Prof. Spanogle Spring 2010 OUTLINE FOR IBT 4.1a: Battle of the Forms 1. Choice of law doctrine a.

Courts will use their own doctrine to determine Choice of Law b. EC Reg. 593/2008 i. Parties may choose their own law as the whole or part of a K ii. Sec. 3 - Community law applies if parties choose another law iii. Art. 4 In absence of choice, then contract is governed by law of country to which it is most closely connected. 1. Sec. 2 most closely collected is presumed to mean residence/nerve center of party to effect performance. 2. Sec. 3 if immovable property then presumption of application in country in which property is located. c. UCC 1-105: act applies to transactions bearing an appropriate relation to to a state 1. Appropriate relation imperial clause (expansive but up to judicial decision) 2. Does not apply in Boston (see Roto-Lith) d. 2nd Restatement of Conflicts of Law i. Balancing Test 1. Place of Contracting 2. Place of Negotiation 3. Place of Performance 4. Domicile, Residence, Nationality, Place of Incorporation, or Place of Business. 2. Substantive Law a. UCC: Knock-out rule b. Common law: Last Shot Rule c. EU/German: PECL 2:208/209 (a hybrid rule) i. Boiler Plate drops out ii. Front-face language stays d. CISG i. Apples when K, Sale of Goods, International, and between CISG party states. e. Warranties i. UCC 2-314 Implied Warranty of Merchantability ii. Most EU laws include implied warranty (Germany) iii. As-Is Accepted under UCC 2-316 (3)(a) f. Additional Terms i. UCC 2-207 additional terms construed as proposals for addition and accepted if 1. Acceptance limited to terms of offer 2. Terms didnt materially alter contract

3. No timely notification given to exclude 4. If a different term then it would be subject to knockout rule. ii. CISG Art. 19 1. Roto-Lith applies, additions, limitations or modifications is a rejection and constitutes a counteroffer. 2. 4.1b: the Convention on the International Sale of Goods (CISG) 1) Application? a. Contract (K) b. Sale of Goods c. International (business or residence within different States) d. Between CISF contracting party states 2) Material Alteration? CISG Art.. 19 Sec. 1 a. Constitutes a rejection and counter-offer 3) Terms? a. The terms of the counter-offer (last shot) unless; (CISG Art. 17) b. Initial K expressly denied additional/different terms c. No Knock-Out rule in CISG, so this is circular i. Some (nearly 2/3) of courts HAVE applied a knock-out rule rather than follow the text (Spagnolle is not sure why) 4) As-is a. Not defined in CISG b. Term of Art in UCC, but not Internationally c. May not be construed to abrogate all warranties 4.2: Books to Bath 1) F.O.B (Free on Board) a. In US, doesnt mean anything without a destination ie. ship name, loading dock, port, etc. b. INCOTERMS FOB is a shipment contract that must be by sea 2) C.I.F (Cargo, Insurance, Freight) a. Requires a negotiable bill of lading b. Must pay against documents c. Cuts off inspection rights 3) UCC a. Lays out F.O.B and C.I.F definitions at UCC 2-319 4) CISG a. CISG Art 30 seller must deliver goods as required by the contract and the CISG b. Art. 6 allows contracts to exclude parts of the CISGs application c. Art. 31 if a contract doesnt include a destination, then handing goods over to the first carrier applies under this article 5) Trade Terms a. Some terms allow in (like INCOTERMS) even if not in the contract

6) Mandatory Law a. Something that cannot be included or excluded by Contract b. Ie. Illegal Conduct c. COGSA (Carriage of Goods by Sea Act) Hague Rules i. Limitation on liability to $500 per package for common carriers ii. Courts insist that shippers are offered a clear opportunity to declare a higher value. d. Berisford Metals i. Goods Warehoused and thousands of pounds of metal is missing. ii. Loading goods includes a responsibility to know what is in the cargo containers (Conex)
INCOTERM FOB S Delivery Port of Shipment CIF Port of Shipment (A4) Ships rail at port of shipment C&F Same Same

Responsibili Ships Rail ty For Loss Price

Cost of Goods Cost of Goods Inland Transport (ico = All Transport Costs yes American = ?) Packing/Marking Cost of Packing and Export Licensing Marking Insurance for Buyer Export Licensing during transit Bill of Lading, sea waybill, multi-modal transport document Normal is a Straight Bill of Lading (open account) (Prior to payment) In the Contract After Receipt Bill of Lading (transferable while in transit) Same

Same except for Insuranc e

Transport Doc?

Inspection of Goods Payment Term

After Payment

Same

Against Documents (not Same necessarily involving a letter of credit)

4.3: Oil to Araby 1. Effects of Treaty and Legislation a. Hague Treaties (US as COGSA)

i. Adopted in 1924 ii. Considered Carrier Friendly iii. $500 liability limit (indexed to gold in some countries, but not in the US) 1. Benefits Insurance Companies (because you have to pay for it beyond the $500 liability limit) b. Hague-Visby - 1960s i. Not adopted by the US c. Hamburg Rules i. Ratified by 10-15 countries (Australia the largest) ii. US has never considered joining 2. Force Majeure Clauses a. Applicable Law? i. CISG Art. 79 applies to parties with places of business in two different contracting states 1. Failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences. 2. Impediment generally means a physical bar to performance, rather than financial issues ii. UCC 1-105: Territorial application of the law appropriate relationship. 1. 2-615. Excuse by Failure of Presupposed Conditions. a. non-occurrence was a basic assumption of K b. UNIDROIT Principles i. Force Majeure standard for French law is physical impossibility c. French Courts i. Specific about physical impossibility ii. French Administrative Courts (when state is a aprty) have a principle of impervision (lack of foresight) allowing parties to modify based on onerousness of performance. 4.4 Electronic Commerce 1. Choice of Law a. Rome Convention i. Law of seller if an EU business purchaser or to a consumers residence ii. Ie. MD Seller to FR Buyer = CISG + MD UCC as gap filler if a businsess. FR law if a consumer purchaser. 2. Governing Law a. American i. E-Sign: 1. Does not deal with authentication or substantive law 2. Includes a negative preemption clause

ii. iii.

iv. v. b. EU

3. Purely inted to allow for electronic signatures. EUTA 1. If adopted by states it preempts federal law (by design) and is substantively broader than E-sign UCITA (Uniform Computer Information Transactions Act) 1. Attempt to regulate every aspect of electronic commercial transactions 2. Largely drafter by tech firms lawyers 3. Only adopted in VA and parts of MD 4. 38 State Attorney Generals rejected 5. 5 states passed legislation that UCITA will not apply to their residents. Door-to-Door: 3 day cooling off period Interstate land transaction 3 days to reject 1. Vt. any transaction can be voided within 3 days.

i. EU Distance Selling Directive: Consumer right to return/withdraw within 7 days unless a perishable item. 3. E-Books? a. Unclear laws here: Germany has applied CISG, no US application i. Might be considered a license (not governed by CISG or UCC) 4.5: Bills of Lading 1. What is a Bill of Lading? a. A certificate issued by te carrier to the shipper.seller that serves as: i. A contractual arrangement for carriage 1. Negotiable a. Transfer to holder if endorsement (signature) is blank b. Special: to a specific Consigness ii. A Receipt iii. A Document of Title ie. whomever holds has title iv. Potenitally a Negotiable Instrument 2. Types of Bills of Lading: a. Straight Bill of Lading: (white) i. Issued to the consignee non-negotiable only consignee has rts. Must be stamped on the B/L itself. ii. Seller loses control of goods to whomever is consigned iii. 80% of goods go this way, b/c parties trust past associates b. Order Bill of Lading: (yellow) i. Issued to make deliver to a certain destination set buy consignee to Holder of BL. ii. Negotiable Bill of Lading. to order. Can be endorsed either by blank endorsement or special endorsement. iii. Buyer loses rt to inspect carrier enforces cannot touch goods until you show up with the piece of paper.

iv. How to obtain payment -- Once have negotiable BL: 1. Attach a draft; invoice; other docs required in sales contract endorses the BL and Draft to SBK 2. Buyer pays w/o inspection seller risk too (unless letter credit). 3. Federal Bill of Lading Act (Pomerene Act) - governs all interstate and international shipments which use BL issued by a common carrier. a. Carrier has an absolute duty to deliver to holder of negotiable bill of lading if it is property indorsed. i. Holder (in due course) is an individual who has possession of, or a property right to, a bill of lading b. 49 USC 80101(b): must delvier to person in possession of a negotiable bill of lading if: i. The goods are delivered to the order of that person or ii. The bill has been indorsed to that person, or in blank, by the consignee or other indorsee c. Forged Endorsement is no endorsement (Adel) 4. Electronic Bills of Lading a. Frequently used for Straight Bills of Lading, but not for negotiable b. Banks less willing to accept because there is a lack of certainty regarding title and negotiable bills of lading can transfer possession dozens of times during a voyage c. BOLERO system in EU is operational, but it doesnt use a negotiable bill of lading and banks arent involved. d. Pomerane Act has not been amended for E-Bills of Lading. 5. Carrier Liability: a. For any failure to deliver goods which correspond to the description in the BL quantity or quality. b. Exemptions to carriers liability language to disclaim obligations: i. contents or condition of contents of packages unknown. ii. Said to contain. this works iii. Shippers weight, load, and count. 1. Does not apply if common carrier is provide with adequate facilities for weighing the freight 2. Also doesnt apply carrier does the loading. c. Disclaimers ineffective if carrier knows goods do not conform. i. When goods loaded by carrier, he must count the number of packages and is expected to note the condition of the packages and the kind and quantity not quality. d. Mis-delivery i. Carrier is liable under Straight BL if goes to anyone, but consignee ii. Carrier is liable under Order BL if goes to anyone, but Holder.

e.

f.

g. h.

i.

j.

iii. Banks generally not liable disclaimers of warranty liability, only holding docs, ICC banks have no obligation to examine docs. Mis-description i. Carrier in shipment transaction has no privity w/the K b/w buyer and seller for the sale of goods, and therefore has no obligation to deliver goods that conform to the sale K. ii. However, the BL, which describes the goods is part of the carriage contract. Forged BL endorsements i. If the carrier did not issue the BL and its signature is a forgery or unauthorized, that signature is not effective carrier not liable, absent actionable negligence. ii. Same disclaimers as misdelivery if bank wants to protect itself. iii. In EU if someone signs your name you might be stuck with it under Vienna Conventions What can carrier do to provide more security or protection i. freight forwarder, phone calls, checks such as pin numbers. To ensure that their not liable, a carrier must meet the following three criteria: i. goods loaded by shipper ii. appropriate wording, iii. carrier doesnt know about goods. Federal Statute vs. Contract Apporoach i. Statute: words must be fairly close and literal ii. K can say want to meet partys expectations that cartons arent opened. Applicable Statutes: i. 80107 unless contrary intention - a person negotiating the transferring of a BL for value warrants that it is genuine. ii. UCC - 7-508 - gives opposite presumption, unless something on BL, presumption that if only a collecting bank not giving any warranties just providing your own good faith and services. iii. No international custom international custom is that collective banks dont make any warranties as to the genuine nature of the bill. Whether this overcomes 8107 is questionable.

5.0: Documentary Letters of Credit a. Most documents dont conform exactly but technicalities might allow nonconformity by the receiving bank ie. if there are issues with the BL upon receipt, they may not transfer funds. b. Are independent of the underlying transaction and K.

1. Choice of Law issue a. UCP Uniform Customs and Practices for Documentary Credits i. States custom in the industry but they are not law so must be incorporated into the K ii. UCC is a gap filler, except in NY, AL, AZ, MO where UCP prevails if incorporated into the letter of credit. iii. Doesnt cover fraud and enjoining payment against documents. iv. Issuing bank, advising bank, confirming bank, and nominated bank. b. Banks obligations are separate from buyers and sellers rights. c. Banks deal only in documents not transaction and insist on strict compliance Art. VI UCP. d. UCC and choice of law UCC Art 5-116 governed by contract or the laws of jurisdiction where located. Used as gap filler 2. Strict Compliance. a. Art. 13 - Time Deadline for UCP of seven days b. Art. 14 - bank has to present all discrepancies at once or preclusion from claiming non-compliance to non-stated discrepancy. c. Art. 14 waiver from banks client / consultation d. UCP doesnt deal in fraud, so must look to local law UCC 5 in US e. UCP 600: Complying Presentation: a presentation that is in accordance with the terms and conditions of the credit 3. UCC 5 governing law in US, however, most of it is not mandatory and defers to K terms of parties as expressed in the K. a. UCC 5-108: if not on face the same, then issuing bank can decline to pay b. Art. 5-108(e) practice of financial institutions Is a bank negligent for not sending a confirming letter and using telex? c. Telex that is received under ucc is conforming? d. 5 UCC 5-108 Issuing bank is not liable unless it broke banking standards. e. Schmittoff says that mailing a letter is a better business practice, so if you can prove it is a standard banking practice then the court will have to determine whether it is a standard practice is as a matter of law. f. Issue: whether 5-108 a mandatory law or mere gap filler. Did the UCP adoption mean to get rid of 108(e) or was that an unintended point. The authors say it is probably not gap filler, but more like mandatory law No solid answer. g. Chances are that bank wins. h. UCC 5-107 it is just as if Metro (as confirming bank) issued its own letter of credit that said ICD so, Shady has Metro on the hook. Not likely under UCP. 4. Non-conforming letter documents banks obligations: UCP a. Bank has to first exam doc and determine conformity

i. May consult applicant, not obligated to consult ii. May ask for applicant to waive iii. 7 days for inspection reasonable time depends on transaction b. Act upon discrepancies found i. If not waived, dishonor presentation of docs ii. Notice to dishonor and must state specifically discrepancies all. 5. Example: Chinese bank refuses to send $ to Sellers bank claiming that the BofL is non-conforming because its says ICD instead of LCD a. Typing mistake via fax machine i. Whose error negligence in machine maintenance? b. Who has the obligation here? UCP 500 says four-corners of the K, while Voest Alpine/UCP 600 suggests a new case-by-case approach. i. Strict conformity: Rayner (KB 1946): no need for banks to know trade terms c. 5-116(2) rules of everybody dependent on where located BNP uses FR law and Metro uses UCC NY law. d. Check time deadline in reporting UCP seven days e. Check responsibility for clerical errors agency theory. f. Always note privity of K. 5.2 The Independence Principal 1. John Little discovers from a 3rd party that Robin Hood is sending him fraudulent goods, can he have his bank not pay out to Robin Hoods bank? What else can he do? 2. Banks duty? a. UPC embodies an independence principal ie. all that matters are conforming documents, and no liability so long as they conform. b. UPC is entirely silent on frauds but doesnt expressly contract out of the UCC i. UCC 5-109 likely applies 1. See Mid-America Tire (p. 343) 2. 5-109 a) 1) [Bank] SHALL honor if demanded in good faith by a holder in due course, or a good faith purchaser (ie. anyone they cannot prove is acting in bad faith/knowledge of the alleged fraud. a. Aegis on protecting good faith 3rd parties (not buyer or seller) 3. 5-190 a) 2) MAY honor or dishonor in other cases a. It can still pay if there is fraud in the transaction so long as they do not know of it for sure. b. Bank is likely to pay out in most cases (less liability) c. Banks do have an option to delay i. Statute is UCC 5-108 (7 days) but UPC is 5 working days. 3. Seller (Little John)s response options? a. Temporary Restraining Order (TRO)

i. Against his bank to keep his bank from paying the buyers bank 1. (allows his bank to avoid responsibility) ii. Must prove Fraud: ie. a factual misrepresentation that is known to be untrue and that his relied upon in the transaction and will/has resulted in damages. 1. This doesnt mean the goods dont conform fully, but that they was an actual lie that induced the K 2. Mid-America Tire (Ohio Court says that must be such a major lie that it vitiates entire contract about EU tires that were unusable in the US but sold on the gray market) a. This may represent the highest applicable standard. 5.3: Standby Letters of Credit 1. A non-revocable letter of credit issued to the buyer from the seller that stands as sureity to sellers ability to conform to the contract terms. a. Buyer obtains funds by submitting a statement indicating breach in conjunction with the letter of credit. b. Assurances to Buyer that seller will conform c. May act as an inducement to buyer to enter into the K d. Alternatives is a Performance Bond? i. An insurance like scheme from a bank ii. Does not guarantee immediate payment because the issuer might litigate, will certainly investigate, and may enter a K with a 3rd party to complete. iii. Bank will simply pay. 1. Bank is using the sellers money, has a reputation to uphold, and only five days to delay while an insurance company has an interest in providing as little $ as possible 2. International framework because UCC and UCP not adapted for standby letter of credit: i. UN Convention on Independent Guarantees + Standby Letters of Credit ii. Uniform Rules of Demand Guarantee (URDG) (ICC 1992) iii. International Standby Practices (ICC 1998) b. All Three consider issues of Fraud not addressed in the UCP or ISP i. Provide Standards for TRO, Injunction, etc. all differently worded (precision) 1. URDG: Must say how the seller has breachedso that someone can go into court to argue the facts of the letter. 2. UN Con. Has three vague standards that allows a court to order non-payment 3. UCC - we've discussed (go back) 3. American Bell Int'l v. Islamic Republic of Iran (Evil Intent Standard) a. NO TRO, no probably merits, etc.

