International Business Contract
What is an international contract?
International commercial contracts are the tools used to achieve business goals, protect intellectual property and trade secrets and limit risks in a global market. They are the backbone of international trade.
Principles of international commercial contracts
The Principles for International Commercial Contracts (PICC) are non-binding rules for international trade established by UNIDROIT (The International Institute for the Unification of Private Law). Their aim is to harmonize the law of international business contracts. The UNIDROIT Principles are a neutral set of rules on which parties may be able to agree more easily than on a specific national law.
International contracts are the foundation of successful businesses in the global market
A large part of global business is regulated by international organizations and trade agreements like the
- United Nations convention on the International Sales of Goods (CISG),
- World Intellectual Property Organization (WPO),
- INCOTERMS (form the International Chamber of Commerce), or
- other treaties and international bodies that establish standard language and universally understood terms and uniformity.
However, there are differences in the way basic principles and rights in trade and commerce are understood and approached.
Successful international business in the U.S. depends on contracts that meet your needs
WINHELLER will draft the contracts that will enable your business to succeed through the complexities and challenges of the U.S. and global markets. The success of all international business activities heavily lies in having the right international contracts.
Our U.S. Desk team supports you in structuring all matters of international commercial transactions and business, including agreements between the U.S. and Germany. We will draft an international business agreement tailored to your needs to ensure protection of your intellectual property and trade secrets, secure your interests, mitigate your risk and liability, and provide the benefits you need.
Do not let poorly drafted contracts be the reason your business fails
The reason many businesses fail despite having innovative and lucrative ideas is simply that they implement poorly drafted contracts that insufficiently account for the legal complexities of the global market. The best solution for your company to avoid facing international contract dispute litigation is early planning, and having your agreements prepared or reviewed by a qualified international contract lawyer who can analysis their legal sufficiency to mitigate commercial risks and help secure your ventures.
We have qualified lawyers from the United States, Germany, and other European jurisdictions with a proficient understanding of the international and national laws, and a firm and genuine understanding of local rules and cultural perspectives to ensure that your contracts advantageously work within the framework of local customs.
Types of international contracts and agreements
Among the many diverse international business contracts and agreements that we can create specially tailored to your company’s needs across multiple jurisdictions are
- documents crucial to your businesses structure, such as executive internal documents, including
- operating agreements,
- articles of incorporation,
- privacy policies,
- confidentiality and non-disclosure agreements (NDA),
- partnership agreements, including joint venture and collaboration agreements
- sales, agency, and distribution agreements,
- service and master agreements,
- franchise agreements, including master agreements and required disclosures
- sourcing and procurement contracts,
- licensing arrangements for intellectual property use and marketing,
- research and development, including grants,
- handling commercial leases or real estate acquisitions.
Important components to have in an international business contract
International business contracts and agreements should be unique to the business activity of your company. However, the following are brief examples of the basic components every international contract should address:
Due diligence on the other parties and circumstances
- Ensure all the parties involved are properly registered to do business in their home countries and are in good standing with the relevant government authorities.
- Ensure the individuals designated to make an agreement have the authority and legal status to do so on behalf of the business (i.e. the representative is a lawful agent of the foreign business).
- Clarify the Currency and method of payment that is expected in the international contract.
- Clarify which parties bear the duties necessary to carry out the contract (market research, applications for permits, provide information to regulatory offices, hiring third parties). A common source of dispute are assumptions parties make that necessary tasks where the other parties responsibility!
- Clarify who owns the risk if something fails. This is the part of business that most do not like to think about when things do not go according to plan. How losses, including costs expected to be recovered from revenues in a venture should be allocated, or clarified as being each party’s own risk, or as otherwise as agreed.
- Clarify the “full scope” of the parties and any restrictions on business activities to specific geographic area (e.g. franchises or distributorships, sanctions from governments against other countries), as well as rules against certain business activities in some countries. This is especially important to stay compliant with international sanctions or embargos (including third party suppliers) that may not apply to both countries the parties are located in or conduct business with.
Necessary legal documents before entering an agreement
- Licenses, permits, or other approvals from authorities are usually required in most business activities, and are almost always necessary with the import or export goods, especially sensitive items such as firearms, hazardous materials, complex machinery, and equipment, as well as software and tech materials.
