Tag: International Law

China’s Supreme People’s Court Rules No Accounting for Profit for Joint Patent Ownership

In decision no. （2020）最高法知民终954号 dated November 25, 2021, China’s Supreme People’s Court ruled that if the co-owners of a patent or patent application right do not make an agreement on the exercise of the right and one of the co-owners independently practices the patent,  the other co-owner cannot claim the distribution of the proceeds from the separate practicing of the patent on the grounds of co-ownership of the patent right.

 

 

 

 

 

The appellant, the First Affiliated Hospital of Wenzhou Medical University 温州医科大学附属第一医院 (hereinafter referred to as Wenzhou Hospital) and the appellee Shenzhen Huilistong Information Technology Co., Ltd. 深圳市汇利斯通信息技术有限公司 (hereinafter referred to as Huilistong Company) were involved in a patent infringement litigation for CN Patent No. ZL 201210235924.0 entitled “a self-service terminal used in the lobby of a hospital.”

Wenzhou Hospital asserted that it co-owns the involved patent with Huilistong. Without its permission, Huilistong Company violated the rights of Wenzhou Hospital by practicing the patent involved in the case, and requested an order for Huilistong Company to stop the infringement and destroy inventory of infringing products and compensate Wenzhou Hospital for economic losses of 2.5098 million RMB and reasonable expenses for rights protection of 116,400 RMB.

The Shenzhen Intermediate People’s Court of Guangdong Province held that Huilistong Company could independently practice the patent involved in the case in accordance with the law, which does not constitute an infringement of the patent right of Wenzhou Hospital.

Wenzhou Hospital appealed to the Supreme People’s Court. The Supreme People’s Court made a determination on the issue of “allocation of royalties,” and on September 24, 2020, it rejected the appeal and upheld the original judgment.

The Supreme People’s Court explained that Article 15 of the Patent Law stipulates that if the co-owners of the patent right have an agreement on the exercise of the right, such agreement shall prevail. If there is no agreement, the co-owners may practice the patent alone or permit others to implement the patent by way of ordinary licensing; if the patent is permitted to be practiced by others, the royalties collected shall be distributed among the co-owners.

Except for the circumstances specified in the preceding paragraph, the exercise of joint patent application rights or patent rights shall obtain the consent of all co-owners.

Therefore, without the consent of the co-owner of the patent, the co-owner of a patent may directly obtain economic benefits through the co-owned patent in two ways: first, to separately practice the co-owned patent, and second, to license others to exploit the patent in the way of ordinary license, and only in the latter circumstance may there be a requirement for distributing the profits to the co-owners, but under the circumstance of independent exploitation, there is no such requirement.

In this case, Wenzhou Hospital claimed that some of the self-service registration integrated machines involved in this case were marked with such words as the joint research and development by Huilistong Company and the hospital involved in this case. However, this does not prove that Huilistong Company licensed the hospital involved in this case to use the patent involved, and there was no evidence in this case that the hospital involved in this case paid any patent licensing fee to Huilistong Company.

Therefore, the claim of Wenzhou Hospital for sharing the economic proceeds obtained by Huilistong Company from the exploitation of the patent at issue was not valid.

Wenzhou Hospital separately claimed that, according to the provisions of the civil law on the sharing of proceeds by the co-owners with respect to the co-owned property, Wenzhou Hospital also had the right to share the economic proceeds obtained by Huillistong Company from the implementation of the patent in question.

In response, the Supreme People’s Court held that, although Article 78 (2) of the General Principles of the Civil Law of the People’s Republic of China provides that “a co-owner enjoys the rights and assumes the obligations over the co-owned property,” this provision is a general provision on the co-owned property, and the aforesaid provision of the Patent Law falls under the special provisions on the distribution mechanism of the rights and interests of all co-owners under the circumstance of co-ownership of patents, and the special provisions of the Patent Law shall prevail.

Therefore, the Supreme People’s Court ruled for Huilistong Company.

The full text of the decision is available here (Chinese only).

© 2021 Schwegman, Lundberg & Woessner, P.A. All Rights Reserved.

Ongoing Challenges for Fashion Brands in Germany – Legal Issues with Style Names Revisited

Using first names as style names to assist consumers in distinguishing between certain items, styles or washes within a collection is a widespread practice in the fashion industry. Compared to numerical identifiers, names may trigger emotions and are much easier to remember. Style names may be used in manifold ways, e.g. on labels sewn in the inside of garments, hangtags and boxes or in advertising material such as catalogues and offers on the internet. What many companies do not realize is that the use of style names involves legal risks. Many names are already registered as trademarks, which may give rise to trademark conflicts.

Germany has become a popular venue for disputes involving style names in recent years. Only comparatively few claims are raised by actual competitors, though. Rather, there are trade mark owners trying to benefit from the peculiarities of German civil procedure and trade mark law by monitoring the market for possibly infringing style names in order to collect legal fees and damages. In many cases, such claimants will threaten to sue other companies in the distribution chain, including retailers, in order to put pressure on the fashion company to settle regardless of the merits.

In this blog post, we would like to raise awareness for the legal issues involved with style names in Germany and address ways how best to deal with them.

