With sovereign debt levels continuing to rise and concerns abounding about the ability of the European states to repay their debts, there is a risk that countries will begin to withdraw from the European Union and that certain member states will abandon the Euro and re-introduce their own local currencies.

Where a business receives payments in Euros it may wish to consider amending its contracts to ensure that it is protected against any potential currency conversion in the less likely event that a dispute arises between the parties as to which currency shall apply instead.

It may also be prudent to consider inserting a similar provision in agreements where payments are made in Euros; for example to a supplier or a service provider, which shall apply where the Euro as a currency ceases to exist. Even if the default currency falls in value (which would benefit a company’s position where it is obliged to make payments to other parties in Euros) there is the potential for uncertainty where there is more than one European jurisdiction that is connected to the contract.

For example, there may be a contract for the sale of products from the manufacturer in Germany to a purchaser in France and therefore, two European currencies that have a connection with the contract.

-          Payments received in Euros

For contracts where payments are to be received in Euros, you could nominate a currency to apply if the Euro no longer exists or if a particular country pulls out of the Euro, or, introduces a second local currency.  Ideally, you would choose a currency that is most likely to increase, or at least maintain its value over the term of the contract as the currency that the Euro is to convert to.

The calculation date for the conversion of the currency may be set at a time that is reasonably prior to the date on which the trigger is to occur (i.e. the date on which the Euro may cease to exist, or the date upon which a member country of the European Monetary Union may begin to recognise a second form of currency as the legal tender for such country). The reason for this suggestion is that the Euro may decrease in value in the period immediately prior to the trigger date. By setting the calculation date reasonably, prior to the trigger date, it may reduce the risk of a potentially adverse effect of the currency conversion.

-          Payments made in Euros

Where payments are to be made in Euros, the provision would ideally be drafted so that it is only to be exercised if the Euro disappears completely, rather than a particular country dropping out of the European Monetary Union or adopts a dual currency system. This would allow your business to benefit from the currency drop that is likely to ensue where countries drop out or adopt a dual currency system.

Similarly, the conversion would ideally occur based on the prices at the time of expiry of the Euro rather than a certain period beforehand in order to allow your business to benefit from the currency drop that is likely to ensue in the period prior to the expiry of the Euro.

However, you need to consider the contract as a whole in order to ensure that your position is adequately protected under the contract.  “For example, the governing law and jurisdiction would need to be reviewed in order to ensure that the contract is subject to a legal system that is likely to enforce such a provision. There may also be a material adverse change provision or a force majeure provision in the agreement. If so, it would also be prudent to ensure that such provision is not drafted so broadly that it is triggered by the break-up of the Euro, a change of currency, or a drastic drop in currency value where payments are to be received in Euros,” she says.

Protection against a drop in the value of the Euro by use of derivatives

Regardless of whether the Euro breaks up or not, it is likely that if the tensions keep mounting in Europe, it will result in a significant fall in the value of the Euro.

Mehdi Al Amine, Director, deNovo Corporate Advisors, suggests that foreign exchange derivatives could be used as a solution to protect businesses against the effect of a potential drop in the value of the Euro.

A foreign exchange derivative instrument such as the Option is a contract and an insurance, which allows a party to force its counterparty, the bank, to buy or sell a currency (in this case, the Euro versus the US Dollar ) for a particular price.

For example, a company is expecting to receive a payment in Euros in one year and, at the time of entering into the agreement, the exchange rate of USD 1.2750 to EUR 1. As Al Amine explains, the company could pay a percentage of the notional amount as a premium in order to buy the protection and, if the Euro falls, will force the bank in one year to buy the Euros for a pre-agreed level.

If the value of the Euro drops to USD 1.10, at the end of that one year period, the company will be protected from the USD 0.15

Melissa Forbes, Associate - Corporate Department, Taylor Wessing

currency conversion loss per Euro that it would have otherwise incurred if it had not entered into the derivative agreement.

The cost of hedging the currency varies, depending on the exercise level of the option and other variable factors, but would usually be between 1-5% of the amount to be hedged.

Al Amine advises that “alternative and cheaper solutions are available where the business seeks only to protect itself against a strong depreciation in the Euro, which would correspond to a deepening of the Eurozone crisis, as opposed to a slight and manageable decrease in its value.”

A business that employs a prudent risk management policy will want to explore these solutions, given the uncertain times that we face in the Eurozone.

“Dubai being a hub, various categories of businesses choose to set up in the Emirate for faster growth and market access. The 120 days licence is part of DED’s efforts to enable businesses to make full use of the advantages of Dubai and improve the Emirate’s ranking in the Doing Business Report of the World Bank,” said Mohammed Shael, Chief Executive Officer of the Business Registration and Licencing (BRL) Division at DED.

The new initiative will allow investors to have their licences issued immediately from DED depending on the risk factors of the intended business activity.  Business activities in Dubai have been categorised as No-risk, Low-risk and High-risk for the sake of evaluating the risk component.

“The categorisation depends on four main risk factors, evaluated on the basis of whether the business activity is harmful to human beings, harmful to animal life, harmful to plants, or harmful to the environment. When a businessman approaches DED for a licence, a 120 days licence is issued immediately, on completion of the necessary procedures, if the specific business activity falls under the No-risk or Low-risk categories,” explained Shael.

The 120 days licence allows the entrepreneur to start his business immediately and complete the rest of the licencing requirements, such as approvals from other government authorities concerned within the next 120 days. Government authorities are entitled to ensure full compliance of the licence holder to the licence criteria on day 121.

More than 90% of businesses in Dubai are No-Risk or Low-Risk and therefore a vast majority of businesses stand to benefit from the 120 days licence. For High-risk business activities constituting the remaining 10%, e.g. restaurants and clinics,  all standards set by the government authorities concerned have to be fully met before DED issues the licence.