- Again, an international contract should always designate which party will be responsible for obtaining licenses or approvals from authorities, especially with import and export compliance and fees.
Disclosure requirements between the parties
- Fair dealing requires at least a minimal level of transparency, and in many jurisdictions certain disclosures are mandatory to make a contract enforceable (e.g. franchise sales usually require information about expenses and market projections to be sent to the buyer).
Termination conditions, notice and remedies
- An international contract should contain a clause clarifying under what conditions a party may terminate an agreement or contract, as well as what advance notice is required for the other party. This clause should also state what format to communicate termination notices.
- An international contract should specify when it is necessary to terminate a contract in addition to when a party may terminate (including with or without cause). A clear description of events or circumstances constituting automatic termination is recommended (e.g. criminal activity of a party, fraudulent representation of facts).
- Remedies: Clarity on how parties “fix” performance issues usually save a lot of time and money by avoiding litigation or negotiation. Interest on late payments, rights to liquidated damages, ownership of assets, and other ways to fix damages and which party is responsible for covering costs are some examples. Clearly describing these remedies in the contract and the governing law of the international contract will affect which remedies are enforceable.
Statement of compliance with anti-corruption laws
- Some countries require statements of compliance with special laws protecting market integrity. For example, the U.S. Foreign Corrupt Practices Act (FCPA) prohibits payments to foreign government officials to further the interest of private business, even if not bribes under legal definitions, but also specifically includes anti-bribery requirements that apply to all U.S. businesses.
- A clause that forbids any parties from making “prohibited payments” (FCPA or other applicable anti-corruption laws) should be included, as jurisdictions may have varying requirements.
Intellectual property
- International intellectual property is an expansive topic by itself, and normally will entail an entire section of a contract beyond one clause. A thorough review of how rights, duties and protections under international law will affect your agreement is critical.
- All international contracts should at a minimum include a clause that outlines the parties’ agreement on the use of intellectual property rights held by the other parties, including the grant of any licenses (i.e. exclusive or nonexclusive) and the ownership of intellectual property rights developed in connection with the contract (e.g. works for hire, intellectual property developed from the parties’ contract, etc.).
- An International contract should also designate specifically what each party believes to be their intellectual property, trade secrets or otherwise protected products, services, or ideas as notice to the other party (even if no patent, trademark or copywrite is registered).
Record keeping of business activities
- A clause specifying that records are to be kept, especially in ongoing business ventures is critical to provide necessary documentation for audits from authorities, clients requests, taxes, as well as progress and performance accountability. Record keeping is also sometimes mandated by local and international law in specific industries and business activities.
- Records are particularly important if payments and fees are based on points in progress or other milestones.
- The format records are kept in, which party is responsible for keeping what records, and how they are shared should be clear in the contract.
Confidentiality and non-disclosure
- Limitations on the ability of the parties to disclose confidential information to third parties is critical to protect proprietary information or other sensitive information.
- The duty of confidentiality should also survive the termination or expiration of the international contract for a specified time (in some cases, indefinitely).
- The best advice is always to limit sharing sensitive information to what is necessary.
Choice of law
- The choice of law of a contract is also the governing law, and will be used to enforce the contract, interpret terms, and apply standards of review.
- If parties cannot agree on what law should govern the contract, opting for a “neutral” jurisdiction is possible. However, parties should seek legal counsel to assess the risks and burdens that may occur. Neutral jurisdictions are ones where neither party is prejudiced or has an advantage over the other party (i.e. a German company that deals with an American party has an advantage if the choice of law is German law).
- There are many international law and treaties (e.g. CISG) that will likely apply to an international contract if the parties are from signatory countries as well as common standard terms used by international businesses (INCOTERMS). Clarity on how these laws will apply is recommended to ensure the contract maximizes your rights, liabilities, and benefits.
- Arbitration as an alternative dispute resolution is common, and must be agreed by parties if desired, including through which tribunal, what city hearings are held, and whether arbitration is mandatory.
Your attorney for international business contracts
Each international contract raises unique questions. Every company or person planning to enter an international agreement should engage the services of a specialized attorney. With its business law experts, WINHELLER is here to help you! Our German and U.S. attorneys support you in all business matters.
You can contact our experts for international contract law by e-mail (info@winheller.com) or by phone (+49 69 76 75 77 80). We can provide you with a consultation and ongoing legal services in German and English. Get in touch!
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