Trade Mark Infringing Use or Mere Model Designation?

According to European case law, the owner of a trade mark may oppose the use of a sign identical with the trade mark for goods identical with those for which the trade mark is registered only if such use is liable to adversely affect one of the functions of the trade mark, in particular its essential function of guaranteeing to consumers the origin of the goods.

Whether a style name is perceived by consumers as enabling them to distinguish that product from those of a different origin, rather than being used as a reference to differentiate between a fashion company’s own styles, may give rise to considerable debate. In fact, many style names have over time become renowned brands – such as Gucci’s “Jackie” or Mulberry’s “Alexa”. Correspondingly, the case law of the German instance courts on whether the use of a sign as a style name constitutes trade mark infringing use has not been uniform. As German law allows for forum shopping, trade mark owners would usually seek the assistance of the courts in Hamburg and Frankfurt, which regularly assumed that style names are understood by the relevant public as an indication of origin and thus as (secondary) trade marks.

Notably, cease and desist letters are often sent by companies which do not manufacture or supply clothing or accessories, or at the very least are not known for this, but rather hold trade marks and engage in enforcing their rights to collect attorney fees and damages. Such right holders will usually not let a party “off the hook,” unless it issues a formal cease and desist declaration (with a contractual penalty clause, as is common practice under German law) and makes a payment to settle the case amicably. To increase pressure, these claimants will threaten to interfere with the fashion company’s distribution system by sending warning letters and/or suing commercial customers.

Guidelines by the German Federal Court of Justice

As at least some courts took an extremely right-holder-friendly approach, such cases were until recently hard to defend. Prospects of defense have improved, however, thanks to the judgments of the German Federal Court of Justice in “SAM”[1] and “MO”[2].

In these decisions, the Federal Court of Justice clarified that the use of a distinctive and non-descriptive sign as a style name does not in itself allow the conclusion that the sign is used as a trade mark. The fact that the style name is perceived as an indication of origin must be positively determined every single time. On that basis, the Court established some general guidelines for assessing whether a style name is used as a trade mark in an individual case:

  • First names used by several manufacturers as style names or particularly common first names – As followed from the Court’s previous case law[3], such names may be understood by the public as mere model designations. It could not be concluded from this, however, that less common first names are always understood as an indication of origin.
  • Directly affixed to the product – The public will typically see an indication of origin when a sign is directly affixed to the product, e.g. on a label sewn in the inside of the waistband or on a leather piece attached on the outside of the waistband.
  • Use on hangtags – The printing of a style name on hangtags attached to the garment could also be understood as an indication of origin under the circumstances.
  • Use in sales offers, e.g. in catalogues or on the internet – If the sign is used in a sales offer, e.g. in a catalog or on the internet, the offer as a whole and the character of the sign must be considered. If it can be assumed that the style name is well known, there is a strong argument in favor of using it as a trade mark, regardless of the further circumstances. Even if the style name is not known, use as a trade mark can be assumed, in particular if the style name is used in direct connection with the manufacturer’s or umbrella brand. In addition, an eye-catching emphasis speaks for use as a trade mark.

Comments

As usual, the devil is in the detail. Whilst it is relatively clear that use of a style name on the product can often be assumed as trade mark use, recent decisions by the courts[4] illustrate that in advertising every single detail of the offer has to be taken into consideration. This includes the overall layout of the offer and the relationship of the sign in suit to the manufacturer’s or umbrella brand and further article designations such as price, size, product description and delivery modalities. Nevertheless, the guidelines developed by the German Federal Court of Justice open up considerable room for argument.

As far as preventive measures are concerned, for fashion companies using hundreds or even thousands of style names, worldwide trade mark clearance is not always an option in view of the considerable costs involved. As soon as it crystallizes that a style name may become important for the company’s business, it is worth protecting it by trade mark registrations. In addition, compliance with a few simple rules when using style names based on the German Federal Court of Justice’s guidelines can minimize the risk of objections significantly.

[1] BGH, judgment of 7 March 2019, case I ZR 195/17 – SAM.

[2] BGH, judgment of 11 April 2019, case I ZR 108/18 – MO.

[3] Cf. BGH, judgment of 19 December 1960, case I ZR 39/59 – Tosca; BGH, judgment of 20 March 1970, case I ZR 7/69 – Felina-Britta; BGH, judgment of 26 November 1987, case I ZR 123/85 – Gaby.

[4] See, for example, Frankfurt Court of Appeals, judgment of 13 August 2020, case 6 U 94/17 – MO; Frankfurt Court of Appeals, judgment of 1 October 2019, case 6 U 111/16 – SAM; Hamburg Court of Appeals, judgment of 28 November 2019, case 5 U 65/18 – Rock Isha; Hamburg Court of Appeals, judgment of 19 December 2019, case 3 U 191/18 – MYMMO MINI.

© Copyright 2020 Squire Patton Boggs (US) LLP
For more articles on intellectual property, visit the National Law Review intellectual property law section.

