Trademark, copyright and intellectual property (IP) laws can vary greatly in foreign markets, so it’s vital to seek local legal expertise before doing business internationally, says Michael J. Ioannou, a partner at Ropers Majeski Kohn & Bentley.
“Local law firms know the system, including the politicians and judges,” Ioannou says. “It’s no different than doing business here. If a Florida company has a problem in San Jose, they could send someone, but they would most likely hire an attorney here. It makes sense to have someone like me who has practiced law here for 32 years and worked in the local courts.”
Smart Business spoke with Ioannou about how companies can avoid legal problems when expanding into foreign markets.
What are some important issues to consider before entering a foreign market?
From a general standpoint, you need to understand the business environment. You can accomplish that in India, for example, through the National U.S. India Chamber of Commerce, Confederation of Indian Industry or the National Association of Software and Services Companies, which caters to high-tech companies.
You also should be checking local laws with the help of a local lawyer in the country or near where you want to do business. So, if you’re going to mainland China, there are good attorneys in Hong Kong that can advise you or connect you to counsel in mainland China that they know well.
What mistakes do companies make when doing business overseas?
They might rush into a market without checking other companies’ rights and get sued for infringing IP rights in the foreign country. Apple thought it had acquired rights to the iPad trademark in China from a Taiwanese company, but courts said a subsidiary of that company still owned the rights in China. Apple paid $60 million in a court-mediated settlement. So one route is to buy the trademark, but you still have to ensure that what you’re buying is legitimate.
It’s the same situation with foreign companies coming into the U.S. A client with a chain of Indian restaurants wanted to expand here and found a restaurant on the East Coast that used the name in interstate commerce first — that’s the test for trademarks, first use — but the restaurant didn’t have the trademark registered. Instead of spending money to argue in federal court that the restaurant didn’t have first-time use, the client bought the restaurant and trademark. It was cheaper than paying legal fees in a later dispute over the name.
How can businesses protect themselves from legal problems?
When entering a country, you want to secure trademark rights for your product there. If you can, obtain patent protection, register and apply for a patent in China or India, for example. A patent in the U.S. is not enforceable in India or China. You can stop someone from shipping goods into the U.S. that infringe on a patent here, but you can’t stop a sale occurring in India or China based on a U.S. patent.
Pharmaceutical companies are having problems getting inventions patented in India because there’s a huge market there for generic drugs. India doesn’t even recognize software patents. One client in India was threatened by a U.S. company for IT support services offered here. It was a U.S. patent, so as long as the function that was within the patent claim was being done in India only, the U.S. company couldn’t claim infringement.
What can companies do to fight patent infringement?
In India, for example, you could file a lawsuit in civil court, but that could take 15 years to reach a resolution. However, the entity that’s infringing laws in India may be doing business in the U.S., which would provide another angle to file a lawsuit here for unfair competition. You also may be able to intercept their goods from coming into this country, depending on the nature of the IP rights being infringed.
But if you have a counterfeiter in Shanghai that’s only selling goods there, you have to use the local courts. Things are getting better in terms of that kind of infringement — that’s why you’re seeing a lot more activity to enforce rights in China, for example. Just be cognizant that you can’t expect a perfect day in court as a foreign company coming into these jurisdictions.
Michael J. Ioannou is a partner at Ropers Majeski Kohn & Bentley. Reach him at (408) 287-6262 or email@example.com.
Insights Legal Affairs is brought to you by Ropers Majeski Kohn & Bentley PC
When companies do business overseas, they have the added stress of dealing with foreign currencies. And if it’s not done right, what initially appears to be a profit could turn into a loss, says Brian Simonson, senior vice president of foreign exchange trading at Bridge Bank.
“Companies should consult with a banking partner to help them navigate overseas currency markets,” says Simonson. “While you need to understand what you’re doing in that regard, you also want someone who deals in foreign currency markets on a daily basis, someone who’s watching those markets and who understands the nuances of foreign currencies.”
