Going International

Business partnerships are complicated beasts.  The complications multiply when the alliance relationships cross national borders.

The following list, while far from exhaustive, highlights issues that can’t be overlooked when venturing abroad:

• Intellectual Property Protection  Protection of IP rights under U.S.
  law stops at the U.S. border.
  Even among countries that have committed to the IP protections afforded by the World Trade Organization, local enforcement may be less than vigorous.
  
  Be sure you know what IP is entitled to protection locally, what procedures must be followed to qualify for protection, and what enforcement mechanisms are available.

• U.S. Foreign Corrupt Practices Act
  The FCPA, which penalizes bribery of foreign officials by U.S. companies and individuals, has been vigorously enforced in recent years.  The FCPA is of particular concern when alliance partners are making sales overseas, because a U.S. software vendor can be held liable for bribes paid by its foreign distributors.  And note that even a gift or meal that is customary in the foreign country may constitute a “bribe” under U.S. law.  Therefore it’s critical that any U.S. software vendor using a foreign seller (1) thoroughly investigate the background and credentials of the reseller, and (2) require contractual commitments of the reseller to abide by the FCPA.
  
  
• Compliance with Export Controls
  Exports of computer software are subject to licensing by the U.S. Department of Commerce’s Bureau of Industry and Security (formerly the Bureau of Export Administration).  Some types of software qualify for a license exception for exports to most destinations; other software, such as encryption software, requires a validated license.  U.S. software exporters may be held responsible for unauthorized re-exports of software.

• Tax Issues
  The software vendor must be aware of how software sales are treated under all foreign jurisdictions in which the reseller is operating.  Tax consequences may directly affect the reseller’s compensation and ultimately the vendor’s profits.
  
  
• Antitrust Issues
  Many foreign jurisdictions have antitrust laws that may limit the types of restrictions a U.S. software vendor can impose on its overseas alliance partners. For example, certain so-called “vertical” arrangements—such as exclusive distribution agreements, territorial and customer restrictions, tying, and resale price maintenance—that might be permitted in the United States are subject to strict regulation and restriction in the European Community and Japan, among other countries.
  
  
• Termination Restrictions
  Perhaps the trickiest aspect of foreign laws regarding alliance relationships, and the area that exposes U.S. suppliers to the greatest potential liability, concerns how and when an alliance partner may be terminated. Many countries have legislation designed to protect distribution partners against unfair termination, with the scope of the meaning of “unfair” varying dramatically from country to country.