Airbus to Pay Unprecedented $3.9 Billion for Multinational Bribery, FCPA Violations

Last week, the Department of Justice (DOJ) announced the largest deferred prosecution agreement for violations of the Arms Export Control Act (AECA), International Traffic in Arms Regulations (ITAR), and Foreign Corrupt Practices Act (FCPA) in history. Airbus SE, a French aircraft company, agreed to pay over a combined $3.9 billion to the DOJ as well as authorities in France and the UK for foreign corruption and bribery charges. The penalty is the largest of its sort and is the result of anti-fraud efforts across the three countries.

Airbus engaged in corruption for several years, offering bribes to foreign officials and misreporting to authorities to conceal the bribes. These violations of the Arms Export Control, International Traffic in Arms, and FCPA encompass activities in the United States, UK, France, and China. The crimes also include corruption in defense contracts.

According to a DOJ Press Release, Airbus will pay $527 million to the United States for the company’s violations of the International Traffic in Arms and Foreign Corrupt Practices Acts. In this case, Airbus self-reported and voluntarily cooperated with law enforcement after uncovering violations in an internal audit. It is possible an internal report initiated the audit. Cooperation and remedial measures by Airbus were taken into consideration in the settlement terms of the deferred prosecution agreement and benefitted Airbus.

International whistleblowers are crucial to the detection of large-scale corruption and fraud around the world. The SEC and DOJ rely on individuals who decide to anonymously and confidentially blow the whistle on violations of the FCPA. The FCPA allows for foreign nationals to file whistleblower claims in the US and receive an award between 10 and 30 percent of the total amount recovered by the government if a successful enforcement action follows their disclosures.

Copyright Kohn, Kohn & Colapinto, LLP 2020. All Rights Reserved.
For more bribery cases, see the National Law Review Criminal Law & Business Crimes section.

Foreign Judgments in Israel: Recognition and Enforcement

As a basic rule in international law, a judgment rendered in one country is not recognized, per se, in another country in which its recognition is enforcement or recognition is sought. The foreign judgment must first undergo a process of integration, sometimes called ‘domestication,’ dictated by the laws of the integrating country before it can be recognized or enforced. The difference in status between a foreign and a local, or domestic, judgment necessitates this integration:[1]

“Where it exists, it is a sign that a local governmental organ – judicial or otherwise – has granted the foreign judgment an entry visa and has set the degree of its validity here according to the pertinent rules of the local law.” Justice Cheshin observed in C.A. 970/93 Attorney General of Israel v. Agam[2]:

Thus, for a foreign judgment to serve as, e.g., as a collateral estoppel in Israeli litigation, an Israeli court must first recognize, and thus integrate, the foreign judgment. Until this is done, the foreign judgment has no status in Israel, for the purpose of either recognition or enforcement. It can even be said that “a foreign judgment not yet declared enforceable holds the same status as mere pleadings.”[3]

General

A foreign judgment lacks validity, and must undergo a process of integration, before it can be recognized or enforced in Israel. Israeli law’s methods of integration are detailed in the Foreign Judgments Enforcement Law, 5718-1958 (Enforcement Law). This establishes a distinct normative framework on whose sole basis the courts in Israel may recognize a foreign judgment or declare it enforceable. The Enforcement Law establishes a series of conditions regarding the nature of the judgment, the manner of its execution, and its integration into Israeli law. Should these conditions be met, a court shall declare the judgment enforceable in Israel. Thus, inter alia, the Enforcement Law establishes conditions under which an Israeli court may declare a foreign judgment enforceable: the requirement of reciprocity of enforcement, according to which a foreign judgment would not be declared enforceable if the rendering country’s law does not enforce the judgments of Israeli courts; the time period during which a petition to enforce a foreign judgment must be filed for an Israeli court to considered it; defenses, any one of which would preclude the enforceability of the foreign judgment; and a restriction on enforcement, according to which a foreign judgment shall not be declared enforceable if its enforcement is likely to prejudice the sovereignty or security of the State of Israel.

The Enforcement Law (Article 11) also establishes conditions for recognizing a foreign judgment: “incidentally, while hearing another matter…and for the purpose of that matter”, or primarily and directly. It is significant that the original Enforcement Law, passed by the Knesset in 1958, dealt solely with incidental recognition of foreign judgments, while provisions for direct and primary recognition of foreign judgments were added later, in the Foreign Judgments Enforcement Law (Amendment 2) 5738-1977.

Although lack of good faith or unacceptable conduct do not, pursuant to the Enforcement Law, provide independent cause to refuse recognition or enforcement of a foreign judgment, “however certainly this carries weight in the court’s considerations together with all other conditions”[4] for such recognition or enforcement.

Judgments in Personam, in Rem, and Personal Status Judgments

The recognition or enforcement of a foreign judgment is highly influenced by the traditional classification of judgments into in personam, in rem, and personal status judgments. A judgment in personam obligates a person to perform an act (repay a debt, pay damages, surrender an object, etc.) or to refrain from doing so. A judgment in personam binds, in the sense of creating res judicata, only the parties involved, and by its very nature is given to execution, that is to say, enforcement. A judgment in rem declares or establishes (creates, changes, or cancels) title in immovable or movable property. Such a judgment binds the world, so to speak. It does not place any personal obligation and is therefore not given to execution. This is also true of quasi in rem judgments, which are applicable only to certain parties: for example, an inheritance order that declares certain individuals as heirs, and their resulting title in a certain property. A status judgment is a judgment that declares or establishes (creates, changes, or cancels) the personal status of a person, such as an annulment or a judgment of divorce. Like a judgment in rem, a personal status judgment is not given to execution, as it imposes no personal obligations.

