International Business Transactions and Trademark Licensing and Acquisition - Assignment Example

Trademark Licensing and Acquisition Student’s Name Subject Professor University/Institution Location Date Question 1 Salazar Steel Sale Contract 1) Companies Names: This agreement made this 29/07/2012 between Juan Salazar, CEO Salazar Steel (SS), Sao Paulo, Brazil and Michael Matson Company, New York, as sale of goods contract. 2) Sale and Services: Salazar Steel (SS) sale to Matson (MM) 5,000 metric tons of #41 steel ingots. To be shipped to New York by Big man Carriers from port of Brazil by August 1 and arrive in New York by August 10. 3)Rates: In consideration of a full payment of the $ 10 million by 8/7/ 2012, the Salazar Steel agrees to sell to Matson (MM) the steel ingots. In the payment of the sum mentioned in full, to Salazar Steel account Bank of Sao Paulo, the right of possessions of goods will vest unto the Matson and any risk, claim by international laws then will the Matson bear. Risk of goods remains to the seller, until the goods are transferred to the buyer. 4)Waiver: If there will be no failure or delay on payment and fulfilling of these provisions then will operate a waiver of such establishment or any additional right, and no contract will be effective unless in script and signed by the parties, and also to the extent stated in that writing. 5).Warranty: The Salazar Steel (SS) hereby warrants Standardized goods in line with Guarantee of Purity, and Salazar Products on international Depreciation rates of goods. 6) Signatures ________________________  _________ Salazar Steel (Seller)                             Date  ________________________  _________ Michael Matson (Buyer)                Date Alternatively the contract would have indicated the transaction in a logical flow of the process. According to Emerson (2009:167), for management of cash flow, financing the transaction and to bridge the value expectation gap between SS and MM the structure has to be negotiable taking into consideration both the seller and the buyers individual needs. For both parties to meet their objectives there has to be a legal document with the general requirements stated in the clauses of provisions in such an outline: Legality: specified by description of the two parties in the contract giving the legal identification in names, location and legal documents as bank accounts, international certification. Both parties must have a legal document of registration and continuation until the contract signing and provisions fulfillment. Offer: The goods and services on sale by the Salazar Steel (SS), specified as quantity, quality and delivery services with deadlines for the offer. Consideration: provisions relating to the delivery schedule, warranties, and payment by the MM indicating mutual consent of all the above. The warranty signing, free will, registration and waiver provide the firmness and surety of the contract. Capacity: a clause of the MM ability to complete payment by the date agreed upon, and SS delivery of goods on a specified date. Intent: consideration of the parties’ intention on sales based on profit making, viable alternatives, continuation and terms and conditions imposed by each. Acceptance: both sign the contract for mutual consent to establish a contract through a detailed description of possessions, money and items. Mutual exchanges of valuables validate the contract this is by detailing ownership rights, transfer and possession elaborated with terms of risk and deadline for transfer. Fleischer (2002:63) argues that the best structure of the transaction to this contract however, and to make it efficient legal document is to also include clauses such as: Sales tax: this should specify the seller responsibility on destination tax in case the U.S government impose a countervailing duty of up to 50% on Brazilian steel, meaning that MM will not incur additional cost and reduce the profit that is imminent as a middle man. The Salazar has to take responsibility of additional cost by raised duty. Security agreement: this clause adds an agreement secured by the companies’ advocates that in case of failure or shortcoming of the terms made above, and if one party sues the other, the terms of facilitation of the process and coverage of losses encountered in the process be specified. Without the including the elements of legal description, specific amount of money, service and a description of items in detail is a loophole for the alteration and maneuvering of the document contract by one or both parties. The terms of performance and a condition such as penalty for late payment and time are of essence and the whole of this in simple language. Conditions for termination: a clause on issues; such as change of price, quality, and quantity and performance time, inconsistency to law and regulations, and contract processes that will be enforced no matter the stage of delivery and charges on losses. The right of possession, transfer and ownership should be well stated. Any other contract that might be demanded, following the initial one, amount to violation and should be stated before (Ralph et al 2009). Special provisions: include any other benefits such as discount, compensation and replacements of sub-standard and destroyed goods. This determines the level to which the parties can be trusted and reduces the extent of risk that might be involved in its absence. Bilder Bay Shipbuilders Purchase Contract 1)Companies Names: This agreement made on 30/07/2012 between Billy Bashford, CEO of Bilder Bay Shipbuilders (BB) Halifax and Michael Matson Company, New York, as purchase of goods contract. 