The Low-risk category includes chemical plants and similar industrial operations that require pre-approvals from various authorities including Dubai Municipality and Civil Defence. “These facilities have stringent standards often embedded in their design and they go through years of preparation and inspections. Hence, there is no risk in issuing them a licence. It will in fact allow them to complete procedures like testing and hiring before starting actual operations,” Shael said.

Referring to the 120 day hassle free licence as a new philosophy of business registration and licencing, Shael said the initiative along with significant reforms like the Law No.13 of 2011 will dramatically enhance ease of doing business in Dubai.

The Law No. 13 issued by H.H. Sheikh Mohammed Bin Rashid Al Maktoum in 2011 acknowledges the contributions of the Free Zone companies to Dubai’s economy and allows such companies to open branches in Dubai while maintaining their presence in the Free Zone. A Free Zone company can operate a branch in Dubai as long as it is active within the Free Zone but any termination of Free Zone activity will reflect in the Dubai licence as well.

The Law No. 13 also allows Free Zone companies that have no local partners to open branches in Dubai, provided such branch has a Local Service Agent on board. A Local Service Agent is a UAE national or UAE company who will sponsor employees for the Dubai branch of a Free Zone company at the Ministry of Labour. The Local Service agent will have no rights of voting or decision-making in the company.

Shael stated that non-UAE nationals are already allowed to hold 100% ownership in Dubai companies even without a Free Zone licence. Professionals such as doctors, technicians, carpenters, cooks etc can have 100% ownership unless the entity is a Limited Liability Company (LLC). Expatriates can only have 49% ownership in LLCs with UAE nationals holding 51%.

Even with a quick glance over the sections of the new legislation, Law No. 16 of 2011, has SME written all over it; the SCT in essence opens the courtroom doors to the general public so long as the parties “opt in” to the DIFC Courts’ jurisdiction by agreement in writing.

Ghada Qaisi Audi, Head of Disputes Resolution, Fichte & Co Legal explained to SME Advisor: “The DIFC Courts’ SCT recently decided a case between two Dubai-based parties that had no connection to the DIFC to settle a matter concerning the non-payment of an invoice. So long as the parties agree in writing, the SCT can hear any civil and commercial claims up to AED 500,000 (such as contract claims and debt collection matters) and employment claims without a cap on the amount in dispute.”

The Small Claims Court was originally set up in 2007 but was more limited than in its current form. It was ruled under the common law system and was held in English. Before 2009 the cap on the top ceiling monetary amount that could be considered was AED 100,000 and companies had to be registered as operating within the DIFC. In 2009 this monetary cap was raised to AED 500,000.

Under the newly passed legislation employment disputes amounting up to AED 2000,000 can be heard, but there is potential for the court to waive this cap if both parties agree in writing and the judge rules this to be beneficial for both parties involved.

In its current form, the SCT is conducted with the aid of eight judges, two of which are Emirati and the remaining six are chosen from various common law jurisdictions from across the globe. Decisions are binding and hold the same weight of authority and enforcement as domestic court rulings, with the freezing of bank accounts and assets as possible imposition tools at the court’s disposal. The DIFC Courts also work very closely with Dubai Courts and a Joint Committee meets regularly to discuss issues such as joint lectures, Memorandums of Understanding (MoUs) and enforcement.

How it all works

So what is the process from start to finish and within what time scale can SMEs hope to have the dispute settled? “The SCT provides a speedy and efficient forum, in English, that is confidential and binding on the parties. Lawyers are not permitted to participate and the first step is a ‘consultation’ where the parties sit before a Small Claims Tribunal Judge, who assists the parties to come to an agreement.  More than 90% of the cases are settled amicably by a Consent Order in the first consultation with an SCT Judge and within three weeks from the date the claim is lodged with the DIFC Courts,” says Ghada.

Indeed it is perhaps the absence of legal counsel that affords both parties and the judge to participate in a more direct manner to resolve the matter. According to Small Claims Tribunal Judge, Shamlan Al Sawalehi, small claims litigants can expect the SCT judge to take an active role to assist the parties to agree. “It is the process such as asking questions, getting the parties to consider their options and whether it is in their best interest to settle. Sometimes the parties need to let out their emotions, but then they realise the benefit of making a settlement because they actually want to continue working with the other party, for example,” he said.

So what has been the response to the new court’s powers of decision making? Amna Sultan Al Owais, Deputy Registrar and SCT Registrar told SME Advisor that the most common cases are in the instance of employee versus employer and involve an issue of payment. “If the dispute is not resolved in the consultation stage, the case continues to a second step, a ‘hearing’ before another SCT Judge that will take place a week later, and with the judge rendering an Order,” she notes. Amna also pointed out that all judgements and rulings are available as public record and it is only in the most rare of circumstances that that the court is closed to the public.

FACTS AND FIGURES

Small Claims Tribunal

No. of cases

2011 – 83

2010 – 81

2009 – 66

2008 – 54

Court of First Instance

No. of cases

2011 – 31

2010 – 27

2009 – 36

2008 – 9

Court of Appeal

No. of cases

2011 – 2

2010 – 4

2009 – 2

2008 – 1

Indeed, according to Judge Al Sawalehi, many SME’s stand to gain from the new rules because the fees are low, the process is very quick and confidential and the outcome is a binding Court order that can be enforced against the other side if they do not pay immediately. “When it comes to enforcement practices, the general rule is that people take a court Order seriously and pay it within the prescribed timeframe.  In case they do not, the winning party can take it to enforcement to have the losing party’s assets seized in order to pay off the amount,” he says.

However, there are certain points to keep in mind, notes Ghada. “While it is true that parties can file their claims before the DIFC Courts SCT without legal representation, when the disputed amount is towards the high end of the cap, it is still suggested that companies consult with a lawyer before approaching the DIFC Courts to avoid any disappointment,” she says.