Under the rules of private international law, personal status judgments can be issued by a court in the country of permanent residency or in the country of citizenship.[5] In general, however, there is no international consistency,[6] as personal status is limited to a particular country or a specific legal system. In a case where a Jewish couple, married in, e.g., New York in a civil ceremony, emigrates to Israel, they may be considered unmarried from the perspective of the Jewish law that applies in the Israeli State Rabbinical court. Yet, in the event of divorce, Israeli law may require them to accept a Rabbinic divorce. In some situations,[7] nonetheless, Israeli civil law may recognize the marriage, for example, regarding alimony.[8] A foreign divorce judgment is another example of a split status,[9] as it has no binding validity and lacks evidentiary value until validation from a competent Israeli court.

Another example is mamzerut, a status created by Jewish religious law that disqualifies the mamzer from Jewish marriage. In the Israeli legal system,[10] a mamzer is a child born of a married woman from another man, or a child of relations with a first-order relative, defined and prohibited in religious law. Within the state of Israel, qualification for marriage and divorce between Jews is set by Jewish law, a law that is not applicable in other countries. Therefore, a mamzer may other than in Israel. A parallel example, in certain countries, is a child born out of wedlock. In those countries, such a child is considered illegitimate, whereas in Jewish religious law, the status of a child born out of wedlock is not affected in any way.

Thus, only foreign judgments in personam can be enforced in Israel directly, while foreign in rem and personal status judgments are granted validity through their recognition. However, because all enforcement in and of itself includes recognition, it can be said that all types of judgments can potentially be recognized,[11] although for those judgments that cannot be enforced, the recognition per se is of nearly no value.

What options are available for a party seeking the enforcement, in Israel, of a foreign judgment? In general, the traditional means in English common law for enforcing a foreign debt judgment is by filing a domestic claim based on the foreign judgment. The foreign judgment itself, as opposed to the cause of action in the original forum, becomes the new cause of action. Claims based on foreign judgments were accepted in Palestine under the British Mandate. This expired in 1948 upon the establishment of the State of Israel. However, after enactment of the Enforcement Law, and particularly of its Article 2, it was no longer clear whether this procedure was still available to the holder of a foreign judgment.[12]

In C.A. 101/63 Winter v. Kovetz,[13] the Supreme Court dispersed any doubts, ruling unequivocally, that even given the Enforcement Law, a party might still file a claim in Israel on the basis of a foreign judgment, as opposed to filing a petition pursuant to the Enforcement Law to declare the judgment enforceable.[14] In C.A. 665/72 Mata Khan (Christophilco) v. Schweibel,[15] the Israeli Supreme Court again held that a foreign judgment creditor is permitted to “file a claim based on the original cause at the basis of the judgment, file a claim whose cause of action is the foreign judgment, or file a petition for enforcement in accordance with the enforcement law.”[16]

Enforcement proceedings for a foreign judgment are intended to grant the creditor, whose matter was already heard and adjudicated in a foreign state, tools of enforcement in the state occupied by the debtor or his property. In this way, the objectives behind the enforcement process are attained, including limiting litigation between the parties; honoring their rights; as well as encouraging cooperation and harmony between the various legal systems.

A result of the stated objectives of the enforcement process is that an Israeli court hearing a petition to enforce a foreign judgment does not act as an appellate court over the foreign court, and is inclined to “respect the judgment as is, and not question it.”[17] Thus also, “the court does not require a new, local investigation of the foreign court proceedings; does not examine the factual or legal correctness of the foreign judgment; and does not even take the reasoning of the judgment into account.”[18] Therefore, an error – even a blatant one – in the foreign judgment would not in and of itself preclude the judgment’s enforcement.

[1] Prof. Amos Shapira, Recognition and Enforcement of Foreign Judgments, Iyunei Mishpat 4 (1974) 509 (hereinafter: Shapira, Recognition and Enforcement of Foreign Judgments, or Shapira).

[2]P.D. 49(1) 561, 569 (1995).

[3]Bnk. (T.A.) 1515/04 Bamira v. Greenberg, at §4, (Nevo, Jul. 15, 2004).

[4] See Judge Keret-Meir’s ruling in Bankruptcy File (T.A.) 2193/08 First International Bank of Israel Ltd. v. Gold & Honey (1995) L.P. et al (Nevo, Oct. 30, 2008), §4.

[5] H.C. 36/50 Gottlieb v. Gottlieb P.D. 5 57, 64 (1950); C.A. 472/64 Inavi v. Attorney General of Israel P.D. 19(1) 645 (1965).

[6] Michael Corinaldi, Status, Family, and Succession Laws Between Religion And State 25-26 (2004).

[7]Avigdor Levontin, On Marriage and Divorce Abroad 7, 50-51, 67-68 (1957). See also Menashe Shawa, Personal Law in Israel 153-154, 681 (4th ed., 2001).