10

i. Was required to prove that there would be "irreparable harm" to the seeking party ii. But AB never tried to go to Iranian Court, or even American Courts. b. Probably Success on the Merits? i. P has not demonstrated evil intent (this could just be an economically sensible course of action based on its current financial situation) c. Would require court to assume bad faith on part of Iranian Gov. d. That the balance of hardship favored the seeking party i. If balanced favored Bell, it did not do so decidedly so. ii. Would infringe on Manufacturers credibility and likely result in it absorbing the costs in Iran (instead of Bell) iii. M would be liable to Iranian Bank, not under standby letter of credit, but would likely face hardship from Iran's potential response. e. Evil Intent is a very high standards for gaining a TRO 4. Harris Corp v. National Iranian Radio and Television (Evidence of Harm test) a. Irreparable injury? i. Potentially, no avenue in American or Iranian Courts, just an international tribunal that the court doesn't trust. ii. American Claims Tribunal is the only avenue (new and suspect) b. Balance of Harms? i. Court holds that no evidence of harm because bank/procuring agency/etc. all one animal, that neither appelant has argued it, and that the assets of all American Banks have already been seized. c. Probably success on the Merit i. "evidence of fraud" (much lower standard than evil intent). 5. Review: of Standby Letters of Credit a. Five potential legal regimes i. UCC and UCP ii. URDG (European Style - guaranteed payable on first demand) iii. No suicide credit, must show breach (allow someone to argue/litigate) iv. UN Proposed Convention (US not yet a member) v. ISP (Int. Serv. Practice - written by bank lawyers) 1. Not used often because seen as completely bank inspired 2. Would likely fail under EU law on ID grounds 3. UCC is backup and it says that law governs associated with the bank branch's location a. UCC applies then if the bank is domestic b. Iranian cases indicate type of problems likely i. Fraud Bar (to TRO) - set very high in American Bell and Mid-America Tire ii. Two leading cases in this area (though every now and again bad goods will work) iii. Must also show irreparable damage iv. Balance of Hardships: buyer, seller, bank (bank's reputation for paying). c. US Banks can now issue Insurance Policies (Glass-Steigal has been revoked)

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i. But no one is doing it instead of letters of credit ii. Buyers who want protection want to be protected nownot to be held for investigation by an insurance investigator d. How do you knock out a letter of credit? i. Drown them in paper ii. Third party (trusted by both parties) to issue certificate e. Guaranteed v. Standby Letters of Credit i. Some minor technical differences, but they perform the same function Problem 5.3: Israel v. SpaceCom 1. SpaceCom: Fraud --> intentional misrepresentation of inducing fact. a. Israel has made misrepresentation in its letter because the system "has" been deliver, but it was rerouted by the,. b. This is not a "substantial" breach (unclear), because it was delivered, just four days late. i) It was accepted (and diverted) so should not merit loss of $15,000,0000 2. How can we avoid? By a Documentary requirement (see. Kimball and Sanders) a. Auditors report b. Letter of acknowledgement from SpaceCom c. Receipt requirement showing dates d. 3rd party confirmer i. Could be arbiter decision or Court order. ii. Bank? 3. Factual Representations in the Statement by Israel a. As in the URDG -- must say specifically what constituted the breach and document how and when it occurred. 6.0: Franchising 1. Three Characteristics of Franchises: an ongoing commercial relationship characterized by: a. Substantial association or license of a franchise (core) b. A marketing plan or community of interests (state statute), or significant assistance or control (fed. Statute) c. A fee (called a royalty, franchise fee, etc. ) i. $500 over 6 months for FTC ii. Relatively nominal amounts of money 2. Several types of Franchises: a. Products Distribution Franchise i. First type, Singer Sewing machines ii. Clearest example is Coke/Pepsi ie. Franchisee is the bottler b. Business Format Franchise i. Fast food is prime example ii. How does it work - McDonald's Example? 1. Franchisor (Zor) provides a. Trade Mark

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b. Training c. Marketing Assistance d. Real Estate (Help finding starting location - might even own land/shell in order to ensure no 3rd party landlord) 2. Provided by Franchisee (Zee) (Total $ % by Gross income average around 5-7%) a. $ for TM (initial fee $10-$25k). b. $ for Training (fee?) c. $ for Marketing (% of Gross or fee) d. $ for Rent (% of Gross or fee) iii. Ongoing Business Relationship 1. Generally 15-20 years initially with a 10 years renewal 2. Not necessarily a right to a renewal (though could be negotiated in initial/secondary contract) 3. Why be a Franchisor? a. Spread the Risk b. Know the area (indirect/Master/Area franchising) i. Direct Franchising: from Franchisor to Franchisee directly 1. Rights to a specific store in a specific area 2. Generally used domestically 3. Can be used internationally in limited circumstances (Canada being one example) ii. Area development Agreement: From Franchisor to Franchisee 1. Franchisor sells right to develop one store, then additional based on its fixed development schedule 2. Provides exclusive right to a territory - becomes a multiunit owner iii. Master Franchising/Licensing - sub franchising arrangement 1. Seen allot in the Int'l Arena 2. Some countries require Master to operate successfully for at least a year prior to sub-franchising 3. Master administers his Subs for the Franchisor a. Training b. Responsible for Quality, Service, Cleanliness (QSC) 4. Used more than any other approach in the international setting 5. Could pay as much as 10% of royalties to Franchisor 6. Advantages to this arrangement? a. Liability reduced by distance b. Does Franchisor have day to day control? Over risk? Normally will not apply, but will to risk c. Knowledge of Market preference i. Attempt to bring on a Master with prior experience in this area

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ii. Advantage to have someone sophisticated enough to advance the franchise whilst lacking competing interests. d. English Speaking and Translation of Operations Manual i. A bigger issue than we might think (DoubleReverse translation is necessary) iv. Conversion Franchise 1. Selling licenses to individuals already operating to take on your name, trademarks, etc. 2. Often used for realtors 3. Can lead to "too high" a royalty 4. American Law a. Federal: FTC rule i. Required disclosure prior to sale "franchise disclosure document" (FDD) 1. Required to be in Plain English and defined content 2. Fees, business length, officers backgrounds, dispute resolution, termination procedures, litigation history, product purchase requirements (by contract - tying), add'l spending (trips, etc). a. Tying generally dealt with by setting very specific standards for products your required to used. required supplies. 3. Territorial exclusivity? a. Critical in US context. 4. Names and Addresses for other Franchisees 5. Earnings Claims a. Legislatures went after fraudulent earnings claims and created the Earnings Claims Document which is now a Financial Performance Representation (FPR) --- OPTIONAL part of FDD (#23 of 23). i. Cannot cherry pick information (must be representative of the system as a whole, or specify why particularized ie. because comparable to your projected situation) 6. Two weeks notice (no registration req.) prior to money passing hands b. States i. 15 states have disclosure/registration laws (perhaps something like the FDD) ii. States may require registration of disclosure iii. 30 states have relationship laws 1. May governor termination, cure, or renewal requirements 5. International Law

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6.

7.

8. 9.

a. Tend to focus on placing equity and control in the hands of local individuals and on regulating the franchise agreement to benefit the franchisees. Intellectual Property? a. The Operations Manual i. Not a legal document per se ii. Tells you everything about how the business runs (summarizes the system) Additional Costs/Concerns of Internationalization? a. Taxes and other laws b. Cultural preferences c. Translation costs (ongoing) d. Manual, marketing, contracts, etc. e. Trademark - avoid abandonment (most important) i. What if someone has registered a duplicate - buy it back? f. Pro Forma costs (flights, etc) g. International Franchise Fee usually $150,000 to $500,000. Will this cover? h. Enforceability of contracts? i. Litigation could take as long as 10 years and 100s of thousands of $. j. "other fees" (bribes) k. How do you get your $ (hard currency) out? i. Corn syrup to Vodka, to submarinesexample Might be better in some cases to direct franchise a. Biggest issue has to be the quality of the Master Licensee b. Getting rid of them can be difficult (strongly protected in "their" courts). Why % of Gross? a. Avoid issues with taxes, employees, etc. Ie. good accounting could make profit appear to be almost nothing.

Prob. 6.1: Franchising and Trademark Licensing: Colonel Chicken goes abroad 1. What's he selling? a. It's "Formula for Success" b. Know How: Use of recipes, Pricing Scheme, quality control c. Equipment d. Advertising program e. Trademark f. Instruction Manual 2. How does he protect his trademark? a. The Federal Patent and Trademark Office i. Quality Control if franchisor doesnt maintain it, the trademark could be considered abandoned and lost. However, must be careful so as not to force an agency relationship.

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ii. Nice Agreement registration by single classification system for goods and services. No longer have to ID good or service classification. iii. Vienna Trademark Registration Treaty US party to intl filing and examination scheme. Not fully implemented yet. iv. US Lanham Act of 1946 foreigners who seek registration in US might be required to prove a prior and valid home registration 1. US law allows for registration within 12 months if there is bona fide intent, and 24 additional months if good cause is shown for delay v. Paris Convention right of priority of 6 months form home registration, allows well-known trademarks the rt to block or cancel the unauthorized registration of their marks. 1. Mitigates national requirements that foreigners seeking TR prove a preexisting, valid, and continuing home registration. 2. Eliminates need to simultaneously file 3. Famous marks prevents infringement even if there has been no local registration vi. Trademark Registration Treaty of Vienna (1973) has not been implemented (so no comparable solution to Berne Treaty). vii. Must register internationally 1. If someone else has registered, then they will ultimately end up paying someone else who has already registered the Mark abroad. viii. Registering to Block v. Registering to set up a company ix. TRIPs trade related intellectual property rights. 1. Uruguay Round, internationally recognized marks receive enhanced protection, the linking of local marks with foreign TM is prohibited, service marks become registerable, compulsory licensing is banned 2. Can prevent unauthorized use or disclosure b. Patent for Equipment -- patent office i. EU - You get right of priority of 12 months, but if you dont get patent protection in Europe during those months and you come in later, the office says it is not new and not invention that this info is already disclosed in US Patent so precluded by own prior disclosure. 1. What can we do in this situation get a subsidiary patent to the original a follow-along-patent. You can use this in Europe to get patent protection ii. Will not protect from prior filings (prior to your filing) even if you're first to invite iii. Some countries give patent to first to file, rather than to discover c. Copyright the manual (keep it from being published) reserve rights

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i. Register with copyright offices, not necessarily anymore so long as notice provided. ii. Necessary for registration if t d. Contract terms for non-disclosure of know how (keep it from being used) i. Trade secrets, etc. e. International Application i. U.S. law ends at water's edge f. Copyright protection is extended to 140 states under Berne Convention i. Universal Copyright Convention of 1952 and Berne Convention of 1886 US party to both. 1. UCC copyright holders receive national treatment, translation rights, will excuse any national registration requirement provided a notice of a claim of copyright is adequately given. Foreigners in US have to register if only seeking protection under UCC 2. Berne if foreigner is member to Berne as well then national treatment and release from registration. Permits local copyright protection independent of protection granted in the country of origin and doesnt require notice. 3. Therefore, if publish in US protected in other ratifying countries. 4. Note that another difficulty is that there is no agreement on how you get a patent and how it is registered. 3. Should you file patents on the cooking equipment all at the same time (all 196 countries)? a. Filing everywhere might be prohibitively expensive (this is really a business decision) b. Not an all or nothing proposition c. As you move forward, get patents on improvements to the cooking systems abroad d. Consider where you might go earlyand move on patent protection as you go. e. Must work a patent to maintain the patet f. Indonesia says must manufacture whilst other countries say "selling" 4. How do we protect these things? (Question has to be: What can 'Zee do that will hurt us?) a. Manual is protected under Berne Convention b. Patent protection has to be had early on in the process, normally, this doesn't happen, but: i. Patent follow-on inventions/which will generally protect goods c. Trademark i. Madrid protocol around 2000, has 84 member states ii. Under Madrid, still have to hire local council in each country iii. Also, if attacked in one country and fails, then it fails in each country under the protocal

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1. There are ways to convert "out of the basket" but these are similar to what you'd do if you just registered singly in each country iv. 6 months protection under the Paris convention. d. Trade Secrets i. Depends on Contracts and local laws ii. Must consider PRIOR to moving into another country e. System: i. Changes to contract itself ii. Currency iii. Advertising - who controls? Master Franchisee iv. Language - double translation? Or pick one language and then assign as Master. (which one will govern?) v. Arbitration requirement? American vs. Int'l? vi. Creation of Master Franchisee or Area Development Agreement? 1. II(b) of contract --> 2. Who selects sub franchisees? 3. Who pays for training/who conducts training 4. All of this is a balancing act between agency and contractor, of avoiding liability through both endsby proper training and by distance. 5. Who is paying through, the subs to the master and then up (reverse waterfall) or a distributed pay model or a direct payment and then reversion of fee to Master for management? 6. How do you show that you can make money in target country? 7. Usually create a wholly owned company, then run for a time to determine profitability, etc. a. Not generally "organic" growth internationally, but instead targeted master/area development. i. Organic growth is more prevalent domestically, where the company has a more in-depth understanding of the marketplace. 8. Accounting standards? Generally Accepted Accounting Practices (GAAP) vii. Risk Mitigation 1. Might not get paid - related risk to one franchise (not a big deal in the grand scheme o things) 2. Potential liability? a. Can potential litigants pierce the corporate veil against the Franchisor? b. Insurance plus Limitation of Franchise c. CANNOT exert day to day control (will create agency - so need to create separation)

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3. Must oversee to avoid ruin to franchises reputation a. Food suppliers (correct taste) b. Avoid sweat shops, etc. 4. How do you avoid employees steeling/transferring knowhow? viii. Prioritize between risk to individual franchise relationship VS. risk against entire franchise network. f. Site Selection - Most important issue for both Zor and Zee i. Col Chicken's resp., but might pass to Master Franchisee (or even sub) ii. Explanation of site selection 6.2 Regulation: Colonel Chicken Goes to Canada 1) Alberta: Need to file prospectus that provides full, plain, and true disclosure of all material facts relating to the franchise proposal to be offered. a) Alberta considers franchisee's to be Investors. b) What do we need to know? i) Historical profitability/cost of individual franchisees? Failure rate? ii) Costs including? iii) Required purchase products + approval process for local substitution iv) Solvency of Franchisor v) Due diligence (1) Suits against trademark, validity, etc. (2) Compliance with national/province health requirements (including food, building design, etc.) vi) Potential competition even alt. franchisees and different franchises (1) Status of any current litigation vii) Forward looking statements (are not misrepresentation) viii) Are "secret spices" a material fact? (1) Coke in India example - India refused to set up franchises without disclosure of Coke's formulaCoke walked away from India for 20 years. ix) Site selection process? Almost never going to be disclosed"most important secret." (1) Never been an issue re: disclosure as far as Spagnolli knows. x) This prospectus situation is true in 30 states, very common in Common law countries. c) Failure to disclose = right to rescission and/or civil penalty" d) A "nut case" can twists these requirements every which way so: i) Must research past case-law/prospectii in the region ii) Request a clarifying opinion? iii) NOT a one way process (1) Drafts, comments, 2nd Draft, etc. Finally approved after a repeated back and forth. (2) Similar to the SEC

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(a) Even here 90% is boilerplate, but there will still be questions/responses regarding the 10% that matters. e) New prospectus EVERY time you open a new franchise (though thankfully most of it made up already, only requires update). 1. Types of Regulation a. Prospectus (See Example Alberta) b. Antitrust Law (In America) Sherman Antitrust act i. Prohibits controlling price after resale to 2nd part (retail price maintenance) 1. A suggested retail price is considered price management rather than controlling as long as you dont have an enforcement mechanism ii. Prohibits Tying 1. Not allowed to require franchisee to purchase non-essentials and cooking supplies from franchisor. 2. Can purchase core products from franchisor chicken, subject to specifications or from a list of approved sources. Seigel.? 3. Baskin Robinns formula for success products may be tied, b/c depends on secret recipe and reputation. 4. You cant require that they purchase generic equipment or supplies. Napkins, placemats, uniforms. 5. Ownership of the land? a. DeFacto limitation of territory is not an issue, so long as rents are being paid correctly. EU Anti-trust law (sets down comprehensive rules) iii. Article 81 is Rome Convention on Anti-Trust law - Vertical Restraints Regulation 1. Article 2: exempts contracts under Article 81 (from anti-trust attack) 2. Article 3: says they exemption shall apply where supplies does not exceed 30% marketshare 3. Article 4: exemption (art. 2) does not apply to a variety of situations ie. a. Sales price control b. Restrictions on territory except: i. Active sales into exclusive territories that do not actively limit customers of the buyers 1. EU supports intrabrand competition as opposed to interbrand competition (ie. F v. F rather than F v. G). ii. Restrictions on wholesale buyers iii. Restriction from sale to unauthorized redistributors iv. Restriction on buyers ability to sell components to manufacture same type of goods

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9.2a - Parallel Importation 1. US company (DACCA) licenses a FR subsidiary (DACCA FR) to produce a trademark/copyrighted material a. DACCA FR sells them to a discounter in the US (K-Market) 2. Why might DACCA US be upset? a. Price discrimination across markets being upset? i. May be different, not meeting US standards or different make-up (different versions ie. Language, warranties, etc.) ii. Different materials, quality control, certifications? b. Exclusive distribution schemes upset i. Distributor who pays for advertising is losing its investment to opponents. 3. Consumers Interest? a. Cheaper price b. Broader Choice 4. Version issue (material differences) - Lever 5. Price equalization? a. Result in slightly higher price than re-importation, but lower with the benefits of domestic product (full compliance with domestic standards, warranties, etc.). 6. Why can't DACCA solve this problem with Contract Law? a. IP law will allow you to recover without the Privity of Contract (if a remedy exists in law) b. IP Law theoretically "flows with the items" but there are doctrines of exhaustion that might get in the way. c. Here, you could sue K-Market without a contract with K-Market. 7. L'Anza v. Quality King Distributors (1998) a. Facts: QK runs a huge gray market empire, selling goods below suggested resale that it has acquired on the international market. Here, sells shampoo from abroad (where it is sold cheap) to stores in the US (where it is a salon only product). L'Anza attempts to sue based on it having copyrighted its label, which is being reimported on the shampoo itself. b. Arguments: L'Anza cites statutory text: "importation into the US without the authority of the owner of copyrightis an infringement of the exclusive right to distribute copies under Sec. 106." But, QK says exclusive right is limited under S. 109 and that an "owneris entitled to sell without the authority of the copyright owner." i. First Sale Doctrine results in Exhaustion of IP Rights. c. Holding: That though this is infringement under S. 106 the exceptions to S. 106, including S. 109, do come in and therefore the owners rights are exhausted by the transfer of lawful ownership to Quality King. i. Importation right is limited by the first sale doctrine

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d. Concurrence by J. Ginsburg: hinge here is on language in Title 17, S. 109(a) re: "lawfully made" - how can one determine if it's lawfully made since title 17 has no application abroad? i. Two potential interpretations: lawful because not "unlawful" or unlawful because outside of the US jurisdiction. (2nd is emphasis). ii. Lower Courts: If copy made outside the US (even by US Company), then owner has no first sale rights/defense, ie. copyright owner still has IP rights. (Omega v. Costco (9th Cir.) petition for Cert. Denied. ) 1. Bad precedent for the US, because it creates an impetus for companies to manufacture goods abroadbecause they get more rights when they're abroad. 8. Application to DACCA? a. Copies made IN France, so place of maufacture under Omega would result in application of copyright importation - though this is not settled law. b. If they were made in US initially, we'd have to consider trademark law. 9. Trademark: Three applicable statutes a. Importation i. Lanham Act S. 42 (S. 1124)) - Federal Trademark Act ii. Tariff Act S. 526 (19 U.S.C S. 1526) - Tariff Act b. Infringement i. Ordinary infringement statutes Import Statues Both required registration of trademarks 526 limits protection to U.S. Citizens/Corps. But S. 42 does not and appears to otherwise provide protection of equal or greater scope (protects against copy or simulation of a mark) Both prohibit entry of goods into the country (even before goods have been placed on sale). 10. Customs regulation (implementing S. 526) includes two exceptions to ban on unauthorized imports: a. Authorized Use i. Having a licensing relationship that allows the foreign entity to legally use the trademark (could be vise versa) ii. Struck down by Ct. in K-mart v. Cartier. b. Common Control - Lever, K-mart v. Cartier(upheld) Infringement Statues Does not require registration Protect all U.S. Trademark Holders Goods must be offered for sale

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i. "the owner" is construed to include anyone within the cloud of the company organization (including a foreign subsidiary or parent company). 11. Lever Bros. Co. v. U.S. (brought under S. 42 o f Lanham Act) (DC Cir. 1993) a. Facts: soap being imported from UK subsidiary. UK version has different colors, scents, packaging, chemical make-up, etc. (formulated for different markets) b. Arguments: Lever bros: that there ARE material differences between the products that should prohibit importation. Counter: why wouldn't you just rebrand in the UK? i. Global brand development - loyalty, good name choice, cross advertising (economies of scale), cheaper to trademark, global marketing campaigns, etc. ii. Also, allows you to stop importation of your own products in competition? (though it likely wouldn't be a strong competitor as a grey market good). c. Holding: Sec. 42 precludes the common control exception's application with respect to materially/physically different goods. i. Lever: Results in promulgation of new Customs' Regulations that says that Common Control exception only applies when either: 1. Goods are not physically or materially different, or 2. Goods bear a "conspicuous and legible label" stating that the product is not a product authorized by the US Tm owner for importation and is physically and materially different from the authorized product." 3. Result is to increase costs for gray goods importers AND may limit their relationship with consumers 12. Summary: a. US trademark holder can generally prohibit non-consented-to importation of goods bearing that mark b. Exception if (1) the goods bear a mark valid in their country of origin and (2) the foreign manufacture is affiliated with the U.S. mark holder, then to prohibit import must show: i. Goods are materially different; and ii. No mandated-form disclosure on goods c. What if the facts reversed? A US discounter selling to a FR wholesaler i. Would be decided under EU law (dispute decided within EU) 13. Silhouette v. Hartlauer (ECJ 1998) a. Facts: S sells off stock of old frames to a trading company in Bulgaria (which was not then a EU country). H purchases frames from the trading company. S sues H, ends up at EU CofJ. b. Arguments: that Member states must apply a law of regional exhaustion, once a sale is made within EU, then the goods must be allowed to flow freely through EU. But, Austria argues that it can adopt a rule of International Exhaustion.

