Technology Companies must combine International Growth with the right legal infrastructure


ImageI have noted that the advantage of my business and legal background is my ability to temper sales and marketing with legal structure to mitigate any potential revenue loss when expanding internationally. This means that whenever I see the company reaching out to new markets, establishing notable sales, I will explore the steps to protect that revenue stream.  And my business background insists that every company should focus on rapid growth through domestic and international expansion. In fact, I believe that in today’s world, technology companies should always look at international markets given that many technologies can be adopted offshore: 1) to diversify revenue streams, and 2) create an economic beach head to forestall local competition. It is just that international endeavors should take “two steps forward, one step back” before diving into those markets. In other words, one has to be prepared to handle those expansions without getting burnt through the correct legal infrastructure

Getting Paid for International SaaS Software Distribution

Just recently, a CEO, whose company had a mobile payment platform for international markets, made a sales deal with three equal payments.  On the last payment, the check bounced. When I asked about that he should secure the appropriate legal counsel to draft an iron clad contract to guarantee the international payments, he felt an attorney would be too expensive. The legal fees would have amounted to several thousand dollars in his situation.  The last payment would have covered those legal fees and much more. When the foreign company failed to honor that last check, it already knew that for a U.S. company to pursue the last payment, the CEO would have to hire foreign lawyers, go to court in a foreign jurisdiction, and incur much more than the deposit is worth. There are tools out there familiar to experienced international business attorneys that would have avoided that “bounced” check without being cornered.

Registration of IP Rights Internationally

While employed by an international technology company, I was told that the company planned to expand in Europe and Latin America. The company was already earning huge revenues in Germany, Austria, and France. The marks represented its brand and the service. Not to protect such branding would be fatal to its forthcoming expansion plans. First, I ranked each country from top to bottom with regard to income in order to establish an IP strategy.  That way I can concern with the potential risk of loss. Then I began to file the paperwork and registered local entities so that the company would not lose any battles related to the marks. There is an interesting history in pursuing this process. As I recall, Aristotle Onassis registered various U.S. brands prior to marketing their brands.  And then demanded substantial monetary payments from the companies so that they could market their products locally. One has to be prepared for that eventuality or it can be very expensive. What I always do is to be a step ahead of that game.

Getting Paid for U.S. related Software Platforms

I met the CEO of a European software company that developed multilingual CRM platforms. A major government contractor employed the company to set up a CRM product. After the CRM platform the company never got paid. Even though the Internet and telecommunications allow any company to work from anywhere and establish business anywhere, it does not mean that it can have the right to get its payments.  For starters, the precondition to file a lawsuit in most instances in the U.S. is to be duly registered in the state. True, it might expose that company to U.S. taxes, but the lack of registration handcuffs the company to sue the breaching party to recover the money due under a contract. I would not be surprised that the opposing counsel was well aware of that rule when the company defaulted on the payments.

Now there are international courts that handle international litigation – Washington, D.C., has one.  And New York courts will entertain international contract disputes with a minimum dollar amount of several hundred thousand dollars.  But does any company really want to go there?  The only reason I would use that avenue would be the situation where the financial coffer is deep and the probability of success on the merits is extremely high.

Having worked with mid-sized and startup companies, I always felt that litigation can be very costly and unpredictable for companies needing capital for growth and sales. Litigating in foreign jurisdictions can also have unexpected, deleterious results – for example, Chevron litigated its case in Latin America with the local court awarding the plaintiffs over US$100 billion. Then there is the matter of working with foreign counsel.  Someone in-house must manage those attorneys and monitor the legal bills.  Having had that experience myself, it is a specialized skill in itself.

The Extent of Legal Protection Depends on the Channel of Distribution

Whether the company is having a direct sales program or establishes channel partners or OEM products, the legal process to protect those revenues differ.  Again, it depends on the company’s overall strategy and the legal infrastructure must be designed to handle each distribution channel. Given the length of this blog that topic will discussed with more details in another publication.

Synopsis

Whenever a company is involved in cross-border sales and marketing, it should implement the legal infrastructure to protect its IP and sales.  I do believe in international expansion, but it can move smoothly when all the risk factors are covered.

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About Juan Ramón Zarco, SVVGP 胡安•雷蒙•扎尔科

Juan Ramon Zarco, 胡安•雷蒙•扎尔科, Silicon Valley Ventures Growth Partners llp, Hygieia Healthcare Technologies Company, AllRest Technologies LLC, Crimson Growth Partners LLP, jrzarco2001@yahoo.com, is an experienced as CxO, General Counsel and Secretary to public and private companies with global operations. Established track record of producing practical, revenue-focused solutions. As Counselor and Secretary, demonstrating vision, integrity, and sound business judgment, to CxOs. Managed complex, strategic transactions, M&A, contracts support, PE Financing, IPO, SEC compliance, Corporate/HR governance, IP licensing, Budgeting, Staff, outside counsel management, International market access strategies, Domestic & foreign government relations and advocacy. Creative in designing and implementing market access strategies. Practices law beyond conventional model with low-overhead and project-based fees. Effective at managing departments, formulating marketing strategies, balancing budgets, and implementing cost-saving measures. Extensive in-house and private practice experience, advising clients on commercial, corporate, international business, and technology law and policy. http://www.docstoc.com/video/89135472/make-your-business-an-international-presence; http://www.youtube.com/watch?v=fx5gijf3yoc For Sprint, he managed iDen international development in Southeast Asia, Middle East, and Africa, and contractual issues with Verizon. In Private Equity, he worked with Pegasus in vetting international investment deals and interim President for portfolio companies, such as Data Foundation, a data storage company, handling marketing, strategy, fund raising, and accounting. Before Pegasus, Mr. Zarco, as CLO and V.P. of Corporate Development, played a principal role in the structuring, international expansions for 2 telecom companies, U.S. Cable Group and Viatel, Inc. in financing and M&A deals exceeding $200 million. Mr. Zarco earned a J.D. from NYU Law School, M.B.A. from Cornell, and B.A. from Williams College; is fluent in Spanish, Portuguese, French, and German, with working knowledge of Russian, Arabic and Japanese.
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