August-TIF Ch04

Chapter 4: The Multinational Enterprise
True or False Questions
1. A business that grants licenses to a foreign national or foreign business entity is not a
multinational enterprise.
Answer: True
Diff: 1
Topic: Strategies for Doing Business Globally
Skill: Legal Concepts
2. Establishing a branch in a foreign country does not create a true multinational

enterprise.
Answer: True
Diff: 2
3. A corporation and its owners are considered a single juridical entity.
Answer: False
Diff: 2
Topic: The Business Form
4. The rights and benefits accruing to the company belong to the company, not to its
owners.
Answer: True
Diff: 1
5. When a firm organized in one country contracts with an independent foreign firm to
carry out sales or purchasing abroad, it is known as a multinational enterprise.
Answer: False
Diff: 2
Topic: The Multinational Organization
6. A national multinational enterprise is the one in which a parent firm established in one
country establishes wholly owned branches and subsidiaries in other countries.
Answer: True
Diff: 1
7. A subsidiary is considered a separate legal entity from its parent company.
Answer: True
Diff: 1
8. An international multinational enterprise consists of a single parent company that

operates in foreign markets through independent agents.
Answer: False
Diff: 2
9. A representative office does not directly conduct business for the parent company.
Answer: True
Diff: 1
10. An agents authority is limited to what the parent company delegates to him or her.
Answer: True
Diff: 1
11. An agent (in a host nation) of a principal is subject to the laws of the principals
country.
Answer: False
Diff: 2
12. A companys service office in a host nation would be considered a branch of the
company.
Answer: True
Diff: 1
13. A branch is an independently organized and incorporated company.
Answer: False
Diff: 1
14. Setting up a subsidiary can benefit a multinational firm because the subsidiarys
company status insulates the parent from unlimited liability.
Answer: True
Diff: 1
15. A holding company is a branch that in turn owns other branches.
Answer: False
Diff: 2
16. The Convention on Combating Bribery of Foreign Public Officials in International

Business Transactions make it a crime for individuals and juridical persons to bribe or
attempt to bribe a foreign official.
Answer: True
Diff: 1
Topic: International Regulation of Multinational Enterprises
17. A group boycott is an example of a per se violation.
Answer: True
Diff: 1
Topic: Home State Regulation of Multinational Enterprises
18. The American antitrust laws authorize a court to assume personal jurisdiction if a
defendant has the contacts specified by Section 12 of the Clayton Act.
Answer: True
Diff: 1
19. The principal limitation of the assumption of personal jurisdiction by U.S. courts is
the federal constitutional requirement of due process.
Answer: True
Diff: 1
20. With regards to trade prohibitions, Article 81 of the European Community Treaty is
analogous to Section 2 of the Clayton Act.
Answer: False
Diff: 2
21. Article 82 of the European Community Treaty does not have an exception clause.
Answer: True
Diff: 1
22. A blocking statute makes it easier for a successful plaintiff to enforce a U.S. judgment
outside the United States.
Answer: False
Diff: 1
23. The Japanese Civil Code uses the concept of strict liability for imposing liability for
defective products.
Answer: False
Diff: 2
24. Under the common law theory of strict liability, defendants cannot be held liable if
they can prove they exercised reasonable care.
Answer: False
Diff: 1
25. Product liability laws are part of the federal laws in the United States.
Answer: False
Diff: 2
26. Under the FCPAs antibribery provisions, it is not a crime to pay an official to process
a visa.
Answer: True
Diff: 1
27. The FCPAs antibribery provisions are only applicable to businesses and not
individuals.
Answer: False
Diff: 1
28. A person or company must give its consent (either expressly or impliedly) before
either will be subject to the jurisdiction of a local state.
Answer: True
Diff: 1
Topic: Host State Regulation of Multinational Enterprises
29. By piercing the company veil, a court exposes the shareholders of the company to
personal liability.
Answer: True
Diff: 1
Multiple Choice Questions
30. Which of the following is most likely to be true of a branch office in the United
States?
A. It is liable for the debts of the parent company.