[8]C.A. 173/69 Becher v. Goldberg P.D. 23(2) 665 (1969).

[9]Shawa, supra n. 3 at 141-241. See also Menashe Shawa, Direct Recognition of Judgments in Israel, and Applicable Rules Kiryat Hamishpat 2 35 (2002).

[10]Corinaldi, supra n. 3 at 25-26.

[11]Shapira, Recognition and Enforcement of Foreign Judgments 513.

[12]Id. 515-516.

[13]P.D. 17 2032 (1963). See also Shapira, Recognition and Enforcement of Foreign Judgments 516 n. 28.

[14]Shapira, id.

[15]P.D. 27(1) 690 (1984).

[16]Id. at 694.

[17]C.A. 221/78 Ovadia v. Cohen P.D. 33(1) 293, 296 (1978).

[18]D.C.M. (Jm.) 4052/05 Wells Fargo Bank of Minnesota National Association v. Zimmering (Nevo, Dec. 31, 2007), Section 9 of the judgment.

Copyright © 2019 Carmon & Carmon

For more on international law, see the National Law Review Global Law page.

EU Official Calls for Invalidation of EU–U.S. Safe Harbor Pact

A European Court of Justice (ECJ) advocate general, Yves Bot, has called for the European Union–U.S. Safe Harbor Agreement to be invalidated due to concerns over U.S. surveillance practices (press release here, opinion here). The ECJ has discretion to reject the recommendation, but such opinions are generally followed. A final decision on the issue is expected to be issued late this year or next year.

The issue arises out of the claims of an Austrian law student, Max Schrems, who challenged Facebook’s compliance with EU data privacy laws. (The case is Schrems v. (Irish) Data Protection Commissioner, ECJ C-362/14.) He claims that the Safe Harbor Framework fails to guarantee “adequate” protection of EU citizen data in light of the U.S. National Security Agency’s (NSA) surveillance activities. Although the Irish data protection authority rejected his claim, he appealed and the case was referred to the ECJ.

The European Data Protection Directive prohibits data of EU citizens from being transferred to third countries unless the privacy protections of the third countries are deemed adequate to protect EU citizens’ data. The U.S. and EU signed the Safe Harbor Framework in 2000, which permits companies self-certify to the U.S. Department of Commerce (DOC) annually that they abide by certain privacy principles when transferring data outside the EU. Companies must agree to provide clear data privacy and collection notices and offer opt-out mechanisms for EU consumers.

In 2013, former NSA contractor Edward Snowden began revealing large-scale interception and collection of data about U.S. and foreign citizens from companies and government sources around the globe. The revelations, which continue, have alarmed officials around the world, and already prompted the European Commission to urge more stringent oversight of data security mechanisms. The European Parliament voted in March 2014 to withdraw recognition from the Safe Harbor Framework. Apparently in response to the concern, the Federal Trade Commission (FTC) has taken action against over two dozen companies for failing to maintain Safe Harbor certifications while advertising compliance with the Framework, and in some cases claiming compliance without ever certifying in the first place. For more, see here (FTC urged to investigate companies), here (FTC settles with 13 companies in August 2015), and here (FTC settles with 14 companies in July 2014).

Advocate General Bot does not appear to have been mollified by the U.S. efforts, however. He determined that “the law and practice of the United States allow the large-scale collection of the personal data of citizens of the [EU,] which is transferred under the [S]afe [H]arbor scheme, without those citizens benefiting from effective judicial protection.” He concluded that this amounted to interference in violation of the right to privacy guaranteed under EU law, and that, notwithstanding the European Commission’s approval of the Safe Harbor Framework, EU member states have the authority to take measures to suspend data transfers between their countries and the U.S.

While the legal basis of that opinion may be questioned, and larger political realities regarding the ability to negotiate agreements between the EU and the U.S. are at play, if followed by the ECJ, this opinion would make it extremely difficult for companies to offer websites and services in the EU. This holds true even for many EU companies, including those that may have cloud infrastructures that store or process data in U.S. data centers. It could prompt a new round of negotiations by the U.S. and European Commission to address increased concerns in the EU about surveillance.

Congressional action already underway may help release some tension, with the House Judiciary Committee unanimously approving legislation that would give EU consumers a judicial right of action in the U.S. for violations of their privacy. This legislation was a key requirement of the EU in an agreement in principle that would allow the EU and U.S. to exchange data between law enforcement agencies during criminal and terrorism investigations.

Although the specific outcome of this case will not be known for months, the implications for many businesses are clear: confusion and continued change in the realms of privacy and data security, and uncertainty about the legal rules of the game. Increased fragmentation across the EU may result, with a concomitant need to keep abreast of varying requirements in more countries. Change and lack of harmonization is surely the new normal now.

Article By Sheila A. Millar, Tracy P. Marshall & Nathan A. Cardon of Keller and Heckman LLP

© 2015 Keller and Heckman LLP

Coming to America: Foreign Manufacturers Looking to Produce in the U.S.