2)Terms : Unless on other agreement in writing by BB, the following terms and conditions apply to all BB purchase orders for products, in addition any other terms shall be set forth in case of a particular and individual order. BB shall objects any conflicting, additional or different terms that shall be proposed by MM in communication, unless BB consents in writing to those terms. 3) Rates and Payment: Bilder Bay shall pay by 21 August $ 11 million for (MM) 5,000 metric tons of #41 steel ingots. The goods are to be shipped to the port in Halifax by Big man Carriers from port of New York and arrive no later than August 25. Acceptance by MM of the ultimate sum on the contract cost will be and function as a release of BB from any other claim of MM. The right of possessions of goods will vest unto the BB and any risk, claim by international laws then will the BB bear. The risk of the goods remains to the seller, until the goods reaches the buyer. 4) Changes: Any other modification or changes to the order have to be binding upon BB or Until BB accept in writing. 5) Indemnity & Waiver: MM agrees to hold harmless and indemnify BB, its affiliates and staff from and against any expense, judgment, loss, liability, or damage and assume to MM own expense on the defense of action or claim brought up by any person: (a) for damage of property provided in the order, except by negligence of BB; and for failure to abide by the requirements of law. 6) No Assignment: the order will not be transferred, assigned, or be subcontracted by MM, in part or whole, without a written agreement of BB, except for due payment specified, 7).Warranty: The MM hereby warrants Standardized goods (no more than 1.6% carbon), in line with Guarantee of Purity, and Products sale on international Depreciation rates of goods. In addition to its set warranties, MM warrants to BB that goods furnished will be in consistency with the terms in all respects and fit for the intended purpose; of good quality material and design; and clear and free of all claims, liens, or other security interests, MM must have marketable and good title thereto. Services shall be rendered in a workmanlike professional manner (Ralph et al 2009). 8) Signatures ________________________   Michael Matson (Seller) Date ________________________ Bilder Bay (Buyer)               Date In P.I.L.R (2006:45) prior communication to settle the changes in price of steel ingots in case the duty is levied and the MM and BB agreed on cost sharing must be made. This will enable MM to transfer a significant percentage of additional cost from the duty. Since there has to be a rise in prices due to reduction of Brazilian companies’ sales to U.S the prices are therefore expected to raise this can be done on a mutual consent. Michael Matson Considerations In considerations of his capital of $ 100,000 of which $ 80,000 will be used on shipping and insurance MM should consider structuring the deal as not to incur loss. Due to the nature of this deal MM must know how to structure the deal to defer taxes and maximize purchase price that BB intend to offer. As middle man he posses the sole power to determine the price of his stock and on the other hand to sets structure or the terms. Consideration of either of the two issues; price or the deal terms will enhance the outcome of the deal. A profitable and comfortable deal need a carefully negotiated terms since terms account for successful deals. MM must therefore consider the following factors before making the structure: The probable tax situation that avoids major losses in tax since there is knowledge of duty to be effected, then as a middle man MM can distribute the additional cost by the raised duty to SS and BB and end up with just a small percent of the total cost making to the expected profit. The down payment amount that he would demand from BB to be in a position to finance the transactions, this will enable him pay for the duty and facilitate delivery of goods on time. A legal structure of the business and personal liability of investments in the business is a factor to consider since he is transacting as a sole proprietor. The terms are to be efficient since there is independence of thoughts to suit the transaction. The sale structure should meet his needs of getting immediate cash and profit (Merle & Erickson, 2000: 78). Future plans and prospects to continue in the business with both the Brazilian and BB. This will be in regard to the terms of the deal and therefore it is worth to take a percentage cost in the duty to avoid overburdening both of his future seller and buyer. Conditions The terms and conditions here shall apply to all the contracts for the sale of goods or services by the seller to the buyer. They shall prevail any other communication or documentation from the buyer. Reception of delivered goods shall be treated as