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i. Austria doing so would likley force others to do so, because Austria would become import capitol of EU c. Holding: That Art. 5-7 represents a complete harmonization so state's cannot create an international harmonization rule. 14. What about Patents? a. Jazz Photo Corp. v. International Trade Comm. (Fed. Cir. 2001) i. Holding: to invoke the first sale doctrine, the sale must have occurred under the U.S. Patent. 15. US Trademark 16. Three different provisions in trademark law in which someone seeking to prevent importation of goods into the US might use. a. Section 526 of the Tariff Act K-mart. invalidates authorized use exceptions formulated in customs regulations. Doesnt matter if licensed outside US, you can still prohibit goods from coming back in. however, common control exception is valid under US law. b. Limited to US citizens or domestic corporations. c. Section 42 of Lanham Act Lever Bros. - narrows common control exception and says even if common control, we think mark owners if the product is identical then cant prohibit and only can prohibit-- if material differences and the differences in product cant be cured by labeling. 17. Victory for mark owners to use trademark law to segregate markets a. Foreign corps have to use this section to sue. b. Talks about products that simulate the US mark, which is language not in 526 not clear but that may generate slightly broader protection. 18. Customs issues regulations to unify both above provisions. a. Authorized use and common control of foreign co, exceptions. b. Sct decides it wants to interpret these provisions together so that differences b/w two turn out to be not that great. c. Infringement law under Section 43 of Lanham Act. i. Applies to goods actually sold in commerce and infringe US trademark ii. Few cases, but lower cts have said 43 will be construed same way as Sct has done with abovementioned acts and we are going to say even under common control situations you can keep out imports when difference arent cured by labeling. iii. Trademark law provides more opp to provide for segregated markets than copyright. d. If you want to do price discrimination want to sell same product for different prices in different markets, you could create two products that are different enough that ct will find them material different diff formulas, diff warranties, and then you can prohibit importation of that product into the US and case where difference in terms of warranty or language of users manual not so easily cured by labeling. 10.0 The Third Transaction: Foreign Direct Investment

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1. What problems will you face? a. Applicable Law? i. Continuing subjection to US Laws (home country): 1. Anti-trust, securities, labor, foreign corrupt practices act 2. Subject to host nation law 3. Subject to international law b. Operational Code: laws applied different from written? i. Ex. Marijuana shops in Cal. (against law, but not prosecuted under this Administration). ii. How do we find out about this? Local Counsel c. Cultural Differences - as associated with use of products i. Cultural Differences towards the law ii. Ie. Contracts, in US is to perform or to pay damages 1. In Civil Law countries: the Contract must be kept, ie. specific performance is a primary remedy, and may be enforced through fines, etc. iii. Note: notaries in US are a minimal requirement, but in EU they're highly accomplished attorney's who've received additional schooling (and had the grades to get into it) 1. In EU, notaries are very conservative, purpose is to defend the status quo (ensuring nothing new is introduced). iv. Business Culture - different expectations at all levels 1. Expectations of workers, labor laws, etc. 2. Currency 3. Kick-Backs vs. "bribery" 2. Where should we Invest? a. 20 years ago: would have been "place with the fewest restrictions" but Today: What will they give you? Ie. i. Incentives (land, infrastructure, etc), Taxes, Lower barriers, etc. ii. This has been a transition from "fewer restrictions" to "more incentives." iii. Types of Incentives 1. National, State, & Local (at all levels) 2. A global competition 3. Acquisition or Greenfields? a. Advantages to Acquisition i. Incentive advantages (cheaper) ii. Host preferred iii. Ready made market share iv. Quick entry via existing facilities v. Potential detainment of intellectual capitol b. Negatives? i. Long time to market ii. No market strength or intellectual capitol iii. Pay a premium iv. Host nation opposition

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v. Potential mediocrity of acquisition? 4. Branch or Subsidiary a. Branch: an extension of the parent company on foreign soil i. Easiest to implement; but potential difficulties with identification and registration in the host state ii. Potentially full transfer of liability to global company assets iii. Risk of taxation on global profits iv. How does one identify oneself as a company in FR? v. Have certificate of incorporation in Delaware translated (consular translation best) 1. Have translation notarized in FR 2. Then present to FR Gov. vi. Taxation, potentially of the entire company by both home and host country 1. Ie. attempt to take pro-rata share of entire company b. Subsidiary: a separate company wholly owned by you i. Also quick to set-up ( a few days in DE) 1. When registering, present as a FR/Host nation corporation/citizen ii. Liability limited by corporate veil iii. Issue of "true independence" of subsidiary? iv. Law of host nation v. Limiting assets in Subsidiary, good for liability of assets, but potentially runs into corporate veil issues. vi. Minimizing capitol presence (ie. company footprint) vii. Avoids host state taxation against global corporate profits (only against Subsidiary) 5. Joint Venture or Wholly Owned a. Two types: Voluntary vs. Involuntary -- this dichotomy was common 20 years ago (mandatory) i. Voluntary: potential tax benefits, strong personalities/relationships, etc. ii. Involuntary: "Creeping Expropriation." b. Benefits i. Market expertise, cultural expertise c. Negatives i. Greater control and independence of action in support of parent company d. What are you sharing? i. Intellectual partner? ii. Profits? e. Advisor vs. control? i. What level of control is available? ii. If you can't control a subsidiary, then you may face direct competition. iii. 6. How Does a Foreign Direct Investment Differ from a Domestic Investment?

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a. Question of what laws apply and when b. Additional Risks (ie. threats to investment that may cause a loss of all or part of the invested capitol and technology.) i. Expropriation ii. Equity stake limitations iii. Cultural misunderstandings/failure iv. Convertibility of currency v. War, national emergencies, etc c. Trade Related Investment Measures (TRIMs) - intended to eliminate the restrictive characteristics of foreign investment laws (particularly of the 1970s) d. What Nation will Govern the Investment? i. Applicable Laws of Home State, Host State and Mulit-National Organizations (MNO's) & International law 1. Home State: Two types a. domestic oriented with extraterritorial applicability Securities Law / Anti-Trust b. Foreign oriented - ie. Foreign Corrupt Practices Act ii. Host Nation: Predominant nexus of control over the foreign branch or subsidiary 1. Law vs. Constitutional Provisions vs. Operational Code iii. MNOs 1. UN Conference on Trade and Development (very little real impact) e. The Operational Code or alt. Unwritten Law Governing Foreign Investment in Target State i. Allows host states flexibility to encourage investment in needed areas, without publicly acknowledging a disparity in treatment of FDI. ii. How to do determine? - Local Counsel f. Where to Establish the Foreign Investment? i. A business decision informed by legal guidance ii. Q1 must be, why is this being established? 1. Tax advantages, to avoid trade barriers, availability of incentives, etc. g. Restrictions upon Establishment of FDI i. Barriers to Entry may include: 1. Mandatory investment plan review 2. Negotiations of exceptions 3. Joint venture requirements 4. Acquisition restrictions 5. Permissions/approvals delayed or kick-backs expected. h. FDI by Acquisition or Greenfields? i. Acquisitions 1. Could result in share/cash arrangements (anti-trust concerns) 2. Results in quick market access and brand recognition 3. Takes little time to begin market penetration

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4. Could entail privatizaiton process and result in questions of a. Valuation b. Employee Equity sharing? ii. Greenfields (new business from scratch) 1. Potential Tax incentives 2. Generally host preferred 3. Takes more time 7. Branch or Subsidiary? a. Branch: an extension of the parent company on foreign soil i. Easiest to implement; but ii. Potentially full transfer of liability to global company assets iii. Risk of taxation on global profits b. Subsidiary i. Creation of separate company ii. Liability limited by corporate veil 8. Joint Venture or Wholly Owned? a. Two types: Voluntary vs. Involuntary i. Voluntary: potential tax benefits, strong personalities/relationships, etc. ii. Involuntary: "Creeping Expropriation." 9. What form of Business Organization for the Subsidiary? a. In US: Corporation vs. LLC b. In FL: Civil vs. Commercial i. Civil: only applies to property or professional business ii. Commercial: 3 types: SA, SAS, or SARL 1. SA and SAS allow free trade in shares 2. SARL requires formal measures to trade in shares 3. This is an issue best left to discussion with foreign counsel 10. Financing Foreign Investment a. Bank Relationships and Rates b. Currency Exchange Rates i. Currency Restrictions (on export?) ii. Affect of Different Currency on Investment? c. Development Assistance funding/rates available? i. Content, Labor, or Technology minimums of inclusion? d. Establishing Security Interests e. Operating Restrictions f. Extent of Gov. Oversight i. Cultural expectation of kick-backs? g. Fluctuation level (ie. stability of currency) 11. Transfer Pricing a. "Arms Length" transactions between parents and subs are essential i. Must be @ market rates to comply with Tax and Corp. law b. Shifting costs to avoid tax liability = tax evasion c. Shifting costs to reduce profit payout to foreign investors (also likely illegal) 12. Termination

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a. Can you repatriate left-over capitol? b. Does the parent have liability for Subs debts? c. How will the physical assets be disposed of? 1. US Labor Law/Unions v. German Labor Law/Unions a. US i. Less centrally controlled ii. Adversarial process iii. Organized Labor is actually quite limited in the US b. German i. Government participation (a political movement ie. formally enter electoral process) ii. Industrial level (collective bargaining) iii. Enterprise level (Board of Director is elected by shareholders and a 2nd board called the Supervisory Counsel is elected via CoDetermination) 1. SC is 50/50 split and then elected Chairman (two votes on 2nd ballot) 2. Most of the time, there has to be compromise (or poisoned well) iv. Shop Level (workers counsels) 2. Work Division for Corporate Governance in Germany: a. Board of Directors (managing Board): b. Supervisory Board (if 2,000 employees: 50/50 but if 500 employees: 2/3-1/3 not required for fewer): i. Naming managing directors ii. Investment decisions iii. Declaring dividends. c. Work Counsel (if more than 5 employees): i. Social Matters: When you can take your coffee break, dress code, vacation policy, flex time, telecommuting, other perks etc. 1. No blame against management ii. Personnel Matter/Business: being advised of layoffs, shut downs, etc. Their objection is not binding (but there has to be notice) d. How do we avoid? i. Set up multiple corporations that each employ about 400 people with one coordinating company. ii. A limited partnership (K.G) is where management exercises authority ie. coordinating company. iii. This solution results in significant administrative costs and might cause significant upset to employees, regulators, etc. e. What's the downside of Supervisory Boards? i. Union Reps. Failure to maintain confidentiality 1. Sharing of financial date (with union negotiators) 2. Potential sharing of intellectual property? f. How do we avoid a supervisory board (without an SE)?

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3. 4.

5.

6.

i. Unclear if this is possible in Germany if we grow bigger than 500 employees. Where is our Headquarters? a. Formerly: Where your managements day to day offices are vs. b. Modern: where is most effected by your operations? Can we implement an SE? Does it need a supervisory board? a. SE"s initially conceptualized in the 1970's. Took 30 years to gain approval b. Compromise between German and British concerns regarding labor systems c. Must include the merger between two companies within Member states (or subsidiaries). d. Will not require a supervisory board if less than 25% of the company had previously had a right to codetermination (supervisory boards) e. Technically, this problem can be solved, but the more convoluted it gets the more likely you will damage your relationship with labor and potential customers. i. Might be best to just allow for the supervisory committee and works counsels. ii. Counsel's job here MAY be to tell management what they don't want to hear and then persuade them regarding potential benefits (the "bright side") Privatization: a. Look to negotiations, NOT to auctions i. Auctions do not allow you to negotiate b. Negotiate: i. Debt, indemnification, etc. All topics open ii. Avoid promises of retaining jobs, but focus must be on future competitiveness Questions to consider: a. DGInt incorporates in UK and establishes facilities in Germany, which law applies? i. Unclear under Uberseering and Inspire Art 1. Formerly would have been German b. Acquiring a company: i. GGInt acquires a UK company, closes its UK facilities and moves them to Germany 1. May not be able to downsize workers, subject to EU protection and bargaining laws associated with former contract 2. DGInt acquires a German Incorporated company and moves the state of incorporation to the UK a. Merger governed by German law will only include potential competitive impact in Germany. (1100) b. May not be able to downsize workers, subject to EU protection and bargaining laws associated with former contract 3. Merger Law: EU reg. 4064/89 grant commission exclusive power to oppose mergers of companies with turnover of over 5

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billion ECUs, and turnover of 250 million in the region, or 2.5 billion and 100 million in at least 3 member states, etc. a. Likely WILL NOT apply to DGI or DGInt. 4. If UK law is applicable to the internal affairs of DGInt,, does that ensure that German codetermination and work council laws do not apply? 5. Assuming a subsidiary in the UK or Germany, what form of corporation should DGInt take? a. Can or should, DGInt form a Societas Europa (an EUwide corporate form that became effective in 2004) (p. 1092) i. Created in 1989 out of competition between UK (workers collective bargaining) and most of the rest of EU (workers participation in corporate governance). ii. EU company cannot be created without accepting directive related to workers Social Policy, UK accepted after 1991. -- includes worker information and consultation reqs. iii. Stirke, Pay, still National while Social Security, redundancy of workers representation and collective defense all require unanimity amongst members a party to the directive. iv. Dual system in place: Formed where workers had codetermination, had to keep codetermination, formed elsewhere, it was not required (p. 1093) (directive in force starting in 2004) b. EU company (SE) can be set up by: i. Merging two companies from different Member states, forming a holding company from to companies from member states, formation of subsidiary from two companies different member states, or transforming a public company which for at least 2 years has had a subsidiary in another Member State. P1094 c. Advantages? i. Different EU companies will be able to merge under one corporate gov. rule, without needing to set up subsidiaries government by national laws ii. Result in reduction of legal and administrative costs. iii. Easy move of headquarters\ iv. Registration in once country then published in EC's official journal

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v. Registered in the Member state where is has its administrative head office (nerve center test) vi. Minimum capitol requirement of 120,000 Euro. vii. Contracts and pension subject to National Law of headquarters country d. Negatives i. Must report to employees on company's current and future business plans ii. Apply "standard principals" of worker participation if SE was pregviously covered by participation rules (p. 1096) iii. Where at least 25% of workers previously had the right to participate in management decisions, the SE will retain that requirement. iv. (here, buy a UK and Erie company and form an ES to operate in Germany, etc). 6. Could DGInt simply operate a branch in the EU? Benefits, negatives? a. German friendship, commerce and navigation treaty with the US gives US Corps legal status in Germany b. Legal status is also recognized (WM decision of German Supreme Court - 2003) 7. Uberseering: a. EU articles 43 and 48 preclude member states from denying companies legal capacity to bring legal action when they are incorporated in a different member state. 8. Inspire Art: a. Prohibits EU Member States from imposing numerous legal requirements on a company incorporated in another member state. b. Both cases leave unclear how much a member state might impose its corporate laws on a company within its borders that is incorporated elsewhere before it violates the EU freedom of establishment rule. i. Under current conflict rules in Germany, codetermination and work councils are NOT applicable if incorporated in another member state, but there is public pressure to amend the view. (p. 1090) 9. Worker participation in Germany: a. Government level b. Industry level (collective bargaining) c. Enterprise level (supervisory or governing boards) i. Naming managing directors, investment decisions, and declaring dividends. ii. Union representative parity with shareholder representatives 1. Codetermination Act of 1976 = 1976 50/50 role on supervisory board a. With business that employee MORE THAN 2,000 employees

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b. Chairman of board elected by majority, but if no majority, elected by shareholders (chairman has two votes on 2nd vote tie - ie. breaks ties) 2. Workers constitution Act of 1952 (1103) a. Supervisory board of every stock and closed corporation of more than 500 employees is 2/3 shareholders and 2/3 workers (no Union representatives) iii. Plant/Shop level (work counsels or union representatives) 1. Workers counsels in all ALL establishments or plants of business organizations with more than 5 permanent employees who are qualified to vote. 2. Almost all business with more than 50 employees has a work counsel 3. Work Counsels have codetermination rights a. Social matters: Wages, hours, etc. (any ambiguity in collective bargaining agreement) b. Personnel matters: must be notified prior (or void) 4. Business modifications: reduction of operations, department closures, etc. iv. Work Counsels - EU Directive 94/45 1. Required in companies with more than 1000 employees with 150 Employees in at least two Member States 2. Workers must be given information on economic financial situation employment, work methods, mergers, and layoffs 3. May withhold information that might be seriously harmful or prejudicial to the company 4. Applies to parent companies located outside the United States 10. Privatization Eastvia a. POLSK has too many employees, low productivity, and unreliable accounting (hard to fix value) i. Customs issues associated with lack of experience with market capitalism ii. Unclear commitment to privatization (though here 10 years of movement) iii. Additional Problems facing DGInt? 1. Citizen claims for property expropriated during collectivization 2. Indemnification against environment claims formerly had at bay by sovereign immunity 3. Government Approval Process: Potential for demand of bribes 4. Worker Approval: likely stalls any negotiations because they fear the near automatic layoffs incumbent in privatization (primary issue of public control is over employment)

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5. Preference for Nationals/Domestic Companies: Workers/ Nationals often given right to buy "shares" but pay almost nothing - acquiring company must consider the cost of this dilution. 6. Limitations on Foreign Participation: often attempt to limit foreign control or diversity control while gaining technology and know-how (limits investment opportunity) 7. Method of Valuation: potential faulty accounting, prices fluctuate for nations vs. foreign investors, negotiation preferred over auction format.

