The High-touch Legal Services® Blog • For Startup/Early-stage Companies

A couple of months ago, I posted International Business and Agreements: Learning about Legal Culture. This is a follow-up that discusses certain common problems when foreign suppliers bring their standard-form agreements to the U.S.

During the past several years, I have helped quite a few foreign technology suppliers adapt their standard-form agreements for use in the U.S. The agreements that they use back home (translated to English, as required) are quaint by U.S. standards. There is a lot of white space, fonts tend to be large, and while business terms are specified in detail, many legal provisions are addressed in a cursory fashion or not at all.

This last point is critical. In other countries, applicable law fills in many gaps adequately, and the parties assume that problems will be worked out satisfactorily; litigation is a last resort reserved for extreme situations, such as fraud or a complete failure to perform. In the U.S., in contrast, we include many provisions expressly in anticipation of a suit that may be brought by either party at any time for any reason.

Here are five areas where, in my experience, foreign agreements often need to be strengthened:

1. Confidentiality – While detailed obligations to protect confidential information are important, it is equally important to have exceptions to those obligations (for example, if the information is developed independently, or if the information must be disclosed in a legal proceeding).
2. Exclusion of Warranties – If the agreement provides certain warranties and remedies, it is critical to exclude all other warranties. Absent such an exclusion, the supplier might find that the law imposes other warranties that the supplier never intended to provide.
3. Limitations of Liability – In other countries, if suppliers limit their liability for direct damages, they tend to be more generous than is customary in the U.S. Even worse, foreign companies often do not exclude consequential or punitive damages, which can reach astronomical levels here.
4. Intellectual Property Indemnification – While the goal of the indemnification provision is to protect the customer, the supplier should make sure that its obligations are properly circumscribed (for example, geographically and by the type of IP protected) and that appropriate procedures (including customer cooperation) are specified.
5. Jurisdiction and Venue – Foreign agreements typically have choice-of-law provisions. What they often lack, however, is a provision specifying exclusive jurisdiction and venue in courts that are convenient to the supplier – a potential tactical advantage if litigation does arise.

Interestingly, I find that start-ups in this country sometimes use agreements that share these same shortcomings – apparently because entrepreneurs, pressed for cash, adapt agreements that either they used at other companies or that they find online without making sure that the agreements are as robust as they should be.

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.

Having helped more than a dozen foreign companies set up operations here during the past few years, I am pleased to offer “Ten Tips for Success in the U.S.” on the Downloads page.

Here are the titles of the ten tips, which are discussed in greater detail in the document:

1. Work with complementary businesses that are already established here
2. Manage overseas personnel on the principle “trust but verify”
3. Form your corporation or limited liability company properly
4. Be ready for a legal system that is different from the one back home
5. Identify and protect intellectual property (IP) that is used here
6. Develop detailed employee and independent contractor agreements
7. Choose an accountant with international tax experience
8. Be prepared to obtain a federal employer identification number
9. Conduct due diligence on potential investors
10. Agree on business terms before you prepare a written agreement

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.

Twice within the past 24 hours, a client has contacted me with concerns about trademark protection. In each instance, the concerns were caused by an e-mail that offered specified domain names in Asia. I will describe the e-mails in detail so you will know to be on guard if you receive anything similar:

1. The subject line includes terms such as “copyright” or “intellectual property.”
2. The text indicates that the sending company, an Internet domain registrar located in Asia, has received a request to register domain names with country codes in Asia that are similar to a “trademark” (more precisely, a domain name) that you own. For example, if you own <universalwidgets.com>, the e-mail might state that there are requests to register <universalwidgets.cn> and <universalwidgets.asia>.
3. The e-mail then offers you an opportunity to protect your trademark by buying the Asian domain names yourself, rather than letting them be purchased by the third party. However, to take advantage of this opportunity, you must act quickly.
4. The individual ostensibly sending the e-mail has an Americanized name, such as “John Zhou” or “Adam Hao”.

Do not waste you time replying – this e-mail is a scam! Based on Internet research, I determined that even if the sending company really is an Internet registrar, the price for the domain names will be way too high. If you really want the domain names, you might as well buy them through your existing Internet service provider at a substantially lower price.

Which brings us to a larger point: You should buy a country-specific domain name only if you consider it important to do business in that country. And if the country is that important, you should look into registering your trademarks there, too.

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.

Over the years I have negotiated a number of international agreements, typically representing domestic clients. My more recent work with EU-based clients, however, has given me additional insights about the U.S. and other legal systems.

These clients have established technology businesses in Europe. Each recently set up operations here in the Bay Area and asked that I adapt existing agreements for use in the U.S. As I work with these clients, two differences between the U.S. and the European Union jump out at me.

Length of Agreements

First, in the U.S. we often have longer agreements. European contracts tend to rely on, and implicitly or explicitly incorporate, detailed statutory provisions that do not exist here in the U.S. Furthermore, agreements here tend to include more business details and legal protections in case the relationship sours and ends up in litigation. For example, one client shared its existing reseller agreement. I found the document charming in its brevity and the abundance of white space on the page. By the time I added everything that is considered normal here in the U.S., the new version had four times as many words!

Still, not every agreement need take on Brobdingnagian proportions. One client’s European license agreement covered very much the same ground as license agreements here in the U.S. After I tightened and simplified it, the new version ended up 15% shorter than the original.

Protection of Data

Second, there are major differences in data protection laws. The EU takes a comprehensive approach based on the European Directive on Data Protection (Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data).

The Directive sets extensive guidelines for protecting personal data, but each EU Member State creates its own national laws to implement those guidelines. As a result, restrictions and requirements vary from country to country, creating compliance challenges for multinational European businesses.

The U.S. approach, in contrast, is both less comprehensive and more complex. At the federal level, privacy laws and regulations apply only to certain industries. For example, HIPAA (the Health Insurance Portability and Accountability Act of 1996) governs individually identifiable health information. Similarly, the Gramm-Leach-Bliley Act of 1999 (15 U.S.C. Sections 6801-6809) governs personally identifiable financial information.

In addition to national laws, states can add their own privacy requirements. For example, dozens of California privacy laws are described at the Office of Privacy Protection website. The complex interaction of federal and state laws – with federal superseding state in certain instances – sometimes makes privacy compliance here even more difficult than in the EU.

Working with these clients reminds me of a point that I have known for years: Just as a company should learn about the local human culture before doing business in a new country, it should learn about the local legal culture, too.

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.