B. It is considered a separate legal entity of the parent company.
C. It does not have to be registered with any state agency.
D. It is not liable for its own debts.
Answer: D
Diff: 2
31. A(n) ________ is a contractual grant of a legally recognized right which can be used
as an international marketing tool whereby trade secrets, minor technological methods or
processes, or protectable business plans and processes of an entity in one nation are
extended to a party in a different nation.
A. license
B. letter of credit
C. copyright
D. deed
Answer: A
Diff: 1
32. Which of the following is true of corporations and companies being treated as
separate legal entities?
A. The owners are obligated to make all decisions on behalf of the company.
B. The rights and benefits accruing to the company belong to its owners.
C. The liability of the owners becomes limited to their investment in their company.
D. The owners are obligated to pay the companys debts from their personal estates if
necessary.
Answer: C
Diff: 3
33. A(n) ________ is a domestic firm that operates internationally through independent
foreign agents.
A. national multinational enterprise

B. nonmultinational enterprise
C. international multinational enterprise
D. transnational companies
Answer: B
Diff: 1
34. Which of the following characterizes a national multinational enterprise?
A. It is firm organized in one country that contracts with an independent foreign firm to
carry out sales or purchasing abroad.
B. It is a domestic firm that operates internationally through independent foreign agents.
C. It has a parent firm established in one country with wholly owned branches and
subsidiaries in other countries.
D. It is made up of two or more parent firms from different countries that co-own
operating businesses in two or more countries.
Answer: C
Diff: 3
35. Which of the following is true of a nonmultinational enterprise and its use of agents?
A. Its agents can only be individuals and not firms.

B. Its agents are considered as subsidiaries.
C. Its relationship with agents is solely governed by the laws of the parents home
country.
D. Its agents have the authority to sell the parents products or services in that country.
Answer: D
Diff: 3
36. A subsidiary differs from a branch in that a subsidiary ________.
A. is just a unit or a part of the parent with no separate legal status

B. is a co-parent company
C. is considered an agent of the parent company governed by an agency contract, but not
owned by the company
D. is a company organized as a separate legal entity that is owned by the parent
Answer: D
Diff: 2
37. An international multinational enterprise differs from a multinational enterprise in

that an international multinational enterprise ________.
A. does not do business in its parent country

B. has only one parent company with many subsidiaries
C. has two or more parent companies located in different states
D. does not use subsidiaries
Answer: C
Diff: 2
38. Which of the following is a similarity between a national multinational enterprise and
an international multinational enterprise?
A. Both of them use subsidiaries.

B. Both of them have more than one parent company.
C. Both of them only have one parent-state.
D. Both of them dont use branches.
Answer: A
Diff: 2
39. Which of the following would be a valid reason for the parent company to convert a
branch into a locally organized subsidiary?
A. to insulate the parent company from local liability

B. to remove the separate legal entity status of the branch
C. to bring it under even stricter supervision of the parent company
D. to decrease local participation in the branch
Answer: A
Diff: 2
40. A(n) ________ does not actually conduct business; rather, it functions as a foreign
contact point where interested parties can obtain information about a particular firm.
A. representative office
B. branch
C. subsidiary
D. franchise
Answer: A
Diff: 1
41. Which of the following is true of a companys agent situated in a foreign country?
A. An agent is not subject to the supervision of its parent company.

B. An agents authority is equal to that of the parent company.
C. An agent has to be separately incorporated in the foreign country to be considered
legal.
D. An agent is not subject to the laws of the parent-nation.
Answer: D
Diff: 3
42. Which of the following is true of a subsidiary?
A. A subsidiary is used to operate a parent companys holding company.

