Legal Environments and Business Decision Making

CASE 1: FLASH AIRLINE FLIGHT 604 CASE 1. The French plaintiffs sued the Egyptian carrier Flash Airlines in France. Have a look at the Warsaw Convention of 1929 (research the text on the internet). Identify the liability rules for damage sustained in the event of the death and, separately, the clause that would justify French jurisdiction over the case. 2. Some French plaintiffs also tried to sue the US manufacturer and its US contractors. Is the Warsaw Convention applicable in this respect? How could the plaintiffs establish US jurisdiction? 3. What is forum non conveniens? How did the US court use forum non conveniens to decline its jurisdiction in this case? 4. Forum non conveniens is not available to French courts. French judges cannot exercise discretion on deciding on jurisdiction as their US colleagues can. Explain why the Paris Court of Appeal judgment was so controversial! 5. The Flash Airlines case reveals the many open questions in international jurisdiction. Why did the French plaintiffs try to sue the US companies in this case and why did they try to sue them in the US?6. Despite the fact that forum non convenience is designed to make sure that a case is decided by an appropriate court, and thus appears to improve international judicial cooperation, how does forum non convenience, as it is used by US courts, often appear to foreign plaintiffs? |

The facts: The flight crashed in the red see. The plane was French but the company Egyptian. The case came to the French court.
Causes of the accident may be: * Technical problem of the flight management system * Human causes, for instance a pilot’s fault. * Combination of several technical problem and a wrong decision from the pilots Loss of control due to instrument manufacture, poor crew resource training and spatial disorientation (disputed)
6 crew members (most of them Egyptians) and 142 passengers (most of them French) died: so which court may judge this case?
Choosing the judge/ Choosing the law and vice-versa:

Question 1. The French plaintiffs sued the Egyptian carrier Flash Airlines in France. Have a look at the Warsaw Convention of 1929 (research the text on the internet). Identify the liability rules for damage sustained in the event of the death and, separately, the clause that would justify French jurisdiction over the case.
It is logical so the suing process started in France: biggest number of dead and it is so according to the Warsaw Convention of 1929: convention for the unification of certain rules relating to international carriage by air, signed at Warsaw on 12 October 1929 * It is an Agreement: It is a treaty between at least 2 States
French and Egypt had signed the treaty but not yet ratified (process made by parliament).
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Article 17: Death injury of passengers:
The carrier is liable for damage sustained in the event of the death or wounding of a passenger or any other bodily injury suffered by a passenger, if the accident which caused the damage so sustained took place on board the aircraft or in the course of any of the operations of embarking or disembarking. -------------------------------------------------
Article 33 – Juridiction 1. An action for damages must be brought, at the option of the plaintiff, in the territory of one of the States Parties, either before the court of the domicile of the carrier or of its principal place of business, or where it has a place of business through which the contract has been made or before the court at the place of destination.

2. In respect of damage resulting from the death or injury of a passenger, an action may be brought before one of the courts mentioned in paragraph 1 of this Article, or in the territory of a State Party in which at the time of the accident the passenger has his or her principal and permanent residence and to or from which the carrier operates services for the carriage of passengers by air, either on its own aircraft, or on another carrier's aircraft pursuant to a commercial agreement, and in which that carrier conducts its business of carriage of passengers by air from premises leased or owned by the carrier itself or by another carrier with which it has a commercial agreement.

Question 2:
Some French plaintiffs also tried to sue the US manufacturer and its US contractors. Is the Warsaw Convention applicable in this respect? How could the plaintiffs establish US jurisdiction? * There were several defendants * US defendant: IFLC, Boeing (aircraft’s manufacturer), Honeywell International(manufacturer of certain components part of the flight), Parker Hannifin Corp(other component part) => Has been sued before a USA judge but find a motion to avoid its jurisdiction. => Damages and interests. Another jurisdiction must be more profitable for them. * Egyptian defendant
Question 3:
What is forum non conveniens? How did the US court use forum non conveniens to decline its jurisdiction in this case?

Definition of « Forum non convenience »:
Forum non conveniens is a discretionary power that allows courts to dismiss a case where another court, or forum, is much better suited to hear the case. This dismissal does not prevent a plaintiff from refiling his or her case in the more appropriate forum.
When determining whether or not to exercise forum non conveniens, courts consider several factors, including: * The residence of the parties * The location of evidence and witnesses * Public policy * The relative burdens on the court systems * The plaintiff's choice of forum * How changing the forum would affect each party's case

A court has discretionary power to decline to exercise its jurisdiction where another court may more conveniently hear a case.
In this case, the US Court uses forum non convenience to decline its jurisdiction but, first, the Court verified if there was an “adequate alternative forum” and if the “balance of private and public factors favored dismissal”.
So, the Court uses 2 requirements:
1/ About the “adequate alternative forum” (or adequacy requirement):
The Court decline its jurisdiction and granted the defendant but ask them: * To submit to the jurisdiction of a French court in action re‐filed by plaintiff there and * To toll any statutes of limitations that might apply The defendants have to prove that the French courts will assume jurisdiction over the plaintiff’s claim and that they agree to go in front of the French court.
These 2 elements conditioned the Californian Court order of dismissal upon the French court’s assumption of jurisdiction.

2/ Next, the Court checked if the “balance of private and public factors favored dismissal” (convenience requirement):
The question is to assess whether or not the French forum is more convenient.
The Court refers to the Supreme Court’s Gulf Oil rule which says this would depend on the private and public interests in the trial:
- private interest : the “ease of access to sources of proof, compulsory process to obtain the attendance of hostile witnesses, and the cost of transporting friendly witnesses, and other problems that interfere with an expeditious trial.”. According to the Californian Court, most evidence and witnesses are accessible in France. Moreover, there is already a trial in France so it would be quicker and easier to resolve all claims involving all defendants in France.
- public interest : Court congestion is the same in California and France so it is irrelevant. Then, as most plaintiffs are French so France has a major interest in ensuring that heirs and beneficiaries are fairly compensated.
So, the Californian Court granted defendant’s motion to dismiss the action. But under two conditions:
- first, that the defendants has to agree to submit to French jurisdiction
- second, that the French court accept jurisdiction over the claim.

* What is the most accurate judge to hear such a case?
The judge who hear the kind of motion will have to balance. If the judge thinks another judge is most accurate he will grant the dismissal to another judge. * A common law doctrine * Which allows a court to decline jurisdiction, when it think that a foreign Court would be more appropriate to deal with it

* Is the alternative forum (judge) available & convenient? (adequacy requirement) * Balancing private/public interest
Final decision: Judges accepted to set the trial in France because there were more complainants, and there was already a trial in France. There were 2 conditions: * Defendant should accepted * French Court should set a trial. The case was dismissed and gives to the French court.
Complainants asked to the Court de Grande Instance de Bobigny to not take the case.

