Look Before You Leap – Legal Considerations When Doing Business in

Dynamic International Markets

Boston, February 7, 2007

Jonathan M. Epstein

Partner, Holland & Knight LLP

Tel: 202-828-1870

E-Mail: jonathan.epstein@hklaw.com

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Legal Considerations

• US Government Legal Issues

– Foreign Corrupt Practices Act

– U.S. Export Controls

– Customs/Import Requirements

Export Clearance

– Anti-Boycott Laws

– Anti-Trust Laws

– Environmental Laws

• Laws of Foreign Jurisdiction

– Import Restrictions

– Marking/Certification Requirements for Products

– Foreign Taxes

– Laws Restricting Foreign Companies

– Foreign Environmental Laws

– Foreign Privacy Laws

– Employment Laws

• Commercial Legal Issues

– Intellectual Property Protection

– Setting Up Joint-Ventures

– Foreign Agents/Distributors

– Logistical Arrangements for Import/Export

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The Foreign Representative with “Connections”

• For a high commission, he can get that major foreign government contract for your company

– Payments to a person to induce a foreign official to obtain or retain business

– Foreign Corrupt Practices Act violation is probably one of the most lethal statutes to violate

– Criminal penalties, debarment from certain exports, government procurement, etc.

– U.S. companies can be held liable for the actions of their agents, representatives, and foreign subsidiaries

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The Joint Venture/Exclusive Distribution Agreement

•High percentage of joint ventures/distribution arrangements fail within a few years

• If you give exclusive distribution rights:

– Tie it to performance criteria/minimum sales

– Limit the “exclusive” territory

– Limit the term

• Joint ventures

– Protection/retention of intellectual property

– Clear rights upon dissolution

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The Unnamed Principal: Know Your Customer/Business Partner

•Distributor in Middle-East who didn’t disclose purchaser, but then . . .

• Business Partner in domestic real estate partnership that was designated by Treasury on Anti-Narcotics Trafficking list

• Tailor due-diligence to the transaction/product

• Checking the various government lists

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Backing Unknowingly into Exports (Export Violations)

• Small to mid-size software companies are often unaware of complex restrictions on exports of software containing encryption functionality

– Use of offshore (Indian) developers

– Hiring of non-U.S. nationals in the U.S. to work on software

– Foreign sales via the Internet

– Compliance with rules is not particularly onerous

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We Don’t Make Any Products Subject to the International Traffic in Arms Regulations (ITAR)

•Our last three voluntary disclosures involved companies, some large, that didn’t realize they were manufacturing military items

• Electronics subcontractor may not have any idea of end-use of product, and either send it offshore for production or fill a foreign order

• If specifically designed for a military/satellite equipment, then it is controlled under the ITAR

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Workarounds for Customs Duties/Country of Origin

• Import of goods where the final packaging or minimal steps are done in a particular country for: tariff reduction/ WTO procurement agreement reasons

– Bulk of production, product origin in non-WTO or non procurement agreement country

– If no substantial transformation/tariff shift in final stage this won’t work

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Conclusion

•No company would/should commit resources to overseas markets without a business plan.

• That plan must include solid legal planning and due diligence.