International Business Law Energytech, Sonatrach,

International Business Law

EnergyTech, Sonatrach, and others wish to enter into a joint venture (Sonaventure) for the construction of a pipeline that will transport liquefied natural gas from Sonatrach's refineries in Algeria through Tunisia, Libya, Egypt, and Jordan into Syria. Sonaventure will contract with local construction firms to assemble the sections of the pipeline.

EnergyTech's contribution will be a license of the Technology to Sonaventure, and EnergyTech will receive 10% of Sonaventure's annual profits, rather than a royalty. Preliminary negotiations will cover the establishment and terms of the JV as well as the licensing of the Technology.

The primary risk that is being taken by EnergyTech is the concern that its technology will be taken and used by another party. The use of subcontractors exacerbates that risk, because it increases the number of entities who will have access to the Technology, while, at the same time, decreasing the likelihood of a successful recovery from any one source if the technology was misappropriated. Therefore, the licensing agreement must look at the following factors: the definition of the use of the IPR under the license, whether such use is exclusive or non-exclusive, geographic limitations, application, quantity, confidentiality concerns, and derivate works or improvements. Another issue is that EnergyTech will not be taking a royalty, but will instead be entitled to a share of annual profits, which can make EnergyTech vulnerable to questionable accounting practices. An additional concern is that there are so many different countries involved in the transaction, which means that the laws of each of these different countries could potentially apply to any issues that may arise. Because the countries involved are in a terrorist-heavy area of the world and the agreement involves oil and gas, there also needs to be an awareness of possible terrorist interference in the project. Finally, there needs to be an awareness of possible application of Title VII to Sonaventure employees.

Reasoning/Analysis/Conclusions: The license must be narrowly construed to only allow the joint venture to use it for the construction of the pipeline in question and to prohibit any member of the JV from using it for their own purposes, moreover because most of the involved countries are not members of WTO, EnergyTech needs to take substantial steps to protect its IP before entering into the agreement. Local laws can prevent, restrict, or alter licensing agreements, therefore EnergyTech needs to engage local counsel in each country to determine licensing rights, as well as insert a provision that Sonaventure is responsible for any licensing breaches, whether committed by Sonaventure or one of its subcontractors.

To protect EnergyTech's profit-sharing, the agreement would have to require the company to submit to International Accounting Standards, and to allow EnergyTech to hire an accountant to audit the books on a regular basis. This would prevent Sonaventure from creative accounting practices that would demonstrate no profit, thus depriving EnergyTech of its benefit of the bargain.

Choice of law and choice of forum provisions will be crucial parts of the contract, because of the involvement of so many different companies in so many different companies.

Because choice of law and choice of forum customs would not normally suggest the application of U.S. law in a contract dispute, it is essential that a U.S. choice of law clause be made a part of the parties' agreement. However, because of the diverse interests involved, it is possible that such a clause will not be honored. Moreover, it is highly unlikely that such a clause would apply in the case of a tort dispute, because the likely plaintiffs in a tort lawsuit would be people who were injured by a misuse of the Technology, rather than any party involved in the contract negotiations. When there is no choice of law provision, the courts look at several different factors to determine which law to apply and whether a court has jurisdiction. In contract disputes, the courts look at the place of contracting, the place where the negotiating took place, where the contract will be performed, the location of the subject matter, and the citizenship and place of business of the parties. In tort cases, the courts look at where the injury occurred, where the conduct causing the injury occurred, citizenship and place of business of the parties, and the place where the relationship between the parties occurred.

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) provides that all 142 member states agree to recognize arbitrator's awards and enforce those awards as they would any other court judgments. Arbitrator awards can be challenged, but the reasons for such a challenge are narrower than the reasons for potential appeals. In addition, many foreign courts are reluctant to enforce U.S. court judgments that include punitive damages, which could be an essential part of a licensing violation lawsuit.

However, they will enforce that as part of arbitration awards, though punitive damages may be re-characterized because of prohibitions against punitive damages. The lowered costs and quicker resolution associated with arbitration would also suggest that the agreement include a mandatory arbitration clause.

Many insurance agreements would restrict or limit payment for willful acts of terrorism. While U.S. companies are prohibited from denying commercial insureds terrorism coverage, that applies to activity occurring in the United States, and not all countries have such provisions. Therefore, a global insurance program that would provide coverage for terrorist activities is necessary to ensure that the company is profitable.