There’s been buzz about Keer Group lately, the Chinese textile company that opened a cotton mill this year in South Carolina.  China has long been seen as the global capital of textile manufacturing, due in part to their low production costs and seemingly endless supply of cheap labor.  But Keer Group found the rising costs in China made it difficult to grow in its hometown of Hangzhou.  Wages there have been steadily increasing, energy costs are rising, and shipping costs are growing higher.  Textile operations in China are actually starting to become unprofitable.  So production was moved to America.   And Keer Group is not alone.  JN Fibers Inc., also of China, is building a plant in South Carolina.  Indian textile manufacturer, ShriVallabh Pittie Group, is building a factory in Georgia.

Why would textile companies from traditionally low cost countries move production to the U.S.?  What’s the allure for these foreign companies?  Isn’t it expensive to operate here as opposed to low wage countries like China and India?  Well, despite the comparatively high wage rate in the U.S., several factors are at play to offset the cost of labor.  Years of low employment mean that Americans are willing to work longer hours and for suppressed wages.  The U.S. is also home to several right-to-work states where union representation is low and workers are not restricted to a single task but rather can set up, operate, and run multiple machines.   But even with a wage gap between the U.S. and low wage countries, the gap is more than compensated for by other savings.

“Except for human labor, all other production factors are cheaper in the U.S.”

“Except for human labor, all other production factors are cheaper in the U.S.”

The U.S. is a political, economic, and infrastructural oasis in an uncertain world.  America benefits from cheap, plentiful, and reliable energy ensuring production facilities can be kept running constantly.  While textile companies in the past have looked to countries such as Bangladesh and India to keep production costs low, economic volatility resulting in unreliable energy sources are disrupting production.  Many plants today are primarily automated, meaning companies rely on the constant energy supply.  What good are cheap utilities when they aren’t stable?

The U.S. has also created incentives to keep costs down for foreign companies looking to relocate.  Government at the local, state, and federal level have eagerly provided infrastructure grants, revenue bonds, and tax credits in order to bring back jobs to economically depressed areas.  Additionally, trade agreements between the U.S. and other low cost countries provide the extra incentive of keeping shipping and logistical costs low.  NAFTA has created duty free zones on imported textiles between the U.S. and several trade partners.  And should the Trans-Pacific Partnership reach an agreement, companies with production in America can take advantage of an expanded pool of countries with tariff reductions, including Vietnam.

Just how difficult is it for a foreign company to establish operations in America?  Not difficult at all.  The U.S. Small Business Administration has provided excellent guidance on the basic steps needed get started.

Businesses in the U.S. are incorporated at the state level, first by registering with the state and then establishing a registered agent with a valid state address to receive legal documents on behalf of the company.  Considerations for the foreign company include which state will be the most attractive in terms of readiness of labor force, land availability, and tax benefits.

International shipping of goods through the U.S. will be regulated at the federal level, requiring specific licenses and permits.  The Department of Commerce’s Trade Information Center and the U.S. Customs and Border Protection provide useful information on U.S. importation and exportation procedures.  Additional considerations include compliance with the Internal Revenue Service, starting by either obtaining an Employment Identification Number or an Individual Taxpayer Identification Number, depending upon the citizenship of the individual establishing the business.  Trade licensing requirements, IRS compliance, and tax credits, including incentives available to businesses through a foreign tax treaty, are all important issues to consider, and if left with any questions, it is always best to consult with a qualified attorney.

Symbol, the struggle for economic power between the United StateThere are numerous benefits for a foreign company to relocate manufacturing operations to the U.S., but there are also important considerations that should be taken into account.  However, navigating the channels of regulations and requirements shouldn’t deter manufacturers from taking advantage of all of that come from setting up shop in America.  Foreign companies are finding that operating in what were traditionally considered to be low cost countries are no longer profitable and are starting to look outside their borders.  And if companies like Keer Group are any indication, for the first time in a long time manufacturing in America is not only a consideration, it’s a serious contender.

ARTICLE BY Ayako Hobbs & Sarah K. Rathke of Squire Patton Boggs (US) LLP
© Copyright 2015 Squire Patton Boggs (US) LLP

Trans-Pacific Partnership Negotiations Face Tighter Timeline as Talks Continue

Trade ministers announced that they will continue negotiations over several unresolved provisions of the Trans-Pacific Partnership (TPP) during a four-day meeting in Maui, Hawaii that concluded July 31. Trade ministers representing the 12 Pacific Rim countries included in the free trade deal remain optimistic about negotiations and said in a joint statement that they are “more confident than ever that TPP is within reach.”

trade partnership, negotiations, trading deal, stakeholders, intellectual property

One of the major sticking points reportedly centers around intellectual property protections for biologics. The U.S. reportedly attempted to secure 12 years’ data protection for pharmaceutical companies, while Australia is insisting on five years. Observers suggest the agreement will fall somewhere between five and seven years’ data protection. U.S. stakeholders concerned with a deal that only includes five years of data protection could threaten to round up enough opposition in Congress to stymie the deal.

Other points of contention arose over agricultural issues and the auto industry. The U.S. is pushing for greater access to Canada’s dairy market, but Canada is concerned that could cause instability in its prices. Australia is seeking increased access to the U.S. sugar market, while the U.S. is trying to limit large increases in sugar imports. Meanwhile, the U.S., Canada, Mexico and Japan are hashing out “rule of origin” and other auto industry issues.