According to Ghada, a lawyer will in fact be able to give preliminary advice and assistance on the correct procedures to follow, and in particular advise on:

• Determining whether your claim or counterclaim can be brought in the SCT

• Drafting forum selection clauses in new and existing Agreements

• Lodging the claim and following up with the DIFC Courts

• Preparing for the consultation and hearing

Appealing the decision to the Court of First Instance (see text box for further details)

• Enforcing an SCT Order

Pro Bono Clinic

In addition to the developments of the SCT, Amna told SME Advisor of the recent launch of the Pro Bono Clinic, whereby people seeking legal advice and guidance, but who are unable to pay a fee for a consultation, can avail of the services and expertise from some of Dubai’s finest legal counsel.

“The Pro Bono programme (for the Court of First Instance) was the first of its kind in the Middle East. It had its first session on the 16^th February where attendees were able to book free appointments and sit with a lawyer from one of the international volunteer firms participating, for free and confidential advice,” she said.

Those seeking this service must fill out a criteria form and are then assessed. The DIFC Courts do point out that they are part of the selection process but do remain neutral insofar as the advice afforded to successful applicants by lawyers from the 23 local and international firms participating in the scheme.

The clinic is also exclusive to those companies and employees registered and operating within the DIFC, but precedent case law suggests that if a party has a presence in the DIFC but the dispute originates from outside, then, as long as both parties agree, a judge can grant permission to have the wishes of the parties upheld.

Without doubt, both the SCT and the Pro Bono Clinic programme, are both  very progressive legal developments that best

SMALL CLAIMS TRIBUNAL COSTS

- When filing a claim related to an employment dispute, the fee for filing will be 2% of the value of the claim, with a minimum of AED 200. Any claim relating to an employment dispute that must be referred to the Court of First Instance (CFI) will incur a further 1% of the value of the claim with a minimum of AED 100.

- The filing fee for all other claims (non-employment related) in the SCT is 5% of the claim value or a minimum of AED 500. Any claim related to a non-employment dispute that must be referred to the CFI will incur a further fee of 2.5% of the value of the claim of a minimum of AED 250.

- The SCT Registrar will be able to waive, defer or reduce any fees it deems appropriate.

- The SCT requires that the claimant to provide both the claimant’s and defendant’s full contact information to include name, address, e-mail address, telephone number and fax number. The claimant must also provide a full summary of the dispute, what compensation is expected to receive and the justification for seeking compensation. The monetary value of the claim must also be included. If the dispute is employment related, a photocopy of the employment contract and/or offer letter is required.

- The defendant must respond to the claim within seven days of it being served and must either admit the claim, file a defence to the claim, or complete an application to dispute jurisdiction.

- An intending appellant must file an appellant’s notice on Form 53/02 within 14 days after the date of the decision. The form is available at www.difccourts.ae.

The Commercial Transactions Law and the Civil Code are two of the key pieces of legislation that govern commercial activities in the UAE.

In addition to the Commercial Transactions Law and the Civil Code, which apply generally to commercial activities, there is a wide range of laws that regulate certain specific commercial activities such as construction, real estate sales, banking, e-commerce, shipping and international trade.  There is also a wide range of specific laws that govern particular issues that are relevant to traders, such as employment, consumer rights and customs duties.

1. Commercial Transactions Law

Who does the Commercial Transactions Law apply to?

The Commercial Transactions Law (or UAE Federal Law No. 18 of 1993, as it is more formally known) applies to traders as well as to any person or entity who conducts commercial activities (even though such a person may not be a trader).

What kind of regulations are set out in the Commercial Transactions Law?

The scope of the regulations covered under the Commercial Transactions Law relate to matters such as unfair competition, commercial obligations, commercial sales, commercial agency, commercial representation, brokerage, transportation, banking, commercial papers, bills of exchange, record-keeping, payment by cheque, and bankruptcy.  

Who is a trader?

A ‘trader’ is defined under Article 11 of the Commercial Transactions Law as:

(a)                 Any person who works in his own name and for his own account in commercial activities and is properly qualified to do so; or

(b)                  Any company which undertakes a commercial activity or has adopted one of the legal forms stipulated by the Commercial Companies Law.

What are commercial activities?

‘Commercial activities’ are defined under Article 4 of the Commercial Transactions Law as being:

(a)                 Activities which are carried out by a trader in relation to his trade affairs, provided that each activity carried out by a trader is considered to be related to his trade unless proved otherwise;

(b)                 Speculative activities carried out by a person, though not a trader, with the intent of realising profit;

(c)                 Activities which are stated by law as being commercial activities; and

(d)                 Activities which are related to or facilitating a commercial activity.

Article 5 of the Commercial Transactions Law clarifies that the following activities are deemed to be ‘commercial activities’ for the purposes of this law:

(a)                 Purchasing commodities and other tangible and intangible movables with the intention of selling the same at a profit, whether sold in their present condition or after their transformation or manufacturing;

(b)                 Purchasing or hiring commodities and other tangible and intangible movables with the intent of hiring them out;

(c)                 Selling or hiring out commodities and movables;

(d)                 Banking, exchange and  stock markets operations as well as those of investment companies, trust funds, financial establishments and all kinds of other financial brokerage operations;

(e)                 All kinds of transactions relative to commercial papers, irrespective of the capacity of the persons concerned therein or of the nature of the transactions for which such operations are carried out;

(f)                  All kinds of sea and air navigation activities, including:

(i)                   The construction, sale, purchase, chartering or freighting, repair or maintenance of vessels and aircrafts, as well as sea and air cargos including sea and air carriage;

(ii)                 The sale and purchase of vessel and aircraft requirements , tools or materials or catering such vessels and aircrafts;

(iii)                Loading and unloading operations;

(iv)               Marine and aviation loans; and

(v)                 Employment contracts concerning captains and pilots of commercial vessels and aircrafts;

(g)                 Incorporation of companies;

(h)                 Operating current accounts;

(i)                   All kinds of insurance other than cooperative insurance;

(j)                  Selling by public auction;

(k)                 Operating hotels, restaurants, movie halls, theatres, play grounds and amusement centre activities;

(l)                   Water, electricity and gas distribution activities;

(m)               Editing newspapers and magazines whenever the publication thereof is made with the intent of making profit through the publishing of advertisements, news and articles;

(n)                 Post, telegraph and telephone operations;

(o)                 Broadcasting and television activities as well as those of recording and photography studios; and

(p)                 The activities of public warehouses and mortgages on property deposited therein.