Question 4:
Forum non convenience is not available to French courts. French judges cannot exercise discretion on deciding on jurisdiction as their US colleagues can. Explain why the Paris Court of Appeal judgment was so controversial!
The French Law doesn’t accept forum non convenience. According to the French Code Civil Procedure, the issue of jurisdiction is a mean of defense and not an action.
So, the first instance Court declines the forum non convenience action TGI DE Bobigny, the 27th of June 2006. * Strange position of the plaintiffs: * They sized a Court * Asking a Court to dismiss their complaint! * Decision: US Court are more appropriate * A Forum-Non-Convenience reasoning * But French Court do not have the procedural tools to do so
BUT the Paris Court of Appeal admitted the petition Paris Court of Appeal, the 6th of March 2008.
HOW?
The French Court of Appeal considered that the US court had materially transferred the case and that the US court had invited the French judge to rule on international jurisdiction in this case. That’s why the French Court decided that the petition was admissible.
The decision of the Court de Cassation: not really clear because it didn’t take a position on the content of the case but on procedural reason.So plaintiffs are now able to go back to the US to sue the companies.
Question 5:
The Flash Airlines case reveals the many open questions in international jurisdiction. Why did the French plaintiffs try to sue the US companies in this case and why did they try to sue them in the US?
Why to sue in the US: “As a moth is drawn to the light, so is a litigant drawn to the United States”. Lord Dennis, High Court of Justice * High rewarded in product liability cases * Far-reaching jurisdiction rules
Question 6 :
Despite the fact that forum non convenience is designed to make sure that a case is decided by an appropriate court, and thus appears to improve international judicial cooperation, how does forum non convenience, as it is used by US courts, often appear to foreign plaintiffs?
Forum non convenience can appear to be unfair because it can be seen as a mechanism in favor of US defendants that protect them from any foreign litigation.

CASE 2: VIVENDI CLASS ACTION CASE 1. What is a class action? Does this kind of procedure exist in French law? Why? 2. Briefly summarize the Vivendi case: who are being sued? On which grounds? Who are suing? 3. Which court would have the most “logical” jurisdiction for such case? How can it be explained that the American courts have jurisdiction? 4. In your opinion, why did French shareholders decide to sue in the US? How can be called such practice? 5. Why did Vivendi decided to lower the amount of money set aside for the American class action after the Morison v. Bank of Australia Supreme Court decision? |

Who is Vivendi: internet, telecom firm (SFR…), music, TV…
The facts in 2002: After a series of acquisitions in the communication and media industry, Vivendi financial situation was found untenable and close to bankruptcy. Jean-Marie Messier (former chief executive and chairman) was fired and the shareholders lost around 85% of the value of their stocks.
Question 2:
Briefly summarize the Vivendi case : who are being sued? On which ground? Who are suing?
The shareholders decided to sue the company for hiding information and giving false information, which were misleading them.
A class action was introduced in the US.

Question 1:
What is a class action? Does this kind of procedure exist in French law? Why?
Class action: A large procedure which allows a group of people who suffered a damage resulting from a same act to act within a common procedure. At least 100 people on the same fact and on the same legal basis.
US Law: 5 steps for a CA lawsuit: 1. The summons and complaints 2. The class action certification 3. The notification to the public 4. The litigation phase 5. Settlement possible at any step!
US Law: 5 criteria for a CA lawsuit: 1. Numerousity complainants: 2. Commonality : common facts, common legal issue 3. Typicality: the claims of the CA-lead plaintiffs (leaders of the action) are representative of all those of the class members. => Pactum de Quota Litis 4. Adequacy: the lead plaintiffs should defends all the CA 5. Superiority of the CA process: * Separate actions would create a risk of inconsistent decisions. * The class action procedure is superior to all other methods in order to resolve the issue in a fair and efficient manner.
Question 4:
In your opinion, why did French shareholders decide to sue in the US? How can be called such practice?

Class Action Lawsuits: Why not in France? * A very controversial issue * Some argue it could be favourable to defend the interest of citizen/consumer * Other worry about its impact on economic activities * US “opt-out” mechanism: an issue within the French procedural tradition * “Nul ne plaide par procureur”…

Question 3: Which court would have the most logical jurisdiction for such case? How can it be explained that the American courts have jurisdiction?

The Vivendi CA law suit: * Grounds: false financial information * Leading to a significant decrease in the Vivendi’s stock price value * Plaintiffs: shareholders * Between 30/10/200 and 14/08/2002 * American, British, French… * Defendants: * Vivendi SA * JMM, Guillaume Hannezo * A securities CA * Section 10 of the Securities Exchange Act of 1934 * A foreign-cubed CA (or ‘F3-CA’) * French Plaintiffs * French defendants * French exchange * Vivendi stocks were issued and bought on the French Market
Vivendi was founded liable for security fraud BUT not JMM & GH

Question 5:
Why did Vivendi decided to lower the amount of money set aside for the American class action after the Morison v. NAB Supreme Court decision? * A decision of the US Supreme Court (24/06/2010) * “Section 10(b) [Of securities Exchange Act of 1934]does not provide a cause of action to foreign plaintiffs suing foreign and American defendants for misconducting in connection with securities traded on foreign exchanges”.
French plaintiffs were using a foreign proceeding in order to catch the most profitable for them.

CASE 3: THE ONLY BETTING MARKET

Question 1: What are the main reasons of these differences between countries?Question 2: To what extent could the French law constitute a real threat for Bwin company and representatives?Question 3: To what extent Bwin argumentation could be supported by the Treaty provisions?Question 4: Regarding the legal risks and the strategic risks, what would be your advice for Partouche Group? |

There is a 2006 law which is supposed to ban the only betting in the USA. But the law is likely to be repealed. * A fast growing market in EU (10 million gamblers on line) * A legal spin in Europe (Free movement of service encouraged, Regulated in some EU member States but not all…Some state’s monopoly…)
Question 1:
Reasons of differences between countries * Principle of sovereignty: every country has the right to set its own legal system on its own territory. * Religious (US) and moral * Public health * Protection against money laudering and other frauds * Protection of consumers

Question 2:
To what extent could the French law constitute a real threat for Bwin Company and representatives?
In 2006 the CEO of an online firm has been arrested by French police and detained. * Proceeding filed by La Française des Jeux and PMU * Illicit lotteries, violation of State monopolies * Online Business operated through foreign countries/foreign companies * Accessible on French territory * Violating French territorial gaming laws.

Question 3:
To what extent Bwin argumentation could be supported by the Treaty provisions?
Bwin is an Austrian betting company and Austria is part of the European Union. Consequently Austria and Austrian’s companies benefit EU’s regulations.
In this case Bwin will use provisions from EC treaty (treaties of Rome), more specifically art 43 and 49: * Art 43 settled principle of the freedom of establishment of nationals of a member state in territory of another MS. * Art 49 settled the principle of the freedom to provide services within the community.

On the first hand , In principle (Art 43 ECT) a national of one member state has the right to implement its activity in another member state.
In this case Bwin is a national company of a member state ( Austria) which wants to establish its activity in another member state ( France)
Thus in principle Bwin should have the right to establish its activity in france.
On another hand, article 49 ECT said that a national of a member state has the right to provide services within member states.
As it was said above Bwin is a national of a member state and wants to establish its activity in another member state.
Consequently in principle France is not allowed to prohibit Bwin provide its betting activity.
And consequently Bwin should has the right to implement online betting in France. Moreover, some precedents from the ECJ (such as Gambelli decision) said that a member state should not prohibit a national of another member state to implement its activity in its territory.
So Up to here Bwin’s argumentation would be accepted.
But there are some exceptions to ECT’s regulations.
Indeed, art 46 provides exceptions for art 49 and 43 ECT. This article provides that a member state can treat a foreign company differently from its own companies on grounds of public policy, public health or public security. In another word a member state can prohibit a foreign company to provide its services when there is a public interest.