B. A subsidiary does not actually conduct business; rather, it functions as a foreign
contact point.
C. A subsidiary insulates the parent company from unlimited liability.
D. A subsidiary is a part of the parent company and is not separately incorporated.
Answer: C
Diff: 3
43. A ________ is an association of persons or companies that are involved in a

collaboration for more than a transitory period.
A. joint venture
B. branch
C. representative office
D. subsidiary
Answer: A
Diff: 1
44. A(n) ________ is a subsidiary company that in turn owns other subsidiaries.
A. agency
B. representative office
C. branch
D. holding company
Answer: D
Diff: 1
45. The ________ is a federal statute enacted in 1890 that forbids combinations and
conspiracies in restraint of interstate and international trade.
A. Clayton Act
B. Sherman Antitrust Act
C. the Federal Trade Commission Act
D. Robinson-Patman Act
Answer: B
Diff: 1
46. The ________ is a rule applied by courts on a case-by-case basis requiring them to
consider all of the circumstances in deciding whether a restrictive practice should be
prohibited as imposing an unreasonable restraint on competition in violation of Sherman
Act Section 1.
A. per se rule
B. choice of law rule
C. rule of reason
D. rule of reciprocity
Answer: C
Diff: 1
47. ________ prohibits contracts, agreements, and conspiracies that restrain interstate or
international trade.
A. Section 2 of the Taft-Hartley Act

B. Section 2(a) of the Robinson-Patman Act
C. Section 4 of the Clayton Act
D. Section 1 of the Sherman Act
Answer: D
Diff: 1
48. Once a particular kind of activity is classified as a ________violation, the courts do

not apply the case-by-case rule of reason analysis but proceed directly to a consideration
of the appropriate remedy in the particular case.
A. rule of reason
B. per se
C. consent decree
D. Noerr doctrine
Answer: B
Diff: 1
49. ________ is a per se violation, where a seller at one level sells goods to a buyer at a
different level on the condition that the latter will not resell below an agreed-upon price.
A. Group boycott
B. Vertical price fixing
C. Horizontal price fixing
D. Horizontal market division
Answer: B
Diff: 1
50. Once a particular kind of activity is classified as a per se violation, the courts then
________.
A. apply the case-by-case rule of reason analysis for that particular case
B. directly consider an appropriate remedy for that particular case
C. consider the level of justifiability of the violation for that particular case
D. check if the violation breaches Section 1 of the Sherman Act
Answer: B
Diff: 2
51. Which of the following acts forbids monopolies and attempts to monopolize
commerce or trade either between the states of the United States or in international
commerce affecting the United States?
A. Section 2 of the Sherman Act

B. Section 2(a) of the Robinson-Patman Act
C. Section 4 of the Clayton Act
D. Section 7 of the Clayton Act
Answer: A
Diff: 1
52. The Robinson-Patman Act of 1936 was added to the panoply of American anti-trust
law to make ________ illegal.
A. anticompetitive mergers
B. tying arrangements
C. monopolization
D. price discrimination
Answer: D
Diff: 1
53. The ________ was enacted in 1914 to expand the enforcement provisions of the
Sherman Antitrust Act. It defines exclusive dealing and tying clauses, mergers that result
in monopolies, and interlocking directorates as being unfair business practices.
A. Federal Trade Commission Act

B. Sherman Act
C. Robinson-Patman Act
D. Clayton Act
Answer: D
Diff: 1
54. Which of the following is true of American anti-trust laws?
A. It does not require the defendant to have personal jurisdiction.

B. It is not affected by the long arm statute.
C. It can only award treble charges in cases involving the government.
D. It can be applied only when the court has subject-matter jurisdiction.
Answer: D
Diff: 3
55. Which of the following describes the long arm statute?
A. A law defining the kinds of partnerships that can be formed between corporations or
individuals and foreign companies.
B. A law defining the conduct of a foreign person within a state that will subject that
person to the jurisdiction of the state.
C. A law defining the kind of companies that a company can set up in a foreign country.
D. A law defining the kinds of awards that can be sought in an anti-trust case against the
government.
Answer: B
Diff: 3
56. The American antitrust laws authorize a court to assume personal jurisdiction if a
defendant has the contacts specified by ________.
A. the Federal Trade Commission Act