a final evidence of buyer’s approval of the terms and conditions. Any of changes to these terms and conditions (including any other specific terms and conditions settled with the parties) shall be inappropriate unless approved in writing by the seller. Changes of terms and conditions  The seller shall be free to alter the terms and conditions any time however, the right will not change the offered terms and conditions established to the buyer on making the purchase. Price and payment The value of the supplies and services shall be that specified on the terms. The price includes the VAT, duties, sales, value and use. When applicable, the price shall include the delivery charges and will be set prior to the buyer or seller confirms the order. Prices on the Order include any and all sales, use, value added, and other taxes and duties (Key 2004:122). The payment of goods price and VAT together with delivery charges, where applicable, must be fully made before shipping of goods or other attached services within seven days of receiving of invoices. If any sum fail to be paid on specified time or if any payment is refused or rejected, the unsettled amount shall be overdue. The MM shall charge an interest on unsettled invoices beginning on the date the payment is due consequent the following days up to the time of payment with a rate of 8% per annum over the set rate of Citibank (Baltagi 2006: 398). Tax consequences: In case of any imposed tax before the completion of the transaction the seller shall account for. No changes in price shall be accepted unless MM acceptance of such on a written document. Delivery Any risk in goods shall only be accounted by the buyer upon its delivery or in case the buyer failed to take goods at an agreed time. The seller shall use any reasonable means to meet the agreed date of delivery. Goods delivery shall be made to the address specified. The buyer shall arrange to take the goods delivery whenever tendered for it. Full payment will pass the right of possession of goods from the seller to the buyer. Rights of supplier The seller holds the right to occasionally update prices, which is not guaranteed for any period.  The seller shall make effort to make sure that prices are correct at a point which the buyer submits an order.The seller will not be accountable to any person for withdrawing whichever goods or services from the specification or for refusal to process the order. Question 2 Introduction KitchenMaid (KM) is a large dishwasher manufacturer that is based in United States with approximate sales of $3 billion across the globe. The company has been selling its products in Europe through Gepetto & Sons (GS), an agent which receives a commission of 10 percent of total sales. GS keeps on increasing KM’s sales every year and thus receives huge commission payments. KM is facing competition from DeutschlandKitchenland (DK) and Nouvelle Cuisine de France (NCF), both of which benefit from a shield of 15 per cent EU tariff. With reference to KM’s large market in Europe, large tariff and high commission reimbursements to GS, KM plans to either license manufacturing and retailing to NCF and DK or to acquire DK. This paper will give advice to KM with regard to concerns on the plans and also propose ways of improving the plans. Concerns The two plans relate to licensing of production and retailing and acquisition of two European countries, which are market leaders in the European dishwasher industry and thus, implementing these plans raises several concerns. In the first plan, NCF and DK are established dishwasher manufacturers and retailers and thus licensing of production by KM through the provision of intellectual property and technical specifications and withholding function-specific incorporated circuits, which are the appliance’s brain chips, may be quite tricky. The fact that, KM will be producing the brain chips and then selling them to NCF and DK may cause delays in the production of the appliances by the two companies. This is because; NCF and DK will have to depend on KM for the supply of the brain chips. This can be considered as a partial licensing of technology by KM to NCF and DK. According to Folsom, Gordon, & John A. Spanogle (2009, p.925), a company which plans to undertake a production licensing, should grant all technical specifications and components of the production process to the licensee. This should be done in exchange of a certain fee which is stated in the licensing agreement. This is considered a way of avoiding production inefficiencies in that, the licensee carries out its production activities independently by using the production techniques and appliances provided by the licensor. Another concern relates to KM’s restrictions on NCF and DK in regard to the areas to retail the dishwashers. As much as a licensing agreement can be customized, that is, a licensor has the right to stipulate the terms and conditions of the production and selling license, it is not advisable for the licensor to limit the licensee on where to sell the products. This is because; by the end of the day, the licensor expects to receive the agreed percentage of sales and thus the licensee should have the right to retail the products wherever it considers appropriate in