Thus, if France brings the proof that betting activities should have a bad impact for public interest, bwin wouldn’t establish its activity in France.
If betting activities constitute a threat for French people egg. Gambling addiction, France will probably be allowed to prohibit such companies to establish their activities within its land.

In conclusion, Bwin’s argumentations is in principle totally receivable however art 46 ECT gives France the possibility to forbid the establishment of bwin in France; thus Bwin’s argumentation up to fail.

Question 4:
Regarding the legal risks and the strategic risks, what would be your advice for Partouche Group?

* Strategy : * Wait and see: a future legal framework * Launch asap an online gaming service (using offshore licence) * Influence the law making process

Since the Commission (27.06.2007) has acted to remove obstacles to the provision of sports betting services in France, and since the prime minister has decided to open betting online market in France Partouche group should think about opening an online casino.
Regarding legal risks, since French government has decided to allow online betting Partouche Group won’t have any troubles with internal law, however Partouch group will have to submit an application to the new authority which deliver license. Moreover online betting is legal in a lot of European countries; therefore it won’t have any obstacles.
Regarding strategic risks, Partouche Group should pay attention to the high competition environment. Indeed there are some important competitors on the market.

Some of them are very famous all around the world and had been used by French internet users for long time (egg. Bwin, Unibet or Betfair)
Besides partouch group has to be aware of some foreign companies that target french consumers.
Consequently Partouch group should be prudent and should adopt a differentiation strategy.
Indeed to be efficient and to find its place in a red ocean industry, Partouch group will have to use its famous name and also propose services directly linked with offline casino such as online poker tournament with a big final at a Partouch Casino; or other gambling games which give the opportunity to win some credits to play in Partouch’s casinos.
In conclusion if Partouch group gains its license it will have to be prudent and try to be different of the other competitors.

We have seen the difficulties to combine different law.

CASE 4: REGULATORY IMPERIALISM 1. Read the following text (excerpts of a Statute commonly named “D’Amato‐Kennedy Act”). What is its origin? What is its purpose/rationale? What is its scope of application in terms of persons/companies concerned? What are the risks it creates for a non‐US company? 2. Read the following text. What is its origin? What is its aim? What legal means are taken to achieve this aim? Doing a personal research, look for the consequences it had. Is it still in force? 3. Read the following papers and press releases. In what extent do they illustrate the debate around the notion of “extraterritoriality” of certain types of legislation? To what kind of regulations do they mainly refer? Is such an extraterritorial application of the law evitable with this kind of regulation? What can be done to address this issue? Formalize your personal opinion about this debate. 4. Through a personal research, summarize briefly the aim and purpose of the Sarbanes‐Oxley Act, also named “SOX”. In what context was this US law enacted? Is it applicable to a non‐US company? Why? What are the main consequences for companies falling into its scope of application? |

Legal environment is more and more complex, giving room for legal shopping cf.: Flash Airline Case.
The case is about the influence of US/EU law abroad. A phenomenon of extra-territory and crossed board law is increasing.
Extraterritorial jurisdiction: * Jurisdiction: The tradition view in international law (international practice): * A state may exercise jurisdiction (only) over matters occurring within its territory. * Citizenship * Morrison v. National Australia Bank, Supreme Court (24/06/2010): “It is a long standing principele of American Law (i.e.: any national law) that legislation of Congress (i.e.: any law maker), unless a contrary intent appears, is meant to apply only with the territorial jurisdiction of the US. EEOC v. Arabian American Oil, CO. (Amramco). When a state gives no clear indication of an extraterritorial application, it has none.” * U.S adopt a much broader view of legitimate jurisdiction, extending it : * To the conduct outside the U.S of foreign residence of the U.S. * To foreign businesses controlled by U.S. interest * To transactions outside the US involving goods and technology of US origin. Cf.: 1992 Act which ban any company non US from the Antarctic pipeline; * To conduct outside the US which is merely has effects within the US.

Example of extraterritorial application of US regulations:

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Cuban Liberty and Democratic Solidarity (Libertad) Act of 1996 (Helmes – Burton Act):
“an act to seek international sanctions against the Castro government in Cuba, to plan for support of a transition government leading to a democratically elected government in Cuba and other purposes.”
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The D’Amato-Kennedy Act, Iran and Libya Sanctions Act (ILSA): * Purpose/context of the statute: An act to impose (unilateral) sanction on firms doing business with Iran and Libya. * Scope of application: Any person without consideration of its nationality!!: Targeting both US and non-US companies in third countries. * WHY: Other companies can do business where US is banned : so this text is efficient only because it may have an effect on US’s competitors A deterrent effect/ A question of efficiency.
The EU response: * EU Council Regulation 2271/96 : Designed to protect EU businesses from ILSA’s effect
Key provisions: * Art 4: blocking recognition or enforcement of decisions or judgment giving effects to the covered law. * Art 5: Prohibiting compliance by EU companies with requirements or prohibitions based on or resulting from the covered law. * Art 6: Providing the recovery of damages caused by the application of the covered law. * A blocking legislation.
The conflict was resolved by an agreement between the US and the EU, which was in fact not really efficient.

* “Regulatory Imperialism” (The Wall Street Journal, October 26, 2007) * “Antitrust goes political” N. Petit, December 2009, http://chillingcompetition.com/
In what extent do they illustrate the debate around the notion of “extraterritoriality” of certain types of legislation? To what kind of regulations do they mainly refer? Is such an extraterritorial application of the law evitable with this kind of regulation? What can be done to address this issue? Formalize your personal opinion about this debate.

Sarbanes-Oxley Act (SOX) 2002
Public Company Accounting Reform an Investor Protection act. A reaction to the major corporate and accounting scandal: the collapse of Enron leads to other ones. The scandal made people realize than nobody can be protected about bad surprise about the value of assets, or bonds. => LSF(loi de sécurité financière également mise en place en 2003).
It improves the protection of investor and the value of information. * Corporate governance & responsibility, corporate audit committees * Internal control Assessment, compliance requirement * Financial disclosure, corporate financial reports * Auditor independence.

* Scope of application: Any person who issues or proposes to issue any security on a stock exchange in the US.