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Why is trademark so much more user friendly than copyright o Copyright -- protects investment in works of authorship, but when you sell the additional copy you have realized the economic benefit that Act intended to protect and dont need to protect it further. o Trademark protects reputation of mark holder and investment by owner in reputation and from consumer side in preventing confusion. And reputation and confusion can occur long after the particular good that bears the mark has left the hands of the producer.

Forms and Players for International Trade Decisions and Risks in trade What Currency to use (Euros or $), hedging, options Payment - where currency will be exchanged credit -- what bank and what rules bank is operating under ie US, international, or a convention? o Hard government support of currency buying its own back when other nation wished to sell fixed on gold or other scarce commodity. Preferred method of payment o Soft not supported by fixed term and government. Used only in specified country. Merchants determine whether it is a hard of soft Controlled currency based on countrys central bank setting standard and usually only allowed in country Political Risks war, transparency, corruption Choice of Law -- K interpretation You have to put yourself in the other fellows shoes you also have to consider how to make it possible for him to make a concession but, the idea that you can whip your negotiating opposite in to agreeing with you is nonsense. Shipping - sea, land, rail, plane and Terms. Insurance Customs taxes, inspection and standards of country importing to EU standards, for example different than US standards Dispute or Contract settlement what court for resolution. o Who has jurisdiction where is PJ, then can one state enforce it on the other full faith and credit clause o What does Brussels Convention say relating to issue? o NY Convention -- Conventions requiring states to enforce arbitration awards in a way that there isnt such a relation to court awards. Law of Country relating to patents / trademarks / copyrights. Export Controls in US can you sell the product abroad?

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Buyer Risks: whether seller can be trusted to ship goods if prepays, Quantity and Quality, appropriate shipping carrier, insured, damage in transit, documentation to claim from customs, export and customs control documentation, other delays Seller Risks: whether buyer is credit worthy or trustworthy, is buyer reliable, exchange controls, delays in receiving funds.

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Problem 4.0 - transaction (1) Contract b/w Seller and Buyer neither knows the other nor trusts the other. Situation in which want to do a deal, but not connection b/w two parties. Use an intermediary, 3rd party. Sellers bank and buyers bank (2) Buyers bank issues a letter of credit to Seller Letter of credit is just another K, that buyers bank will pay for delivery of certification of shipment of goods to seller (pay money v. documents that show shipment of goods) o Documents will show that goods have been shipped. Seller wants a bank it can trust to guarantee its payment. Some US bank b/c it is subject to local suit, full faith and credit, US Dollars. (3) Confirming letter of Credit by Sellers Bank - Sellers bank to guarantee it will pay (confirm) letter of credit of buyers bank in order for seller to get paid. What kind of documents should the bank demand? Buyer wants to know at a minimum that goods are in possession of a third party. o Invoice o Packing List o Insurance against damage in transportation o Proof from carrier or shipping company Proof that goods have been shipped and in possession of 3rd party that will deliver them to where buyer wants (4) Bill of Lading contract b/w the carrier and the seller to deliver the goods to another destination o On board stamp by the ships master until that is there the bank probably doesnt care about Bill of Lading. o Seller has the Bill of Lading, -- Take Bill of Lading to sellers bank o Sellers bank then takes the paper it has gotten and forwards it to Buyers Bank to get paid. Buyers Bank promises to pay o Buyers bank then takes paper and gets payment from buyer in either money collected or in some type of security o In this situation the bank still has the B/L and goods can only be delivered to the person who has the Bill of Lading. If buyer cant pay then bank can sell the goods off. B/L is the banks protection against buyers bankruptcy When seller takes Bill of Lading to Sellers bank the Seller endorses the Bill of Lading (deliver to Sellers Bank) to the Sellers Bank to get paid. And, then SBK endorses Bill of Lading (deliver to BBK) to Buyers Bank to get paid. Then if buyer pays $ and gets Bill of Lading the Bill will say deliver to Buyer and be endorsed by buyers bank. Risks in this situation are covered by the banks mutual relationship Suppose both buyer and buyers bank are broke can seller collect. Yes, by his bank. For seller not to get paid once has confirmed letter of credit and proper documents sellers bank would have to go under. o Suppose sellers bank goes under buy buyers bank is ok can seller collect? He has a direct promise from buyers bank guaranteeing the payment upon receipt of documents. 37

o US banks are usually guaranteed by FDIC. Seller low risk has bill of lading and Bank guarantee to pay o Losses control of goods. Buyers risk? o Note that unless buyer has pre-inspection of shipment, he has greater risk. Risk of stored or improperly handled, labeling, customs issues, fraud or forged B/L. GET INSPECTION FORM CERTIFIED.

PRICE TERMS OF TRANSACTION: CIF the selling price includes all costs, insurance, and freight for the goods sold (charge in full). Seller arranges and pays for all relevant expenses involved in shipping goods from their point of exportation to a given point of importation FAS Free Alongside Ship refers to the point of embarkation from which the vessel or plane selected by the buyer will transport the goods. Seller is obligated to pay the costs and assume all risks for transporting the goods from his place of business to the FAS point. FOB Imports are valued at a designated point. Free on Board Seller is obligated to have the goods packaged and ready for shipment from the agreed point, whether his own place of business or some intermediate point. Buyer normally assumes the burden of all inland transportation costs and risks in the exporting country, as well as all subsequent transportation costs including loading on vessel. o FOB Vessel Seller bears all transportation costs to the vessel named by B and loading costs o FOR Free on Rail -- FOT Free on Train. C & F Adding ocean freight and freight forwarder fees Freight forwarder will check documents to make sure they are good docs. Keeps track of paper and goods as each circulates cheap service fee to be sure of validity of paper and endorsement Other term important is the payment term COD if not specified, but if put in sales contract (before form 3 must be in sales contract from beginning) that letter of credit confirmed by US bank in US Dollars, then ok. If not put in must ship goods and pray. Forms of Transaction (1) Letter from Buyer Requesting Invoice (2) Invoice (3) Purchase order (4) Letter of Credit (buyer) Confirmed Irrevocable (Seller) (5) Shippers Letter of Instructions (6) Commercial Invoice (7) Shippers Export Declaration (8) Certificate of Origin (9) Dock Receipt (10) Bill of Lading (11) Insurance Certificate 38

(12) Sight Draft 4.1 Formation of International Transaction Euro and Universal(US) o Choice of Law o UCC Law or International Law? o Ex. Contract Formation, acceptance, Arbitrationetc. Gap filler first turn to customary international law and then private choice of law decisions UCC or other local law. Always specify law you want to be applicable very clear. CISG doesnt apply, domestic law of NY applicable. What substantive law: UN Convention on International Trade Law (UNCITRAL) Convention on International Sale of Goods CISG. US Federal Law self executing / supercedes UCC 2 where applicable. CISG offers may be irrevocable, no parole evidence, no statute of frauds, no consideration needed. o Doesnt govern: validity of K / title of goods / liability for death or personal injury. Domestic fraud and duress, capacity, unfair competition laws still apply. Sales to consumers, Ships (indiv), investments, securities, money, electricity, information transfers, service K, distribution agreements, maquiladora sales. Property rights to goods. o Governs only the formation, rights and obligations of the parties to the contract. Seller-friendly rules. Mirror image / last shot, price, quantity o Questionable: does validity include disclaimers on warranty, limitations on buyers remedies, penalty clauses. Art. 4 buyer seller relationship unclear if warranty in a box gives c/a o If ct sees manufacturer as participating in sale via warranty, but if literal interpretation no c/a. Art. 1 -- Requires (1) sale of goods (2) contract be both (3) international and (4) bear a stated relation to a contracting State o Vague as to what is a good or sale or contract o International defined as place of business in two different states Place of business not defined suggested that permanent establishment is required and neither a warehouse nor the office of the sellers agent qualifies Autonomous legal entity satellite office doesnt count o If multinational CISG 10(a): closest relation to the K and its place of business. o If one office is associated with K and other with performance place of business is limited to circumstances known to parties before K is formed o If majority of production put in by buyer CISG n/a.

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o Art. 1(1)(b) - if only one State is a Contacting State and private international law choice-of-law rules lead to the application of the law of a Contracting State, then CISG governs sale of goods. Art. 6 parties may exclude application of this convention (dont do it just b/c dont know about it malpractice). o In order to exclude must clearly state that CISG is not applicable and stating the other applicable law that has been chosen. Ex. shall be governed by NY Law is ambiguous, b/c NY Court could find CISG applicable via preemption doctrines. o Partial Derogation is permitted states can opt out of provisions. US reservation under Art 95 1(1)(b) not bound by it, b/c UCC superior in US eyes. So, where private choice of law rules lead to applying the CISG US says nope, we will apply US domestic law instead. o US only bound by CISG when the places of business of both parties to the sale contract are each in different States, and both are Contracting States to CISG. So, if not both Contracting parties US n/a CISG. 1(b) if German ct determines its law applies if transaction b/w Germany and Japan (non-contracting state), then German law should apply CISG 1(b) if it determines that law of Japan should apply then it will not apply CISG Note, German court wont find US party under 1(1)(b), you would have to use the UCC instead. Therefore, CISG only preempts US law if both contracting parties are members of convention. (England and Japan not members) Contract formation: o Art. 8 looks at parties common understanding or intent, where understanding or intent of parties diverge, and one party knew or could not have been unaware of other partys intent, latter partys intent prevails, parties unaware of divergence, reasonable person standard. o 8(1) subjective intent while interpreting both the statements and the conduct of the parties o 8(3) no parole evidence o possible avoidance of last shot doctrine by ct looking at actual intent. o Art. 96 IF Contracting state has so declared, a party can use art 12 to declare writings required if local law states that and party has ppb in that State. o State can declare that it is not bound by Formation rules Scandinavian countries. Offer (3 requirements) o Proposal for contract, indicate an intention to be bound, sufficiently definite (description of goods, quantity, price). Put in minimum quantity

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amounts or price set on index, 3rd part, later selection of assorted goods. Contract Acceptance under CISG o Art. 8 to interpret K (1) intent (2) knew or could not have been unaware of the other partys intent latters prevails (3) reasonable person test. o Offerees Acceptance upon receipt to offeror. Offeree can withdraw acceptance until offeror receives it o Offerors ability to revoke stops upon dispatch of acceptance by offeree. o Art. 18(1) assent to offer is acceptance silence is not by itself acceptance o 17 rejection of the original offer terminates original offer. o 19(2) although offer and counter offer ok, unless materially alter terms. o Art 19 (3) material alteration as is quality of the goods issued has now been changed. The paragraph says among other things so, even though not explicitly stated could still be applicable. Conduct as communication if starts to ship then acceptance. If offeree hears via 3rd party acceptance o If seller ships and conflicting K, the valid K is the last non-terminated offer usually sellers order acknowledgement form. CISG resembles some mirror image best to avoid it by stating parties intent clearly and looking there. Sellers Obligations - deliver the goods property rights domestic law; condition of goods depends on particular K when shipped v. upon delivery

o Under UCC: o UCC 2-207(1) acceptance even though states terms additional or different o UCC 2-207(2) Additional terms acceptable unless materially alter o UCC2-314 implied warranty of merchantability if silent on issue (hurts client) UCC failing to explicitly state choice of law, then law of territory of State applies provided appropriate transaction -UCC EEC Convention Rome Convention (page 1030) Germany has enacted this as internal law. o No agreement - Art. 4 law of country that most closely connected. Presumption Art. 4, Number 2 payment not characteristic for performance. Need to determine what is characteristic performance Where party that does that performance has their principle office, not where performance is done. o If Shipment is in UN then that law applies. German ct would avoid this. Foreign law must be pleaded and proven as a matter of fact, not as a matter of law. Contract Acceptance Under German law

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Last Shot Doctrine -- K formation, more favorable to silence response to original offer is considered a counter offer, which terminates original offer o Goods are shipped and accepted by buyer do we have K? Under this system Euro could reject the goods, but if they accept and pay for goods you have a K. o Terms of K are the last ones standing, irrevocable unless stated otherwise. Restatement of Foreign Law o RS which is the fall back if UCC doesnt apply me. NY UCC doesnt say what to apply in absence of NY UCC and in that case choice of law rules come out of RS 2nd (page 80) 6 (1) if you have a statute follow it, but not case here 188 (1) tells us to use local law of state KS and Germany, which has most significant relationship to transaction and parties: transactional relationship o Germany thats were goods are used and fall. o Euro made in KS, shipped from there, price set. 188 (2) consider factors: place of contracting o Germany when goods were accepted, upon receipt o KS law upon dispatch adams v. lindsell. o Not so helpful here depends on which law apply. Place of negotiation of K law of cyberspace satellite? Place of performance whats performance o KS once goods are shipped (UCC) o German law once goods received on buyers end Filanto- US dist judge said not going to apply battle of forms, uses instead the prior conduct of the parties to decide case. That a lapse in time w/o an answer followed by performance constituted a written agreement, so liable. o Art. 18 and 19 mirror image and last shot doctrine courts have generally said nice, but we will do what we want to, thanks. Alstine article (95) CISG fails adequately to accommodate a variety of more flexible and informal relationships in modern commerce that the law would nonetheless recognize as contractual in nature. KS Client comes to you; sent off delegation to International Trade Fair and he knows orders are going to come in he is afraid that something might happen to product once delivered overseas how does he deal with problem and prevent it before arising. Keep him out of court o White and Summers Part A no way to win the battle of the forms. o What you need to do is negotiate communicate: Tell clients dont know how goods will operate in German market?

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Best advice might be before accepting offers - complete due diligence. Duty of investigation.

4.2 Commercial Terms, Bills of Lading, and Insurance books to Bath, UK. Need to specify K type FOB, CIF and whether UCC, INCO, Other law Need to specify payment type against goods or documents types of BL. New client Sam and book Ks can he put two shipments together and ship them off. INCOTERMS One K is an F.O.B. UCC, INCOTERMS, UK law (3 types Schmitthoff) FOB: INCOTERMS International Chamber of Commerce. Must be expressly incorporated in K. note: they do not address choice of law, jurisdiction, fraud, or when k formed International customary law. If cant show INCO applicable UCC gap filler o Note most in Art. 2 of UCC are gap fillers and they apply unless the parties agree otherwise then apply. Seller : (1) Has to deliver good on board the vessel designated in possession of carrier. (2) Obtain commercial invoice, export license and customs docs (3) No K of carriage obligation, must notify buyer goods delivered on board. (4) bear all risk of loss until items pass ships rail Note: INCOTERMS has an ambiguity as to whether seller makes any kind of contract for buyers account as to carrier. Buyer: (1) Payment against goods as provided in contract sale. (2) Document non-negotiable document b/c have to deliver goods. Doesnt imply payment term at all. Standard Cash against goods. o Note: nothing in INCOTERMS to help out. (3) buyer must take delivery of goods A.4 post inspection, what about preinspection UK Law Schmitthoff (1) Buyer must arrange transportation (Schmitthoff Number 3) (2) You must put in own payment terms against doc, when get time, whatever (3) FOB isnt enough too many types must say who is going to provide or arrange transportation. FOB with additional services must be complied with in US, unless get other agreement (4) UK practice FOB has a lot of ambiguities 43

UCC payment against deliver of goods unless otherwise specified. If buyer doesnt pay, the goods are in shippers hands and can come back. UCC 2-504 look here not necessarily defined in 2-319 o Referring to shipment contracts as contrasted with destination contracts. SHIPMENT v. DELIVERY Contracts. o Refers to SHIPMENT Contracts required or authorized to ship, but not to get them to a particular destination UCC 2-506 if nothing in contract, then have shipped it off and payment is against receipt of the goods - buyer doesnt pay until the goods arrive. UCC (supp 986-87) 2-513 right to inspect. CIF Contract: Price of goods - cost Insurance Ocean freight Delivery term when delivery of documents o INCOTERMS -- FOB (A)(4) on board vessel named by buyer at the port of shipment Risk of Loss shift -- seller to buyer A.5 bear all risks until port of shipment o SHIPMENT CONTRACT o Buyer bears risk of loss of or damage to goods from the time they passed the ships rail at port of shipment. Buyer still has to pay for goods goods have been delivered seller gets contract. Buyer is upset, but recovers insurance money limited. Seller gets paid once delivered to carrier. Payment Seller gets paid b/c of K terms. o INCOTERMS in accordance with contract. Usually against docs not always clear. o UK - Customary law pay against docs What kind of document has to be used: negotiable document, so that buyer can resell the goods without the goods. o seller should build paper handling fees into price. o What if Buyer doesnt want to pay? Carrier has goods and bank or seller can get goods More risk here for the seller if no letter of credit. Inspection not necessary, b/c payment is against documents o UCC unless otherwise agreed to (2-513), but also very explicit about CIF no right of inspection before payment as long as agree to CIF, COD, or payment against documents. This could apply to FOB contract as well. Sellers risk under FOB: o Cost of freight and insurance b/w time he makes K with set price and time he actually buys insurance and freight.

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o Not much risk for seller unless war breaks out costs go up. Major differences b/w FOB and CIF o Both shipment contacts o Buyer takes more Risk under FOB: NO right to inspection for buyer pays carriage and insurance In US have to state where FOB UCC 2-319 have to know where. In US can be FOB destination port, railway car, etc. IINCOTERMS has to be FOB port of shipment. Note: dont know what type of FOB you have if you dont specify either FOB INCOTERMS or FOB UCC or one of Schmittoffs. FOB doesnt tell you anything about payment. NEED to include a separate payment term in contract. o CIF includes only cost of goods buyer is purchasing not other items. o For BL see below. Do we need separate insurance for each shipment? o Minimum liability o INCO 10% coverage?? o Why not sue carrier $500 per package COSGA. Case law we dont care what contract says mandatory law to make sure carriers pay at least $500 per package. Mandatory law to have certain amount of liability. Carriers drafted it and wont move without it. If not mandatory, then could say COGSA doesnt apply and can disclaim liability to any amount only way to be effective is to say these are the rules and cant bury them by K. Ex. UCC 2-316 how to disclaim warranties if dont do it this way, wont be able to do it any other way. Hague/Visby Rules and Hamburg Rules came into Play. Hague Rules were first put out to make uniformity and that has disappeared a lot.

