The last few weeks have been busy for developments on the Asian Infrastructure Investment Bank (“AIIB”), a project spearheaded by the People’s Republic of China (PRC), that is expected to provide loans for infrastructure development in Asia. The PRC has accused the International Monetary Fund and the World Bank, both common institutional investors in developing countries and based in Washington, D.C., of being overly exposed to Western influences and attaching too many conditions to the loans they issue. With an active AIIB, we would expect to see new opportunities created in underdeveloped areas that have, until now, had limited access to credit for ambitious projects. In recent news:
- Japan has declined to join the AIIB as a founding member, and is the first major economic player in the region to do so: http://www.nytimes.com/2015/04/01/world/asia/japan-says-no-to-asian-infrastructure-investment-bank.html
- Taiwan’s application to join the AIIB as a founding member was rejected when the PRC objected to the name designation under which Taiwan submitted its membership: http://sinosphere.blogs.nytimes.com/2015/04/13/because-of-name-dispute-taiwan-wont-join-china-led-investment-bank-as-founding-member/?_r=0
- Despite American opposition to the AIIB, the United Kingdom, along with France, Italy, and Germany, has applied for founding membership to the AIIB: http://www.ibtimes.com/china-welcomes-iran-uae-asian-infrastructure-investment-bank-founding-members-now-1872553
The effects of these membership choices remain to be seen, but many of the prospective founding members will be candidates for management positions within the AIIB. Such positions could have significant impacts on which infrastructure projects are funded first and on what terms.
President Barack Obama’s recent announcement of sweeping new rules directed toward normalizing relations between Cuba and the United States, followed by a call to Congress to lift the embargo against Cuba, raises some important considerations for trademark owners in the United States. At the forefront of these considerations is whether trademark holders should register their marks in Cuba.
Implementation of the President’s recommendation may be slow to manifest due to the 1992 Cuban Democracy Act (the “Torricelli Law”) and the 1996 Cuban Liberty and Solidarity Act (“Helms-Burton Act”), which limit the authority of the executive branch to dismantle or end the embargo. However, this does not prevent trademark holders from beginning the process of trademark registration in Cuba, and it is advisable for businesses currently making use of the marks in the Caribbean and Latin America, or businesses who wish to extend use of their marks to Cuba consider doing so for the following reasons.
First, persuasive business reasons exist for filing a registration in Cuba, including existing economic opportunities and the substantial increase in U.S. tourism that will result from the embargo lift. One study by the Peterson Institute for Economics predicts “merchandise exports to Cuba could reach $4.3 billion annually” if the embargo is lifted.
Second, the nature of trademark law in Cuba incentivizes registration as soon as possible. Cuba has a first-to-file trademark system, meaning that unlike the United States where rights arise from use of the mark in commerce, the first party to register will be the party with rights, with an exception made for famous marks. Accordingly, early registration will prevent the risk of having to deal with trademark squatters, who may register well-known marks in bad faith in attempt to sell them to the true trademark holder at a profit or worse, register the marks and to use them, unfairly benefiting from the investment and goodwill built in the mark by the true trademark holder.
Third, it has recently become less costly to register trademarks directly in Cuba. Among the changes to U.S. restrictions, President Obama has loosened banking and credit restrictions so that U.S. applicants may pay directly for registration without having to use third party agents, thereby reducing cost.
On the flip side, there is a risk that if the embargo does not lift within the next few years, marks registered now may go abandoned or even be cancelled by third parties through trademark litigation procedures. As in the United States, non-use of a mark after three years can result in abandonment, and applications can also be lost if another party files a petition to formally oppose the application for the mark. There are some who report that it has been rare for marks to be challenged by third parties in Cuba on this basis, however, this may not be predictive if there is an incentive to do so in light of an impending embargo lift.
Another consideration for U.S. trademark holders before filing in Cuba is whether their rights are sufficiently protected in the U.S. Trademark holders making interstate use of a mark should consider the benefits of U.S. federal registration, which include the ability to record U.S. registrations with U.S. Customs and Border Protection and prevent the import of infringing products into the U.S. if and when the embargo is lifted.
Before proceeding, these and other issues need to be carefully weighed and considered in light of the most recent political developments as well as any licensing, distribution, enforcement, and risk factors individual to each would-be applicant.
As a follow-up to Sean Griffin’s blog post on International FCPA Enforcement, I wanted to relate some information regarding Japanese companies in the healthcare space.