Session 4, CASE 5: THE DAIMLER CASE 1. Read the following online papers and summarize the facts that resulted in the investigations launched by the US Department of Justice (DoJ) along with the US Securities and Exchange Commission (SEC) against Daimler A.G. 2. Why does Daimler A.G. have to pay a fine to the U.S. authorities? Based on your own reasoning, try to list the different factors which could potentially justify such a US jurisdiction over Daimler’s corruption practices. 3. Reading the following section of the US Foreign Corrupt Practices Act (FCPA), identify the legal basis which justifies US authorities’ jurisdiction over Daimler A.G. |

Daimler is a giant car manufacturer. * March 2010: German car giant accused by US of bringing 22 governments in order to win contracts worth from 1998 to 2008 (An accounting officer denounced improper payment using off-shore bank accounts) * Allegation made in court papers filed in the US. * Money allegedly aimed at persuading government (China, Russia, Iraq, Egypt, Greece…) to buy Daimler vehicles in deals worth hundreds of millions of dollars * Ex: Daimler gave an official in Turkmenistan an armored car as a birthday present to encourage him to grant a contract to supply government vehicles. * April 2010: Daimler pays €136M settlement. Foreign-cubed F3 case * German company * Foreign official corrupted * In foreign countries * But US investigations and proceeding. * What does justify such US jurisdiction? (the extraterritorial reach of US anti-bribery laws) * Daimler was “Daimler-Chrysler”, Chrysler being an American corporation * Fact was disclosed through court paper filed in a trial within the US territory * Daimler scored contract that American car builders were doing after and could have been harmed * Shell companies register in the US have been used in the Daimler corruption process * Money transfers and corrupt payments were routed through us bank accounts * US foreign Corrupt Practices Act (FCPA) * Issuer: includes any (US or foreign) company that has public traded securities registered in the US (companies listed on a US stock exchange) * Daimler is a US issuer (since 1993): Daimler’s common stocks have been traded on the NYSE, the PE, the CSE and PSE. * But some other criteria, pursuant to the FCPA, were also met: * Daimler filed periodic reports with the SEC (corruption = accounting fraud) * Daimler used US bank accounts for paying bribes * Daimler used US companies in transacting certain business with foreign government and officials. * FCPA’s extra-territorial jurisdiction reach: Why?
Clinton’s Statement on Signing the International Anti-Bribery and Fair Competition Act of 1998: Since the enactment in 1977 of the Foreign Corrupt Practices Act (FCPA), U.S. businesses have faced criminal penalties if they engaged in business-related bribery of foreign public officials. Foreign competitors, however, did not have similar restrictions and could engage in this corrupt activity without fear of penalty. Moreover, some of our major trading partners have subsidized such activity by permitting tax deductions for bribes paid to foreign public officials. As a result, U.S. companies have had to compete on an uneven playing field, resulting in losses of international contracts estimated at $30 billion per year.

Session 5; CASE 6: MARK & SPENCER 1. Make sure you feel the legal difference between a branch and a subsidiary? 2. What is franchising? 3. What is a group relief? 4. What is the tax sovereignty principle? 5. Why was Germany involved in that conflict? |

Question1.
Make sure you feel the legal difference between a branch and a subsidiary?

First let’s distinguish the both terms.
By definition a subsidiary is a legal entity that is controlled by a separate bigger entity. The controlled entity would be a regular company and the controlling one would be the parent company. The relationship between both companies can be linked by the activity or not; indeed a subsidiary owned by a parent company remains completely legally independent despite the fact that the parent company benefits the subsidiary’s revenues.
In another hand, a branch is an entity part of a company but which has its own departments and certain autonomy. However this entity remains totally under the control of the company. Moreover this entity is legally dependent of the company.
Secondly we can look at the legal responsibilities.
Because a parent company and its subsidiary are separate entities, it is possible that one is involved in a trial while the other is not. Indeed the subsidiary is not legally linked to the parent company. Furthermore a subsidiary can be regulated by some internal laws while the parent company is not.
For a branch it is different. Indeed a branch is linked with its company, there are not different legal entities thus if a branch is involved in a legal procedure the company is also involve.

Branch: a place of business which is not a separate legal entity. If makes profit, goes to the mother company
Subsidiary: separate legal entity shares are held by a mother company (dividends), so not legally concerned when a pb, but if profit not to the mother company (advantages and disavantages)
NB: conditions for the distributions of dividends: 1- Need to have profit 2- Need to hold a general meeting during which the shareholders will have to decide the distribution

If you want to develop abroad: * Legal pt of view ++ : better to establish yourself though a subsidiary because not legally responsible so can not loose more than you invested

* Not legal pt of view: for marketing and communication purpose the mother company is seen as the guilty one just to protect the image of the group as a whole. So you choose if you pay or not flexibility of subsidiary
For eastern Europe , other strategy: franchise

Question 2
What is franchising?

* A continuing relationship in which a franchisor provides a licensed privilege to the franchisee to do business and offers assistance in organizing, training, merchandising, marketing and managing in return for a monetary consideration. Franchising is a form of business by which the owner (franchisor) of a product, service or method obtains distribution through affiliated dealers (franchisees). * So if there is a loss the franchisor may pay, but don’t have to. * Royalties.
Are calculated on the turnover

For the franchisor: * Advantages for M&S to use that system: limit of the liability; it is really cheap to develop your activity because this is the franchisee who makes the initial investment and the franchisor gets the royalties immediately
Moreover, M&S not responsible if losses happen very good protection and it is none of their business if things happen badly. * BUT have the risk to lose the control on your image, so you have to carefully draft you contract

For the franchisee: * ++: You immediately benefit from the image of the group so people immediately * BUT you have to respect the contract you signed so not so much flexibility and you have to pay at the very beginning. Once the business is launched, may be upset to give money to the franchisor

Question 3
What is a group relief? * Principle: a group is made of separate legal entities that suffer taxes on their individual basis * Exception: group relief=tax consolidation.
= All the entities become one single tax place * Tax losses in one entity in a group are automatically relievable against the tax profits of another. That means compensation.

Question 4
What is the tax sovereignty principle?
Each country in the world is free to levy taxes the way it wants.
This is why some countries have decided to apply small taxes (tax heaven).
Each country apply taxes the way it wants Also called the JURIDICTION PRINCIPLE: any country can levy taxes the way it wants

Ex: England decided to tax cats and dogs. In France especially rich people.

Exceptions:

* A double taxation agreement (DTA) to find solution to avoid double taxation (if someone lives in France (where have to pay droit du sol) but is a US citizen (droit du sang) for instance)
(deals with the attractiveness of the country. France is not attractive from this point of view)

* European Union : We created Europe to create a common market: an open area where the goods, the persons and the capital can move freely.
EU is not a tax union apart from: * Customs duties (droits de douanes) : no custom duties in Europe anymore, but still OUTSIDE Europe for the goods entering Europe.
NB: still c.d on the Chinese products (S arko has anything to do with custom duties, same price because the same tariff for the whole Europe. He has to negotiate for a unanimous consent if he wants to apply a special tariff on those goods) Member states to not have taxing power anymore * VAT which is harmonized. But they gave only one part of their power, they decide a percentage/ rate * Freedom * The taxing power is still with the hands of the Member States

BUT: The general principle of the EU also applies to tax issues * Free movement of goods, services, persons and capital * Nondiscrimination principle
Except of justification can be given. In very specific case
Justifications:
social policy measure fiscal cohesion defense risk of tax avoidance fiscal territoriality

M&S should have chosen branches to compensate the losses.
Their lawyers managed to solve the pb.

