Arbitration in International Business

It may not be an exaggeration to say that all international business contracts should include an arbitration provision. There are many benefits of arbitration over litigation, including:

1. Acceptability. Very few parties want to sign a contract which gives the other party the ‘home court advantage” with its own legal system in its own courts. Not only is the cost of litigating in another country going to be high, can you really expect a fair deal in a foreign legal system? Can you really expect the people you are dealing with to accept that all disputes should be resolved in the US courts? Arbitration allows for a choice of a neutral location for the arbitration. It also allows for a choice of which law will govern, which (with some exceptions) need not be the law of that location. You can even set out, in your contract, agreed upon rules for the arbitration, or use the rules of one of several arbitration organizations. A construction contract in Thailand awarded to a US company could be subject to arbitration in Singapore under British law, for example. Maybe not a perfect answer for anyone, but quite possibly acceptable to everyone.

2 Enforceability. If you win a lawsuit in your home court, you still have to go a foreign court to enforce the award, which they will almost certainly ignore. But an arbitration award is usually governed by the “New York Convention”, signed by over 150 countries, which says that an award in one signatory country is enforceable in any other signatory country. The local courts must uphold the award. You still have to have the award enforced by some court in a country where the other party has assets, but you are much more likely to collect.

3. Finality. No appeals are allowed in arbitration. You can get back to business – an important concern where you may still be doing business with the other party.

So with an arbitration clause, you will be more likely to have a mutually acceptable contract in the first place, and a better chance of a resolution if things go wrong. Arbitration provisions can be complex, but they should not be omitted or treated lightly.

For more information on this subject, contact Michael Reilly at

Protecting Your Foreign Investments As Globalization Comes Under Attack

The political trend across the world is towards protectionism, nationalism and populism and away from globalization and foreign trade.   Several countries, including some in Eastern Europe, have elected governments which are less likely to welcome foreign investors, and more likely to favor their own nationals in a trade dispute.  We may be looking at a new era of appropriations and takeovers, the likes of which have not been seen since many countries became independent from former colonial powers.

It follows that if the leadership of a country either directly or indirectly supports actions intended to deprive foreign investors of the rewards from their investments, the court system of that country is not very likely to take the side of the foreign individual or company. Therefore looking for redress within the country is probably futile. But this does not mean that the investor has no recourse at all.

In the past, when countries were actively soliciting foreign investment, many of them signed Bilateral Investment Treaties with countries from which the investments might originate. The intent of these treaties was to reassure foreign investors that their investment would be protected by high level guarantees. Most of these treaties are still in place, and provide a legal framework for a claim by the investor to be compensated for any appropriation or action which adversely impacts the investment.

The second factor which allows the investor to seek redress is international arbitration. Some BITs include arbitration as the means for settling disputes. Even where they do not, most countries are signatories to the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States. This is usually referred to as ”The ICSID Convention”, as it was developed by the International Centre for the Settlement of Investment Disputes (ICSID). The Centre and the Convention grew out of the work by the World Bank, which obviously had an interest in promoting international investment by increasing the confidence level of the potential investors.

By agreeing to international arbitration, a signatory country could agree to be bound by the decision of the arbitrators, without having to give up its own sovereignty or submit to the courts of another country. Each signatory country has agreed to pay any award made against it, and to enforce awards made against its own nationals just as if its own courts had issued the award. Any country which fails to do so may find that it has a hard time obtaining investments, and may have more difficulty if it asks the World Bank for loans and investments.

There is another international agreement, usually called “The New York Convention”, which supports the enforcement in one country of an arbitration award issued in another country. Most countries have signed this convention. It allows the wining party to go after assets of the losing party almost anywhere that those assets can be found.

If you do not have arbitration agreements in every international contract you sign, you really should think about doing so, as it is the best way to protect your international business investments.

Export Control Lists

We all know that Santa Claus keeps a list of who has been nice and who has been naughty. But did you know that the US Government keeps several lists of who has been ‘naughty’, and you are the one who is supposed to check the list at least twice?

There is a list of countries to which you may not export anything (with a very few humanitarian exceptions), regardless of the product and how harmless it might seem. There are many other restrictions on exporting certain products to specified countries, and a starting point for checking these is the EARS (Export Administration Regulations) at, and specifically, the Commerce Control List.

There are also lists of individuals and companies with whom you may not do business. They may be on the lists because of suspected connections to terrorism, or for previous import-export law violations. There is a web page, “Lists to Check”, at where you can find links to the various lists, then select those which apply to your situation.

In addition to the above lists, maintained by the Bureau of Industry and Security of the Department of Commerce, there are also lists maintained by the US Treasury Office of Foreign Asset Control (OFAC) which must be checked. These can be found at

Keep in mind that the government considers it your responsibility to check the lists not only for the person you are dealing with, but also for the final end-user. That’s not always easy, but you must make a reasonable effort to determine the end user. There are flags to watch for, such as an order for hot-weather items being shipped to Sweden, or a request to ship to a destination other than the home country of the person arranging the deal, who may be nothing more than an agent for an end-user on the banned list. If it does not feel right, check more carefully.

When should you check the lists? When you begin negotiating a deal, when you are ready to sign a contract, and again right before you ship – because the list might have changed in the intervening time, and you would still be liable if you shipped to someone who had just made it onto the list. Having a written policy and regular employee training on this topic will also help if the Feds come calling. And include a term in your contract which states that if you are legally prevented from shipping as promised because the shipment is going to a place, person or entity on any of these lists, then you have no liability to the customer for not making the shipment.