B. Section 1 of the Sherman Act
C. an applicable state long arm statute
D. the Robinson-Patman Act
Answer: C
Diff: 1
57. The _______ is a jurisdictional test required by due process that looks to see if a
person had such associations with a state, did business within the state, and could
reasonably have anticipated that it would have to defend itself there.
A. effects test
B. minimum contacts test
C. jurisdictional rule of reason test
D. per se test
Answer: B
Diff: 1
58. Which of the following tests is used to determine whether a court has subject-matter
jurisdiction in an American antitrust case?
A. the effects test

B. the minimum contact test
C. the national eligibility test
D. the per se test
Answer: A
Diff: 1
59. Under the ________, companies carrying on business outside the United States will
come within the subject-matter jurisdiction of an American court if their business activity
is intended to affect U.S. commerce and is not de minimis.
A. national eligibility test

B. minimum contact test
C. effects test
D. per se test
Answer: C
Diff: 1
60. Which of the following is the reason why the Webb Pomerene Act is cited as a
criticism of the United States antitrust laws?
A. because it encourages foreign companies to invest in the United States

B. because it exempts U.S. export associations from compliance with the Sherman Act
C. because it provides tax cuts for subsidiaries of foreign-national companies in the
United States
D. because it allows for punitive treble damages to be brought by private plaintiffs
Answer: B
Diff: 3
61. ________ are laws enacted in some countries to obstruct the extraterritorial
application of U.S. antitrust laws by limiting a plaintiffs right to obtain evidence or to
enforce a judgment, and that allows a defendant to bring suit locally to recover punitive
damages paid in the United States.
A. Blocking statutes
B. Jim Crow statutes
C. Consent decrees
D. Whistleblower statutes
Answer: A
Diff: 2
62. A legal relationship sufficiently close and direct to support a legal claim on behalf of
or against another with whom the relationship exists is referred to as ________.
A. accommodation
B. privity
C. mutual consent
D. claim preclusion
Answer: B
Diff: 2
63. Which of the following would constitute as an example of negligence per se?
A. Mellissa not checking if the new pair of jeans she bought was already defective
B. Stella receiving a consignment of books that were damaged during shipment
C. Matt buying a refrigerator that did not meet statutory safety requirements
D. Shelton hurting himself with a drill because of a faulty lever
Answer: C
Diff: 3
Skill: Factual Application
64. Which of the following doctrines excuses an injured claimant who can show that a
product was defective when it left the hands of the defendant from having to prove that
the defendant caused the defect?
A. the Mackay doctrine

B. the doctrine of negligence per se
C. the doctrine of privity
D. the doctrine of res ipsa loquitur
Answer: D
Diff: 2
65. According to the doctrine of ________, a municipal court will decline to hear a
dispute when it can be better or more conveniently settled in a foreign council.
A. negligence per se
B. privity of contract
C. res ipsa loquitur
D. forum non conveniens
Answer: D
Diff: 1
66. Which of the following describes sharp practices of business?
A. business dealings meant to obtain a benefit for a person or firm regardless of the
means used
B. business exchanges where the manufacturer and consumer are the same
C. business plans that also take social responsibility into account
D. business practices that are ethical and moral
Answer: A
Diff: 2
67. ________ is an expression indicating that the legal fiction that a company is a
separate legal entity will be set aside and the shareholders of the company will be held
liable for its conduct as if they were partners in a partnership.
A. Fruit of the poisonous tree
B. Pierce the company veil
C. Ball park figure
D. Right of first refusal
Answer: B
Diff: 2
68. Which of the following is the reason why alter ego companies come under the
purview of piercing the company veil?
A. because the company has no decision-making power independent of its parent