MARK & SPENCER * Famous Store * Big losses in Europe

* The English group tax regime
According to UK’s law you can profit from deduction of taxes: if the mother company was English and opening a branch abroad. If it was a subsidiary in UK it was fine too, you can also compensate. But if your losses as made in another state member of the EU, no deduction was possible. * Sovereignty principle: The UK decided of this law.
Cf. BlackBoard
From a tax point of view, it was a mistake to open a subsidiaries in France. BranchUKDeduction of losses in the hands of the mother company | BranchOther Member StateDeduction of losses in the hands of the mother company | SubsidiaryUKDeduction of losses in the hands of the mother company | SubsidiariesOther Member StateNo deduction |

It was a really big Mistake from M&S’s lawyer to open a subsidiaries and not a branch. There were: * Brand/ Subsidiary Confusion * Legal decision without tax analysis

UK has sign the treaty of Rome so they are now in Europe and every piece of UK’s law has to fill the European Law. So how is it possible to save the situation after the mistake? * Solution: to fight against that piece of law.
With a strong text BranchUKDeduction of losses in the hands of the mother company | BranchOther Member StateDeduction of losses in the hands of the mother company | SubsidiaryUKDeduction of losses in the hands of the mother company | SubsidiariesOther Member StateContravene EU rules? |

According to the European law, having different law for branch in UK and in another member state is discrimination. So the lawyer said that that group relief is not legal. We were in a clearly discriminatory system.

Acceptable justifications of the discrimination:

Justification | Explaination | Applicable? | Social Policy measure | Charging more the rich than the poor | Do not apply here | Fiscal cohesion defense | If you are making profit we take it into account, but not if you make losses. | Do not apply here | Risk of tax avoidance | M&S is not looking for tax heaven. They want to pay taxes but in a group relieve | Do not apply here | Fiscal territoriality | Organize taxes the way they want, but without discrimination. | Do not apply here |

No one of these justifications were acceptable. The lawyers made a really good job, even if they made a mistake of the beginning.

Question 5
Why was Germany involved in that conflict?
Germany has exactly the same tax relieve system as UK.
If losses abroad are taken into account, Germany would have been bankrupt.
German’s Ministry of Economy said that if the European Court of Justice goes this way, Germany will be bankrupt.

* N°34: It thus constitutes a restriction on freedom of establishment within the meaning of Articles 43 EC and 48 EC, in that it applies different treatment for tax purposes to losses incurred by a resident subsidiary and losses incurred by a non-resident subsidiary. * N°46: “would significantly jeopardize a balanced allocation of the power to impose taxes between Member States,: Judge don’t want to go so far” member state would not have taxing power anymore the judge has been creating a specific judgment just for the M&S case in the public interest. * N°47: “danger that losses would be used twice” * N°51: “pursue legitimate objectives which are compatible with the Treaty and constitute overriding reasons in the public interest”

It is an unfair judgment. And it happens a lot. Example: For the solar panel, the tax cut was too high so state decided to change the law before this end of the period it was supposed to be.

Conclusions:
Always seek for a tax lawyer advice bc sometimes might go in the wrong direction. * Appearance of a new justification => You can have the need to preserve a Balanced Allocation of Taxing power * Tax issues must always be taken into account when making important decisions * Law is a living topic that judges can make evolve.
M&S is back to France, as a branch to compensate the potential losses that may occur.

Session5; CASE 7: THE HALIFAX CASE 1. What is VAT? Explain the general mechanism of VAT. 2. Why an English VAT question should be judged by the European Court of Justice? 3. Explain the French concept of “Abuse of Law”? 4. In England, what were the reactions towards that decision? |

Halifax is a bank which wants to building new premises. They want to save money and so to have the right to input VAT.
See slide on blackboard about VAT.
A lot of businesses do not pay VAT such as EDHEC which is a non-profitable entity.
Exempted activities: * Postal service * Medical Care * Service of social wellbeing * Education * Non-profit-making organizations * Cultural services * Transport services for sick or injured people * Insurance * Bank Credit activities Halifax * Betting, lotteries and other forms of gambling * Supply of building * Supply of land * Leasing or letting of immovable property.

Question 3:
What is “Abuse of Law”
Is there a manner to use a right in an improper manner? * Abuse of right * Misuse of the law.
What it is supposed to be: 1. Buy the land 2. Building the premise (the company will charge Halifax the VAT and won’t be able to deduct it because they do not collect it)
Lawyer has a genius idea: Create a new entity: A * There is a loan. A has now the money to buy the land and then to construct the premises. * There is a renting contract for the premise for 100 years.

At the end, Halifax was the renter, and payer of the premises. The legal consequences are the same but the manner was different => In order to not pay VAT.
So the English legal authorities were really unhappy about that Said it was an abuse of law principle. * This is a concept of civil law but UK is on common law!

EU Court of Justice has decided it should be a change in UK system of law.
Cf.: Black board for decision: 82, 85 and 86
Halifax did it in the only purpose of tax deduction. Therefore: Abusive practice is a new concept in the English law (before it was legal or illegal).

We can see that the court is not comfortable with the concept of the abuse of law:
In the judgment it is written once “the sole purpose” and after “the essential purpose” which is really different. The Court itself is not really clear in mind of this decision.

As far as now the EU Court of Justice has not clarified so far if it is the sole or the essential.

Conclusion of the case: Because we are in Europe it is convenient to fight against a piece of law. Europe is the perfect ground for common law and civil law interact one with each other.

CASE 8: HSBC: SWISS LIST OF FRENCH CLIENTS

There was a large invitation to French tax payers to settle their situation toward French tax authorities and to repatriate their fund without any penalties.

How to avoid pay taxes in France?

Criminal offence: * From the tax payer point of view: * Tax fraud: they try not to pay on the basis they should be paying * From the tax authority point of view * Theft * Receiving of stolen property (recel)

Tax authority’s counter attack: * Taxation based on outwards signs of wealth (taxation sur les signes extérieurs de richesse): * Very specific procedure and the burden of the proof is on the tax payer. Mainly used for drug dealers. * If there is an important disproportion between Personal Income and Personal expenses * Taxation on a presumptive tax base taking into consideration * Dwelling house and holiday home (renting X 5) * Domestic servants (except the 1st one) consider such as 5000€/month for once * Cars and other vehicles (boat, plane…) * Hurdler (horses) consider such as 5000€/month for once * Hunting rights * Golf Club fees

CONCLUSION : ANY PIECE OF NATIONAL LAW DEFINES THE RULES OF THE INTERNATIONAL TAX GAME.

CREATING VALUE THROUGH THE LAW
How are the companies productive using the law. How using the law and the legal environment help in order to settle a strategy & how using the law helps to create value.