Article 6 of the Commercial Transactions Law further clarifies that the following activities shall be deemed to be ‘commercial activities’ if practiced as a profession:

(a)                 Brokerage;

(b)                 Commercial agency;

(c)                 Commission agency;

(d)                 Commercial representation;

(e)                 Supply contracts; and

(f)                  Purchase and sale of lands or real estate for the purpose of making profit from selling same in their original status or after transforming or allotting it.

What remedies are available under the Commercial Transactions Law?

Both the trader and the customer have rights under the Commercial Transactions Law. The remedies available under the Commercial Transactions Law vary, depending on the matter to which the claim relates and the damage suffered as a result of the relevant incident. Generally speaking, a claimant may be able to seek compensation, a precautionary order (or injunction), although such orders are granted very rarely and only in exceptional cases, and enforcement orders, among others.

Melissa Forbes

2. Civil Code

Who does the Civil Code apply to?

The Civil Code governs the relationship between private parties (including corporate entities and individuals).

What kind of regulations are contained in the Civil Code?

The scope of the laws covered by the Civil Code relate to matters such as contractual rights, undertakings, guarantees and other forms of security, and rights of ownership.

What remedies are available under the Civil Code?

The remedies available under the Civil Code are similar to the remedies available under the Commercial Transactions Law.  Again, the remedy available for a particular claim will vary, depending on the nature of the claim and the damage suffered.

DISCLAIMER

The information set out above is intended to be used as general guidance only. Please seek legal advice from Taylor Wessing in relation to any particular matter before acting (or refraining to act) in accordance with the information set out above.

 About

Melissa Forbes is an Associate in the corporate department of Taylor Wessing’s Dubai office. She has worked as a legal consultant in Dubai since 2008 and, before that, worked for a number of years in London and Australia.

Melissa has advised on a number of cross-border and domestic corporate transactions, including mergers and acquisitions, corporate reorganisations, private equity investments, joint ventures and divestitures.  She has also advised on a variety of commercial matters relating to issues such as corporate governance, regulatory compliance, management incentive schemes, shareholder disputes, agency and brokerage agreements, licensing, company formations and de-registrations, as well as various commercial and property related disputes.

Melissa is qualified as a solicitor of both the Supreme Court of England and Wales and the Supreme Court of New South Wales in Australia.

Taylor Wessing is an International law firm, based primarily in the UK, Germany, France, the UAE and Belgium, with representative offices in Beijing and Shanghai.It also has well-established alliances with BSJP in Poland and RHT Law in Singapore.

Clients include leading financial institutions, major corporations, public sector bodies and wealthy individuals and families.

The initiative will be a significant value addition for business owners and investors as it allows them to complete business registration fast and at their convenience online. BRL is keen to provide more customer service windows beyond the official working hours of DED.

Mohammed Shael, CEO, Business Registration and Licensing Division at DED, who led the workshop said: “Law firms in Dubai are the strategic partners of DED in attracting and registering companies. DED has been utilising online platforms to offer an advanced, flexible, convenient and diverse suite of services to customers, reinforcing Dubai’s reputation as one of the best and competitive business destinations.”

Shael added: “We are pleased with the positive response from law firms as they raised many vital questions related to the new e-Services initiative, which will be duly considered in the actual launch in April this  year. We have also modified some online procedures to suit the law firms and we call upon all law firms to co-operate with BRL to further enhance the UAE’s top ranking in the Doing Business Report for 2013 and promote the country as a globally competitive business hub.”

The Business Registration and Licensing Division plays a crucial role in promoting Dubai’s business environment through launching various growth initiatives. It is a key partner of the private and public sector in Dubai and seeks to provide the business community with various online services in line with global best practices. BRL is also focused on providing more tech-driven and value-added services to cope with the growth of businesses and to position DED as the best government department leveraging the latest technologies to offer service efficiencies.

“DED believes in continuous growth and is implementing the e-Strategy to enhance and expand its online services according to international best practices and customer feedback. It complements our strategic objective of creating an investor-friendly environment and strengthening Dubai’s standing as an investment destination of choice,” Shael said.

The workshop will be attended by a large number of arbitrators, legal practitioners, in-house counsel and engineers from around the UAE. The workshop will be immediately followed by a meeting of the steering committee of ICC – UAE Commission on Arbitration and the ICC UAE Commission on Arbitration AGM.

The workshop will be conducted by Michael Buhler, the LL.M. Partner, Jones Day; Co- Chair, Task Force on the Revision of the ICC Rules of Arbitration, Jose Feris the Deputy Secretary General of the ICC International Court of Arbitration in Paris, France and will be moderated by Sami Houerbi, the Director of the ICC Eastern Mediterranean, Middle-East and Africa ICC Dispute Resolution Services.

Essam Al Tamimi, Chairman of the ICC – UAE Commission on Arbitration and senior partner at Al Tamimi & Co will give welcome speech, and H. E. Humaid Mohammed Ali Salem the Director General of UAQ Chamber of Commerce and BOD of ICC UAE will also attend.

