Virtual Organization E-Business Paper: Smith Systems Consulting

This Virtual Organization E-Business Paper will focus on Smith Systems Consulting. As Smith Systems expands, it will increasingly conduct e-business on an international basis.

As such, this paper will address the following:

a. Analyze the legal issues that the company may face when conducting ebusiness and discuss possible solutions; and

b. Identify issues that may arise in the company’s international business and discuss the conflicts of law that pertain to those issues. What law would apply to

these situations? What court will decide these issues? (Augenstein)

Virtual Organization E-Business Paper

Smith Systems Consulting describes the web as “the marketplace of the new millennium” (University of Phoenix). The company, founded in 1994, focuses on delivering “high value Web and business application services” in this marketplace. Most of the current customers of Smith Systems are regional companies. However, the company is expanding rapidly. It is likely that as a part of this expansion, the company will take on clients that are located throughout the world. Additionally, many of the company’s current clients will increasingly be doing business on a worldwide basis.

As Smith Systems Consulting becomes an international company with clients that do business on an international basis, it will have to become familiar with the legalities of international law as they apply to e-business. As such, this paper will examine the legal issues the company might face when conducting e-business on an international basis, offering potential solutions. Additionally, this paper will analyze issues that the company may encounter while conducting international business and the conflicts of law that pertain to these issues. Specifically, it will address the applicable law as well as the court(s) of jurisdiction.

Let us first examine the relevant legalities of Smith Systems Consulting’s business, with reliance on information provided by its legal counsel, the Houston, Texas law firm of Gauby & Noone, L.L.C. The company currently uses standardized contracts written in plain language. Legal counsel found these contracts to be “reasonable and equitable to both Smith and its customers” (University of Phoenix). The company has little reliance on copyrights or patents, and most of its business is done on a work for hire basis.

Based upon the nature of Smith Systems Consulting’s business and the information provided by the company’s legal counsel, the primary issues that it will encounter with respect to international law will likely deal with contract law, settlement of disputes, and related jurisdictional issues. Additionally, the company will face issues related to the nature of e-business itself. As such, the company will want to familiarize itself with the law as it applies to trademarks and electronic contracts. Finally, Smith Systems Consulting will want to anticipate any issues that might arise from the nexus of international law and e-business; in other words, it will have to be concerned not just with international law, and not just e-business, but also with international law as it applies to e-business, including the aforementioned issues of trademarks and electronic contracts.

First, the company will want to be concerned with protecting its trademark, Smith Systems Consulting. The company will want to take full advantage of trademark dilution laws, and protect against cyber-squatters and similar domain names. The company’s ability to protect its trademark on an international basis may be limited due to weak trademark dilution laws in other countries. Smith Systems could sue in U.S. courts under the Federal Trademark Dilution Law, but it might be difficult to collect damages in cases involving foreign perpetrators. The company also would have recourse through the World Intellectual Property Organization in some cases.

The company’s contracts currently are in electronic format. As such, the company will want to be fully aware of the emerging standards in contract law as it applies to electronic contracts. Article 2B of the Uniform Commercial Code applies traditional contract law to electronic contracts. Additionally, the federal government has adopted standards for electronic signatures. In the case of contracts with international companies, Smith Systems Consulting will want to include both choice of law and forum selection clauses in its contracts. Oftentimes a patchwork of conflicting laws applies to international contracts, including the Uniform Commercial Code (UCC) and various international laws. The company should include a choice of law clause in all contracts specifying that the UCC shall be the relevant law for all contract disputes.

In addition, a forum selection clause should indicate that all disputes would be resolved in United States courts or utilizing international arbitration (possibly through the WIPO Arbitration and Mediation Center in Geneva, Switzerland). Note that the company must freely negotiate these terms with all relevant parties in order for them to be valid. Since the cost of arbitration is invariably lower than the cost of litigation, Smith Systems Consulting should also include an arbitration clause in its contracts. This clause should bind all parties to settling disputes through arbitration, whenever possible. For international contract dispute resolution, contracts should clearly indicate specific arbitration processes, including location, governing law, and the bodies to conduct said arbitration.

Note that the United Nations Convention on the Sale of Goods does not apply to Smith Systems Consulting, which provides services. However, since this convention will be of importance to many of the company’s clients, the company should become well versed in this law. It is also of importance that Smith Systems Consulting relies on letters of credit for international contracts to avoid problems with payment. The company must additionally ensure to avoid violations of the Foreign Corrupt Practices Act (FCPA) in all its international dealings. It must not only avoid illegal payments to foreign officials but also to abide by the provisions of the law that deal with proper record-keeping and internal controls.

It is clear that as Smith Systems Consulting continues to transform from a local and regional company to an international concern, the company will increasingly need to prepare itself for dealing with the legalities of electronic commerce, international law, and the intersection of the two. The company will want to take a proactive approach, ensuring that its contracts and processes are in accordance with both international law and the emerging area of electronic commerce law. Mere compliance with these laws is not enough. Smith Systems Consulting must also prepare for any eventualities that might occur, in particular through specifying arbitration processes and legal remedies (applicable law and forum selection clauses) in its standard contracts. Arranging for letters of credit in dealing with foreign companies is also essential. The company should schedule regular legal reviews with its outside counsel, and such reviews should include components that focus specifically on electronic commerce law and international law.

However, the company must fully integrate legal compliance processes into the normal course of doing business, rather than thinking of these processes as an adjunct to its normal business activities or in terms of an annual review. Only such actions will enable the company to withstand the inevitable legal issues that will result from its participation in electronic commerce and its growth into a global business.

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