Session 8; CASE 9 : The Iphone Case Question 1: What are the legal resources used and coordinated by Apple company in order to ensure this digital convergence? To help you, follow these indicia: some legal resources have to be put in each square, knowing that these legal resources belong to the same category. The other legal resources must be identified at the core of the figure.Question 2: Explain to which extent does this contract constitute a complementary legal resource? Identify the main problem which could happen because of its policy and the iPhone distribution issues in the different countries.Question 3: Explain what kind of legal resources Apple uses to struggle against the software programmes build to circumvent the economic model.Question 4: Which legal resource is used by Apple to coordinate its relationships with the developers? Explain to which extent this legal resource sustains the iPhone strategy and can be coordinated with the other legal resources. |

4 categories of legal resources:

Copyright
Not mandatory to register
Copyright in the common law countries ( the right to copy)
Authors rights in the civil law countries ( more based on the author, “moral right”: even if you give the right to reproduce the creation, you still have the right to protect the spirit of your creation) * These rights protect the creation of the mind if there is an originality
In the case of Apple: * the software are protected through copyrights (applications depend on the software) * the design (if considered as an artistic creation) * all the content
You have to create an account on iTunes to unblock your iPhone, then it is possible to unload all the content
The protection begins when the protection exists until 70 years after my death, so very long protection (for the eternity for the moral right)

Trademark
You have to register
The principle of specialty: if register iPhone as a trademark, it is the brand that has been register. Have to identify the category of product and fill in yourself.
You can protect: * the name “iPhone”, * the color, only if it is original * the logo, * “just do it” (the slogan) * Everything that can be perceived by human beings
10 years (+10 years +10…)

The domain name
Have to register
Is mandatory, and complementary to trademark, because includes the brand.
Gives the opportunity to identify a website, but it is only a rent (Apple is not the owner of iphone.com as a domain name)
1 year and potentially no limit

Patterns
Have to register
To protect invention. Takes time to obtain a pattern
To prevent from competitors
Sometimes just to send noise to the market, to give wrong signal
Finished after 20 years

* The fundamentals have different durations so difficult to take into account everything * Different types of contracts: with the consumer, the suppliers, the phone carriers…

There is a way to use these legal resources in a defensive attitude (protection), but you can also use it to be offensive, by using patterns. It is a question of putting some threats on competitors by making great moves on the market. * About Apple’s Strategy: * Innovation * Convergence * Differentiation What are the legal resources used and coordinated by Apple to ensure digital convergence and innovation.
Contract
Contract
Contract
Contract
Contract
Contract
Contract
Contract

Patterns

Patterns

Domain Names

Domain Names
IPR Portfolio
IPR Portfolio Intellectual Property Rights Intellectual Property Rights Copyright Copyright
Industrial Design Right
Industrial Design Right

* IPR owned or managed by Apple.
Family in which you found some specific IPR: * Patterns: legal way to protect technology * Registered Trademark & Domain Names: protection of the brand * Copyright: software program * Industrial Design Right

* “IPhone” is registered as a TM in a numerous country (USA, France, UK, Germany, Canada…) * Time management and marketing management: 1st registration in Trinidad and Tobago (March 2006) * Names convergence and risk litigations.
You cannot register a generic name: you cannot register Apple for an apple. If you don’t use a trademark for 5 years it is considered as an abandon of the TM.
A protection lasts for 10 years, it has to be renewed if not, it will be on the public domain. It is the difference with the patterns which last 20 years and is not renewable.

Apple Corps: Created by the Beatles in order to managed their activities
Apple Inc.: The Apple computer.

* Building an offensive and defensive IP rights portfolio * Patents as key-resources for the IPhone Strategy. * Patents and trademarks, the “best combo” * In 2007, 200 patents registered by Apple for the Iphone, not only on the US (Scrolling, zooming…) * Maybe only 20 of them are really determining.

* Exclusivity Orange Apple: concern competition laws
Exclusivity is justified by: * The price of the contract * Apple wants the best services for its clients.
France: Trial in front of the Conseil de la Concurrence against Bouygues Tel & SFR * 14/12/2008: order the supension of Apple/Orange exclusivity deal * 04/02/2009: Uphels by the CA Paris * 12/01/2010: The authority or concurrence accepts the commitments of Apple and Orange if they are limited at 3 months and for new products * 16/02/2010: CA Paris judgement overruled by Cour de Cassation *
Question 2: Explain to which extent does this contract constitute a complementary legal resource? Identify the main problem which could happen because of its policy and the iPhone distribution issues in the different countries.

The table is btw Apple and the carriers
In the USA, the UK and Germany there are exclusive agreements
Not in France because of the regulation. They practice a preferential price: if you want more freedom, have to pay more. The incentive was to go to Orange, because you have a better price * A business model for the company and for the carrier company.

Objectives of the contracts: * They created scarcity to promote the hype (only in some shops) * Creation of cash, because from an engineer point of view, does not cost anything. The only difficulty is to coordinate all products so as they do not concurrence each other. * Very few carriers: The fewer partners you have, the easier you can control your image, the quality…
Apple has no knowledge of this industry at the beginning. Working with these partners allowed it to get knowledge of this market. Then, your knowledge is sufficient, so to generate more cash, have to work with more companies.

It was a dual exclusivity regarding the partners: * Exclusivity for the distribution of the iPhone * Exclusivity for the mobile phone network
The risk: in the US, the price is much more interesting it will obviously create a grey market. Some companies were created to buy the iPhone on the US market and sell them without Apple’s agreement => price discrimination=> grey market
To fight against that, legal resources to maintain this exclusive network can use: * Technological tools * Legal tool
Litigate for unfair competition
Trademark infringement (infraction): if Apple distributes iPhones in France, and I buy some and sell them in France, there is no trademark infringement (but unfair competition). But infringement if buy in the US and sell in France because there were not dedicated to the European market.

Question 3: Explain what kind of legal resources Apple uses to struggle against the software programmes build to circumvent the economic model.

1- The contract between the consumer and the Apple company 2- copyright 3- The insurance system: no more if use another software pgm

* To maintain the business model, have the tools to block the iPhone if try to update the software, then no more warranty so no more legally protect. Combination btw the technological and legal answer.

Question 4: Which legal resource is used by Apple to coordinate its relationships with the developers?
Explain to which extent this legal resource sustains the iPhone strategy and can be coordinated with the other legal resources.

The legal resource: the contract. SDK agreement.
Economic principle: the network effect: the more users you have, the more people will be ready to develop new contacts. The more applications, the more users you will catch, and the more users, the more applications… * The contract must enhance the network effect to attract more users, so does the SDK agreement. All is made to dvp the strategy *
Ccl: not a model based on freedom but on property because of the IP rights

Session 8; CASE 10: The Leclerc Case

1. Summarize both cases. In broad terms, what do they have in common? 2. In what extent do these legal battles illustrate the notion of value creation? What kind of value (strategic, financial, institutional) is concerned? A personal research to identify the E. Leclerc’s mission statement may help you to answer to the above questions. 3. Try to modelize the tactic used by E. Leclerc in such cases. In what extent it can be seen as an “instrumentalization” of the law/judge. What is your opinion about that perception? |

Strategy
Leclerc strategy is based on low prices.
Borderline communication the company was sued and knew it, but used this litigation as a communication to support its strategy, ie to develop its borderline approach (to create the change for the consumer interest ie low prices) * Instrumental use of the law (law= instrument), as a defendant, but in an offensive approach regarding the communication.

Financial value
Increase their market share, especially with their website (which was closed because of a court decision buzz, so when reopened visits exploded

Steps (question 3) 1- Provocation with borderline initiatives 2- Legal cases brought to the court by Leclerc targets 3- It does not matter for Leclerc, it is communication 4- Buzz= communication 5- The legal battle is won by Leclerc because the change it involved in the law.

