TOP TEN
PRACTICAL TIPS FOR GLOBAL
STRATEGIC ALLIANCES
- Michael S. Mensik,
Partner
- Baker & McKenzie
130 East Randolph Drive
- Chicago, Illinois 60601
- Tel: 312/861-8941
- Fax: 312/861-2898
- Email: michael.s.mensik@bakernet.com
-
Below are ten practical
"tips" that should
be considered when negotiating
a "strategic
alliance" or "joint
venture" between or among
U.S. and foreign parties.
Tip No. 10: "When's
lunch?" - Consider
cultural differences.
A strategic
alliance or joint venture
normally raises a myriad of
business, tax and legal issues
that the parties should
address and resolve. When
negotiating such arrangements
with or on behalf of a foreign
party, it is important to
anticipate, understand and
accommodate differences in
culture and customs. Failure
to do so may hinder the
negotiation process and
ultimately threaten the
viability of the proposed
alliance or venture itself.
Tip No. 9: "What do
you want from life?" -
Define the objectives.
The
ultimate success of any
strategic alliance or joint
venture, domestic or global,
turns on whether it
accomplishes the parties'
respective objectives.
Ideally, these objectives
would be clearly articulated
at the outset of discussions.
Sometimes, however, they may
be vaguely stated or only
partially disclosed due to
strategic considerations; in
the global context, moreover,
cultural differences and
language barriers may hinder
identifying the foreign
party's true objectives. At a
minimum, you should thoroughly
understand and remember your
own client's objectives.
Tip No. 8: "Beware of
over-legislation" - Avoid
the other side of "Napkin
Agreements."
U.S.
lawyers typically make every
effort to ensure that the
agreements executed by their
clients clearly address all
fundamental issues and that
"letters of intent"
have no unintentional binding
effect. This legal culture,
though laudable, may encounter
resistance in certain foreign
countries, where a lawyer's
primary role is still to
resolve disputes rather than
avoid them through counseling.
Less laudable is the
unfortunate tendency to
"over-legislate" a
proposed strategic alliance or
joint venture -- draft
agreements that contain too
many answers to too many
specific questions and too few
procedures for dealing with
unanticipated circumstances.
Tip No. 7: "Where's
the exit?" - Define the
when's and how's of
termination.
Discussing
how a strategic alliance or
joint venture will "look
and feel" may be
time-consuming, but the
parties normally make this
effort willingly, even
enthusiastically. In contrast,
negotiating when and how the
alliance or venture may be
terminated is seldom easy, but
doing so is no less critical,
especially where the alliance
or venture has a global reach.
Business-level discussions
often ignore exit issues, so
the lawyers may have to begin
with a relatively blank page.
In the global context,
moreover, the lawyers should
alto consider various
exit-related legal issues
under foreign laws, which may
establish roles that are
unfamiliar to U.S. lawyers.
Tip No. 6: "Governing
law won't govern all" -
Understand the impact of local
law.
Despite the
apparent importance of an
agreement's "choice of
law" provision, many
critical legal issues in a
global strategic alliance or
joint venture will be governed
by foreign law. Where an
alliance or venture will be
formed or operate in a foreign
country, this country may
impose its "public
policy" on the parties
through foreign investment and
transfer of technology
legislation, exchange
controls, antitrust or
competition laws, labor laws,
and consumer and dealer
protection legislation.
Intellectual property rights
must also be defined by
reference to local patent,
copyright, trademark and other
legislation, which may embody
concepts that axe unfamiliar
to U.S. lawyers (see, e.g.,
Tip No. 9 below).
Tip No. 5: "Talk tax,
but draw the line" -
Harmonize tax planning with
the deal's magnitude and
importance.