Smart Business spoke with Simonson about how to approach foreign currencies so that what appears to be a win doesn’t turn into a loss.
How should companies approach doing business overseas?
It’s best to have a foreign exchange strategy in place before expanding to a foreign country, even if there’s not going to be a lot of activity initially. As your volume grows and your needs get more sophisticated, you have to make sure that you’re getting a competitive exchange rate on the conversions you’re doing, whether that is sending money to another country or receiving foreign currency payments from customers abroad.
Companies also need to be cognizant of how they invoice for their products. Invoicing in U.S. dollars, for example, can make what was once a competitively priced good not as competitive in foreign markets. So while using the U.S. dollar for invoicing may reduce the burden on accounting, it may also inadvertently reduce demand for your product.
As your business grows, you want to protect your profit margin against adverse exchange rate movements, which you can do through hedging by locking in a rate today for future payment. If you have a subsidiary in another country that you fund every month, you want to make sure that when you go to your board with a budget that you have correctly factored in the amount it’s going to cost (in U.S. dollars) and that that amount isn’t going to be adversely impacted by currency movements.
Conversely, if you have a large receivables base or large contracts in other currencies, make sure that you are protecting your profit margin. If you don’t, you could have a 10 percent profit margin today, for example, but when it’s time to collect that money, you could find the currency has moved against you and reduced your potential profits.
How can a business identify the right banking partner to help it navigate foreign currency markets?
If you’re working with a small bank, make sure it has a SWIFT terminal that allows it to communicate with banks globally. Does it have its own trading desk? A bank with its own trading desk gives you full access to whatever markets tools are available on the foreign exchange side, as well as the most competitive pricing. If that particular service is being outsourced to another bank, you’re more likely to incur an additional layer of fees before the money finally gets to the customer.
A good bank will take a consultative approach to how it does business with you. Many money center banks have international products and services, but they mostly serve Fortune 500 companies. If your business is small, or even mid-sized, you may not be running the volumes to get on their radar screens.
Instead, by partnering with an experienced smaller bank, you’re much more likely to receive a higher level of service so that you can focus on growing your business, not on figuring out the nuances of foreign exchange.
When you’re thinking about expanding your business overseas, at what point should you engage your banker?
You should form that relationship early on as part of a longer-term strategy, before even venturing overseas. An experienced banker can provide advisory services to help get your international business established and can help connect you with other professional service providers such as accountants and lawyers.
You may also need to set up foreign bank accounts, and it can be helpful to have a U.S.-based bank facilitate an introduction to a reputable and experienced institution.
A good guideline for when to consider doing FX hedging for your business is when you begin transacting in foreign currency amounts of more than $100,000 U.S. dollar equivalent. A banking partner can also help you to monitor your firm’s global financial situation. Currency markets inevitably change over time, and what’s appropriate for your firm today might not be advantageous for it in the future. Once you understand your transaction activity, you and your banker can determine whether it might make sense to realign your strategy with your business trends. A good banker will constantly evaluate the success of the program and make corrections as necessary.
What mistakes do companies make when trying to expand overseas?
In the case of foreign exchange, they fail to set up clear risk management objectives. They also tend to focus on trying to capture potential upsides in the market, rather than protecting their bottom line. So, instead of consulting various FX forecasts and allowing a ‘market view to drive strategic hedging decisions, keep risk mitigation your top priority. Companies often reach out to their bankers after taking a significant FX loss. By that time, it’s too late. Be proactive and reach out to your banker before any potential adverse FX rate volatility impacts your bottom line.
Any time a business is venturing overseas, the prospect can be daunting. Each country has its own way of doing business and its own way of banking, and it’s important to consult with a professional who is familiar with the pitfalls of setting up overseas and knows how to avoid them.
Brian Simonson is senior vice president of foreign exchange trading at Bridge Bank. Reach him at (408) 556-8377 or Brian.Simonson@bridgebank.com.
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