Chairman of the ICC UAE, Essam Al Tamimi said “The new ICC Rules of Arbitration will bring significant changes to the day-to-day practice of arbitral proceedings in the region, whilst also retaining the key features of ICC arbitration.  The overall objective of the revised rules is to increase efficiency as it pertains to cost control and lead times in arbitration cases. “

The ICC UAE globally represents the commercial, industrial and business enterprises in the country. Founded in 2004, the Chapter endeavors to modernise the UAE industry, business and trade to world-class standards. While encouraging more domestic and foreign investment in the UAE, ICC UAE deals with national and international legal, financial and administrative matters of its members. The Chapter, along with the Paris-based International Secretariat of ICC, promotes the scope and reach of the UAE business community around the world.

For more information on what ICC do please visit www.iccuae.com

Negotiating forms is an integral part of any technical agreement. Whenever you face a situation that implies negotiation there are certain critical areas that need to be considered.

Introduction

Any technical licensing contract may be analysed in respect of the following basic elements:

- The subject of the contract

- The licensor’s obligations

- The obligations common to both parties

One of the first points of concern to the negotiators of the license contract will be the identification of the entities, or persons, who will become the parties or, in other words, will sign the license contract and become legally bound to carry out its provisions.

The objective in describing the parties to a license contract is to identify each of them with sufficient certainty so that their identity will not later become a subject of controversy.

When the parties are negotiating a license contract, they usually proceed on the basis that certain technology is necessary for the manufacture of a particular product, or the application of a particular process, from which a product or other result is to be obtained.

In other words, the ultimate objective of the parties in concluding a license contract is the transfer by the licensor, and the acquisition by the licensee, of a given technology and of the right to exploit that technology. This will include the use or sale of a given product, or in the application of a given process, through which a product or other result will be obtained.

Subject matter

These provisions describe the product to be made, used or sold, or the process to be applied and from which a product will be obtained and in turn used or sold. They will also identify the invention or inventions included in that product or process, describe the knowhow, if any, which is to be supplied, and identify the technological advances of one party or the other and the conditions under which those advances will be made available by that party to the other.

Identification of product or processes

Since the ultimate objective of the licensee concerns a product or process, one of the provisions in the license contract will identify in concise terms that product or process. In the typical case, that provision is set forth in the part of the license contract dealing with definitions.

Identification of the invention

The provision that identifies the invention or inventions included in the product or process usually refers to:

- The number of the patent for invention, or the application for the grant of a patent for invention.

- The country where the patent was granted or registered or where the application was filed.

- The date of the patent grant, or the filing date of the application.

- The title of the invention and the status of the application.

Where the product or the process in question includes a number of inventions, the relevant information in respect of each invention is usually grouped together and set forth in a schedule attached to the license contract.

Description of the know-how

As regards the description of such know-how, technical information can be identified in terms of the relevant documentation, as for example, diagrams of the layout of the plant, drawings or blueprints of machines, lists of spare parts, manuals or instructions for the operation of machines or the assembly of components, specifications of raw materials, labour and machine time calculations, packaging and storing instructions and information on stability and environmental aspects.

Confidentiality

The know-how may often be the reason for the current competitive position, if not superiority, of the licensor in the field of the technology concerned. As such, it is a valuable asset of the licensor to be preserved. At the same time, it is a resource which the licensor is willing to part with in exchange for an agreed price from the licensee, or others who wish to use it.

Its supply to the licensee is consequently the result of a bargain in which the price is not just the payment of a monetary remuneration fixed by the license contract, but also the commitment by the licensee not to disclose that know-how to third persons, except under certain conditions or with the consent of the licensor.

Access to technological advances

The technological advance of immediate concern to the parties to the license contract will normally be one which has a significant or substantial affect. Also, the parties might decide that the mutual exchange of information on technological advances is in their best interests and that each shall be free to exploit, free-of-charge, the technological advance of the other.

This is called cross licensing. They might also decide that if either party makes available the technological advance of the other to a third person for remuneration, then the other shall be entitled to share in that remuneration in some agreed manner and amount.

Limitations of the license and anti-competitive practices

The license can have several contractual limitations regarding permissible activities

(to make, to sell, the fields of use and so on). There may also be restrictions to part of the claims on them as well as territorial or quantity restrictions, or limitations on the sale prices. However, any provision conflicting with the prohibition of antitrust or anti-competitive practices is usually to be considered null and void.

The main requirement is that, as a rule, exclusive intellectual property rights represent a pro-competitive monopoly for a limited duration only so that their owners should not exercise their right by abusing this monopoly, for example, by imposing anti-competitive obligations on the licensee. The most important forms of such abuse can include export bans, minimum royalty clauses, exclusive grant-back and conditions preventing challenges to validity and coercive package licensing.

Territorial exclusivity

Which of the parties to the license contract will be able, by virtue of its provisions, to perform the act or acts of exploitation? In what territory or territories, and with what effects on arrangements with third persons, in relationship with the licensor or the licensee, who are also interested in exploiting the technology, are distinct but related questions? A decision on each of these questions must be clearly reflected in the license contract.

Permitted field of use

A provision on the field or fields of use, or activity, specifies the purpose, or purposes, for which the invention, or the know-how, may be applied. It serves to define the scope of that application by the licensee.

Exploitation

The licensor expects that the licensee will not only exploit the invention and apply the know-how, but will do so to the fullest extent permitted by the terms and conditions of the license contract. The parties might wish to specify that the licensee will make, use or sell the product that includes the patented invention, or will apply the know-how in a certain manner with a view to obtaining a certain result and to exploiting the technology at a certain level.

The parties might wish also to set forth the commitments of the licensor, the performance of which will assist the licensee in achieving the expected manner and extent of working or other exploitation.

