2011, or 9% of total
US retail according to US Dept. of Commerce;
– Forecast to grow by over 10% per year
– Sales through social networks in 2012 estimated
to be $9 billion
– Expected to climb to $14 billion in 2013; $30
billion in 2015.
97
© 2012 Baker & McKenzie LLP
Trends in Asia Pacific
•24% of Asia’s population had internet
access (as of June 2011)
• Online sales are expected to rise
by an average of 20% a year in
Asia
Source: PricewaterhouseCoopers - 2012 Outlook for the Retail
and Consumer Products Section in Asia
• According to Chinese research
firm Analysis International, e-
commerce market in China will top
RMB 6.4 trillion in 2012
© 2012 Baker & McKenzie LLP
Trends in Europe and elsewhere
– Less immunity from contributory liability for third party content including
IP infringement, resulting in more need for third party content
management – prior review and/or ‘notice & take’ down mechanisms
– Legislative initiatives on search/aggregators
– Enforcement of consumer protection laws via government action
– VAT on ‘e-commerce services
– Disclosure requirements around the world, e.g., German ‘Impressum’
– Cancellation, return rights and other commercial terms, e.g., under
‘distance selling’ rules in Europe
– E-contracting requirements – localization/translation of sales terms,
contract formation process
What Are Your E-Commerce Liabilities and
Risks? How to Survive a Social Media Attack
© 2012 Baker & McKenzie LLP
Liabilities and Risks
– Copyright and Trademark
infringement
– Violation of other laws – e.g.,
securities; regulated industries
like tobacco and alcoholic
beverages
– Defamation
– Predominantly civil liability for
most common law and civil
jurisdictions;
– Criminal for some Asian
jurisdictions
– Privacy/Data Protection
– Content Inappropriate for Minors
– Illegal content (which can be
jurisdiction- specific – e.g. Nazi-
related material in Continental
Europe, promoting Israel or
alcohol in the Middle East, etc.)
– Obscenity/indecency
– Sedition
– Compromising legal proceedings
© 2012 Baker & McKenzie LLP 102
DMCA - safe harbor immunity for online
service providers- limited to copyright
infringement.
Section 230 of CDA- immunity for
provider of interactive computer service
from publisher tort liability so long as
provider hasn’t contributed to content.
Clearly includes defamation but
expressly carves out:
•Intellectual property claims
•Federal or state crimes
•Violations of Electronic Communications
Privacy Act
E-Commerce Directive – immunity for
intermediaries who host third party
content from all monetary claims
(civil/criminal), so long as the
intermediary has no knowledge of the
infringement/illegality and acts promptly
to take down once put on notice. Does
not insulate intermediary from
injunctions.
Art 8(3) Information Society Directive –
express right of injunction against ISPs
whose services are used by third parties
to infringe copyright.
UNITED STATES EUROPE
Safe Harbors Related to UGC
© 2012 Baker & McKenzie LLP
Safe Harbors Related to UGC
CHINA Copyright Law (2010) includes a notice-and-take down procedure for an ISP, otherwise may bear joint and several liability with content provider
Tort Law (2010) – joint and several liability for a network service provider if it fails to take necessary measures (deleting, blocking, delinking etc..) upon receipt of notice. Covers violation of rights to reputation, privacy and IP rights.
Draft Amendment to Copyright Law – network service provider “fails to take necessary measures if
– it knew or ought to have known about a third party’s infringement; or
– it did not react expeditiously after receiving a takedown notice.
BRAZIL – Internet Bill of Rights to be voted by
Congress in November 2012
- Safe harbor immunity for online
service providers until there is a
court order for content removal
- No monitoring obligation
- Currently – conflicting court decisions
- Trend towards immunity (court order
to take down)
- Monitoring?
© 2012 Baker & McKenzie LLP 104
Safe harbors
– How “active” can you be?
– What does knowledge mean?
– How quickly do you need to react/takedown?
– Direct financial benefit?
– Put-back requirements?
– Should you moderate
– Willful Blindness? >Control
<Conduct
?
105
when it all goes wrong- brandjacking
Dell
107
Versace suffered a Facebook Protest over Sandblasted jeans,
but was preventing posting the right response?
© 2012 Baker & McKenzie LLP
Astroturfing and Flogging: U.S. - FTC’s Guides for
the Use of Endorsements and Testimonials in
Advertising
Require disclosure of any factors that might cause a consumer to reassess the nature of an endorsement, including employment relationship
Includes extolling or voting for company’s product to drive up quality ratings
Applies to advertiser as well as endorser. Including celebrity endorsers
Apply even if employer has no knowledge of the post.
Policies requiring compliance may mitigate penalties or enforcement action
© 2012 Baker & McKenzie LLP 111
“Falsely claiming or creating the impression that the trader is not acting for purposes relating to his trade, business, craft or profession, or falsely representing oneself as a consumer.”
“Online advertising and marketing practices that do not disclose they include paid-for promotions are deceptive under [CPR] fair trading laws. This includes comments on blogs such as Twitter...” OFT 13 December 2010
Regulation of Unfair Commercial Practices in
Other Jurisdictions-Example UK
112 112
Privacy and Data Security
Concerns
whether you are doing business
offshore or via the Internet
113
Key Conceptual Distinctions
– “PII”
– Name and other “identifiers,” and any other data that can be linked with the
identified or identifiable person, e.g., SSN’s, photos, address, e-mail
address, birth date, phone numbers, can also be IP address. Includes
encrypted data but true aggregated data can remove from scope of data
protection laws.