company
B. because the company had insufficient capital when being formed
C. because the shareholders use company assets for personal benefit
D. because the shareholders of that company assumes personal liability
Answer: C
Diff: 2
Essay Questions
69. Discuss the importance of the separate legal identity of juridical entities in business.
Answer: Corporations and certain other companies are juridical entities that have legal
identities separate from those of their owners. This separate legal identity has several
important consequences. First, it means that the liability of the owners is limited to their
investment in their company. Thus, a companys owners are usually not required to pay
the companys obligations from their personal estates. Second, it means that rights and
benefits accruing to the company belong to the company, not to its owners. In other
words, only a company may lay claim to its own property. Additionally, for some
companies (i.e., most kinds of corporations), the owners are neither managers nor agents
nor representatives of the company; they may not, on their own, make decisions on behalf
of the company, or commit the company to perform contractually, or commit crimes,
torts, or delicts that would impose liability on the company.
Diff: 2
70. Briefly describe the subordinate structures of representative office, an agent, and a
branch.
Answer: The main point of commonality between the representative offices, agencies,
and branches is that they do not create separate entities in the host country. A
representative office does not actually conduct business; rather, it functions as a foreign
contact point where interested parties can obtain information about a particular firm. An
agent is an individual who is employed as an independent representative of a firm. Agents
are subject to the supervision of the parent firm (or principal), and the authority that they
can exercise is limited to what the parent delegates to them. While in the host country,
they are subject to the laws of that sovereign. A branch is a unit of the parent company
that involves not only the placement of individuals in a particular locale but also the
establishment of a facility, such as an assembly plant, mining operation, or service office.
Diff: 2
71. Describe a joint venture as a business model.
Answer: A joint venture is an association of persons or companies that are involved in a

collaboration for more than a transitory period. It can assume any type of business form,
including that of an association, a partnership, a limited partnership, a secret partnership,
or an LLC. Multinational enterprises use joint ventures as a way to share risk and to
facilitate entry into foreign markets. Although the joint venturers may be from the same
home state or two different home states, more commonly at least one is from the host
state. Indeed, many developing states insist on local participation, and a joint venture may
be the only practical form for carrying on business in such a place. The venture can be for
one specific project only, or a continuing business relationship. A joint venture may be a
corporation, LLC, partnership or other legal structure, depending on a number of
considerations such as tax and tort liability.
Diff: 2
72. How are multinational enterprises regulated by the home state?
Answer: The most important forms of national regulation include (1) the regulation of
competition, (2) the regulation of injuries caused by defective products, (3) the
prohibition of sharp sales practices, (4) the regulation of securities, (5) the regulation of
labor and employment, (6) the establishment of accounting standards, and (7) taxation.
Diff: 1
73. What are the different types of per se violations? How does a court deal with a per se
violation?
Answer: The various types of per se violations are (1) horizontal price fixing, (2) vertical
price fixing, (3) horizontal market division, and (4) joint refusals to deal. Once a
particular kind of activity is classified as a per se violation, the courts do not apply the
case-by-case rule of reason analysis but proceed directly to a consideration of the
appropriate remedy in the particular case.
Diff: 1
74. What are the three tests that are used by the jurisdictional rule of reason in
determining jurisdiction in anti-trust cases?
Answer: The jurisdictional rule of reason sets out a three-pronged test to determine
jurisdiction in anti-trust cases involving conduct outside the United States: (1) Was the
alleged conduct intended to affect the foreign commerce of the United States? (2) Was it
of such a type and magnitude to violate the Sherman Act? (3) As a matter of international
comity and fairness, should a court assume extraterritorial jurisdiction over the matter?
Diff: 1
75. State the article in the European Community Treaty that is analogous to Section 2 of
the Sherman Act.
Answer: Article 82 of the European Community Treaty is analogous to Section 2 of the