4.3 Wars and Other Frustrations: oil from araby What law governs Contract: divide Ks up. CISG governs (K2) Article 79 performance has to be prevented. o What does prevented mean by explicit terms in K or is it just buying the oil (spot market) or by a specific manufacturing process (Refinery) acceptable? CISG only applies to commercial transactions. o Art. 79(2) can you say you are excused b/c supplier is excused? First have to show you meet all criteria in paragraph 1 and then your supplier

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meets all criteria in paragraph 1 as well. If dont meet 1 on own, cant talk about K2. CISG the frustration applies to both seller and buyer. o 1st line in force majeure clause only talks about sellers performance not buyers performance (1) Can argue this was put in as THE force majeure clause to substitute for 79; or o Excuse of sellers performance and not buyers performance and for that you have to turn to the convention UCC the frustration only applies to Seller and for non-delivery of delay in delivery. German Case law seems to let folks off renegotiate Ks. French Doctrine of au provision note that ordinary cts dont use that doctrine they use force majeure. Au Provision is used by admin cts and govt will always be party in case when applied only available to seller. Usually used when people selling to govt may help Jean Valjean if Javert is representing municipality of Marseilles. (possibility that he can get out if French law applies). EEC - Treaty of Rome says sellers law applies Jean Valjean so, American Law applies that would be unless both are members of CISG both members, so Art. 79 of CISG is available.

Force Mageure Clauses Clause in K providing reasons to get out force majeure clause bottom 135 any circumstance beyond the control of the parties, which a diligent party could not have avoided and consequences. Interpretive arguments, but what is being sold in K1 is oil from particular source, and oil in K2 is from a non-specified source. If performance is by a specific date. Price Increase - Under most of the schemes not impossible for Jean to perform, although price has risen enormously Hardship argument? Principles for a Commercial Contract not treaty, but available to arbitrators. Example: Jean Val Jean Two Contracts (K1) Refinery burns Jean; (K2) Jean Javert Jean comes to you before refinery burns down he has two handshake deals; one with refinery and one with Javert he comes in to your office and says he wants a K to protect him if the refinery burns down. o Contingency Ks - K2 contingent on K1-- Cant give away your source. o Identical Ks - Could you make force majeure contract in K1 and K2 identical wont work either b/c carrier wont modify contract of carriage, which gives Ship Master right to divert if in danger.

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o Buying oil futures K with other refineries that would allow him to buy oil at a price set already. Attorney can suggest it as a way to protect yourself, not that you have to do it just offer it as risk aversion or risk taking. Your job for sure is to make sure you client is aware of this possible action client must decide whether to take risk or not o Straight forward insurance isnt possible; 3rd party insurance. Insurance sometimes isnt called insurance what about buying the right to buy oil at a particular price when you want to might cost you a little bit, but it might be worth factoring into costs. UNIDROIT Principals suppose this goes to arbitration and arbitrator wants to use the principles is that a good idea for jean Valjean? o Force majeure impediment which the non-peforming party could not control and could not reasonably have been expected to have taken into account. o Hardship events fundamentally alter the cost or value of the promised performance Hardship compels renegotiation of the K, if the disadvantaged party requests Economic hardship in price change can be a factor

4.4 E-Commerce UCC signature pretty flexible. o Signed 1-201 any symbol executed or adopted by party to authenticate. Can be attached by glue, stamp, electronic means. Doesnt have to be put down there by hand. Required is that it has to be adopted with a particular intent. Have to be able to prove that intent Common law what would be acceptance intent of parties. meeting of the minds - consideration doesnt come into commercial laws o Need intent to be bound o Intent to adopt o Symbol as signature Cant get this under UCC maybe other doctrine. Private law agreements machine communications will bind. Estoppel to say wont be any contest under statute of frauds. This worked well in common law courts and not civil law courts that looked at what it felt. E-Sign Act Electronic Signatures in Global and National Commerce Act. (955 supp) Federal Law o 101 (a)(1) cant be denied effect solely, b/c in electronic form. Ct cant refuse to enforce electronic K, b/c in e-form rather than written. Doesnt solve signature problem nor intent problem Seems to be clear that dont have contract. UETA - Uniform Electronic Transactions Act state enactment. State law. o States can go further and electronic assent = acceptance, and signature not out b/c electronic. 47

o Compare 101 of E-sign to 7 and 14 of UETA, which goes further and makes a binding contract for East. EU Directive o Art. 7 signature if law requires it, then met if certain method followed to ID person and authenticate signature adopted with proper intent. o To show intent of machine transactions can say: You programmed the machine and it is just doing what you want Can call it an electronic agent and whatever it does whether programmed by you or not is your responsibility UNCITRAL did not call these electronic agents just said youre bound without going into what happened. UETA played it up and created a new classification of agents Dissented from seeing agents as independent from machines. o Cant transfer personal data to non-member states that dont have same type of regulations. Art. 26 exceptions that allow for determination if protection is adequate. Not necessarily same, but adequate protection. Case by case analysis. Art. 25 of EU Directive sets procedure for determining if adequate protection. set up to be used on a country by country basis not being used on country by country basis instead being used for US purposes on a company by company basis. o Three ways out of EU doctrine: (1) joining Trustee or BB on line (adequate procedures). (2) ship it from US and then have to have the information (3) consent

UNCITRAL model law use method as is appropriate. Facilitator not regulator. o Provides equality of treatment b/w paper and e messages. o Data messages arent to be denied legal effect b//w they are electronic o Signature is valid if can: Identify both the identity of the person sending the message and that persons approval of the message (can be read). o Attributed to person if sent by an authorized person or by a machine that is programmed by the originator to operate automatically. o Under 5 where message is yours, deemed to be yours, or you acted on it estoppel rule set up. Security procedure suppose somebody finds the algorithm and uses it in that case under 3.(b) you are liable. German Law will signature stand up?

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o Very strict law and doesnt accept electronic signatures unless authenticated Authentication have I adopted this as my own? Attribution are you the person you say you are? Public key encryption systems (PKI) public key and certifying key usually 64 digit algorithm. Just one of many ways of confirmation. o Winn the number of people using PKI is very small in US. Great idea, but not in great use. In Europe, used a bit more. o Problem with PKI is that if you get a law saying the only way you can authenticate a signature in court of order or acceptance is if it follows a particular technology. That is what both German and Utah law said. Italians failed in enacting law.

Example: Prof. Pedro buying book from Rhein and East is replenishing Rhein First, look at wholesale contractor East to Rhein is it an enforceable K. Which law applies to Rhein regarding East transaction o CISG, b/c Germany and US are contracting states sale of goods b/w both parties who have places of business in different contracting states. No statute of frauds under CISG. o UCC could apply if so designated. If East has required this K shall be governed by UCC. Still have questions of is there acceptance, is there a signature, and since with Germany (handwritten signature), but EU directive similar to UNCITRAL on Ecommerce. If necessary to send information under contract if Riehn is merely an order taker and the book is going to be shipped out of Rivers.com inventory or if Rivers.com is going to make order and have 3rd party ship it. Note that Riehn probably has to report sale and income to Rivers but may not need to join the two and report Pedros name to the book, unless book is coming from Rivers.com US no regulation on private companies? o Fair Credit Reporting Act (FRCA). If you do a credit report through a bank, it has limited rights to sell information gained. Protects econ info o HIPPA regulates what you can do with health information. o In US it is regulation sector by sector. o The government cant use personal info Privacy Act of 1974

o US Congress hasnt passed many laws on this b/c info inquiring business is profitable.

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4.5 The Bill of Lading: computers to caracas Differences in Bills of Lading: Straight Bill of Lading: (white) o Issued to the consignee non-negotiable only consignee has rts. Must be stamped on the B/L itself. o Seller loses control of goods Buyer might fail to pay in which case Buyer has the goods o The way the Bill of lading is made, the seller will now have to convince the carrier that he is even entitled to goods. 80% of goods go this way, b/c parties have dealt with each other before. (we want parties who dont know each other). Order Bill of Lading: (yellow) o Issued to make deliver to a certain destination set buy consignee to Holder of BL. o Negotiable Bill of Lading. to order. Can be endorsed either by blank endorsement or special endorsement. o Buyer loses rt to inspect carrier enforces cannot touch goods until you show up with the piece of paper. o How to obtain payment -- Once have negotiable BL: Attach a draft; invoice; other docs required in sales contract endorses the BL and Draft to SBK Buyer pays w/o inspection seller risk too (unless letter credit). The Hague Rules Adopted in 1968 and amended the Hague Rules o shipowner liability to shippers for cargo loss and dmg o Limit liability to min $500 o US Enacted - COGSA The Hague-Visby Rules define term package to include containerized cargo, increase the per package liability to $663, and restrict carriers limitations of liability for dmg caused either intentionally or recklessly. o UK Enacted. The Hamburg Rules departure from above rules 1978 decreases carrier defenses and increases liability. Liability of $1,169. Not widely adopted yet. Federal Bill of Lading Act (Pomerene Act) - governs all interstate and international shipments which use BL issued by a common carrier. o Holder of the BL does not have absolute title in all cases, but nearly so. o New concepts for the Federal BL Act (page 204) when in carrier is in possession right to get goods of consignee (non-negotiable BL) and Holder (negotiable BL). Look at (a) and (b). (a) offer in good faith to satisfy the carriers lawful lien upon goods (b) person in possession of negotiable BL, if properly indorsed 50

Holder - means possession and rt to posses, ie -properly indorsed o Any forgery of a necessary indorsement is not effective to create or transfer rts. Carrier is obligated to deliver goods to the rightful holder each person who takes BL should know indorser for protection. o Carrier is liable for any failure to deliver goods which correspond to the description in the BL quantity or quality. o Exemptions to carriers liability language to disclaim obligations: contents or condition of contents of packages unknown. Said to contain. Shippers weight, load, and count. o Disclaimer is not effective if carrier knows goods dont conform. o When goods loaded by carrier, he must count the number of packages and is expected to note the condition of the packages and the kind and quantity not quality. Mis-delivery o Carrier is liable under Straight BL if goes to anyone, but consignee o Carrier is liable under Order BL if goes to anyone, but Holder. o Banks generally not liable disclaimers of warranty liability, only holding docs, ICC banks have no obligation to examine docs. Mis-description o Carrier in shipment transaction has no privity w/the K b/w buyer and seller for the sale of goods, and therefore has no obligation to deliver goods that conform to the sale K. However, the BL, which describes the goods is part of the carriage contract. Forged BL endorsements o If the carrier did not issue the BL and its signature is a forgery or unauthorized, that signature is not effective carrier not liable, absent actionable negligence. o Same disclaimers as misdelivery if bank wants to protect itself. o In EU if someone signs your name you might be stuck with it under Vienna Conventions Dont make BL too specific boxes and see invoice or packing list for what is inside boxes What can carrier do to provide more security or protection o freight forwarder, phone calls, checks such as pin numbers. Prohibits e-B/L b/c must be handed over to carrier upon delivery of goods. COGSA applies to ever B/L or doc of title to or from US port, not automatic for domestic B/L. Harter Act preempts doesnt allow carrier to disclaim all liability. o Excludes live animals, cargo carried on deck, charter parties o Seaworthiness of vessel, care and loading of cargo. o No due diligence requirement o Carrier liable for unreasonable deviations of K that dmg cargo

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o $500 per package limitation on liability for loss or damage o claims must be filed within 1 yr of delivery\ of goods Adel carrier delivered farm equipment to Hickman. Ct held clearly forged and carrier should not have delivered liable. Schmitthoff purpose of negotiable BL is to allow buyer to sell to 3rd party while goods are in motion by transferring the piece of paper so, other people not in invoice will come into transaction. Winship - Can we electronify this stuff not so successful, b/c bankers dont believe in electronic messages can satisfy everyone, but if you want the bank to finance transaction via letter of credit then bank will protect itself. o CMI routine hasnt been as successful o Cdocs Chase Manhattan wanted to act as a 3rd party register, that technologically it was a great success, but no body used it buyers didnt want it. It was mainly being used by oil tankers in Gulf change hands a lot during voyage. o Dont want to register, b/c of records being left around after transaction.

Mitsui multiple modes of transportation one carrier loading on to another. Ocean vessel on to Barge might not be by bargee, but loaded by ocean vessel. IF not loaded by shipper Mitsui might be protected o Quantity and weight is something that cts general put on the carrier. o To find liability on carrier need to get through three hurdles goods loaded by shipper, appropriate wording, carrier doesnt know about goods. o If take fed stat approach words must be fairly close and literal o If take K approach can say want to meet partys expectations that cartons arent opened. Industria Nacional put down particulars furnished by shipper Strict construction. o Must say, shippers load, weight and count o Protect buyer by using invoice made by seller . Fort Worth Elevator v. State Guaranty Bank - Buyer v. banks -- 80107. Forged draft deposited in bank, is bank liable. 80107 unless contrary intention - a person negotiating the transferring of a BL for value warrants that it is genuine. UCC - 7-508 - gives opposite presumption, unless something on BL, presumption that if only a collecting bank not giving any warranties just providing your own good faith and services. No international custom international custom is that collective banks dont make any warranties as to the genuiness of the bill. Whether this overcomes 8107 is questionable.

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Example: S & A Citibank Bank of Valencia Carrier. (buyer carrier) rd (1) Ten good computers 3 party gets hold of BL and goes to carrier and says give me and carrier does. Did carrier do anything wrong? o Carrier gave goods to holder of properly endorsed paper o Here the Carrier gave it to S & A who endorsed it to Citi and then endorsed to deliver goods or order to Bank of Valencia (all special endorsements to particular person). (2) Same steps as last one, but carrier says didnt get cartons. Buyer is unhappy, b/c gets different amount than what purchased. Should he be able to sue carrier? Carriers liability for BL didnt authorize it not liable, unless some negligence not properly secured. o Carriers usually leave BL out so can be filled out and brought back is this negligent? Who ought to bear the loss seller, b/c never shipped goods but cant find them. o Bank? took for collection only. o Buyer? chose the seller, could obviate the risk by using letters of credit. o Carrier? 4.6 Selling Through Distributorships/Agents and the Use of Counter-trade: Growfast in Mexico and Russia First, put it in writing. Choice of law provision. Know US and Foreign laws most problems arise upon termination. Choose wisely hire a foreign individual or company, nationality of agent/distributor. Independent foreign agent sales rep or commission agent paid in form of salary and commissions bears no risk that the buyer might not pay / risk stays with US company usually can bind US entity agent sends orders abroad no need to store goods abroad - tends to create more legal problems. Check meaning of agent in local law. Can bind express or implicitly. misrep, torts, K Employee agent employed by US company commissions alone or salary plus commissions employer subjected to local labor laws jurisdictional issues more control for US company. Independent foreign distributor buys companys products and resells through its own network takes title to goods assumes risks must store and pay for goods. Does not normally have power to bind supplier

Risks

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Credit of all potential buyers for agent look at local laws first! Labor laws compensation, termination Anti-trust will agent/ distributor set up a monopoly. Price anti-dumping / resale prices / intra-brand competition through distributors. Termination of employees and partner local law. Can Principal Corporation be bound and how much control does it have how product is perceived.. How can parent company be bound? o Which services will agent perform Taxation agent working for you in Mexico indep distributor doing business in Mexico and not you so they pay taxes in Mexico, not FC. Gray Market? Undercutting principal? Rights retained upon termination Duration of agreement How to limit risks through an agent: o specify which law applies, get sales manager to approve every transaction at corporate office. Even if put in K, must do it in practice. o Broker in practice is different than agent has tons of products but whats difference b/w agent agency is not a fixed concept and waters are muddied greatly. E. Siqueiroso broker / intermediary (receives fee for putting seller and buy in touch). Not legal rep nor employee nor ability to bind US co. corredor/ mediador o Agent comisionistas subject to rules of attorneys o Agency K does not have to be registered use CISG No antitrust problems never ruled on but specificity or territory likely to be necessary Ignacio Gomez-Palacio o Mediation K (US commission K) no tax impact in Mexico no rep for principal machinery Mediators go around with catalogs and tell them who to call, but collect fees. o Commission Agreement (agency agreement) regulated by the commercial code non-permanent relationship performs act in discharge of the commission of his principal and must continue it until ends. Commission of selling goods Commission on which is the payment of a given fee open or secret.

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 Ends by being revoked. o Distribution Agreement -- In Mexico can revoke agency or distributor agreement at any time doesnt recognize distribution agreements. Example: Grow Fast Pesticide manufacturing company that is incorp in DE and principal offices in KS. o Sell product in Mexico through either distributor or agent distribuidoras agricolas, SA. What type of distribution it can use? How can it terminate distributor agreement at will?

Counter Trade: If you can find a broker to resell goods, do deal Set K terms valuation in $. Make separate Ks (1) US seller to foreign buyer LC to bank (2) Foreign buyer countertrade item to US seller LC to bank no one gets $ out of fund, but it has to balance out at end of K. (3) Protocol to get paid. Must sign both to be valid and nonperformance by one excuses performance by the other. Can put in sellers right to inspect goods and verify that quality is at industry acceptable level before K fulfilled. Practical problems are in seeing what other goods are available. o Defining the local goods narrow v. broadly o How do you value the stuff is there a non-fluctuating market? o How are you going to sell the goods? Brokers or switch traders. o Tell Client talk to trader before you set your price. o Fit and Quality problems. o Penalties for non-purchase, price setting, release letters, dispute res. Switch Trading get credits in a clearing account and sell to a third party who uses your credits. Beckerman the cost of counter trade increasing your exports will inevitably be passed back to the country Companies will not internalize the costs, but pass them on to the Indonesians by increasing price of their goods. Neighboring countries will lower their prices to compete with the increase in exportation, which will make fewer countries willing to trade with Indonesia. OR all of the competing countries will set similar prices and then it will be just as if no counter trade occurred. However, the corps will pay a broker or trader to sell the counter traded items, who will in turn collect a commission that will ultimately be covered by increased sales prices of goods to Indonesians. Soltysinsky Half a loaf is better than none. Not threat to foreign competitors or domestic.

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o GATT system protectionism, bad. But everyone has protectionism in one form or another. This method is the least objectionable. Your job is to make sure client understands the comparative risks of different courses of action.

5.0 Financing The International Sale of Goods: Introduction Letters of Credit 5.1 Letter of Credit and Electronic Communication: Gold Watch Pens for France. Most documents dont conform exactly technicalities might let nonconformance off if it is ancient usage, clauses in BL that limit carriers liability.

Choice of Law issue UCP Uniform Customs and Practices for Documentary Credits o States custom in the industry, not the law. Must be incorporated in terms of contract o UCC is a gap filler, except in NY, AL, AZ, MO where UCP prevails if incorporated into the letter of credit. o Doesnt cover fraud and enjoining payment against documents. o Issuing bank, advising bank, confirming bank, and nominated bank. Banks obligations are separate from buyers and sellers rights. Banks deal only in documents not transaction and insist on strict compliance Art. VI UCP. UCC and choice of law Art 5-116 governed by laws of jurisdiction where located. Use it as gap filler o Traditional argument would be that when BNP issues letter of credit it is doing so under FR law and it is paying under FR law, and US ct will have to look at whether US Law requires reimbursement of US bank.