– Two approaches to regulation globally:
– United States data privacy laws: Sector-specific (HIPAA/HITECH,
GLBA/FCRA, and the like) and data-specific (SSNs, bank account,
credit/debit card numbers, ie., sensitive data)
– EU data protection laws: Omnibus data protection laws applicable to all PII,
regardless of sector, category of individual, or type of PII; EU tends to lead
the rest of the non-US world
114
Data Protection (EU)
– About regulating, and protecting data
subjects from the effects of, automated
data processing:
– Default rule- prohibited from collecting,
using and retaining data without
consent or statutory exemption
– Must minimize data amount, instances
of processing, people with access and
time periods
– Is this hostility to data processing the
reason EU companies do not lead in the
information driven economy sectors?
115
Data Privacy (US)
– Generally allows data processing:
– laws intended to protect from intrusion into
seclusion and interception of confidential
communications
– not protected in absence of reasonable
expectation of privacy
– Info in public records fair game
– Companies can destroy expectation of
privacy with notice of collection and
processing activities through website
privacy statements, employee handbooks,
in-store warnings, etc..
116
Data Security (US, EU and other places in
ROW)
These statutes are intended to protect individuals from specific harms from unauthorized access to PII:
– identity theft
– state data security breach notification law
– state laws requiring encryption of certain data in
certain circumstances
117
Different Rules in Different Territories
In US dealing with laws of 50 states and federal laws
– but, more generally hands-off (with exceptions)
In Europe some harmonization due to EU Data Protection Directive implemented in EEA and followed by Switzerland, Russia and candidates for EU membership
– but, still have to comply with local data protection laws, guidelines and industry standards
– more protective and paternalistic
– quick to regulate and require prior approvals, submit filings and comply with formal requirements
– special restrictions for political opinions, trade union membership, religious beliefs, racial and ethnic origin, medical conditions, certain types of criminal records
Data Transfer
• EU law prohibits transfer of PII out of the EEA unless it is justified
and adequate levels of protection are ensured
• Some countries have been ruled to provide adequate safeguards
(but not US- resort to Safe Harbor Framework, Standard
Contractual Clauses or, for intra group data transfers, Binding
Corporate Rules)
• But transfers to mere data processors (who process data on
behalf of a data controller as a service provider) are often less
restricted than those to data controllers (who use the data for their
own purposes)
• In some European countries, companies have to notify the local
data protection authority before they start processing personal
data
• In Germany and some other EU countries companies must
appoint a data protection officer 118
119
Cloud Computing
– Key characteristics of “public” cloud:
– Multitenant where resources dynamically assigned according to user demand, and without user control or knowledge over the exact location of the provided resources
– Notable cost savings with reduced capital expenditure on servers/hardware, electricity, etc..
– Ubiquitous access anywhere with web access
– Steady traffic flow that manages spikes in demand or “cloudbursts”
120
Cloud Computing (cont.)
– Substantive data security concerns, particularly for SSNs and other sensitive PII
– Multitenant (e.g. malware in other user applications?)
– Limited knowledge (e.g., location of processing?) and limited control (e.g., details in the event of a data compromise?)
– Rich target for hackers
– For non-US, formalities may be challenge:
– Privity with subcontractors
– “People” issues with data protection officers, data protection authorities, and works councils
– “Private” cloud may be answer for sensitive PII and non-US data
121
Whistleblower hotlines
– SOX and corporate compliance
rules to establish “confidential
and anonymous mechanism” to
report violations
– Conflicts with privacy rights
when “accused” is in the
European Union and other
non-US locations
– Cross-border transfers
– Solution: carefully assess
obligations on the group. Can
Europe be excluded? If not, is
different EU-compliant version
possible?
122
E-Discovery, internal investigations, and e-
monitoring
– Challenges:
– Business or compliance requirements at global (e.g., US) level for data or documents
– Local privacy rules and conflicting rights for employees or persons of interest in investigations, litigation, and compliance activities
– Solutions:
– IT policies, notices, and consents
– Proportionality, avoiding prohibited activities
– Filings with authorities and consultations with works councils
– Cross-border data transfer solutions
– Anonymizing data and “other” solutions
123
Online Behavioral Advertising
and Social Networking
– Online and location-based data collections about consumers (or consumer devices) via:
– Third party cookies
– Mobile device and location-based tracking
USA
– Notice requirements
– CAN-SPAM: opt-out
– Few substantive restrictions, except reasonable expectation of privacy/COPPA
Europe
– Notice requirements
– DON’T SPAM: Prior opt-in
– Data processing prohibited, except with (qualified) consent
124
Take aways and emerging issues
– Privacy issues abound in business transformations as well as other compliance activities
– Perfect privacy storm:
– more complex and more inconsistent laws,
– new business activities,
– more active enforcement.
125
when it all goes
right
127
Thank you
Brian Whisler
(202)-452-7019; [email protected]
Valerie Marsh
(202)-452-7066; [email protected]
Douglas Darch
(312)-861-8933; [email protected]
Pamela Church
(212)-626-4976; [email protected]
Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm.