For more information on this subject, contact Michael Reilly at

Deemed Exports

Elsewhere on this web site, I discuss the Export Control Lists. Clearly if you are shipping goods overseas, you need to be careful about where your goods are going and to whom. But you also may be exporting technology, or know-how, along with, or instead of, shipping manufactured goods. Indeed, the United States is a leader in this area. Sometimes a company will provide expertise to set up a facility overseas, or send technical support engineers out to solve a problem. When the personnel go overseas, so does the technology, and it is not hard to see why this is an export.

What is not so obvious is that you may be exporting this technology simply by showing a Chinese delegation around your facility, or employing an Indian software engineer. When the technology is disclosed to a foreign national, it is a ‘deemed’ export as far as the US Government is concerned. It makes no difference that a Ukranian engineer plans to settle in the US and never return to his homeland. If he is a foreign national when he receives the knowledge, that knowledge has been exported.

So what steps should you take to avoid this situation? If your business includes the type of technology for which you need an export license, then you should make the application for such a license part of the HR function when hiring foreign nationals to work on that technology. If you have a visiting delegation, make sure that they are restricted to non-sensitive areas of the facility. Some companies literally paint colored lines on the factory floor, and insist that visitors stay within those lines. If you really must disclose the technology, perhaps to convince investors, then apply for the proper export license ahead of time. While the risks of getting caught may be small, the penalties for illegal exports can be high, and certain businesses have a higher level of government scrutiny than others. In this case, it is much easier to ask for permission than for forgiveness.

For more information on this subject, contact Michael Reilly at

International Contracts, UCC and CISG

 There is no reason why an international contract for the sale of goods should be overly long, attempting to cover every situation, when many of its provisions are ‘boilerplate’ and only state what the law is. Many contracts leave out the routine details, or perhaps there is no formal contract, just a purchase order or a completed vendor order form. If these provisions are left out, the law will fill in the blanks with default rules. In the United States, the UCC (Universal Commercial Code) will supply the rules in many situations. When dealing with other merchants in the US, both parties understand this. But what happens when you send a purchase order to a foreign company, and they send back a confirmation but with different terms? Then you may find that the deal is subject to the CISG (The United Nations Convention on Contracts for the International Sale of Goods, 1980) default rules. Many countries have signed the CISG agreement, including the United States.

In this case, it is not even obvious whether the seller’s response was a modification of your offer to buy, or a rejection of your offer followed by a counter-offer to sell you the goods on different terms. Then you may respond, but change the shipping details, and the goods are shipped out to you. Do these changes apply or can the seller ship under his or her terms? When things go wrong, which laws apply? Even if you think that US law applies, because the US is a signatory to CISG, the CISG rules are US law, and may override the UCC rules. To avoid the risk of not knowing which rules apply, you can state in the contract that the deal will be governed by UCC rules or by CISG rules.

Note that the UCC and CISG apply to contracts between “merchants”, that is, people who deal in these types of goods, and not to sales to consumers.

Don’t assume that the UCC rules, being American, are necessarily better than the CISG rules, presumably drafted by some international committee in a far-off land. Depending on whether you are the seller or the buyer, and how the deal is done, you may be better off with CISG rules in one deal, and UCC rules in another. As lawyers will always tell you, “It depends”.

For more information on this subject, contact Michael Reilly at

International patent applications

I recently had someone tell me that her lawyer had applied for “an international patent”. While it would be wonderful to apply once and receive a patent good anywhere in the world, there is no such thing as an international patent. Nor is there likely to be in the foreseeable future. There are too many differences between national patent systems, not the least of which is that the US awards patents to the first-to-invent, and most of the rest of the world uses a first-to-file system.

What this person’s lawyer told her was almost certainly that he had submitted an international patent application. That is quite correct, and actually the best approach with her invention which had global applicability. So you can see why she was confused. What use is an international patent application if it does not get you a global patent? Well, thanks to the Patent Cooperation Treaty (PCT), it can be very useful.

In many countries, any publication of the idea before filing will automatically bar the right to patent. A US patent application is typically published 18 months after filing, and there may be other ways in which the invention becomes public – trade shows, sales, test marketing etc. So instead of filing the usual US Patent application, your patent attorney or patent agent may advise that you file a PCT application, designating the US Patent and Trademark Office. The application will be processed by the USPTO and a US patent will – hopefully – be issued in due course. But the big advantage of the PCT application is that you retain your rights to file in other PCT signatory countries for up to thirty months (with a few exceptions). That means you can proceed with your US patent application, do your test marketing, and gauge whether or not you wish to apply for patents in other countries.

If you do apply for patents in other countries, you will need a local patent attorney or agent, and will have to meet all the requirements for a patent in that country, with one big difference – the all-important “priority date” will be the date on which you filed the PCT application, not the date you file in that country. That means your activities in the meantime will not bar you from obtaining a patent.

So the international patent application is very useful, because it buys you time in which to make a decision about whether and where to apply for additional patents. If the product does well, you may have more cash available to obtain more protection. If it flops, or you see that you are unlikely to get a US patent, you can walk away. So for the modest additional cost, think about whether you want to keep your options open with an international patent application.

NOTE: because all patent applications are very time-sensitive, and there are many variables which affect a patent application, the above should be taken as a general recommendation only. For professional advice on this topic, consult with a registered patent attorney or patent agent.

For more information on this subject, contact Michael Reilly at