The commercial invoice must be specific, since this is all the bank ever sees common law strict interpretation. Midland letter of credit and if not that, dont have to pay. India strict compliance. Art. 13 - Time Deadline for UCP of seven days Art. 14 - bank has to present all discrepancies at once or preclusion from claiming non-compliance to non-stated discrepancy. Art. 14 waiver from banks client / consultation UCP doesnt deal in fraud, so must look to local law UCC 5 in US.

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UCC 5 governing law in US, however, most of it is not mandatory and defers to K terms of parties as expressed in the K. More usage in fraud cases. UCC 5-108: if not on face the same, then issuing bank can decline to pay Art. 5-108(e) practice of financial institutions Is BNP negligent for not sending a confirming letter and using telex? o Telex that is received under ucc is conforming? 5 UCC 5-108 issuing bank is not liable unless it violated customary banking standards. Schmittoff says that mailing a letter is a better business practice, so if you can prove it is a standard banking practice then the court will have to determine whether it is a standard practice is as a matter of law. In which case BNP could reject the letter as not valid. Issue: whether 5-108 a mandatory law or mere gap filler. Did the UCP adoption mean to get rid of 108(e) or was that an unintended point. The authors say it is probably not gap filler, but more like mandatory law No solid answer. o Chances are that bank wins. 5-107 it is just as if Metro issued its own letter of credit that said ICD so, Shady has Metro on the hook. Not likely under UCP. Non-conforming letter documents banks obligations: UCP o Bank has to first exam doc and determine conformity May consult applicant, not obligated to consult May ask for applicant to waive 7 days for inspection reasonable time depends on transaction o Act upon discrepancies found If not waived, dishonor presentation of docs Notice to dishonor and must state specifically discrepancies all.

Example: Letter of credit from FR bank (buyers) to US Bank (sellers) and bank finds non-compliance with letter of credit by one error in letter. Notice, waiver. Typing mistake via machine o Whose error negligence in machine maintenance. Do docs have to conform to letter issued or letter received? o Adams v. Lindsell effective upon dispatch if doesnt get there you elected to have the telex or postman be your agent. This rule applies to Metro. o Germany effective once reached your mailbox. o Look at bank rule o 5-116(2) rules of everybody dependent on where located BNP uses FR law and Metro uses UCC NY law. UCC. 5 says if BNP has busted banking standards then loss on BNP and banks take loss, despite article 16 Check time deadline in reporting UCP seven days

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Check responsibility for clerical errors agency theory. Always note privity of K.

5.2 Enjoining Payment of Letters of Credit for Fraud: vcrs from japan. Problem: independence principle that banks follow conflicting with the public interest in preventing fraud equals that of issuing letters of credit. Fraud exception is allowed in UCP, even thought not stated anywhere. UCC used as a gap filler for silence on issue under the UCP. Limitations: UCC 5-109 issuer shall honor presentation, if honor is demanded by a nominated person who has given value in good faith without notice of material injury or fraud. if bank pays in good faith it gets reimbursed. o If on its face docs comply bank must pay the confirming bank even if forged or fraud So, 1st ask what letter of Credit says and what other obligations to 3rd parties are if advising bank is out there and paid or not. o you have to get to the confirmer before the confirmer pays. If documents are presented by anyone else the issuing bank may still pay, even though it has been notified that docs are forged or fraudulent as long as acts in good faith Must follow procedures for Injunctive relief Relief can be denied if 3rd party is not adequately protected none if confirming bank already paid Fraud in the transaction only actionable if committed by the beneficiary and not some 3rd party, such as carrier. Right to get an injunction comes from UCC 5-109(b). o Ct can enjoin the bank from honoring the presentation. Court can issue injunction, but doesnt have too issue an injunction. Never ever go directly to 5-109(b), start with (a) (a)(2). Limitations o In all cases the bank can honor, even though you give it a case of fraud the bank can get into trouble if bank has too much knowledge. Note that knowledge is hard to pin down with only ex parte declarations. Banks usually can meet the good faith test in 5-109(a)(2). o Ct will judge case on b of K and fraud more likely fraud, b/c 5-109(2) gives ct this authority then applicant must prove fraud. To get a TRO under UCC, must show: o Irreparable injury damage that significantly hurts co? o Material misrepresentation of fact - fact that is false. Not a material breach of K b/c there is not supposed to be a connection b/w K of goods and banks that deal only in documents. o Evidence of fraud not mere allegations

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Example: As Citibank, you dont want to play judge the safe course of action is to pay the claim as long as operating in good faith, then still protected from liability. o good faith subjective knowledge of the truth. Whether or not you actually know if there is fraud or not. Citibank really doesnt want to read the evidence, b/c that would open them up to liability. Safe thing is to say dont even bring it to me isnt that a great way to lose customers? o Citibank can ask applicant to take evidence to the court and get an injunction. o Where do we look for the fraud in the required documents. What is a false statement in the documents in 5.2 VCRs good working order, warranty included this could also be a breach of K, but must first say statements are on a required document and these statements are false. United Bank v. Cambridge when goods arrived, letter of credit paid after goods arrived. o Note, must prove fraud not breach of K just b/c break K, not necessarily fraud. Material misstatement. American Accord- falsity when goods where put on ship. Much more likely thing to get you into the trial court and let you have persuasive evidence, b/c you can get the harbor masters documentation as to when the ship arrived. o Seller won, b/c Seller not responsible for third party breach Carrier lied. o Why does carriers lie not count. L/C says 15th and B/L says 16th and doc checker says should we accept docs if waiver fine, if not then not conforming. Suppose obvious erasure and then they put in 15th. Could say on their face there is some fraud especially if ship didnt arrive until 16th in port to load. Suppose erasure is done by carrier Ct held that have to pay, still a fraudulent document, but not by seller. o This is British Law Strict compliance includes goods, dates, everything. o Note most important word is that or if have fraud in both the underlying transaction and in docs you have met that hurdle. Good to go, doesnt matter who did the misrep carrier or seller if fraud in documents doesnt matter that fraud in underlying transaction. US courts generally want a showing of fraud that is elevated in some respect before breaching the autonomy principle -- a showing: (1) Egregious fraud arising from declarations that have no basis in fact and are attempts to run off with the

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customers money; (2) unscrupulous sellers; or (3) fraud that vitiates the underlying transaction before. 5.3 -- Standby Letters of Credit: electronics to Israel. Issued by the sellers bank and runs in favor of the buyer backwards payable against a writing which certifies that the seller has not performed its promises. o Performance bond for the sellers performance. Governed by the UCP same as letters of credit If conform then bank must honor the draft. o Beneficiary is not subject to defenses arising out of the underlying sales transaction o Based solely on documents bank should pay w/o question o Essentially, it is a suicide paper-- buyer just needs to type something up stating necessary terms. This is cost free. o Magnitude for fraud are greater here, b/c of documents. Primary users of standby letters of credit today are governments! o Seller usually responds to standby letter of credit by adding 20% to cost. Why the difference b/w bank operations and insurance company? o The insurance company is paying out its own money and the bank is paying out sellers money. o Bank does it with minimum use of labor. Example: SpaceCom when buyer (Israel) brings the document to the issuing bank can seller get an injunction on fraud theory? o Not likely b/c ISP and UCP dont refer to fraud UCC gap filler? o Note: not in readings K can almost never take away an action from fraud. Tort actions are created out of general societal duties, not out of contract duties most of the time even a disclaimer will be struck down as being not permissible. o Does the UCC apply in this case? Yes, b/c K says state of NY Law applies UCC Art. 5. Note even if NY Law doesnt apply UCC 5-102? Says governing law of where company is located NY law would apply. o Art. 5 doesnt define fraud. Fraud material misrepresentation of fact with evil intent and all the rest? Dont know. Usually looks at intent, though Do we have that here in the Israeli Document? Wasnt the Israeli government right in saying the goods arent in the Negev, so we get our money. The Israelis prevented delivery. o What is material breach four days late? o Misrepresentation is in the use of the word because the acts arent causally related. You may be able to show that because is the fraud. What else could you show? On the part of the beneficiary Israelis. How 60

are you going to show evil intent on part of the Israeli Government? You have to show they did this not by mistake, but b/c they really wanted to get to SpaceCom evilly. o Note: case on point harris corp. o Note: SpaceCom would also have to show irreparable injury damage cant meet payroll. American Bell what do they have to show to get injunction? o Irreparable injury and either probable success on the merits or sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly toward the party requesting the preliminary relief. Caulfield Test. o Here couldnt show irreparable harm? Ct says that Bell cant get into Iran that is irreparable, but Ct says Bell might be able to take action in US courts FSIA. o Probable success on the merits? No, why? Doc v. transaction o Balance of hardship in Bell? No real hardship on Bell, but on bank Manufacturers could lose 30million plus other assets in Iran, not to mention reputation. o Evil intent ct says no evil intent, why? Iran wants to take Bell for a walk, right? Could just be a regime change that doesnt want to work with Bell. o Intent to defraud is a very difficult action to undertake. The ct very often finds this part not present. Harris comes out opposite o Irreparable injury courts in Iran Hostile and US-Iran Claims Tribunal must go there cant go to US Courts. Has in fact changed, b/c cant go to US courts. Ct says here Claims Tribunal is not adequate substitute. Ct didnt trust Tribunal to make speedy decision. o Balance of hardships? Wouldnt this hurt the issuing banks reputation?

Franchising 40-50% of retail in US; 10 million in employment, 800 billion dollars Franchising defined an ongoing, commercial relationship characterized by a trademark license, significant assistance or control, and money. Usually minimum of $500 over first six months of activity. o At its heart a franchise is a trademark. o If you want to avoid being a franchise, the only sure way to do it is to get rid of TM License o Two types of franchises (1) product distribution arrangement car dealership, soda bottler done to avoid personally opening up new locations usually have separate laws governing them more specific 61

(2) business franchise format McDonalds giving trademark, and methods of doing business and running daily activities. General franchise laws Huge expansion in franchising has been in business franchise format. How does it work get going: o The parent company is the franchisor and below that are franchisees o The Zor (franchisor) has a business idea that is a prototype operation usually for at least a year, one business cycle. Goal is to let you duplicate a good business idea with ease and speed. Ex. White Castle Chain corporation owns outlets 3-400 stores. Ex. McDonalds franchise distribution 23,000 stores o Choose to be franchise or company owned chain at this point zor has to decide what to do. o Pros of going into franchising for franchisor: Other peoples money dont have to raise capital the Franchisee has to put the store up. Faster expansion o Cons of going into franchising for franchisor: Control - zor has reduced control over employees and premises Trademark damage o Franchisor to the Franchisee -- trains the franchisee in how to run the business, and gives trademark rights and advertising. Provides very specific instructions on every aspect of the business contained in an operations manual. Must be in hard copy. o Franchisee gives back: (1) money in the form of initial fee (trademark license fee, franchisee fee usually not that large) given for right to use trademark and business format; (2) royalties (this is where franchisor makes money) these can be structured various ways -- % of gross is most common (send every two weeks percentage of gross receipts, not profits). Long before franchisee has been making profits he sends % of gross to franchisor. Doesnt have to be flat percentage, but most common way usually 4-5%. (3) Product Ex. suppose you are running car rental dealership? o Flat fee for each transaction a transaction approach, so franchizor gets same amount regardless of what car is rented o Sliding scale method royalty rate going down as gross receipt goes up. Less training needed.

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o There are some systems where franchisor sells product and where product comes from franchisor cars, soda, etc. o Antitrust laws and trademark laws come into play. Trademark laws allow you to register it, and gives franchisor and franchisee both adv as long as franchisor exercises control and meets expectations and law. o Average term is about 10 years for relationship b/w franchisor and franchisee. Most are renewable for different terms. Usually analyzed by time, profitability, etc. Expanding or selling franchises Individual franchise agreements -- 1:1 o Franchisor (x) gives rights to (y) and in return gets money. o If y does good job and x decides to open another store in same city, there will be a second separate K for new store. Now franchisee is a multi-unit owner. Most franchisees are becoming multi-unit owners usually 4-5 units. Area development agreement franchisor (x) says I want to develop a certain area such as Richmond that can ultimately handle five successful stores. Instead of finding five franchisees, x looks for one and will tell him he wont see right to anyone else, but area can hold five stores and Ill give you the right to the area, but you must open a store every six months. Regarding store one, you will have a normal franchise agreement with store one, then store two, three five. o Or franchisor can lease to an entity (sub-franchisor) to sell so many units. Used extensively in international markets. The sub can sell single units or area development agreements. But, sub takes on some of the training and supervision responsibilities. This way franchisor can use local subfranchisor (local citizen) to control franchisee. Conversion franchising franchisor goes to someone already operating his type of business and gets him to change over. International Franchising: Focus on foreign laws, which tend to focus on placing equity and control in the hands of local individuals and on regulating the franchise agreement to benefit the franchisees. Also be sensitive to cultural impact. Assuming franchisors headquarters are in U.S. Suppose going to UK (1) First requirement is whether your domestic operation is in control and profitable. (2) Why do you want to go abroad? o Suppose you want to expand b/c out of room domestically (3) International Licensing and support obligations can your company handle them? o Management personal and troubles Going global

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(1) Establish an international department at least one person to help organize and centralize concerns and responsibilities involved (2) Define general strategy and pick target country 1:1, area development, subfranchising. o Note distance and difference in time o Can you get your royalties out of the host country. o Note political stability of country Handle trademark franchising problems Define general characteristics of international franchisee o Education o Financial capabilities o Duties what will they be o Team player do you want franchisees to be entrep or follow your system Know reputation of person in target country Investigate details yourself common sense. Develop business plan Calculate value of master license for both sides and look at it in terms of what your own profit is and costs are franchisor should put himself in position of franchisee to see rate of return. What royalties and how split? Offer training in development in form of master franchisee Set up program to identify and address cultural differences or market differences language issue. Double reverse translate everything. Operate a pilot unit in the new territory for at least one year before allowing a new franchisee to open. 9.1 Franchising and Trademark Licensing: Colonel Chicken goes abroad Paris Convention right of priority of 6 months form home registration, allows well-known trademarks the rt to block or cancel the unauthorized registration of their marks. o Mitigates national requirements that foreigners seeking TR prove a preexisting, valid, and continuing home registration. o Eliminates need to simultaneously file o Famous marks prevents infringement even if there has been no local registration Nice Agreement registration by single classification system for goods and services. No longer have to ID good or service classification. Vienna Trademark Registration Treaty US party to intl filing and examination scheme. Not fully implemented yet. US Lanham Act of 1946 foreigners who seek registration in US might be required to prove a prior and valid home registration o US law allows for registration within 12 months if there is bona fide intent, and 24 additional months if good cause is shown for delay

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EU - You get right of priority of 12 months, but if you dont get patent protection in Europe during those months and you come in later, the office says it is not new and not invention that this info is already disclosed in US Patent so precluded by own prior disclosure. What can we do in this situation get a subsidiary patent to the original a follow-along-patent. You can use this in Europe to get patent protection Pengilley man who drafts contract is the one who gets the best rts and benefits. Note: continuing relationship dont be overzealous in limiting rts. Will have to register it with trade mark office domestically and then probably in foreign country as well. Consider whether such trademark falls on countrys forbidden list or must meet other regulations Quality Control if franchisor doesnt maintain it, the trademark could be considered abandoned and lost. However, must be careful so as not to force an agency relationship. Client is selling his o Trademark o Trade secret know-how -- business model. o Combination of services and trade secrets Training, Marketing, Advertising o Patented goods - secret recipes, special patented cooking equipment and purchases of chicken from a list of designated sources o Non-patented goods with trademark on them (napkins, knives, etc.) o Copyright protection Business Manual. o Translations TRIPs trade related intellectual property rights. o Uruguay Round, internationally recognized marks receive enhanced protection, the linking of local marks with foreign TM is prohibited, service marks become registerable, compulsory licensing is banned o Can prevent unauthorized use or disclosure WTO doesnt deal with patent registration Madrid Agreement if both parties are part of it (US part of) Recommendable that gets trademark office before open business natl or abroad. o Avoids having to buy it later.

Copy right material designs and logos of franchisor instruction manual

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Universal Copyright Convention of 1952 and Berne Convention of 1886 US party to both. o UCC copyright holders receive national treatment, translation rights, will excuse any national registration requirement provided a notice of a claim of copyright is adequately given. Foreigners in US have to register if only seeking protection under UCC o Berne if foreigner is member to Berne as well then national treatment and release from registration. Permits local copyright protection independent of protection granted in the country of origin and doesnt require notice. Therefore, if publish in US protected in other ratifying countries. o Note that another difficulty is that there is no agreement on how you get a patent and how it is registered.

Trade secrets recipes and cooking techniques to customer lists, pricing, formulas, market data or bookkeeping procedures. Difficult to protect under US law. Problem hard to define exactly what is a trade secret. Note that if you have trademark in US, doesnt necessarily mean you have it in other countries. Main treaty is the Paris treaty. Franchise Agreement standard contracts used in home markets and revised for international use. Coverage of: right to sub franchise, franchise fees and grant, royalties, services, training, control, area of agreement, accounting procedures, business standards, advertising, insurance, taxes, default and dispute settlement. Main thing is trademark licensing clause giving rts to franchisee in return for royalties. Royalties gross sale or % - in $ or Local currency inflation guard Permits for building cultural differences Translation problems. Example: Colonel Chicken going to CANADA ALBERTA approach o First, Franchisor has to give a prospectus b/c: Government wanting information Consumer protection prevents them from buying bad chicken. o Consider the Franchises Act of Alberta, Canada: o Section 6 Registration: Dont do anything unless file prospectus. Need to Register to do business and must be received by Registrar. Act is not specific on what have to disclose? What are material facts for disclosure? Financial statements of the franchisor and sample franchises. Copy of standard form contract that you plan to use can be part of prospectus (subject to change while entering into franchise agreements)

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Copy of Patents involved whether registered in Canada or US or internationally and if Canada is a party to Convention Copy of Registered Trademark show that is part of deal Section 8 paragraph 3 director may require any additional information which he considers necessary to be included in the prospectus. (discretionary). Really Scary in its breadth. Is there anything govt might think would be useful for franchisee to know and they might demand in prospectus that you dont want to give o Business plan but you can say that will be revealed later o Labor Standards? o Location McDonalds wont tell you the site or how they select it.