Once all 12 trade ministers agree to a deal, Congress will have 90 days to review and approve it. If talks continue beyond August, pushing the review period deep into the fall or winter, the deal is likely to become front and center in the U.S. presidential campaign. Democratic front-runner Hillary Clinton would face intense pressure from labor unions to disavow the deal, along with the 28 House Democrats who supported legislation to fast-track passage of the agreement. It could also become a problem for Canadian Prime Minister Stephen Harper, who is up for re-election in October.

The TPP will govern foreign exports, imports, and investment implicating several major sectors of the U.S. economy, including manufacturing, intellectual property, textiles and apparel, telecommunications, agriculture and others. It will also cover labor, employment, and environmental issues. The TPP will initially cover 12 countries: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. Collectively these countries represent 40 percent of the global economy.

ARTICLE BY Richard J. Ferris, Jr., Jennifer F. Walsh & Michelle A. Leeds of Foley & Lardner LLP

© 2015 Foley & Lardner LLP

BIS Removes Cuba as State Sponsor of Terrorism in Regulations

On July 22, 2015, the Bureau of Industry and Security (BIS), an agency of U.S. Department of Commerce, amended the Export Administration Regulations (EAR) to reflect Cuba’s removal from designation as a State Sponsor of Terrorism. The Secretary of State rescinded Cuba’s designation on May 29, 2015.

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As part of Cuba’s removal from designation as a State Sponsor of Terrorism, BIS amended the EAR to remove references in the text associating Cuba with terrorism. It also removes anti-terrorism (AT) license requirements from Cuba. Finally, BIS amended the EAR to remove Cuba from Country Group E:1, although Cuba remains on the Country Group E:2 list.

These amendments to the EAR affect certain license requirements and exceptions that apply to exports to Cuba. Specifically, the EAR apply to items that contain more than a de minimis amount of U.S.-origin content. For exports to most countries, that de minimis amount is 25 percent, but for exports to countries on the Country Group E:1 list, that de minimis amount is 10 percent. Exports of most items to Cuba are now also subject to the 25 percent de minimis rule. Yet, foreign-made items destined for Cuba that incorporate certain U.S.-origin 600 series content continue to be subject to the EAR regardless of level of U.S.-origin content.

Additionally, Cuba’s removal from the Country Group E:1 list makes exports to the country eligible for four new license exceptions including:

  • License Exception Servicing and Replacement of Parts and Equipment (RPL);
  • License Exception Governments, International Organizations, International Inspections Under the Chemical Weapons Convention and the International Space Station (GOV);
  • License Exception Baggage (BAG); and
  • License Exception Aircraft, Vessels and Spacecraft (AVS).

Despite these changes, it is important to remember that Cuba is still subject to a comprehensive embargo. Licenses are still required to export or reexport to Cuba any item subject to the EAR unless authorized by a license exception. Those who would like to export items authorized by license exceptions may only use license exceptions listed in 15 CFR 746.2(a).

ARTICLE BY Joan Koenig & Mollie D. Sitkowski of Drinker Biddle & Reath LLP

©2015 Drinker Biddle & Reath LLP. All Rights Reserved

The Problems and Advantages in Taking Your Company International: A Conversation with Karen Klein, General Counsel to Hotel Tonight, Inc.

In just under two weeks, the 15th Annual Inside Counsel Super Conference kicks off in downtown Chicago. If previous years are any indication, the event will be packed with a diverse group of senior level audience participants. The speaking faculty is comprised of over 80 In-House Counsel, and more than 80 % of the attendees are in house counsel, with 65% at the senior level and above. This event promises to be packed with innovative speakers, fantastic panels and great conversation.

Karen Klein, General Counsel to Hotel Tonight, Inc, took some time to speak with the National Law Review about the upcoming Inside Counsel Conference. She has attended the conference for the last six years, and has been a speaker for the last five. Karen says, “The first year, I was invited by an outside law firm that was co-sponsoring the conference, and I have attended it ever since.” Klein says this conference stands out because of the high quality of the programming. She says, “I find the sessions to be not only informative and the speakers well-versed in their subjects, but the practical examples are invaluable.” Klein suggests that to get the most out of the experience, attendees make an effort to be really “present” during the sessions. She says, “we are all so tied to our phones and have a serious fear of our clients being upset that they can’t reach us 24/7, but it is important to our ongoing professional development to take some time to understand current issues facing our practices.”

Understanding current issues in your industry is important for success, according to Klein. She suggests, “Listen and ask questions. To provide true value to your clients, you have to understand their business. Figure out how they make money and what keeps the CEO awake at night, and what are the biggest threats to success.” Understanding that context and making your legal advice relevant means, “you won’t have to beg for a seat at the table–the management team will want you there.”

This year, Klein will be speaking at the Global Lawyer Forum’s panel, “Contracting Internationally: Do’s and Don’ts” with Roberto Berry Assistant General Counsel, International Affairs and Compliance, Chrysler Group LLC and Patrick M. Sheller, Senior Vice President, General Counsel, Secretary & Chief Administrative Officer, Eastman Kodak Company. The panel is designed to provide an outline of some of the gray areas of working internationally in the contract drafting phase. Klein says, “ we want to provide the audience with a really strong basis for understanding and spotting the issues that their businesses will encounter internationally, as well as some practical advice for how to deal with those issues.”