Settlement of disputes

When non-performance is likely, or does occur and there is no provision in the license contract which fixes the agreed consequences in respect of that failure of performance, one party might propose a solution that is satisfactory to the other. That solution might be the allowance of additional time to render the performance or the substantial correction of the flaw, or flaws, in question. It might mean that some other performance in lieu of the defective performance would be acceptable.

In these ways, an amicable way of settling the dispute between the parties could be arrived at without recourse to legal remedies in the courts, or other tribunals. Normally, the law of the country where a given act or performance is to take place governs the disputes arising out of that act. In the case of a license contract involving a foreign licensor and a domestic licensee, the law of the licensee’s country would be applicable and the courts of that country would be competent since most, if not all, acts or performances take place in that country.

Duration of the license contract

The time-scale of a licensing contract, that is its commencement, duration and termination, must be stipulated in the contract. An intellectual property right can be licensed for the maximum period of time during which it is in force (for example for patents, the maximum is generally 20 years). Shorter licensing periods may also be agreed upon and the parties may reserve the right to terminate the contract with future effect in case of specified circumstances.

Remuneration

The “price” or the “cost” of the acquisition of industrial property is dependent upon a number of factors, including the nature and duration of the industrial property rights, and the technology and the relative bargaining power of the parties. The prospective transferor usually makes a careful assessment in terms of value or the need for the particular technology, the alternative technologies available, the prospect of technological advances and the likely production and profitability of the potential transferee.

The prospective transferor also makes detailed projections of production and consequent income flow from other potential licensees or technology recipients.

Geethalakshmi R.

Direct monetary compensation

(A)    Lump sum payment: A pre-calculated amount to be paid once, or in instalments

(B)    Royalties: Post-calculated  recurring payments

(C)    Fees: compensation for services and assistance rendered per period of service

Indirect and non-monetary compensation

Income from related operations

The licensor, or technology supplier, may receive income from various operations. These may be:

- Commissions on the sales of the product made on behalf of the licensee, or technology recipient through the distribution channels of the licensor, or technology supplier.

- Profits from the sale of the product supplied to the latter under exclusive purchase arrangements.

- Profits from the sale to the licensee or technology recipient of related products which complete its marketing programme.

- Profits from the sale to the licensee or technology recipient of raw materials.

- Intermediate goods, parts or other components and rentals from machinery, equipment or other capital goods released by the licensor, or technology supplier, to the licensee or technology recipient.

About

Advocate Geethalakshmi is held in great esteem and high regard amongst her profession. She is the CEO and Managing Partner for Associated Business Attorneys FZC, UAE, ABA Management Consultants, Dubai UAE, ABA Investments LLC, Dubai UAE and Associated Business Attorneys, Bangalore India – a position which is not common for an expatriate woman in the profession. Geetha can be reached at geetha@abattorneys.com.

This is the first time the prestigious event will be held in the Middle East and the first time such a scholarship programme is being offered.

The International Bar Association (IBA) is the world’s largest international organisation of law societies, bar associations and individual lawyers.

Essam Al Tamimi, Chairman of the IBA Conference Host Committee, said: “The IBA Host Committee, made up of 15 firms, has been very generous offering this number of scholarships. Given this is the first time the IBA Conference is being held in the Middle East, we are hoping that this encourages legal practitioners from across the region to participate in the conference.”

Freshfields, which has MENA offices in Bahrain, Saudi Arabia and the UAE (Abu Dhabi and Dubai), is one of the members of the IBA conference host committee and the head of their arbitration practice, Reza Mohtashami, commented: “The IBA’s Annual Conference is by far the most significant international gathering in the legal world. This year we are expecting over 4000 of the world’s most influential lawyers and legal professionals.”

“It is a fitting tribute to the Middle East and the IBA host committee that they are providing such a large number of generous scholarships for young Arab lawyers to attend its first Annual Conference in the Middle East. Knowledge transfer and investment in education remain key pillars of the growth plans for the Middle Eastern countries and this will go some way to achieving these objectives.”

Further details on the IBA scholarships together with application forms can be obtained from the IBA office in Dubai: IBA.MiddleEast@int-bar.org

Let’s start with answering a few questions:

Do you sell ideas?

Is your business profile service oriented?

Is your business, product, or service exclusive?

Have you identified it with a unique logo, style, design or simply a mark? Have you ever analysed how valuable an IP is?

Have you ever considered evaluating the business module, process, idea or mark, in terms of an asset value?

The real asset

Business evolution is the consequence of the simple process where a product, service, module, or process will sell. Income generated from such sale justifies the production, thereby crafting a value for what is created and thus spawning the birth of a business. Every businessperson initiates several measures to protect their business. Ever wondered what you need to do to protect the idea or intellect behind your profit?

This brings us to the crucial question – is intellectual property the actual asset?

In today’s competitive business world, there is just one single answer – yes. Intellectual properties are the most vulnerable, yet cashing asset, for every SME that always goes either under estimated or never estimated.

Intellectual property audit is the contemporary, yet critical, form of appraisal to evaluate and assess a SME’s net worth in terms of intangible asset value.

All companies insure their hard assets against loss and their company against liability, but most outdoor related businesses will not have insurance against loss of their intellectual property. So what is needed is to identify what intellectual property a company owns that is valuable to its business in terms of setting it apart from competitors and whether the company has taken the appropriate steps to retain its value and safeguard it against loss. This article will outline the some of the more obvious steps involved in this kind of audit.

Businesses should treat intangible assets like physical assets; they should make wise decisions in acquiring the assets, take steps to protect the assets, monitor the assets to ensure that they are not taken, and take action against others who attempt to steal the assets.

However, many businesses neglect their intangible assets until it is too late. Though the word “audit” brings fear to many hearts and puts people on the defensive, an intellectual property (“IP”) audit is one of the best tools available for companies to offensively develop, protect, and maximise the return on their intangible assets.