Antitrust issues Sherman Antitrust act Problems: tying issues o Not allowed to require franchisee to purchase non-essentials and cooking supplies from franchisor. o Can purchase core products from franchisor chicken, subject to specifications or from a list of approved sources. Seigel.? o Baskin Robinns formula for success products may be tied, b/c depends on secret recipe and reputation. You cant require that they purchase generic equipment or supplies. Napkins, placemats, uniforms. Can you require franchisee to operate out of the site that you own? Yes. (1) You could argue that the lease isnt a product no tying (2) McDonalds 4th Cir can require a lease before getting franchise B/c control of profits marketing and already existing franchises and how will effect business max franchise outlets w/o minimizing profit (3) Judges shouldnt decide not expertise US Franchise Regulations: Disclosure laws criminal penalties for material misrepresentation or omissions in franchise agreements Copy of Prospectus / capitalization FTC Monitored can ask to be exempt if sophisticated business person. Example: Cl Chicken going to Europe Germany -- Pronuptia. o Master franchise for three areas. o Exclusive license only the franchisee has rights to license. Not a Sole license franchisor reserves rts to enter and compete. o Does the Exclusive license violate EU regs? Europe cross border trade doesnt want an entire geographic limitation, that is what they have just gotten rid of Other regulations in Germany

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o Can you suggest prices can provide guidance, but cant set prices among franchizors or franchises to hinder competition that would be price fixing and illegal. o Can I select sites for my franchisees? Build here and rent from me and sell from there can we do that? Consider Treaty of ROME Regulations: Art. 81 formerly 85 o Ct drew a triparte distinction b/w distribution fracnhises and service and production franchises. Zor can communicate know-how or assistance, can take reasonable steps to keep info secret from competitors, can put in location clauses forbidding francisee during K or for reasonable time from opening a store with a similar or identical object where it might compete with other franchise in network, and can prohibit sale of store without permission o Passive sales are acceptable outside of your territory. o 85(1) -- says you cant o 85(3) case by case exemption that you would have to seek versus a block exemption (everyone can use it) o After case, EU passed 4087/88 and 2790/1999 detailed a white list, black list, and gray list Attempt is to make a balance b/w the two parties, rather than just protecting the franchisee.

9.2 Protection of Intellectual Property: Pirated and Grey Market Rockers Tapes and Cds. Gray Goods: goods produced abroad with authorization and payment but which are imported into unauthorized markets. Katzel Sct blocked French cosmetics from entering the US. US firm assigned US trademark for FR cosmetics. Assignee obtained infringement relief against FR manufacturer. Sct emphasized TM ownership and indep. public good will of assignee. Section 526 of the 1930 Tariff Act bars unauthorized importation of goods bearing TM of US citizens Results in seizure of imports, injunction, resulting in export or destruction, and dmgs Duracell Reagan denied relief. Note: first sale doctrine in copyright after that no right to reap benefits. K-mart Customs can continue to permit entry of genuine goods when common ownership of TM exists but must seize such good only when TM authorized, but not common ownership.

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First question is who cares, why should we protect these guys from counterfeit goods? o To protect patents, copyrights, trademarks o To protect the market place for goods if no economic incentive to bring goods to markets then hurts everyone o How does it protect the consumers short run cheaper goods. Long run no incentive to create music both good and bad music. Think of it in context of not only music, but airplane motors as well. We dont want counterfeit goods in certain areas How do we shut down these bad imports for Rockers? o Go to Fed. Dist Ct to get TRO o Get customs officer to seize the goods? 133.2 of Customs Service Rules -- File application with Sect Treasury (homeland defense), customs including fee, proof of certificate of registration of trademark/copyright, copies of certificate of registration. Customs has the authority to seize counterfeit goods. Aggressive intervention find out who is counterfeiting and when it is coming out, then tell Customs. Cost is a factor. o Customs will contact the parties who have an interest in the goods will ask owner of trademark for consent to allow in country. o Statements filed on behalf of validity of goods are kicked upstairs to the commissioner or director. Decision is made based on the ordinary observer test. The copyright owner has the burden of proof. The trademark importer has the burden of proof. Injunction against producer or importer? o Foreign country do they even have injunctions or counterfeit laws? o Whats likelihood that foreign country will have same trade law are they in WTO GATT 1994 or Multi-Lateral agreements such as TRIPS? Trade Related Intellectual Property Agreement found in parts 5159 on border measures. And, Article 46, which spells out what kind of remedies a government has to provide in order to be within the permissible actions under TRIPS. Disposed of outside of channels of commerce in manner to avoid harm to right holder or destroyed. Little chance of enjoining the producer or distributor outside U.S. o What would you really like to have as a remedy? Criminal Liability note on 816 Law of 1996, piercing the corporate shell if the indictment is proper. Note three approaches o Stop at border

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o Sue for injunction or damages or both o Criminal liability Note: Romless Computers that copyright protection and not merely trademark protection the cts interpret the regulations and violations narrowly. Note: AT Cross p 817 Foreign Trade Zone Act abuse. Putting made in USA stamp on foreign products cts got super upset about that more so than bad trademark and bad copyright. Hurting US Govt not a private individual and that is more important to court. o Also worried about trademark violation less so than made in USA o Note: hierarchy of values in cts enforcement.

Why would producers want to segregate goods on regional national basis Price Discrimination Different Manufacturing costs Same manufacturing costs, but different prices Copyright case different marketing Product differentiation different products, different markets Sunlight Dishwashing case. o Different regulations warranties, liabilities, service provided with product sold. o New trend setting image, fashionable v. dumping old products. silhouette case Austria v. Bulgaria Geographically exclusive licensing agreements, franchising. Distribution channels are different. Why would we want to have geographic distribution Legal situations required by host nation Lack of capital and we cant raise money to distribute product world wide, but local partners would do it via franchising with us. Unrelated Producers might be using the same mark on the same or similar products. Limitations of Contract Law Privity Requirement to enforce you need to be in contractual privity. In many cases the goods have left the hands of original party and it is a 3rd party exporting to US. US Copyright simpler Lanza 602(a) importation right under copyright law and first sales doctrine 109(a). i. Generally, under cr law 109(a) page 829 states: not withstanding 103 exclusion rights is entitled to sell or dispose of product and then the buyer can resell it. Can the original owner say you cant resell without my permission. No, once a copy is sold initially, the owner of

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the copyright has realized the economic value of the authors rights in that copy and you can resell it on secondary market. 1. exceptions to first sale doctrine are with cds, music, and software limitations, b/c copies pirate material. In hair care products the copy is incidental to what is being sold. Lanza is trying to use the label to control distribution of product 602(a) states: importation w/o authority of owner of copyright is infringement. ii. Sct says what is relationship should we say after first sale no residual right or extra right or there is on importation 1. Ct says regarding products manufactured domestically, then exported, then re-imported the first sale doctrine trumps the importation right. a. Since importation right refers to exclusive right to distribute which is self limited by first sale and you cant control re-importation. 2. leaves open crack for goods manufactured outside US 3. there is some thought that 109(a) refers to prohibit remanufacturing of good in the US, but not manufactured outside US. IF originally made in US cant use copyright to segregate goods. Doesnt say about manufactured outside US.

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US Trademark Three different provisions in trademark law in which someone seeking to prevent importation of goods into the US might use. Section 526 of the Tariff Act K-mart. invalidates authorized use exceptions formulated in customs regulations. Doesnt matter if licensed outside US, you can still prohibit goods from coming back in. however, common control exception is valid under US law. o Limited to US citizens or domestic corporations. Section 42 of Lanham Act Lever Bros. - narrows common control exception and says even if common control, we think mark owners if the product is identical then cant prohibit and only can prohibit-- if material differences and the differences in product cant be cured by labeling. o Victory for mark owners to use trademark law to segregate markets o Foreign corps have to use this section to sue. o Talks about products that simulate the US mark, which is language not in 526 not clear but that may generate slightly broader protection. Customs issues regulations to unify both above provisions. o Authorized use and common control of foreign co, exceptions. Sct decides it wants to interpret these provisions together so that differences b/w two turn out to be not that great. Infringement law under Section 43 of Lanham Act. o Applies to goods actually sold in commerce and infringe US trademark o Few cases, but lower cts have said 43 will be construed same way as Sct has done with abovementioned acts and we are going to say even under common control situations you can keep out imports when difference arent cured by labeling. Trademark law provides more opp to provide for segregated markets than copyright. If you want to do price discrimination want to sell same product for different prices in different markets, you could create two products that are different enough that ct will find them material different diff formulas, diff warranties, and then you can prohibit importation of that product into the US and case where difference in terms of warranty or language of users manual not so easily cured by labeling.

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Why is trademark so much more user friendly than copyright o Copyright -- protects investment in works of authorship, but when you sell the additional copy you have realized the economic benefit that Act intended to protect and dont need to protect it further. o Trademark protects reputation of mark holder and investment by owner in reputation and from consumer side in preventing confusion. And reputation and confusion can occur long after the particular good that bears the mark has left the hands of the producer.

9.3 Protection of Intellectual Property: Section 337 Proceedings, Special 301 Procedures, TRIPS and Pharmaceuticals from Thailand SECTION 337 of the Tariff Act of 1930 Applies to Copyright and Trademark items patent go to WTO, TRIPS, fed ct. In rem, not personam. Doesnt require proof of injury to domestic industry. Just that industry exists factory, equipment, employment of labor, capital. Determination and recommends to the President are exclusive by USTR. o Independent US Agency. Can result in general exclusion orders, seizure of gods or entry only under bond o Temporary relief decisions are made by admin judge reviewable by FTC o WTO conflicts with 337 treating imported goods inferior MFN? Example: Patents Section 337 FIZZER wants to use this, b/c Unlicensed manufacturers products coming back into the US and what can they do? (1) Go to the International Trade Commission: (2) Claim Patent infringement under 337, and show industry exists (3) Importers will argue it is in the Public Interest lower prices o What about with drugs and AIDS is anti-AIDS virus drug excludible --what about innovative thinking, and encouraging productivity. o Can exclude importation from US unless in contrary to public health (4) President then has to approve exclusion order 60 days to disapprove or ITC ruling holds. Section 301 Proceedings when US rights or benefits under international trade agreements are at risk or when foreign nations engage in unjustifiable, unreasonable, or discriminatory conduct. o US may undertake unilateral retaliatory trade measures subsidy, dumping, escape clause, and market disruption. o Subjected to authority of the USTR mandatory retaliation if breach of international agreement to which US is a party. Discretionary authority when unreasonable or discriminatory practice.

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o If dispute is covered by WTO dispute settlement understanding, then USTR proceeds under WTO. GRAY GOODS see US TRADE above. DURACELL BATTERY the President says he doesnt like not allowing them into the country wants to encourage competition. Cant use 1337 of gray goods ITC doesnt use it anymore Personal Computers have we seen this fact situation before in the Romless computer case customs in Romless computer case they were able to come in b/c romless and can only prevent copyright product from coming in separate shipments of memory and plastic computers. o ITC says nope cant bring it in. Even if separated. Keeps product out. Top of page 847.

9.4 Patent and Know-how Licensing: Oil Drilling Bits in Germany and Mexico First, acquire patents in all countries where hope to go. Patents territorial grants of exclusive rights. o In developing world often not granted for pharmaceuticals, lack effective enfocement o In US can result in injunctive relief, damages, exclusive orders ITC Section 337 of the 1930 Tariff Act o Two types of systems examination and registration (US and GER examination and FR registration and UK worked within time frame). Know-how commercially valuable knowledge cannot register it an obtain exlcusive legal rights. o Protecting it is mainly function of contract, tort, and trade secret laws Licensees Risks old or obsolete, labor reduction, excessive royalties, lack of bargaining power Licensors Risks currency exchange controls, taxes, gray market goods, expiration Example: Licensing seed product in Germany Maize Seed.licensee agreed to: o Exclusive rights to organize sales and not to deal in other seed o Not to place restriction on supply of seed to technically suitable distributors prices fixed in consultation with licensor. o Required 2/3 of sales to be imported by licensee and limited its domestic production to 1/3 sales. o TM protection o Licensor would only go through Licensee no parallel importers Treaty of Rome: o 85(1) cant grant absolute territorial license open license not under here deriving rts through licensor to not produce or sell in area 74

closed license is applicable deriving rts through licensor to prevent 3rd parties from exporting product to area cant exclude imports or exports to other member states o Regulation 240/96 on application of 81(3) make a single regulation covering tech transfer and harmonize patent and knowhow licensing Rome Treaty shall not apply to pure patent and knowhow licensing agreements and missed patent and knowhow licensing agreements. Creates lists mentioned above. Example: Drill Bits license agreement, two questions: o (1) Unfair provisions to licensee Grant-back clause art. 7 by German company. Drill bit is worried about competition or develop a superior product. o (2) are there any that are contrary to EU regulations for licensor geographic basis in art. 1. What is the licensee worried about: o Wants to be able to develop product better not likely to want to work with NordMetall. o If NordMetall makes a follow along product the grant back doesnt let them get anything back. Permanent, exclusive, royalty-free license. What should NordMetall get out of this and what should DB get one says no license wanted and the other says no rights period. o What about letting them get royalties for follow-along invention. o What about profit sharing from improvement hard to calculate. What about royalties. You cant just drop the royalty free part from the clause, you need to set amount. o What about dropping as well exclusive and changing it to non-exclusive. o What about revocable license at will? Not so fair What license would we put in the grant back clause o Royalty free, non-exclusive, TIME? o A permanent license with royalties non-exclusive license. What does the EU say: o it must be non-exclusive and there has to be reciprocities. Black List Article 3.6 o Obligating the Licensee to assign in whole or in part to the licensor rights to improvements to or new applications of the licensed technology. Is this a requirement of an assignment or is it a license and not an assignment so black list doesnt apply. Even for the black list this is ambiguous doesnt use assign, but is exclusive, permanent, royalty-free license the same - not exactly. o Any good lawyer can argue this two or three ways not sure if applies or not, but as NordMetalls attorney you want to make sure something is in Art. 2 the permissible list

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Both on grounds of authority and fairness. Note, that black list really gets things that are only truly bad.

o Paragraph 1 the Grant might have problems with Art. 3.2 cant restrict one party from competing within the common market with the other party, with undertakings connected with the other party or with other undertakings in respect of research and development, production, use or distribution of competing products without prejudice. o Closed license b/w two parties. Here in paragraph 1 there is the possibility of third-parties being allowed in. What would we rely on to make it closed as read by license agreement? Market sharing agreements with pre-established rights Licensees in UK and France o Open license 1.1 paragraph one defines open and closed contracts dont know whether we fit under which one. Article 3(3)(a) above dont apply where one or both of the parties are required without objectively justified reason (a) to refuse to meet orders from users or resellers o Is that what paragraph one says in K nope, may be authorized except France and UK so those are out. Is this a prohibition on carrying out sales activities Note distinction b/w passive sales and active sales activity on white list and black list. o Does para 1 mean that under no circumstances can NordMetall sell to UK or France. Is there reciprocity are France and UK not allowed to sell in Germany? o This one says solicit sales actively selling. To bring in legality of EU law instead of saying no sales are permitted; say no solicitation of sales are permitted. o Note difference b/w sales outside area and no one can solicit sales outside of Germany. Art. 3 EU says without any objectively justified reason what would be an objectively justified reason and 3(b) is directed to resellers which is about gray goods. Paragraph 1 are there any more concerns: o If we make the solicit sales outside territory instead of business is there anything else.

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Price setting by DB Resale Price Cross Maintenance Clause is this bad? o Market should determine process o You can recommend sale prices o And, Put in clause that NordMetall will inform DB of prices and meet if prices go too low.

Is this applicable to open or closed or both Art. (85) is the German version of the Sherman Act, not to collude, get too big etc and it says if you are within parameters of two party license agreement and dont have stuff on the black list and not too much on gray list you dont have to worry about anti-trust. If you are a three party contract the regulation doesnt apply and article 85 may apply. o Basically if you have two party license and no bad clauses we wont prosecute you for anti-trust block exemption. o If you dont make the block exemption it doesnt necessarily mean you are going to be charged but if there is so much reference to 3rd parties that we dont qualify you can get an individual exemption. Take individual contract to EU and ask whether it meets regulation, and ask for individual exemption to 85. o Note if dont get individual exemption there are other possibilities negative clearances to comfort letters. o So, better to fall under block exemption or try to get an individual exemption ----------------------------------------------------------------------------Example: Mexico Subsidiary Risks of Mexico licensing: o Reform of past over-inclusive franchising laws o Mexican Corporations law o Royalty payments o Taxes payments o Risks upon entry, risks of operation, risks of termination. o Limitation on ownership rights / equity / location / currency / management / performance / capital transfer / earnings. Registration of IP rights in MX to protect property rts and public policy: Whats effect of NAFTA? o Made sure there was no counter-revolution. Mexico had pretty much abolished regulation and only required registration NAFTA makes sure that they cant go back. o Take a look at Chapter 17 of NAFTA and whether the word license is ever mentioned in Chapter 17 of NAFTA does this just set up IP rights or how they will be used. Check TRIPPS 31 compulsory licensing. That NAFTA Doesnt prohibit it argued by Brasil when goods are being made and sold in local country. Note the operational code and drawer rules. 77

Add my notes from a transaction gone well.

10.1 Foreign Direct Investment risks: Operational risks o Political, social, economic stability, corporate administration, labor, reports and reserves, marketing, taxes, operational costs, Organizational Risks o Formation costs, termination costs, exchange control, bankruptcy laws, government regulations, registration, local culture Foreign law o Corporate law, veil piercing, jurisdiction, choice of law, antitrust issues, control, competition, operational code. Always consider control, competition, and choice of law. What can attorney do to get rid of risk or to ameliorate it in some way. o OPIC and MIGA coverage on risk political, expropriation, currency inconvertibility.

(1) Branch or subsidiary Subsidiary - wholly owned: o Usually cheaper and quicker. o more control training of locals, foreign resources, less capital investment possibly o Control - depends on how much is owned separate legal entity. o Liability liable for all cost worry about veil piercing o Taxes on all world wide or local proceeds o Reports and Reserves When do you have to report not in favor of sub. Losses not necessarily import on impact of parent. o Corporations: Board who appoints SH? Do they give orders to the president? Who appoints supervisory bd depends on how many employees Branch o Control - more: -- Employer and Employee o Liability -- it is the same legal person bears all liability as home office o Taxes -- Is it on a % of global income of the whole corporation o Reports and Reserves -- When and what -- Losses are deductible

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o Very difficult to set up a branch Think of a German Company coming to US easy to set up subsidiary just file with sect of state. To set up a branch you have to come over register to do business license to do business. Authorities want to know who are you need to show more than just charter and by-laws -- who is the principal is by showing the money financial material on parent corporation. Charter will be in German so, would need certified translation. Need to see if ok under German law to expand Notary who is a notary? Lawyers with additional training. Limited numbers demand greater than supply. o They are supposed to advise the parties of the risks involved fully informing both parties. o Decides what can be put in corporate charters and by-laws. Cheaper and quicker to get a sub, rather than a branch which is licensed to do business in Germany. (2) De novo or acquisition very expensive de novo. No local connections, need to make everything to fit and culture. (3) create local legal person LLC or LLP chartered in local jurisdiction notice most countries have difference in public company v small closely held company refers to SH number not size of corp. GmbH seems more suited to our needs not public trading and dont need protection of minority SH put into AG (4) Joint Venture partnership, where two persons decide to undertake some venture for profit for what is usually a short duration. NAFTA Chapter 11 - prohibits mandatory joint ventures. o 1102 need to national treatment, 1103 MFN treatment; 1106 no performance requirements In all of these investment measures like TRIMS there is some limitation on application ie Mexico has taken off the table all items in article 5, 6, 7, and 8 saying national treatment and MFN dont apply. Share risk, obtain favorable tax treatment, obtain needed technology, obtain needed management skills, gain a host nation identity, or gain more secure sources of components or markets WTO TRIMs National treatment is mandated Offered by nations who lack the financial resources, raw material, technologies, and markets Considerations to take account of: o Foreign culture, local industry harm, technology transferred new or old, environment, currency reserves, local capital,

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Agreement considerations: purpose, management, IP, Government approval, taxes, title to property, language, duration, intended markets, law for disputes, equity and control. Government ad-ins o Jobs and training o Technical contributions o Compliance of environmental requirements o Increasing Mexican competitiveness in production plant.

