The Number 1 Thing to Consider When Working With Foreign Companies

I recently started gathering quotes from developers to build a mobile application for an idea I have brewing (more on that later). One of the development companies I was speaking with sent me a Non-Disclosure Agreement or NDA. My contact at the company had a cell phone with a 408 area code, so I assumed he was in California. Then I received his form of NDA. I paged through the contract and found toward the end, Section 15 Miscellaneous. Snuggled among a laundry list of mundane items were the key words, "This Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario, Canada."

Canadian FlagWhoa, I thought. Canada? But the guy I was talking to was located in San Jose. Turns out the company employs developers in the U.S., but is based out of Canada. It is, in the eyes of U.S. contract law, a foreign company.

This is where things get tricky. The temptation is to think, well it's Canada, how different can it be from U.S. law? The reality is, though, that intellectual property (IP) laws in other countries differ from that of the U.S., and not paying attention to those differences can be costly.

So by now you know the answer—the number one thing to consider when working with foreign companies is the governing law of the contract. This section is what determines which country's laws will govern if you have an issue with the service provider. Right down to things like whether the issue can be litigated, and if so, how the issue is litigated and resolved. The governing law section is where the company you are dealing with might slip in their country as the choice of law.

What to do if that happens? Well for that I turned to a long-time friend and IP legal eagle, Jill Bowman. She provides IP Law advice to startups. Her advice: ""If you have important trade secrets at risk, I would never rely on foreign law. Also, if ownership of key software or something that really has value is at issue, I would absolutely demand U.S. law."

She went on to point out that, as is true about all parts of a contract, the choice of law in a contract is negotiable. Whether you get them to change it, however, depends on your leverage in the situation. "Pragmatically, sometimes a small company doing business with a foreign corporation has to cave on the issue of the governing law to get a deal done. But the business people should understand that there are very expensive risks to agreeing to foreign law."

To wit, it's costly to litigate a foreign law issue in a foreign country. Often it requires hiring lawyers in both the U.S. and the foreign country in which you are litigating. It is not for the faint of heart.

You may be thinking, this is all very informative Alicia, but this doesn't really apply to me. If it doesn't now (have you ever really looked for the governing law provision in a contract?), it will soon as more and more technical development work and services are coming from both companies and individuals based outside of the U.S. Forewarned is forearmed.

For more unsolicited advice, see www.aliciamorga.com.

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