order to earn profits. As long as the licensee does not enter trade areas which are restricted and which may result in extra costs like payment of custom duties, the licensee should be at a liberty to retail products in regions of choice (Sherman 2011, p.242). Such restriction may be detrimental to KM, because trading in a smaller market by NCF and DK means fewer sales as compared to retailing in a large market. Therefore, fewer sales will mean a smaller share to KM which may not match its sales expectations. Moreover, KM should not set the wholesale prices to apply to the dishwashers produced by NCF and DK. This is because; pricing should be based on several aspects like cost of production and market competition which are known to the manufacturers and which an external party may not know. Furthermore, prohibiting NCF and DK from retailing their brands in the Mediterranean or EU is an idea which is infeasible. This only applies to buy-outs but is not provided in the trademark licensing laws in Europe. Díaz (2008, p.106) maintains that, most trademark licensing agreements allow a licensee to continue retailing their products alongside the products that are under the licensor’s trademark. More so, the fact that NCF is partly owned by French government means that, the government has a say in the decisions of the company and thus it will be hard for the government to consent such an idea. In the second plan, KM plans to acquire DK, which is European market leader in the north to form KitchenMaid Deutschland (KMD). With such kind of market position, it is obvious that, DK has a big market share and customers who are loyal to its dishwashers. It also has suppliers who supply raw materials to the company. Therefore, the first concern relates to KM’s plan to acquire DK, cease producing a number of DK’s products, and start manufacturing KM dishwasher line of products in the factories of DK. There are customers in DK’s current market segment who prefer specific type of dishwashers that are manufactured by DK. Hence, the idea of KM stopping to produce some of its subsidiary company’s dishwashers may have negative impacts on the company’s sales in the market. This is because; the loya customers will shift to the dishwashers of another company that is different from KM and DK. As a result, KM’s sales in that market segment may not match DK’s sales before the acquisition. According to Peck & Christopher (2012, p.11), there are numerous reasons why customers stick to the products of a given company such as reliability, quality, price and design. Thus, getting such customers to buy the product of another company’s product which has different features is normally a difficult task. By KM not producing certain DK’s dishwashers, will create an impression of unreliability of the company to the customers. Besides, producing KM’s line of products in DK’s factories is not advisable. For a company to be in DK’s position, it must have reliable and efficient suppliers who ensure timely supply of raw materials. Therefore, KM will be forced to look for new suppliers of raw materials for its product line and establishing a reliable supplier may be difficult which in turn may paralyze the production activities of the company. Moreover, KM has plans for KMD to use introductory price for its products as a way of establishing a firm market position which is a good idea. However, the plan to apply intellectual property law to bar the re-sale of KMD’s low priced dishwashers in the US and northern part of Europe raises concerns. Drawing from Tomar (2009, p.397), intellectual property law confers a right to the owners of certain intangible assets such as copyrights, trademarks, patents, industrial designs and trade secrets to stop third parties from using such an asset. In such a case, the use of such an asset by another party may attract a law suit by the owner of the asset. From this perspective, KMD has no grounds for stopping the re-sale of its low priced dishwashers by other retailers. Under intellectual property law, KMD can only stop other firms or individuals from producing products that are similar to its product line. Furthermore, even it had a right to stop the re-sale; it means that, KMD would only sell its dishwashers direct to the consumers. This would result in lower sales since individuals purchase in smaller quantities as compared to wholesalers or distributors. Suggestions Despite there being several concerns in relation to KM’s plans for carrying out business in Europe, both plans have numerous ideas which if improved and implemented could highly contribute to the success of KM’s business activities in the region. A number of suggestions are made as a way of improving the plans. In KM’s plan to license manufacturing and vending of its dishwashers to NCF and DK, the company should provide intellectual property, technical specifications as well as function-specific incorporated circuits. Anderson (2000, p.10) says that, a good trademark licensing should be all inclusive. In the licensing agreement, the licensor should present the licensee with all the technology, specifications and components that are needed for independent production of the concerned product. However, if the licensee has to always rely on the