Informed
tax planning should precede
the execution of any
"letter of intent' or the
like. No tax planning may
result in significant
unanticipated costs (e.g.,
imputed royalties on outbound
transfers of intangible
property) or unrealized
benefits (e.g. potential
deduction of foreign losses
against other income), and
untimely tax planning may lead
to difficult and expensive
renegotiations. Conversely,
excessive tax planning can
also substantially raise the
cost of structuring,
implementing and maintaining a
global strategic alliance or
joint venture. Tax planning
should be
'cost-effective" given
the particular deal's
magnitude and importance. This
may be ultimately determinable
only in hindsight, but many
typical tax-motivated excesses
usually become obvious during
the negotiation cycle.
Tip No. 4: "Remember
your FCPA" - Consider the
implications of the Foreign
Corrupt Practices Act.
The Foreign
Corrupt Practices Act is
normally remembered for
prohibiting the payment of
bribes to foreign politicians
or government officials. U.S.
companies that axe publicly
traded should not overlook the
FCPA's "accurate books
and records"
requirements. In structuring a
global strategic alliance or
joint venture, the U.S.
partner may be asked to sign a
non-compete, consulting or
other agreement with a tax
haven "affiliate" of
its foreign partner,
especially where the latter
resides in a high tax
jurisdiction. These
arrangements may not
necessarily be
"unlawful" under the
laws of the foreign party's
domicile. From a FCPA
perspective, such agreements
may be completely
"accurate" in terms
of content; however, a
"false" document
will not satisfy the FCPA, no
matter how
"accurate."
Tip No. 3:
"Remember your EARs and
IFARs" - Consider the
implications of U.S. export
controls.
The export
of "dual purpose"
commodities and technology are
regulated under the Export
Administration Regulations,
International Traffic in Arms
Regulations and various
Executive Orders. Given the
abolition of COCOM and
mounting criticism from U.S.
exporters, this complex body
of law is now undergoing
revision -- new final
regulations are expected soon.
Until then, the old rules will
remain ill effect. Although
progressively liberalized,
these roles may require the
U.S. partner to secure a
"validated license"
before exporting certain
commodities or technology
(e.g., computer programs with
an encryption algorithm),
indeed, merely disclosing
confidential information to
the foreign partner may
require such a license, even
if the disclosure takes place
within the United States.
Tip No. 2: "Don't
forget your morals" -
Consider the implications of
local copyright law.
The concept
of "national
treatment," which
underpins the Berne
Convention, implies that the
existence and scope of
copyrights, if not more
"transactional"
issues, should be determined
under local copyright law.
Virtually all countries have
copyright laws, but not all
copyright laws are alike. For
example, civil law countries
generally distinguish between
"economic rights"
and "moral rights."
Moral rights, which include
the right to be identified as
the author and prevent any
distortion of the work, are
normally defined as
'inalienable." Similarly,
our 'work-for-hire' doctrine
is not universally recognized;
copyright assignments may be
subject to certain unfamiliar
presumptions; and other
countries may not apply the
concepts of 'secondary
liability' and 'vicarious
liability" as the U.S.
courts do. Thus, where a
strategic alliance or joint
venture involves the creation
or use of copyrights in a
foreign country, local
copyright law should be
investigated to avoid traps
for the unwary.
Tip No. 1: "Be
creative: be flexible" -
If stuck, think outside the
box.
No two
strategic alliances or joint
ventures are exactly alike.
Most alliances and ventures
raise issues in numerous legal
disciplines, which requires an
inter-disciplinary approach to
problem solving. Each proposed
alliance or venture offers
opportunities to be creative,
especially when dealing with
newer technologies where the
law is unsettled. Crafting
solutions requires patience
and flexibility, particularly
when dealing with partners
from different cultures. This
practice area is demanding,
but few are more rewarding.
Copyright
1995 Michael S. Mensik. All
rights reserved. Permission to
copy with attribution is
granted.
Webmaster's
note: Baker and McKenzie
is the largest law firm in the
world devoted to international
and intellectual properties
law. For additional
information on joint ventures
and strategic alliances,
please see Strategic
Alliances and Joint Ventures.
Date Updated: March 27, 2007
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