Factors to consider: Worker participation o American Corps usually dont like worker participation and dont want to deal with it think about whether you want to go out of way to avoid it sends bad signal to foreign employees. Be prepared to talk to employer about what the effects are probably want German counsel to do this. Can we avoid this by creating a European Corporation SE. (starts 2004) o Allows you to go throughout Europe without getting new branch license in each jurisdiction. o Compromise was the if you had workers rights previously you would still have to have it and in countries that dont you dont have to leave it to local law of country in which you are originally incorporated in. Have to decide where you are going to put the seat of your corporation DE equivalent in Europe is the best tax jurisdiction Luxemburg. (but, they like workers rights too). Unlike US where you can have corp headquarters in one place and principle place of business in other cant do that in Europe. o Dont automatically assume going to the UK is the best place to go it may be the best, but what about tax rates? o Europe is starting to catch up to our corporations going nation wide or EU wide. Took awhile b/c of corporate law as social doctrine. o Germans have always been afraid of what has happened in US with corporate law race to the bottom as far as regulating corporate officer behavior DE allows them to do what ever they want. GR want to set minimum standard and have them apply the new directive will set some minimum standard Spanogle thinks will see race to the bottom Privatization: Example: Why Privatize o Economy bring in hard currency, efficiency, Balance of Payments, Get out of company running business, try to bring in market economy. o Technology transfer bring companies up to a minimum standard to function more efficiently. What does govt have to do to attract investors: (1) Make a corporations law for the Country 80

(2) Since it is a state agency first need to convert it into state owned corporation (3) Sell the shares Article 23 several ways to sell off state corporation which one does DGI want: o negotiations with government. From public invitation. o public announced offer brings competition; auction might be costly What would you want to change in privatization law: o Value of company state owned enterprise equipment, inventory, finished and raw materials o Environmental liability are there claims o Expropriation former owners o Accounting standards, bank claims etc. o Indemnification from any former claims would settle this issue. shall indemnify any claims arising from government ownership. Negotiations about employees o How much of shares do they get if any investor will want to reduce price to buy by % employees get. o How to terminate, who gets what positions Control of company? o To have effective control of the company 10% is not a significant amount as with a huge company. o Investors name want quality, reputation, standards. o You want to tell President you can bring more employment or severance packages, unemployment compensation fund, insurance, training for fired employees. o New technology 100% control gets you best technology, and second best with less control. Machines bringing in equipment as well. Hard currency will bring it in for Capital to pay for goods Art. 24 Sales of Stock having to be to citizens

Currency Exchange Control Inflation Price Transferring to avoid taxes and dividend payouts. If parent charges more to the subsidiary, who would complain? Subs shareholders can sue, but need to prove o Price being charged is higher than market value o Law gives claim and process to initiate suit. SH derivative c/a for breach of fiduciary duty. Most countries tell SH to either sell or try to take over the corporation. Who could you sue o Standard Oil suing parent for breach of fiduciary duty

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Creole is a subsidiary of Standard Oil, and it is a US Corporation. This is the minority SH of US corp bring c/a against parent US corporation o Can you sue parent in local courts jurisdictional problems o Can you sue parent in US courts if sub is host country sub o Host country gov would be out of luck on taxes and customs duties. Problem of proof how to find out what price should be charged. o Parent would claim reputation is why price is higher. How to solve price transferring who can remedy this situation? o Wheeler article p 991. Everyone is losing on this problem for all governments. World wide income tax system unitary system Tighter regulations more information. But what would corporations report and governments dont want to share it they want to protect corps pricing policies. Govt leaks to competitors. Corps cant share among themselves anti-trust violation. Arms Length Dealings if Parent was selling not to sub, but to other similar corp in same country what would the price be and that is arms length dealings.

Bankruptcy What is creditors first instinct? o US courts issue a mandatory stay o Foreign Assets not covered by US court order. So, unless DGI files in every jurisdiction in which it has assets then there is the temptation of creditors to go and dismember anything outside US. Suppose you manage to file in all the different states where you have assets problems? o Each country will apply its own bankruptcy laws. o Who gets the assets what creditors? o Many bankruptcy statutes have no provision for reorganization of any kind. So, you might only be able to liquidate and not reorganize. o What about pulling out of everywhere but Germany can the Russian debt be dumped just on that countrys assets or will claims against the parent have rights against the sub? o Should European court talk to subsidiary and talk to American Court handling the parent? Coordinated Claims Procedures (no multilateral treaties) UNCITRAL Model the US has picked up parts of it, but not all. The 1999 Bankruptcy Act, which incorporates UNCITRAL Model is not enacted yet. Different country different laws Protocol agreement b/w two courts to do same procedure and how to go forward. Can set up on bilateral or multilateral basis. Decides who gets to participate in what part of distribution and where assets go world wide or local.

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Problems of insolvency for the borrow can you coordinate bankruptcies that span various jurisdiction o Do you make universal o Race to the bottom grab what can o Allow states to say only our citizens can participate Be aware that if subsidiary is separately chartered that bankruptcy will be an isolated event wont necessarily help or hurt parent notwithstanding the loss of investment. o Creditor of subsidiary cant get parents assets o Parent might have debt invested. o Parent might have equity in subsid in which it comes after debt claims Piercing the corporate veil some cases allow debtors of subsidiary to go after parents assets 20-30 years old and havent been replicated usually unique situation harping back to transfer pricing that is truly egregious. o Usually treating subsidiary as branch by transfer pricing scams ct pierces

Project Financing (think of oil and gas production in Iraq) Mogul going in to Iraq / Kamchatka Peninsula. Who are the parties to this thing? Project separate entity (off books) debt is projects not moguls o Mogul sponsor (parent of the project) has to get various sponsors b/c cant afford collateral. Risk and limits on borrowing capacity. Dont want to put this on balance sheet, scare investors off. Construction Company build refinery o Money Bank (partial Owner) equity. - mortgage Guarantor o Gas buyers What does project have to do: o Insurance o Mortgage Appraiser whats the gas worth more than investment o Purchase K b/w project and buyers Project wants hell or high water clauses pay certain amount regardless of whether take gas. In a sense it is a strict liability clause put in K. Pays regardless. Force maguere clause if incorporated allows parties out (not recommended). Excuses seller from not delivering Buyer wants price term Something regarding governmental regulation changes cts do this on case by case basis if govt shuts down one plant can get it from other plant.

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Impracticability very hard to sell to court, buyer takes risk of demand, goes down. Quality or supply problems. Put in control, specifications of warranty. Impurities in gas. Unlikely going to get a warranty. Creates problem with hell or high water clause o Especially if you have to pay if no gas comes, but if it is bad then excused would encourage seller not to deliver. o Note: price gets better for foreign buyers as you offload risk on to the buyer. If price falls a lot, fixed price might be above market. (escalator clause) Relate it to an index tied into market price which one (in country you are selling it to). Currency exchange rate set a floating rate or fixed rate.

Bank wants higher pay Interest rate Profits Larger equity Is one bank enough need lots of banks b/c of lending limitations. Two groups of financers w/ various banks associated Start-up loans Operational loans If cant raise money from banks can do private placement of securities can sell it off to pension funds (ask high interest or equity). Guarantor what kind Mogul to pay if project falls wont get it, b/c nonrecourse financing and sponsor doesnt provide collateral only get assets and any equity. Comfort Letter states sponsor will stay in business if it mergers or is bought out need this clause. Want sponsor to be part owner put up enough capital that it will hurt if it fails. Assets of project as collateral o Problem with claiming right to natural resources not allowed in Russia. o Plant + Land What if plant is not furnished? Mortgage is on the land who owns land / how do you record it. Improvements to the land is it allowed. Contract assignments to bank if project fails.

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o Security interest need to perfect it by filing it. First to file wins, or first to notify debtor, or etc ... Appraisal of gas if not there, dont have to pay. o Business Plan Going into the U.S. Exon Florio Amendment (759 supp) President can stop sale for reasons of national security. Highly discretionary legislation. Limited use, only one merger in 15 years have been knocked down officially. o There is no limit barrier to investment Prof Alvarez o there is a restricted list on Amendment for technology If you are on the restricted list you have to notify CFIUS committee on Foreign Investment in the US if low tech company, might not veto it. o A lot depends on whether US company wants to be taken over or not this amendment is a barrier to investment entry regarding hostile acts. o CFIUS will also look at country of origin and other clients of the acquiring company. SEC could be a barrier to entry to the US. Financial disclosure. Anti-trust laws which have real teeth and keep price talks b/w competitors off the table. Dispute Resolution 11.0 intro different types of DR mechanisms available negotiation, mediation, conciliation, arbitration, litigation . Mini-trials (p.1158) plethora of different avenues available. Arthur and his estate zapped in WI and wants to sue manufacturer can he do it? o Can WI exercise jurisdiction over Camelot? Look at grant of authority - is there a long-arm statute in WI that allows them to get there. Sct cases hold can interpret statute, but there are certain interpretations not allowed, b/c of due process What in WI statute gives jurisdiction? Para 3: def neither lancelot nor Camelot has acted in WI Para 4(a) were carried on within this state by or on behalf of the D did Sony carry out any services for D in state? Need actual repair in WI on any tele. Need to find out if there are other customers that have moved to WI and asked for repairs. Para 4: (b) products, materials or things processed, manufactured by D used in state in ordinary course of trade o Question: is it in ordinary course of trade? Sold in NY, and randomly went to WI some kind of 85

commercial activity going on. Easy to get jurisdiction if drop last words once talking about if used in state in ord course of trade used by consumer or used in some commercial sale, like retail or distribution. Para 5(a): promise warranty of service. Promise to repair, but does c/a arise out of that promise? Can stretch it if friendly judge. Could stretch any of the three to get jurisdiction but more restrictive reason would not allow it.

o Which one should the judge use in taking this as case of first impression, what do you advise the judge to do next? Make sure state court ruling wont conflict with Sct ruling and Constitution Sct wont interpret state statute. 5(a) would get you specific jurisdiction and possibly general jurisdiction. o Why are we worried about getting jurisdiction over Lancelot? WI and Lancelot and Camelot US company doesnt have any assets pierce the veil? All foreign to WI DE, Canadian so, question is are you doing business in WI General jurisdiction. DP limitation is mainly interpretation by local judges. B/L Banco Lago wont pay -letter of credit o Informal negotiation and then arbitration or litigation depending on State. o Germany quick courts, everyone else says lets use arbitration b/c: Better for reputation of bank, not to appear litigious b/c not public, less expensive b/c: rent a judge, but hours shorter less discovery (pretrial shorter) Arbitration limits discovery hard to see other partys hand before arbitration No Appeal (post trial shorter) o What about non-binding arbitration can have it closed or open to later use as evidence. o Can Lancelot call Banco Lago and say lets go to arbitration? Need consent voluntary arrangement. o What could we do to persuade Banco it wants arbitration threaten to sue in Spain nope. What about threat to sue in US? Would US court take jurisdiction Mass ct? Has Banco purposefully availed itself and is it fair? Banco issuing letter of credit to Mass citizen. Note cases on 1187 read that again

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In letter of credit cases you have two banks one that has jurisdiction and one that doesnt fall into it. Whats the difference? First case issuing bank. Second case just an advising bank doesnt pay or confirm or issue just says we have message from out of state bank that says you have the following rights not an agent, just a messenger. o Wont issuing bank claim didnt avail benef came to me. Argument not a slam dunk and might be a DP problem. Can say think Mass ct will have jurisdiction look at highland bank case?

Why might not want arbitration in case? o Lancelot might want to join the buyer as a 3rd party. o Dont know why dont want to pay you want to know why quickly. Discovery is sometimes helpful French Govt - fabrique wants to sue lancelot and Camelot to get to funds. o Can we pierce the veil? Alter ego separate bd, accounting practices dominant ownership. Bd of directors mid-level directors from Camelot might not be enough to make it separate marketing decisions, employee decisions, how are bd directors rotated. Is it separately organized. To prevent fraud and injustice o Ct looking at whether financial dependence, operational issues, marketing decisions if Lancelot just a warehouse that takes orders from Camelot, then piercing the corporate veil becomes easy treating it like a branch.

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04-22-03 Dispute Resolution various techniques WI statute can be interpreted in myriad manners DP considerations Jurisdiction basis letter of credit issuing or confirming never been challenged on DP grounds. Dont always want arbitration banks prefer it, b/c repeat clients but if 3rd party involved issues. o Use of arbitration is preferred by most business on idea that it is a way to get dispute settled quickly, out of the way and go back to business. This rationale changes if the continuation of the business is on the line if business is at risk of being bankrupt, it will likely go to court. Fabrique Breton issues: o Can you pierce the corp veil sue Camelot in Mass. Depends on facts of how corp is managed, ownership (common), financial support sub gets from parent, operational factors including bd of directors employee use. Control over marketing is it independent. o If ct will pierce, then Camelot will want to raise jurisdictional issues o International tribunals and foreign tribunals Not taking this to the ICJ only for states. Can get State Dept to support your claim, but not likely to get much done there. You would lose control of case and State would be able to settle it as they want. Foreign ct will ignore US ct judgment p 1198 French Civil code Art. 14 and 15. breadth of jurisdiction is it exclusive or not. o Take from 11.1 litigation about jurisdiction is very messy and unpredictable. Same as 4.1 choice of law. Depends on court. Choice of law and choice of forum issues are super messy and long litigation. o 11.2 ties it up saying unless idiot always have a choice of law clause and a choice of forum clause. Also make sure forum and law are the same. 11.1 -- Choice of law clause o Rome Convention (EEC) Art. 3 K governed by law chosen by the parties. German court would say lets use German law. o What if go to an American ct Look at UCC 1-105 if reasonable relation to state parties can choose that law. Reasonable relation amorphous, up to the court. More than one state can be reasonable related Choice of Forum o German Ct would use the Brussels Convention Art. 17 if one or more is EU state and chose forum then that forum has exclusive jurisdiction. Writing, meet practices parties have established, common form for transaction 88

 Wouldnt work in Germany o US Court Sct decision court can decide its own jurisdiction. Uphold choice of forum clause if US ct you look to see who the parties are they can choose the forum if equal bargaining power? What do you look at if you are an American judge who wanted to retain jurisdiction mandatory or permissive clause. shall favors mandatory, although court said shall is not necessarily determinative. Better to say exclusive. Caldas. if ct decides to take jurisdiction, it is unlikely will be shot down by Sct. o Questions: what is a significant relationship and exclusivity Sale K 2: Choice of Law o German Ct Rome Convention K governed by law chosen by parties. US company to Germany and chosen FR Law. Acceptable. Note Parties to CISG not mandatory law would it govern? Rome Convention doesnt require relationship to State o US Ct can we have FR law US/German Sale Contract UCC 1-1-05 significant relationship, German subsidiary of French Holding company. Doesnt say relationship has to be b/w jurisdiction and parties, but whether transaction bears a reasonable relationship to state. Foreign law must be pleaded and proven as a matter of fact experts saying it goes both ways. US ct will try to avoid foreign law best argument is to say the UCC comment or the fact that money goes to France or France real party in interest. Holding company was in control and wants to have same law to define uniform practices in contracting. Neutral forum. Note: art. 1 is being rewritten it will likely drop the reasonable relationship requirement and say instead if domestic transaction can choose law of any state and international can choose the law of any nation. Choice of Forum o Germany Brussels Convention Art. 17 can you choose a forum not related to the transaction. Doesnt seem to have limitations if consumer case may get into trouble not contract of adhesion, so ok. No reservations on this German court is bound by treaty law law of Germany to deny jurisdiction. Upheld as long as not considered mandatory law?

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Is CISG mandatory law no, because it can be contracted around in Art. 6 in whole or part. Just a gap filler not mandatory law. o Is there mandatory law involved warranties, COGSA o COGSA mandatory, b/c carrier cant disclaim all liability minimum liability if allow contractors to K out of it, the law would be useless. Mandatory. Export control laws. Criminal laws. Cannot contract out of letters of credit and fraud. Cannot contract out of Antitrust issues. Cannot contract out of securities regulations. o Choice of law clause will not let you contract of US anti-trust or COGSA law. Choice of law if before a FR ct and have claim that relates to COGSA Rome Convention court would have to apply COGSA if US mandatory law. Carrier contract B/L is governed by COGSA. If substantive rights are abrogated then US court wont allow foreign court to have jurisdiction of forum. o Number 2 cts of England Rome Convention choice of law. Mandatory rules in convention Art. 7 effect may be given to rules of law of another country. Art. 7(1) - considering whether to give effect to these mandatory rules, regard to nature and purpose. Applying American Law would hurt UK Carrier? What if US shipper sues in US court and choice of forum says go to cts of London: Depends on substantive rights. o Nothing in Bremen read cases on 1220 that summarize that if US mandatory law, US mandatory forum. Applies if transaction doesnt have relation to foreign state. Problem 3 choice of arbitration clauses Fed Arbitration Act appendix to the document 2. Page 49 in supp. Arbitration clauses are to be upheld and since then you have the NY Convention p. 47 and throughout the world Convention Language that says arbitration clause must be upheld. o Do you send this to arbitration is by treaty law fairly well stated. Ct must deny jurisdiction. o Must it deny jurisdiction both for gap filling law and also mandatory laws? Clear that anti-trust, SEC, and under skyreefer (1221) and 1222-23 Sct has ruled COGSA issues have to go to arbitration ousts US cts from jurisdiction Can they get ousted in cases involving clauses that select foreign court tribunal we dont know yet. Almost everyone says no. 90

Skyreefer dictum to say no difference b/w arbitration clause and choice of law clause. OConnor. Bramen foreign clauses are to be adhered to for gap fillers. o NY convention arbitration clauses adhered to for gap fillers and mandatory law o Foreign forum selection clauses mandatory law? Not sure. o Even though case sent to England ct knew they were costing US party many of its issues. o Bonny v. Society of Loydds still have issues abroad that can raise o British statute in 1226 says yes can raise them, but if first prove bad faith, which is not a US requirement to succeed on cause.

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