Providing value through the law/judge. Legal battles helped Leclerc to reinforce its strategic position and its corporate image.
In France in the sector of mass retail there are: * Integrated: owned by shareholders * Independent: owned by one company

Leclerc was born in Bretagne in 1949. Since the beginning, Leclerc has to fight suppliers which while observing the new form of distribution offered, first refuse to deal. Leclerc has to attack suppliers. * Web site case
Leclerc said: “we are going to move from a strategy of the assertion to a strategy of the proof”. * Creation of www.quiestlemoinscher.com : there was a lack of transparency on price, and in every case, the cheapest was Leclerc. * Carrefour was really upset to be number 2 again (it’s n°2 in world ranking, n°2 in France ranking)
Carrefour claims about: * Methodology used * Unfair competition * Misleading advertisement
TC Paris, 7h June 2006: illegal comparative advertisement, web site has to be closed.
Answer of Leclerc: “I do not accept to be gagged. Nobody can make us keep silent. We are going to continue to compare prices by relaunching a new web site.” Robin Wood approach.

Leclerc launched a new web site: * Carrefour claimed again: but the site was found perfectly legal this time.

Leclerc takes now benefit on its success.
In reaction, Carrefour launched a new free phone line: “if you find cheaper elsewhere, call us”.

At the same time, in Colombia, Carrefour has launched a web site named quiestlemoinscher.com (quieneselmasbarato.com)

Leclerc use the determination of Carrefour against it and make communication about it.

The law suits are always positive for Leclerc which use it to advocate.

* Entering new market case

What do these cases have in common? * A “provocative” advertising campaign, aggressive. Leclerc position itself as a victim * Lawsuit against Leclerc * Lost by Leclerc in 1st instance * Won at the other level (appeal, cassation). * A “buzz”… reinforcing impact of the campaign. What kind of Value creation? ( There are 3 types: Strategic, Financial, Institutional) In this case it is a strategic value creation. * Leclerc mission statement: “To sell at the best price, the largest set of products and services, to make them accessible to as many as possible”. * Not really distinctive * Making this objective more concrete and visible.

* Leclerc Model: * Legal battle: provoked * An initial transgression/provocation * Legal cases brought to courts by the Leclerc’s targets, not by Leclerc itself * E. Leclerc loses/ E. Leclerc wins: doesn't really matter, it still represents a room for advocacy. * Legal battle as communication tools * Legal battle for advocacy, differentiation, strategic positioning, corporate branding.

Session 8; CASE 11: Lowcost Airlines case 1. What represents “value” for the low cost airlines? What are the legal resources used by low cost airlines to create value? 2. Look at the contractual process for buying a ticket on the internet and consider the benefits and the risks for the consumers and the low cost airlines 3. What conflicts arose between EU regulations and low cost airlines? Find examples from the reading materials to explain your answer. Do such conflicts destroy value? 4. What do you think about the arguments of easyjet (see easyjet website) contesting EU compensations rules for air Passengers? 5. How has a decision of ECJ created value for the passengers of low cost airlines? How can low cost airlines adapt their models? |

Session 9; CASE 11: The Toyota Case a. Read carefully the document “Wins for Toyota”. What are the “Wins” in question? How can they be explained? What do you understand by “Favorable recall outcomes” (slide 8, to be linked to “Negotiated “equipment” recall on Camry”, slide 16)? From Toyota’s point of view, in what extent is it possible to talk about value creation through the law? What kind of value is designated in this document? What are the limits/danger of such an approach? b. Summarize the different safety issues Toyota has been facing in 2009‐2010. Using the documents provided, assess the consequences in terms of value destroyed for Toyota (examine the different types of value you know)? What are the legal risks for Toyota (identify the ground on which lawsuits may be engaged against Toyota)? c. Do a research about the so‐called “Ford Pinto” case. In what extent can it be linked to the story of Toyota’s recent safety issues? |

Office in Washington DC: the aim is to lobby.
Avoiding Value Destruction through the Law
Value
* Creation : value created / value not destroyed the best way to contribute a company * Destruction: value destroyed/ value not created
Will also talk about the legal risk.
Correction cas : * Is it possible to avoid value destruction through the law?

Toyota Case a- Slide “key safety issues”: car manufacturers are facing more and more legislation (NHTSA, NCAP, TREAD), legal envt is more and more demanded. So legal risk are more and more important for them.
Slides “wins for Toyota”: * Rulemaking: wins relate to delayed regulations * “negociated equipment recall saved 1M dollars negotiation with the NHTSA presented as a success * Other : more demanding NCAP delayed
Those wins are the result of lobbying for less demanding rules/ less rigid actions from regulators * effort to influence the legal environment * god way to create value

b- Wins for Toyota: Value creation through the law?

1) 3 different types of value: * Financial value: Toyota limited its recalls of cars and saved money. * Strategic value: Lobbying to protect business * Institutional value: relationships with regulators.
Limits: you don’t measure public safety and human life in terms of dollars. 2) Toyota’s safety issues (2007- 2010)

1- Floor mat issue (2007 recall): the solution : replace the floor mat (after negotiation) 2- Gas pedal issue (2009-10 recalls, together with an enlarged floor mat recall) vehicle basic vehicle issue 3- Other potential issue: electronic control system.

* Value destroyed for Toyota * Safety issues have led to the recall of more than 10 million Toyota and Lexus cehicles worldwide since October 2009 * Recalls cost about 2 billion dollars in lost sales (-16% in the US in January 2010; -9% in February) * Regression of market shares: in January 2010 Toyota’s market share was back to its 1999 level. * Reaction of the stock market : fall of stock prices * Consequences on the corporate brande image and customers’ loyalty: Toyota reputation was built on 3 pillars: safety, quality and reliability…

3) Legal risks for Toyota

* NHTSA fines * Wrongful death suits (traditional product liability lawsuits). Their can be civil lawsuits for injuries and criminal lawsuits for death (more dangerous for the company). * Lost value liability: claims that seek to recover cars’ “LOST VALUE” caused by the accelerator problem! That is the worst for Toyota because a lot of owners are concerned, hence big amounts of money involved. Have to multiply this amount of money by the amount of owners * Shareholder Actions: shareholder suits that seet to recover for the drop in the company’s value.

It is about the safety of cars and therefore the safety of consumers. Toyota’s attitude has been very cynical. c- Link with the Ford Pinto case
Modify fuel tank to prevent fires
Pay liability for burn deaths and injuries
1948: a US jury awards a victim

Session 9: NIKE HONDURAS CASE 1. Was Nike legally obliged to pay severance to workers of the factories? 2. What incident put Nike under pressure? And how did Nike react to this pressure? 3. Nike finally agreed help the workers in Honduras. How? What precedent of the 1990s probably influenced Nike’s strategy in reacting to the pressure in this case? 4. What consequences do cases like this have for legal management in general? |

Nike involved with a Wisconsin university. Contract to provide them with college goodies, logo. LICENSING contract.
Could nike be engaged to pay severance the employees of the subcontractors when they are fired. Answer is no.
Apr 2010: university of Wisconsin ends its licensing agreement with nike. Growing pressure from universities and student groups (“just pay it” campaign)
Nike’s reaction: we don’t have to pay these workers with which we are not linked. As a result a lot of other licensed companies said they wish to end their agreement.
Lessons to be learnt from Nike case: what legal strategy? * You may be legally right and morally wrong: * An “overly legalistic” approach may destroy value * A de facto “supply chain responsibility” to maintain minimum labor conditions * Legal means * introduction of codes of conduct into licensing agreements * introduction of codes of conduct into supplier agreements
Integration of codes of conduct into supplier agreements. And of codes of conduct into supplier agreements.
How to control its suppliers? External and internal audit and reports.
AIDS CASE

Session 9: South Africa vs Big Pharma.

