This is a three-hour (180 minutes) examination. Any LL.M. student whose native language is not English is entitled to an extra hour for a total of four hours (240 minutes).
Please write your examination number at the top right-hand corner of this page and turn in these examination questions when you turn in your blue book.
On the following pages you will find an elaborate statement of facts followed by five questions. You should answer three of the five questions in your blue book.
This is an open book examination. During the examination you may consult any written materials except materials checked out from Underwood Law Library. You may, however, consult photocopies of library materials.
Read carefully the statement of facts and each question. Follow directions. Think before you write. If you find an ambiguity that affects your answer to a question, make reasonable assumptions and state these clearly in your answer. Be concise. Be clear.
Texas Foreign Venture Capital Corporation ("TFVCC") is a corporation established 12 years ago under the law of Texas and with its headquarters in Dallas, Texas. The corporation's principal purpose is to raise capital and invest it in small-scale manufacturing projects overseas.
Several years ago TFVCC entered into a joint-venture agreement with a privately-owned publishing enterprise in Salasia, a [fictitious] country in south-east Asia. The two parties formed the joint venture to produce compact disks for use in multi-media "cd-rom" equipment (i.e., machines that can reproduce sound, pictures, and text recorded on compact disks). Salasian Publishing Co. Ltd. ("Salasian Publishing"), the local partner, has a license to use a patented process by which data is recorded on the compact disks. The owner of the patent is a German enterprise that has patents issued in both Salasia and the United States. Before forming the joint venture neither TFVCC nor Salasian Publishing had had experience with the production and distribution of compact disks. TFVCC, however, has had experience with small-scale manufacturing projects in other south-east asian countries and Salasian Publishing is affiliated with a European publisher with a world-wide network of distributors of books.
TFVCC and Salasian Publishing established the joint venture as a "private limited company" under Salasian law. (For all practical purposes, a private limited company has the same attributes as a corporation established under U.S. law.) TFVCC and Salasian Publishing each hold 50 per cent of the single class of shares. While TFVCC supplied most of the initial capital, Salasian Publishing assigned its license and provided access to its distribution network. By agreement, TFVCC nominates a majority of the board and Salasian Publishing nominates the managing director in charge of day-to-day management. In practice, TFVCC has maintained effective control of the joint venture.
The joint venture does not have an investment agreement with the Salasian Government, but it was formed at a time when Salasia had an Investment Promotion Act. Among other provisions, this Act provides:
During the first 18 months the joint venture assembled the necessary equipment, trained workers, and experimented with the new technology. During the last year the joint venture has searched for a suitable multi-media "publication" to launch its compact disk project. It believes it has such a publication in the autobiography of Marcus Fox, a notorious Hungarian spy. In addition to Mr. Fox' autobiography, the publication would include footage from secret films and documents from the Hungarian and Russian archives. "To record these materials on a single compact disk," the managing director of the joint venture once said, "would be a sensational demonstration of the potential for multi-media cd-rom." The joint venture has signed a "publishing" contract with Marcus Fox. In accordance with this contract, the joint venture imposed strict secrecy on the recording of the materials. The contract required that this secrecy be kept until Mr. Fox approved the release of the disks.
At a book fair in Leipzig in September 1993, the managing director spread rumors that the joint venture had in its possession the Marcus Fox autobiography which the joint venture would release on compact disk. The rumor caused a sensation.
A representative from Orbis Publishers of New York promptly submitted an offer to purchase the disk for distribution in the United States. After three days of round-the-clock negotiations conducted in Leipzig, Orbis and the joint venture signed a sales agreement. The joint venture showed Orbis demonstration disks with the materials but it did not mention that the materials could not be released until Mr. Fox approved publication. The agreement provided that Orbis would purchase 50,000 compact disks to be delivered 10,000 disks a month beginning in November 1993. The purchase price was to be U.S. $50 per disk. Delivery was to be by air, with risk to pass to Orbis when each shipment was tendered at Kennedy Airport, New York. Pursuant to the agreement, Orbis had Chase Manhattan Bank open a letter of credit with the joint venture as a beneficiary. The joint venture could draw on the letter of credit after each shipment by presenting a draft, an invoice, and an air waybill. The Salasian National Bank advised the joint venture that the letter of credit had been opened, but there was no confirming bank. The parties orally agreed that if a dispute arose between the parties they would submit it to arbitration in New York.
The November shipment duly arrived, Orbis accepted delivery, and Chase Manhattan Bank paid the joint venture for the shipment. When it received delivery, Orbis began advertising that it would release a "publishing sensation" on December 1.
After the November shipment, but before December 1, rumors begin circulating that the Marcus Fox' autobiography and many of the documents are fakes. Orbis immediately secretly consults experts and they advise Orbis that some of the documents and much of the moving picture footage are probably fakes. Orbis decides to postpone the December 1 announcement. Meanwhile, the December shipment arrives in New York on December 1 and is stored in a warehouse at Kennedy Airport.
Orbis wants Chase Manhattan Bank to cancel the letter of credit. In particular, Orbis wants to stop Chase Manhattan Bank from paying for the December shipment. On Thursday, December 2 the bank informs Orbis that it has received conforming documents and plans to honor the joint venture's draft on the following day. Orbis consults you late Thursday and asks whether it can stop the bank from paying for the December, January, February, and March shipments. Advise Orbis.
Orbis learns that the German owner of the patented process used by the joint venture is the registered holder of the patent in the United States. Orbis also learns that Marcus Fox is upset that Orbis plans to distribute the disks without his permission. In particular, Mr. Fox would like to have the December shipment destroyed. Orbis consults you for advice on whether U.S. patent and copyright law will allow the German patent holder or Mr. Fox to stop the importation of the disks and their distribution in the United States. Advise Orbis.
The joint venture learns that Orbis is planning to stop Chase Manhattan Bank from honoring its drafts. The joint venture immediately files a complaint with a Salasian court seeking damages for Orbis' "breach of contract." The complaint is sent by express mail to Orbis as is allowed by Salasian rules of civil procedure. By paying the court clerk $2,000, the managing director obtains an immediate hearing by the court. Although informed of the hearing by wire, Orbis chooses not to appear at the hearing and the court promptly renders an award of damages against Orbis. On learning of this judgment, Orbis consults you to learn whether the joint venture could enforce the judgment in a New York court. Assume for the sake of this question that New York has adopted the Uniform Foreign Money-Judgments Recognition Act. Advise Orbis.
To its surprise, Orbis discovers that rumors about the authenticity of the Fox' materials has created a great demand for the compact disks. It therefore informs the joint venture that it wishes to take delivery of all the compact disks in accordance with the original agreement. The joint venture replies that it would be happy to oblige. Meanwhile, however, the Salasian Government has refused to issue an export permit for any further Fox' compact disks. The Salasian Government has not explained why it will not issue export permits, but Orbis believes the Government may be under pressure from the U.S. Government. The U.S. may have concerns that some of the Fox documents reveal secret information concerning U.S. cold war activities. Orbis wishes to learn what remedies, if any, it might have for the Salasian Government's action (or non-action). The joint venture has also informed Orbis that a payment of $50,000 to the Director General of the Salasian Customs Service would persuade him to issue the export permits. Advise Orbis.
You are a legal adviser to Orbis. The management of Orbis asks you to examine the facts stated in the materials set out in the previous pages. Assume these facts are accurate. The previous questions may not have identified all the potential legal issues that Orbis should know about. Identify and analyze the most important potential legal issue that has not been raised directly in the previous questions. In light of your analysis, advise Orbis.
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