licensor for the provision of a certain idea or component, chances of breaching the license agreement or revoking it are very high. This is because; such dependence may lessen the benefits that the licensee expects to get from the agreement through production or supply inconveniences. Therefore, KM should allow NCF and DK to produce the blue chips for themselves and instead increase the percentage of the companies’ gross sales that it should receive from 25 percent to a higher rate like 45 per cent to boost its total sales. Moreover, KM should give NCF and DK freedom to sell their dishwashers in regions of their choice. By doing so, the companies will be in a position to venture into several markets in different regions, which in turn will lead to high sales volume. Participating in several markets implies a wider customer base for the products or services of a company, which directly matches its level of sales. If NCF and DK make high sales, KM will automatically receive high returns as per the licensing agreement. Additionally, KM should not take part in any of the pricing decisions of NCF and DK. The two companies should be at liberty to set their own wholesale prices. Such prices should be based on production overheads of the dishwashers as well as other factors that the companies may consider relevant. According to Andrew (2004, p.3), trademark licensing and franchising regulations does not provide the licensor a right to interfere with business activities of the licensee. By controlling the prices that are charged by the two companies, KM will be acting as a parent company but it does not have that capacity. Trademark licensing is usually adopted by most companies for expansion purposes through being able to trade in products which bear a renowned trademark or brand name (Beschorner 2009, p.8). Therefore, for KM’s licensing plan to be effective, it should allow NCF and DK to sell their products together with KM’s products. This is because; that is the trend that is used in international business since there is no a company can agree to stop selling its products and instead solely start selling its trademark licensor’ products. In the acquisition of DK, KM should continue producing all DK’s line of products. As much as a parent company has the right to decide the kind of products that an acquired company should produce, it is mostly advisable for it to continue producing the same products as long as the products have market (Tomar 2009, p.399). KM should therefore put the same into practice. This will enable KM to retain a big percentage of the former customers of DK which will in turn help it maintain DK’s market position in the northern European bazaar. Besides the production of the same products, KM should ensure that it maintains the same quality standards and design as DK’s. By doing that, it will be hard for DK’s customers to shift to another company. In addition, KM should produce DK’s dishwashers in the latter’s factories. This will help KM in retaining the established rapport between the company and its suppliers. As long as the suppliers and KM conform to preset procurement agreements, cases of delayed supply and production inefficiencies will be avoided. Moreover, KM should use the introductory price as a way of attracting customers and establishing a strong market base in the European market. Since the use of intellectual property law to stop the selling of KMD’s low priced goods does not apply, KMD should use the low price for sometime then increase it once it has a stable customer base. KMD should also be granted the right to produce blue chips instead of purchasing them from KM in order to improve production efficiency. Improved efficiency will boost KMD’s profitability through lessening production costs. Conclusion KitchenMaid (KM), a United States’ based dishwasher manufacturer plans to license the production and sell of its products to DeutschlandKitchenland (DK) and Nouvelle Cuisine de France (NCF) and to acquire DK. The main concerns about the licensing plan are; KM’s withholding of function-specific incorporated circuits, specifications of the areas to sell the products, setting of wholesale prices and prohibiting NCF and DK from selling their dishwashers in EU and US. The acquisition plan’s concerns are ceasing to manufacture a number of DK’s products and manufacturing KM’s products in DK’s factories and the use of intellectual property law to prevent the re-sale of low priced products. The first plan can be improved through provision of function-specific incorporated circuits to NCF and DK, giving NCF and DK the freedom to sell products in regions of their choice, set wholesale prices and sell their products alongside those of KM. The acquisition plan can be improved by KM producing all DK’s products in the latter’s factory and authorizing KMD to produce blue chips. List of References Anderson, M. 2000, Brand Standing, Export Today's Global Business , 16 (9), 10. Andrew, S. 2004, Caveats to Consider When Diving into International Franchising, Venulex Legal Summaries , 2 (1), 1-4. Baltagi, B., 2006, Transaction tax and stock market behavior: Evidence from an emerging market, Emprical Economic 31(2), 393-408. 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