Klein says, “The biggest challenges companies face internationally are cultural. US Companies in particular really need to understand a local market and have ‘feet on the street’ in the local market to be successful.” Confronting these challenges can lead to some of the greatest benefits of working internationally; according to Klein–new challenges and opportunities the company probably wouldn’t encounter domestically. Klein says, “I think anytime we are forced outside our comfort zone, it expands our minds. . . Seeing things from the perspective of your employees and customers in another region brings new ideas, which ultimately make your products better, and your business stronger.”

Klein has a resume that will resonate with anyone who likes to travel: with positions with Orbitz, Kayak, and Hotel Tonight. Klein got her start as an in-house attorney when she was a third year associate in a corporate law department of a large law firm. She says, “I was working (yet another) M&A transaction and as it closed, I found myself disappointed that I had learned all these things about the company during the diligence phase, and now it was time to move on. Fortunately for me, it was just months later that one of the firm’s biggest clients had just finished an acquisition spree, and they asked me to join their team. I never looked back.” That position led to a position at Orbitz, and it’s been travel for Klein ever since. Klein enjoys working in travel, she says, “Travel is a fun industry. Everyone likes to talk about their travel experiences–good and bad, so I always have interesting cocktail party conversations.”

The 15th Annual Super Conference promises to be another great event packed with opportunities for professional development. Check out the website here to see the agenda and get more information.

Authored by E. Eilene Spear of the National Law Review

The European Court of Justice Overturns, Unfreezes EU Iran Sanctions

Sheppard Mullin 2012

In a series of recent rulings, the European Court of Justice overturned economic sanctions issued by the Council of the European Union (EU) on several Iranian banks and shipping lines.  On September 6 and 16, 2013, the Court halted sanctions on Persia International Bank plc, Bank Refah Kargaran, Export Development Bank of Iran, Post Bank Iran, Iranian Offshore Engineering & Construction Co., Iran Insurance Company, Islamic Republic of Iran Shipping Lines (IRISL), Khazar Shipping Lines, and Good Luck Shipping.  The EU had sanctioned these entities for their support of nuclear proliferation activities in Iran, but the Court determined that the EU lacked sufficient evidence to introduce such sanctions.  The cases are notable for their effect on global sanctions against Iran, although it seems unlikely that U.S. sanctions against Iran would be lifted on similar grounds.

While a full review of the developments in each case would be beyond the scope of this blog article, a few representative matters bear closer scrutiny.  In the case against IRISL, the Court noted that the imposition of sanctions was only permitted where a party had allegedly supported nuclear proliferation.  The Court indicated that sanctions could not be imposed simply based on a risk that  IRISL might provide support for nuclear proliferation in the future.  In particular, the Court determined that, while the EU established that IRISL had been involved in exports of arms from Iran, that activity was not alone sufficient to support the imposition of nuclear sanctions.  As a result, the Court struck down the sanctions against IRISL.

Similarly, in considering sanctions against Iran Insurance Company, the Court noted that the EU had sanctioned the company for insuring the purchase of helicopter spare parts, electronics, and computers with applications in aircraft and missile navigation, which the EU alleged could be used in violation of nuclear proliferation sanctions.  The Court ruled that the EU had relied on “mere unsubstantiated allegations” regarding the provision of insurance services, and annulled the sanctions.

We think these two matters are noteworthy for the types of evidence used to link the activities of the entities to nuclear proliferation.  When viewed in the light of a formal court proceeding, it seems somewhat remarkable that the EU sought to tie the insuring of items including helicopter spare parts to nuclear proliferation at all.  But, as we have discussed previously in this blog, [see May 2013 sanctions article]  economic sanctions against Iran have been broadly construed and applied by the United States and the EU to target industries integral to the functioning of the Iranian economy.  Insofar as a functioning Iranian economy also supports the nuclear development efforts of its government, it may make political sense for the EU and the United States to impose leverage through sanctions.  As a legal matter, however, the European Court of Justice rulings suggest that Court will be loathe to tie restrictions on general economic activity to a statute focused on the specific activity of nuclear proliferation.

In other words, the European Court of Justice seems unlikely to defer to the EU, even where European security is at stake.  This stands in relatively stark contrast to U.S. courts, which have generally shown deference to government activity on issues of national security.[1]

For the time being, U.S. sanctions on Iran and key entities within the Iranian banking and shipping sectors remain in place, with far reaching consequences that will continue to deter Western business from even considering business in Iran.  And ultimately, any warming in diplomatic relations between the United States and Iran will likely be more momentous than judicially vacated sanctions.  But at a minimum, the European Court of Justice has signaled that EU sanctions are subject to standards of proof that cannot be broadly construed to incorporate all types of economic activity.

[1] At least one U.S. court has overturned criminal sanctions charges on individuals by reading regulatory provisions in the accused’s favor due to issues of vagueness in the sanctions regulations. [see Clarity Required: US V. Banki]