Austrade Seminar Series
By Lynette Reynolds, Partner
Macrossans Lawyers is the Queensland member of the Hunt & Hunt Legal Group. The Hunt & Hunt Legal Group is a full service commercial law firm with over 70 years experience in providing legal and advisory services in the corporate, financial services and property services sectors.
Across the legal group we have over 100 partners, with offices in every State of Australia, the Northern Territory and affiliated offices in Auckland and Shanghai. We can therefore offer clients a depth and breadth of expertise and resources across the country with specialised expertise in the Asia Pacific region.
The legal group provides clients with a global reach being the sole Australian member firm of Interlaw, a network of over 65 law firms in more than 75 countries. Naturally, this includes the United States of America.
We do notnot profess to be experts in US law, but we work with US Lawyers to achieve the best outcomes for clients seeking to expand into the US.
Intellectual property issues - protecting what you have developed
Before offering your product for sale within the United States, you will need to consider any intellectual property relating to the product that may need to be protected.
In general terms, there are two types of intellectual property:
- Registrable
- Non-registrable
Registrable intellectual property
The types of intellectual property which are registrable include trademarks, designs and patents.
Due to various treaties relating to intellectual property instigated by the World Trade Organisation and due to the provisions of the Australia US free trade agreement, there is a similar process for protecting these rights in the two countries. It is also possible to lodge an application in Australia and adopt international protocols to obtain a similar priority date for intellectual property such as trade marks and patents in numerous countries. You should also investigate the availability of top level domain name registration for your website. In the US, this is ".com".
When carrying out searches, you may find that the name under which the product is sold in Australia is not available in the US. If the trade mark for the product is important, then a decision about branding in the US would then need to be made.
Non-registrable intellectual property
The types of non-registrable intellectual property include copyright and confidential information.
If copyright protection exists in Australia, your product will automatically have copyright protection in the US without the need for further registration. This is due to the mutual recognition provisions in the various international treaties and the provisions of the Australian US free trade agreement also reinforce this.
Confidential information
If you have genuine confidential information relating to the product you will need to protect it both by the way you handle, store and disseminate that information, and also with an appropriate confidentiality agreement.
The confidentiality agreement (sometimes also called a non-disclosure agreement) should be signed before material is released. This is common business practice in both countries. We also recommend that any confidential material be stamped "confidential" in a prominent place, but be careful not to mark all of your material relating to a product as confidential. Clearly promotional material or information available for example on your website is not confidential material. Marking non-confidential information as confidential may hinder you in successfully protecting truly confidential material.
Another common issue with confidentiality agreement is to be careful to ensure all people to whom you are providing confidential information are covered by the provisions of the agreement. For example, you will need to catch not just the company, but the individuals within the company with whom you are dealing and also any facilitators. A properly drafted agreement should cover these issues.
Registration
Once you have identified all of the relevant intellectual property which are needed in relation to the product, you must take steps to register the forms of intellectual property requiring registration. Although the treaties enable mutual enforcement and consistency, it is still essential to register the intellectual property (e.g. trade mark or patent) in the US. You may also need to protect the use of your intellectual property by appropriate agreements. For example, an exclusive distribution arrangement will require extensive provisions about the extent of the licence for the use of the intellectual property.
Due diligence - doing your homework
As in any business venture, you must get your own business in order and fully investigate the new business opportunity before committing to the new venture. Austrade provides an invaluable resource and assistance at all steps during the process - use them.
You will also need assistance from your lawyers in Australian and lawyers in the US to ensure compliance with the plethora of legal requirements in both countries. You will need to arrange business and trade finance to ensure you have the financial resources to see the project through to fruition. You will also need capacity for foreign currency payments and to manage exchange risk. Your financier will have products available for these purposes.
Accounting advice will be essential to set up the best structures and to ensure compliance with the tax treaties.
A freight forwarder, shipper and/or customs broker will also be required. A freight forwarder will discuss the range of options available to you for the shipping of your product. You will need an understanding of costs and timeframes for delivery as well as logistical issues about the most appropriate delivery point within the US.
Customs brokers are licensed by the US Department of Treasury to assess tariff classification and quota compliance. The paperwork required by US Customs needs to be fully and accurately completed. Otherwise problems will arise and delays will occur. Again a customs broker can assist you in understanding and meeting these requirements.
Appointing a US Attorney
When appointing an attorney in the US, check that the law firm has the specific expertise required and a local presence in the area in which you will be operating. Local presence is important as the different states have different legal requirements. The US has a state and federal legal system, similar to Australia. However, the differences between the States in the US are much more pronounced.
