Paying lawyers for important tasks such as drafting contracts, preparing employee handbooks, providing securities law advice, and adopting procedural safeguards for export compliance, is expensive. However, prudent companies understand this is simply a cost of doing business and avoiding the catastrophic consequences that can result when you “get it wrong.” So, here’s my question – why do so many companies pay to “get it right” and then fail to follow through – thus exposing themselves to the very risks they paid to avoid? Unfortunately, the answer is typically, carelessness.
Consider the following hypothetical:
• Seller (a U.S. based manufacturer of non-military heavy equipment) contracts to sell “customized” bulldozers equipped with bulletproof glass and gun turrets (no guns) to a new international Buyer. Unbeknownst to Seller, Buyer is a known terrorist.
• Seller’s lawyers have previously prepared (a) an intellectual property manual (that would require foreign patent protection before shipping to this country), (b) an export compliance manual (that would not allow shipment of these goods to any buyer, or any goods to this buyer), and a contract where Buyer is responsible for shipping, insurance, risk of loss, and posting a letter of credit to eliminate payment risk to Seller.
• Despite those procedural and contractual protections, Seller did not review or follow the contract or the IP or export manuals, paid for shipping, did not confirm that either insurance or the letter of credit was in place, and simply shipped the goods.
• Buyer received the goods, and Seller did not get paid.
So, what are the risks/costs to Seller? Likely, the following:
• Seller has certainly violated U.S. export laws and perhaps the laws of the country to which the goods were shipped, exposing Seller to civil fines and penalties and even potential criminal charges;
• Seller has paid shipping charges that were Buyer’s responsibility;
• Seller has not been paid and has no insurance or letter of credit coverage;
• Seller has lost the ability to protect its IP in the country to which the goods were shipped;
• Seller has paid for legal advice that it didn’t follow; and
• Seller has suffered a loss of reputation, opportunity costs, and a potential devastating blow to its business.
The point is simple – if you’ve paid for the advice and protections, follow them.