Legal Considerations for Success in International Markets

By Scott Goddin and Ryan Brutger, Portland U.S. Export Assistance Center

As your company develops its international business-development strategy, it will be joining with other companies for strategic advantage. Paul Taylor, of BTI International Law Office, advises that the key to success will be identification of a foreign business partner that you can trust and that will complement your business strategy. Along with evaluating the commercial potential, companies should perform standard due diligence and confirm references. Written contracts are critical to structuring the relationship and clarifying issues to avoid any misunderstanding.

Basic elements of a reseller or distribution agreement will lay out clear licensing requirements, intellectual-property protection and how the product can be used in the local market. Clear guidelines should be established for advertising and use of the product name. Companies should work with both their partner and attorney to ensure that company and product names translate suitably for the market and appropriate rights are secured for the branding.

Intellectual-property rights protection

Taylor underscores that, prior to going international, companies need to work with counsel to ensure that their intellectual property receives the full benefits of legal protection under the laws in various countries and that protection is afforded contractually. Taylor observes that the method of intellectual-property protection sought will be an important determinant of the effort required to secure company rights under international law and agreements.

With the increasing use of patent protection for software processes and applications, companies must be proactive in filing for protection internationally once they receive their U.S. patent. Because there is no “international” patent treaty that provides a central patent filing mechanism, companies must file in individual markets, a process that that can be time-consuming and expensive. Companies should work with their counsel to identify and prioritize key markets. This should include a cost-benefit analysis of the likelihood of potential infringement along with an evaluation of the integrity of a given legal system and the certainty of remedy if it should become necessary to pursue litigation.

Along the continuum of intellectual-property protection, both copyrights and trademarks are protected by international agreements that allow a U.S. registration to establish rights in markets of signatories to the agreement. For copyrights, the Berne Convention automatically protects holders of registered U.S. copyrights in most other countries. For trademarks, the relatively new Madrid Protocol enables U.S. trademark holders to secure their rights in some countries through a special central-filing mechanism.

Companies need to consult counsel, however, to confirm that their rights are fully secured under the national laws of their key target markets.

Taylor indicates that trade-secret protection is another form of intellectual-property protection recognized by most countries and embodied in non-disclosure and confidentiality provisions in contracts. This form of protection is effective only with strong confidentiality provisions, most often in markets with strong legal infrastructures capable of ensuring enforcement and remedies.

Payment provisions

Contract arrangements for payment of royalties or licensing fees should be clear and well-established. While pre-payment of royalties is ideal, it is also very uncommon, forcing software providers to collect after the fact.

To minimize conflicts, Taylor advises that payments be regularly scheduled and calculated on a per-unit sales amount or on a percentage of gross revenue as opposed to profit. Contract provisions should spell out a payment and financial-reporting schedule to ensure full transparency on the revenue side. Companies should have audit rights, and clear delineation of responsibility should be made for tax payments. As many countries do require withholding tax on royalties, companies should consult with their partners, accountants and attorneys to determine any liability and the impact of any bilateral tax treaties with the United States that will reduce the withholding amount and prevent double taxation.

Transparency

Written contracts are critical in international licensing and sales arrangements. A clear well-written contact will address each of these issues along with key topics such as warranty provisions and after-sales service obligations. Attorneys can play an important role in clarifying legal requirements in this area along with broader legal issues related to program compatibility and limitations on copying. Taylor recommends inclusion of a transparency provision, which requires the partner to report on any commercial, legal or regulatory issues that might affect sales of the product in the market. Working with an attorney, companies can further confirm such information and take appropriate steps to address any issues.

Also, ensure that your attorney writes your contracts in plain English and does not get caught up in “over-lawyering” the situation.

Dispute settlement

Finally, contracts should have strong dispute-settlement provisions to govern those instances where differences may arise. Taylor recommends that the dispute provisions stipulate that resolution will take place under the laws of the state of Oregon. While arbitration is an option, litigation will often be more effective in leading to a faster, more determinative solution. In either case, Taylor recommends adding a clause that the loser will pay attorneys fees to discourage frivolous lawsuits and to provide extra incentive for resolution.

Success in international trade will often require a team effort within the company to formulate and implement a successful sales strategy. In addition, firms should look to legal counsel as well as bankers and accountants to maximize returns on global efforts.

This article was written in collaboration with Ryan Brutger, a recent graduate of Lewis & Clark and international trade assistant at the U.S. Export Assistance Center. Ryan would happily make the transition to gainful employment if you desire to bring his analytical skills to your marketing efforts.

About the author

Scott Goddin is director of the Portland U.S. Export Assistance Center (www.buyusa.gov/oregon) and has been working in international trade with the U.S. Department of Commerce for more than 20 years. He works with Oregon and Southwest Washington high-technology companies to develop international markets, specifically helping them to design market-entry strategies; find and evaluate distributors, VARs or agents; evaluate product or service-delivery methods; and “internationalize” their companies.

Goddin has served as a U.S. trade negotiator working on Asian market access and standards issues for U.S. high-tech and communications companies and intellectual-property rights issues in Korea, Taiwan and China. Goddin also has served in temporary assignments as a commercial attaché at American Embassies in Seoul, Taipei and Nairobi and has managed the office in Portland supporting local Oregon firms since 1997. You can learn more about export assistance by visiting www.export.gov. or by contacting Goddin directly at scott.goddin@mail.doc.gov.