When to IP audit?

To determine whether an IP audit should be undertaken, a business should consider the following types of questions:

- Do we know what intangible assets the company owns, licenses, or controls?

- Have we taken steps to protect our IP assets?

- What is the status of the company’s known intellectual property?

- Do we know how much we are spending on IP assets?

- Do we know how much our IP assets contribute to our bottom line?

- Is a product line going to infringe a competitor’s patent, trademark or copyright?

- Is a product line protected? If not, what are the options?

- Do we know what IP assets are controlled or owned by our competitors?

- Do we know how our competitors will react to our products?

- Can our IP assets be used to obtain financing or licensed to third parties?

- Have we budgeted for potential IP litigation?

- Do we need to copyright everything? What’s really worth protecting?

- Do company policies properly secure trade secrets, confidential information and other intellectual property?

- Have we developed uniform procedures for handling intellectual property issues, including standardised agreements for use within the company and with third parties?

- Are we adequately protecting our assets and preventing unauthorised third parties from infringement our intellectual property rights?

- Are we losing valuable royalties or market share to an infringer?

- Have we identified methods to increase branding of the company’s name and to cross-promote brands?

- Have we ensured that we are in compliance with all of our licenses?

IP audit process:

SME IP portfolio analysis:

1. Identify and assess
2. Technology and law
3. Market and value
4. License and asset net worth
5. Commercialisation and disposition

SME business analysis:

1. Set up
2. Legal compliance
3. Actual IP rights

a. Trademarks, copy rights, designs, trade secrets and modules

The audit process will categorise IP assets according to type and will determine what protection, if any, exists and the scope of this protection to ensure adequate protection is achieved. Contracts are reviewed to determine whether such contracts adequately address the company’s intellectual property rights.

Inbound and outbound licensing agreements, employment agreements, employee manuals, work made for hire agreements, copyright assignment agreements, agreements with competitors, and any other agreements that may directly relate to ownership of IP assets are reviewed.

A list of names, logos, and trademarks are compiled to determine whether the marks have been registered and protected for the products where the marks are used. Also identified are quasi-trademark uses, such as domain names, trade names, and fictitious business names.

Promotional materials are reviewed to determine whether copyright registration has been obtained or are necessary. Samplings of print and online publications are reviewed to identify potential risks. Consideration must be given to whether Websites comply with laws, regulations, and sound business practices relating to privacy and data collection, terms of use, message boards, linking, banner advertising, and use of domain names and met tags.

In addition, products, publications, or Websites may contain protectable trade dress elements. Other information, such as databases, software, expansion plans, and marketing strategies may qualify for protection as trade secrets. Further, the business’ policies regarding confidential information are reviewed to ensure that trade secret protection is encouraged and enforced.

Inventions and technologies are reviewed to determine whether patent protection is appropriate. Existing patents are assessed for validity and risk of infringement.

After completing the analysis, an audit report is prepared evaluating whether the business has sufficiently protected and enforced its IP rights and recommending a prioritised plan of action for correcting deficiencies and reducing risk, and recommendations on implementation and training for key personnel.

IP audits and the employee

An IP audit helps a company educate employees on intellectual property rights, design uniform policies and procedures for protecting a company’s trade secrets and confidential information, set up a programme for the company to register and docket patents, trademarks and copyrights, and alert the company to any errors in pre-existing registrations to avoid a claim of invalidity, misuse or fraud.

Further the audit can help ensure the validity of conveyances of intellectual property rights and eliminate any gaps in the chain of title or any potential dispute over ownership rights, determine whether the scope of the rights being acquired or sold are subject to the rights of third parties, and ensure that the adoption and use of a new product, creative work, technology or trademark will not violate the rights of any third party.

Agreements protecting intellectual property

A key part of the intellectual property audit will be to identify and assess the adequacy of agreements, which should be in place to protect intellectual property. These agreements are of two types: internal agreements with employees and third party agreements.

Every company with intellectual property to protect should have employment agreements with employees having access to such property, not just key management. The employee agreements should include provisions whereby the employee recognises the ownership of the employer in the trademarks and copyrights of the company and agrees to protect its trade secrets from disclosure, both during and following the term of employment, and regardless of the circumstances under which employment terminates. The employee agreement should further acknowledge that the employer is the owner of the copyright of all work performed on the job (and in certain circumstances off the job).

For employees with broad access to trade secrets and customer relations, and perhaps for others, the employer should have in place agreements whereby employees covenant not to compete with the employer after they terminate their employment. These types of agreements must be carefully drafted because they are often challenged as unfairly restricting the liberty of a former employee to pursue employment of his or her liking and courts will give any restriction on this interest careful scrutiny.

Although different states have formulated different policies on when covenants not to compete will be enforced, most require them to be limited in time (certainly five years or less, with two years generally being safe), limited in geographic coverage to no more than the scope of the customer base and competitors, and limited in the scope of the restriction to protect only what the business is entitled to protect.

Geethalakshmi R.

One method of limitation that has been approved in some states is to prevent an ex-employee from soliciting any existing customer of the business and any prior customer of the business within a defined period of time with which the employee had contact. These covenants can be important and thus it is important that they be carefully crafted to meet the needs and circumstances of a particular business without overreaching.

Contracts with third parties should be audited as well. If the business uses independent contractors for the delivery of its services, work for hire agreements should be in place as well as several of the provisions usually put in employment agreements, such as nondisclosure provisions and covenants not to compete.

A business allowing independent contractors to have access to a company’s copyrights and the right to affiliate or represent itself as being associated with the business should be dealt with in licenses, specifying the terms and conditions under which the independent contractor is allowed to use the copyrighted materials and trademark association with the business.