Other due diligence issues for consumer products
The US does have cultural sensitivities. Therefore you will need to tailor the marketing, packaging and even the sales pitch accordingly. Some of this is common sense such as avoiding inappropriate political and religious comments.
Consumer protection laws
The United States is a highly regulated market. The Australian Consumer Protection and Competition laws were based on the US model, rather than the English experience. However, the US laws are more extensive than in Australia. Generally more detailed disclosure is required about product risks in both marketing and product instruction material.
You will need to investigate the consumer protection laws and relevant standards which apply to the product in question and ensure compliance with those laws and standards. You may therefore need to be cautious if the product is manufactured offshore to be certain the manufacturer can and actually will deliver the product in accordance with those standards. A recent example is the problems with lead paint on children's toys manufactured in Asia.
If the US standards are unreasonable or effectively blocking trade from other countries, then the provisions of the free trade agreement may be used to overcome these issues.
Product liability law
Product liability legislation is extensive in the US, as is it is Australia. In addition the US is a litigious country. Take steps to identify the risks associated with the product and then minimize those risks. Insurance for product liability for all persons in the supply chain within the US and Australia is essential.
Government approvals
Some products require government approval for import and sale (some examples are primary produce, pharmaceuticals, and toys). You will need to investigate the approvals required and obtain them. Samples need to be submitted and approvals obtained before the product is shipped.
Examples of these authorities are the FDA (food and drug administration authority) and Customs and Border Protection (CBP). This is a combination of customs, quarantine and immigration. You will need to apply for tariff classification for your goods, obtain valuations of goods and also arrange appropriate visas for persons travelling to the US.
Trade remedies
You also need to be aware of trade remedies or trade agreements which may affect the goods you wish to export. For example there may be quotas, safeguards or anti dumping measures imposed on certain goods by the US. A good local lawyer should also be aware of the likelihood of new quotas being imposed. For example in the footwear and textile industries it is common for goods to be manufactured in Asia, but there are quotas for the import of goods manufactured in some of these countries, such as China or Vietnam. If there is a spike of cheap goods from a particular country which then floods the market, new trade protections may be introduced.
Labelling and consumer information requirements
You will also need to investigate the labelling and consumer information requirements for your product. At the very least, weights and measures in the US are different given that they do not adopt a metric system, as in Australia. Also, be sure to use American spelling such as color without the "u".
Certain products have specific labelling requirements. For example, textiles must include country of origin information, fibre content and fabric care instructions.
Structures and agreements
The type of legal structure required will depend upon the practical model to be adopted by your business in the manner of exporting and selling the goods. For example will the product by manufactured in Australia and exported to the US, manufactured overseas and exported to the US or manufactured and sold in the US under licence?
If the product is manufactured in a third country then you will need to be aware of the trade remedies and trade protection measures (such as quotas).
Structure of entity
Once the operating model has been determined, then legal and accounting advice needs to be obtained on the best ownership/operating structure. For instance it may be beneficial to establish a new subsidiary company for the US operations. You will also need to consider which entity owns the intellectual property and any other significant assets. As part of this process you will need to ensure that the structure enables efficient use of the relevant taxation treaties to minimise double taxation.
Finally a word of warning. People often get excited about using companies created in tax havens. This is not a good idea. We can assist in referring you to accountants who specialise in advising businesses exporting to the US and the appropriate structures to take advantage of the relevant tax treaties.
Agreements
The type of agreement will depend on the operating model adopted for the distribution and sale of the product within the US. The range of agreements includes sale or supply agreements, agency agreements and licensing agreements, which can be exclusive or non-exclusive agreements, relate to limited geographical areas, or the whole country.
The US has not adopted the plain English drafting style as has been the case in Australia for the last 15 years or so - with the consequence that American legal documents can be very technical and difficult to read and understand.
Where possible, we recommend using Australian form agreements modified for US laws.
Other issues which are important include a proper due diligence on the party with whom you are contracting. This is no different than the practice you should adopt when entering into any contract. That is, ensure that you have identified the correct legal entity, they have the capacity to carry out the contract and to meet any financial obligations.
Include provisions for mediation, arbitration and dispute resolution to occur in Australia using Australian laws. This will significantly reduce costs if formal dispute resolution procedures are required.
Conclusion
In conclusion, there are a large number of issues to be considered and provided for. Although this may initially seem daunting, compliance with a large range of legal requirements and standards is part of doing business in Australia and in the US. With proper due diligence and by seeking advice up front, you can save yourself costs and heartache in your new venture.
For further information contact:
Lynette Reynolds, Partner
T (07) 3292 9735
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