Japanese companies who are expanding their medical, pharmaceutical, life sciences and other healthcare-related businesses inside and outside of Japan confront a particularly complex set of FCPA compliance issues. Many healthcare-focused entities in Japan and across the globe are either owned or controlled by government agencies so that their employees are often considered “foreign officials” under the FCPA Resource Guide and the Japanese Unfair Competition Prevention Act (UCPL). As Japanese companies and joint ventures acquire healthcare businesses in the U.S. and other countries, it is becoming more important that the operations and policies of these acquisition targets should be closely examined for compliance with the FCPA and the UCPL. For example, it is common for healthcare companies to seek expedited approval of manufacturing practices, laboratory practices, clinical protocols, pricing and prescribing practices, and marketing materials from regulatory officials in many countries. It also common for healthcare companies to provide grants to healthcare professionals performing promising research, to make charitable donations to hospitals and research institutions, and to invite healthcare professionals to educational conferences and meetings. Healthcare companies sometimes use agents or consultants to seek expedited approvals, identify and recommend research partners, grant recipients and to organize conferences and meetings. Many of these activities have the potential to create FCPA and UCPL compliance challenges, as pharmaceutical companies such as Eli Lilly and Pfizer discovered from their multi-million dollar FCPA enforcement penalties.
When Japanese healthcare companies are negotiating acquisitions or joint ventures and are performing due diligence for those transactions, it would be wise to keep in mind the hard lessons-learned from recent FCPA prosecutions, and the likelihood of increased enforcement under the UCPL. In the healthcare area, this means examining in due diligence: (1) past expenditures on regulatory approval “facilitation” payments; (2) procedures for reviewing and approving expenditures on conferences and entertaining, (3) past expenditures on grants and charitable donations, and (4) the payment and supervision of consultants who are involved in the above activities. Assessing the strength of a company’s FCPA compliance and monitoring policies, training programs and other internal controls could provide important reassurance that prospective healthcare business partners and acquisition targets do not pose a high risk for FCPA and UCPL enforcements.
Japanese healthcare companies should remember the examples of Eli Lilly and Pfizer, and take appropriate precautions.
In Japan, we have a tradition of scrubbing the house inside and out at the end of a year to welcome the New Year, with everything clean and in order. I remember many late December days, wiping the glass windows, re-papering shoji screens, and holding the ladder steady while my mother got up to clear the cobwebs.
Perhaps that sense of seeking order in the beginning of a new year is universal, as Americans have “New Year’s Resolutions” and I usually get extra calls and emails in January from people who want to create or update their estate plans. It may also be that getting tax information in anticipation of April 15, makes them think about financial planning and estate planning – they go hand in hand with tax planning. With the new year, we have (some) new estate and gift tax figures I want to share:
- Federal estate and gift tax:
- The gift tax annual exclusion remains at $14,000 – This is the exclusion that people still remember being $10,000. It has been going up with inflation adjustment for some years. There is no change this year from last year, due to the methodology for calculating this indexed exclusion.
- The expanded gift tax annual exclusion for noncitizen spouses is now $147,000.
- The estate and gift tax applicable credit now exempts $5,430,000 for U.S. citizens and residents. This credit is variously known as the unified credit, exemption, exclusion, etc.
- The tax rate is still 40%.
- Washington State estate tax:
- The exemption is now $2,054,000, per inflation adjustment.
- The graduated rates range from 10% to 20%.
- Oregon State estate tax
- The exemption is $1,000,000.
- The graduated rates range from 10% to 16%.
For people who have an international element to their estate planning – whether because they are from another country, have assets in other countries, or have beneficiaries in other countries – proper planning is even more crucial. The tax rules are different for non-citizens and non-residents, and you need an estate plan that fully considers those rules, as well as the practical reality of different languages, different social customs and legal systems. If you fall into this category, keep in mind that:
- Noncitizen spouses, even those who are resident in the U.S., are not eligible for the marital deduction for gift or estate tax purposes.
- There are provisions that provide limited relief (like the expanded annual exclusion for noncitizen spouses, mentioned above), but you must follow the rules closely.
- Other country or countries involved may impose a gift or estate/inheritance tax, perhaps at a higher rate.
- U.S. tax laws and rules are designed to avoid double taxation, although they may not always work out perfectly. Don’t forget that there may be an applicable tax treaty that fills the gap.
- Your executor will need to locate and communicate with your beneficiaries and that can be hard if they do not speak the same language. Making lists of key people and their contact information and note the location of important documents.
- You can save time and hassle by locating professional advisors in both countries ahead of time.
For more information on U.S-Japan cross border estate planning in particular, you can see the 2013 article in the Trusts and Estates Magazine that I co-authored with a Japanese attorney and tax accountants. Although the article focused on U.S.-Japan planning, many of the practical tips are relevant to people dealing with other countries too.
Although estate planning necessarily involves thinking about death and incapacity – not fun subjects – it does not have to be impossibly daunting. The key is to tackle it in a methodical and orderly manner. Just like the Japanese year-end cleaning (or spring cleaning, in the American tradition), if you take one thing at a time and follow a plan, you can get it done. And just like cleaning, you’ll feel so much better once it’s all done.
The International Practice Group of Garvey Schubert Barer is a cross-disciplinary group of attorneys practicing in areas ranging from business transactions, immigration, maritime, government regulatory work, transportation and logistics, and estate planning. The group members include bilingual and multicultural attorneys who are well-versed in handling these subject matters in a cross-border context. The firm’s attorneys have been actively practicing in the international arena since the early 1970s.