Q. 1: What does section 15C (b) enable the South African Government to do? Q. 2: Explain the notion of “International Exhaustion” and explain the relevance of international exhaustion for this case.Q. 3: What is compulsory licensing?Q. 4: Did this strategy – vigorously defending legal rights in court while offering voluntary measures such as lowering prices succeed?Q. 5: How do drug companies adjust to the present international situation? Take as an example Gilead’s Access program. Read Gilead’s White Paper “Expanding Antiretroviral Treatment Coverage in the Developing World” that describes the company’s learning process in this respect (posted on Blackboard). |

How to provide cheaper, generic versions of medication, including those who combat aids in developing countries.
There are “Measures to ensure supply of more affordable medicines.” * Since 1997 in south Africa: Medecine control Act: “Measures to ensure supply of more affordable medicines” * Allowing parallel imports of cheaper drugs * Allowin SA gvt to make or buy cheaper copies of patented drugs * International Exhaustion of IP rights (“First dale doctrine”)
IP rights are exhausted once the product has been sold by the IP owner or with his consnt in any part of the world. * You can do that by importing cheaper drugs, ..
SA legislation challenged by 39 drug companies
International protests against “drug profiteering” * The companies were seen as participants of the health problems more than helping solving them. * April 2001: pursuits were withdrawn.
Lessons to be learnt : what legal strategy for drug manufacturers? * Moral: do not try to be legally right, when you are morally wrong. * The affair became a public relations nightmare for drug companies. * Following 2001, they had to engage in costly strategies of rebuilding trust. * Voluntary measures may not be sufficient. * Entering into partnerships with local distributors and producers is necessary. * See Gilead Model: expanding antiretroviral treatment coverage in the Developing World.

Compliance management
Compliance= all organizational measures of a company to deal with the demands of legal and extra legal norms.
Ex:
* employee relations: workspace safety, * Corruption: antitrust, competition * Human rights, data protection: complicity with foreign governments that violate human rights
Compliance Management: * Instruments: Committees and audits/ Officers and principles/ With employees and suppliers: codes of conduct * Structure: Codify (cororate values) / implement (detailed rules) / systemize (instruments, communication, review)/ organize
Session 11; SIEMENS 1. Briefly summarize the acknowledged facts that resulted in the charges against Siemens! 2. Siemens negotiated a settlement with German law enforcement authorities in the corruptionaffair. But why does the German company have to pay a fine to U.S. authorities? 3. How did Siemens avoid an ever higher fine? 4. Describe the present compliance program at Siemens as it is presented in the publicly accessible documents of the company posted under “investor relations” or “sustainability” at www.siemens.com. | The current compliance program at Siemens has been shaped largely as a result of the negotiations that the company had with US American law enforcement authorities
Summary: main point: the lacking compliance organization that made systematic bribery possible
Ex:
* Simens is faulted for failing to take reasonable steps to ensure Siemens compliance and ethics program was followed; * Failing to evaluate regulary the effectiveness compliance program; * Failing to develop and enforce an effective compliance pgm when siemens became a US issuer in 2012
Summarize the “prevent detect respond” system and some of its key measures: * Prevent ( rules, training..), detect and respond. * Completly in accord with the law, as well as with our own internal rules and principles
HP case, Intel case and Siemens case

Session 11: HP
Since 2005, sensitive information about the company’s strategy and leadership had been leaked to the press. Suspected: board members
DeLia employed visual surveillance and data‐base research as investigative methods. To obtain telephone records for a certain time frame of suspected board members and journalists 1. Why did the chairwoman contact investigators? Why did the legal counsel report to the chairwoman? Why not the CEO? 2. Describe the governance structure of the investigation! Name alternative governance structures! 3. What risks did HP have to deal with when it authorized the use of pre‐texting? (It is not your task to review the legality of the investigative methods used and possible illegal conduct on behalf of HP employees or HP itself.) - Risk of illegal behavior and of unethical behavior4. Describe how HP dealt with these risks! |
Hp sought assurance from DeLia ( and DeLia in turn asked its contractor) about the legality of the pre-texting
HP’s own legal staff conducted some legal research on pre-texting
HP did not deal with the potential ethical impact of the affair
No formal procedure

5. Name alternative courses of action to deal with the problem of the board leakage!
Legitimate to investigate into leakages of confidential info to the press, but usinf unethical and potentially illegal measures may do more harm than help * HP did not have an appropriate compliance structurethat could have clearly defined the methods authorized or not in internal investigations and under which circumstances they could be authorized.
Session 11 Intel
Intel's dominance in the x86 microprocessor market led to numerous charges of antitrust violations over the years. The FTC (Federal Trade Commission, USA) launched investigations in the late 1980s and in 1999. Intel's market dominance made it an attractive target for litigation, but few of the lawsuits ever amounted to anything.
The Sherman Antitrust Act, passed in 1890, prohibits attempts to monopolize: to protect the public from the failure of the market
One must make a distinction between having and abusing a monopoly or dominant position one must make a distinction between having and abusing a monopoly or dominant position also said that for the employees in charge of marketing and business development, there is a conflictual issue to solve: to find the right equilibrium between antitrust law requirements and the necessity to be agressive in order to consolidate and to develop the company’s leadership on its market.

So Intel decided to build a compliance system which Tim Dunlap, its General Counsel, qualified as “the world’s best antitrust compliance program”.

Q1: What should be integrated and developed in this compliance system to make it successful? To answer this question, students must use the content of the lecture done by Prof. Björn Fasterling and find on the internet additional information about compliance programmes in the antitrust domain.Q2: the European Commission decision: could be considered as surprising if one remind that intel has built “the world’s best antitrust compliance pgm”Csq for the company: in may 2209 the European commission imposed a fine of 1Md d’euros for infringement of the article 82 of the European threaty. Q3: the possible explanations for this paradox: the position of competition authorities about compliance programme is heterogeneous : in Fce code de commerce companies can suggest to the Autorité de la Concurrence engagements which could lead to the end of anticompetitive behavior |
In the UK , the office of fair trading has taken into account effective compliance pgm but has punished companies when such codes were not applied. The effectiveness of these pgm are appreciated through several criteria
The European Commission does not usually take into account the existence of a compliance pgm when it has to decide of the fine Impossible to boil down a complex antitrust compliance pgm to a few bullet points. But intel’s expce: * Learn the rules * Antitrust law is complex and involves a lot of gray area. * Make compliance instinctive * Sweat the Small Stuff