About

Advocate Geethalakshmi is held in great esteem and high regard amongst her profession. She is the CEO and Managing Partner for Associated Business Attorneys FZC, UAE, ABA Management Consultants, Dubai UAE, ABA Investments LLC, Dubai UAE and Associated Business Attorneys, Bangalore India – a position which is not common for an expatriate woman in the profession. Geetha can be reached at geetha@abattorneys.com

First things first

1. Why should we think about going international?
2. What size do I need to be to go international?
3. What are the key success factors for companies entering the international market?
4. How much of our sales should come from international dealings?
5. How much should I budget for an international launch?
6. How long should it take for an international effort to generate revenues?
7. Will we need extra staff to support an international effort?
8. What do international prospects look for when they are buying a product?
9. Are there any international challenges that I need to be aware of?
Market issues

10. What are the ten largest international markets?
11. What are the best international markets to go after?
12. If we have a limited budget, shouldn’t we go after the biggest markets first?
13. How many markets should we go after?
14. Are there any international markets that we should avoid?
15. Are territories defined by country boundaries or are there regional definitions? (as in the case of the European Union or GCC)

Channel issues

16. What are the different channel options available in going international?
17. When should we try and sell directly from home?
18. When should I use international distributors?
19. When should I have a reseller channel?
20. When should we set-up our own office(s) internationally?
21. We want to have our own offices, but we can’t afford to do it today. Is there a way for us to have our cake and eat it too?
22. What does an international partner look for when evaluating a vendor?
23. Should I have my pricing on the Web?
24. If we develop a channel, can we still sell direct through our Website?
25. Is selling direct via the Web a better option than building a channel?
26. What are some of the barriers to selling from our Website?

Product translation and localisation

27. Does our product need to be translated and localised before we go international?
28. What is the difference between translation and localisation?
29. What if we just want to translate the product? What is involved?
30. What are the different ways to handle the translation?
31. What else is involved if we want to “localise” our product?
32. Should we have an international reseller handle our product translation?
33. Do we have to translate all of our marketing materials for every country?

Intellectual property protection

34. What exactly is a trademark?
35. How are trademarks established?
36. How and why do trademark disputes arise?
37. What is involved in registering a trademark?
38. Do we have to register our trademarks, copyrights or patents in every country?
39. What is the difference between TM, SM and, ®?
40. Which countries provide the best anti-piracy protection?
41. Which countries provide the least anti-piracy protection?
42. What are reasonable ways for us to protect our product’s identity?
43. What are the best ways to get paid for international orders?
44. Should we grant credit terms to our resellers?
45. Should we charge the reseller an up-front fee?
46. What is the discount level we will have to offer to international resellers?
47. How are maintenance fees usually handled in different territories?

48. Should pricing be in US dollars or the local currency?
49. Will I have to worry about withholding taxes, and if so, how do they work?
50. What do we have to take into consideration relative to ordering shipping and returns?

Setting up a subsidiary

51. What are the advantages of setting up a company-owned subsidiary?
52. What are the disadvantages?
53. Is there a point at which it makes sense to set up a subsidiary?
54. How much should we budget for a small office?
55. What else should we consider before deciding to set up a subsidiary?
56. If we want to set up a European/American main office, are some countries better than others?
57. Do these countries offer investment incentives?

Recruiting a channel

58. Where can I find good prospects?
59. What should I do when an interested reseller contacts us unsolicited?
60. How do we handle resellers that demand market exclusivity?
61. How do we handle cross-border sales, with multiple resellers involved?
62. How do I avoid getting locked out of a territory by someone who isn’t performing?
63. How do I determine if a territory has too many or too few channel partners?
64. Are there countries where we can have multiple resellers?
65. How do we qualify prospective resellers?
66. What is the best way to make contact with people?
67. Is there an ideal size of reseller organisation?
68. Should I use a reseller application?
69. What are some key qualification criteria?

Legal issues

70. What kind of legal documents do I need in order to do business internationally?
71. Will I have to change my license agreements?
72. Do we really need a comprehensive international reseller agreement?
73. What is a reasonable term (duration) for an agreement?
74. Are exclusivity clauses enforceable?
75. Should we require a non-compete clause?
76. What are the most common reasons for terminating a contract?
77. How do we notify the reseller so that we are protected under the contract?
78. What happens upon termination?
79. What should we use as governing law – our law or their law?
80. When should we send out the reseller contract?

Marketing issues

81. Will it be expensive to support international partners?
82. What if resellers don’t sell more of our products?
83. What should we require in a monthly report?
84. What type of marketing materials will I need to supply resellers?
85. How do I find information on local resources such as mailing lists?

Geethalakshimi. R, CEO and Managing Partner, aba Business Attorneys

Providing support

86. Should we have a reseller manual?
87. Will the reseller need any training?
88. How do we provide training to international partners in various countries?
89. What is the best way to handle on-going communications?
90. Should we schedule visits to our resellers? If so how often?
91. What are the most common marketing support and incentive programmes?
92. Should we have reseller conferences?
93. What if things don’t work out? Is it easy to terminate a reseller?
94. How do we best leverage our existing support infrastructure and resources?
95. What is an acceptable level of response time for product support questions?
96. What level of technical support should an international partner provide?
97. What are acceptable terms and conditions for warranties and maintenance?
98. What should we look for in an international manager?
99. What would their responsibilities be within our organisation?
100. Where can we find people with this profile and background?
101. How many resellers can one person manage?

About

Advocate Geethalakshmi is held in great esteem and with high regard amongst her profession. Geetha’s love, drive and passion for her work has seen her excel in her vocation. She is the CEO and Managing Partner for Associated Business Attorneys FZC, UAE, ABA Management Consultants, Dubai UAE, ABA Investments LLC, Dubai UAE and Associated Business Attorneys, Bangalore India – a position which is not common for an expatriate woman in the profession. Geetha can be reached at geetha@abattorneys.com