Sherman Antitrust Act, and forbids businesses with a dominant position in their
marketplace to take improper advantage of their position to the detriment of consumers.
The specific prohibitions are (1) directly or indirectly imposing unfair prices or trading
conditions; (2) limiting production, markets, or technical developments to the prejudice
of consumers; (3) applying unequal conditions to equivalent transactions with different
trading partners; and (4) imposing unrelated tying clauses.
Diff: 1
76. How is the theory of negligence in product liability different in common law states
compared to countries that dont follow common law?
Answer: The common law negligence theory, as it relates to products liability, is

essentially the same in both types of laws; however, two doctrines make it somewhat
easier for a common law claimant to meet the proof requirements. One is the doctrine of
res ipsa loquitur. This excuses an injured claimant who can show that a product was
defective when it left the hands of the defendant from having to prove that the defendant
caused the defect. The other doctrine is negligence per se. This excuses a claimant from
showing that the defendant breached a duty of care in those cases where the defendant
violated a statutory manufacturing or disclosure requirement.
Diff: 2
77. Apart from the long arm statute, what other criteria must a claimant fulfill in order to
establish personal jurisdiction requirements of U.S. products liability laws?
Answer: In product liability cases, establishing long arm jurisdiction is not enough by
itself. A claimant must also satisfy the federal constitutional requirement of due process
by showing that the defendant had minimum contacts with the forum. In short, the
minimum contacts test allows a court to assume jurisdiction only if (1) the defendant
purposefully availed itself of doing business in the forum and (2) the defendant
reasonably could have anticipated that it would have to defend itself there.
Diff: 2
78. How do the courts determine the members of a common enterprise?
Answer: In determining whether persons or firms are members of a common enterprise,

courts look at the intent of the parties. If the parties have not entered into a formal
agreement creating a partnership or joint venture, the courts will consider several factors
in determining intent, including (1) sharing of profits or losses, (2) sharing in the
management, and (3) joint ownership of the business.
Diff: 2

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Chapter 4: The Multinational Enterprise

True or False Questions

2. Establishing a branch in a foreign country does not create a true multinational

3. A corporation and its owners are considered a single juridical entity.

7. A subsidiary is considered a separate legal entity from its parent company.

8. An international multinational enterprise consists of a single parent company that

13. A branch is an independently organized and incorporated company.

15. A holding company is a branch that in turn owns other branches.

16. The Convention on Combating Bribery of Foreign Public Officials in International

17. A group boycott is an example of a per se violation.

Multiple Choice Questions

A. It is liable for the debts of the parent company.

A. national multinational enterprise

34. Which of the following characterizes a national multinational enterprise?

A. Its agents can only be individuals and not firms.

36. A subsidiary differs from a branch in that a subsidiary ________.

A. is just a unit or a part of the parent with no separate legal status

37. An international multinational enterprise differs from a multinational enterprise in

A. does not do business in its parent country

A. Both of them use subsidiaries.

A. to insulate the parent company from local liability

A. An agent is not subject to the supervision of its parent company.

42. Which of the following is true of a subsidiary?

A. A subsidiary is used to operate a parent companys holding company.

43. A ________ is an association of persons or companies that are involved in a

A. Section 2 of the Taft-Hartley Act

48. Once a particular kind of activity is classified as a ________violation, the courts do

A. Section 2 of the Sherman Act

A. Federal Trade Commission Act

54. Which of the following is true of American anti-trust laws?

A. It does not require the defendant to have personal jurisdiction.

55. Which of the following describes the long arm statute?

A. the Federal Trade Commission Act

A. the effects test

A. national eligibility test

A. because it encourages foreign companies to invest in the United States

A. the Mackay doctrine

66. Which of the following describes sharp practices of business?

A. because the company has no decision-making power independent of its parent

71. Describe a joint venture as a business model.

Answer: A joint venture is an association of persons or companies that are involved in a

72. How are multinational enterprises regulated by the home state?

Answer: Article 82 of the European Community Treaty is analogous to Section 2 of the

Answer: The common law negligence theory, as it relates to products liability, is

78. How do the courts determine the members of a common enterprise?

Answer: In determining whether persons or firms are members of a common enterprise,

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