Contents - AL-Tax

162 12 Decentralized Ownership of Intellectual Property Language; Local customs, tastes and preferences, not only for particular types of goods andservices but also for the “look and feel” of websites and user interface features; Differing legal protections regarding the transfer of personal information overthe Internet, and consumers’ comfort level in doing so; Differing legal restrictions on the types of products that can be sold over theInternet; Currency; Payment mechanisms; Customs duties; and, Shipping.In view of the above impediments to border-free e-commerce websites, individualmembers of multinational e-commerce groups generally customize their sitesand develop their own user networks (although the development and maintenanceof an IT platform is often centralized). Such is the case with individual members ofthe multinational Group featured in this case study. We analyze this case under theresidual profit split method, the proposed joint venture method and the (officially)proposed cost-sharing regulations.12.1 Summary of Key FactsAs noted above, the multinational firm in this case is a large Internet-based companywith operations in numerous countries. Its tangible assets consist predominantly ofservers (along with headquarters and local offices), and its intangible assets consistof a number of discrete user communities, a trademark and an IT platform (consistingof server-side and client-side software). The firm as a whole is in the business ofproviding web-based information services and a forum in which users can interactdirectly. Its income consists primarily of advertising revenues.The Group’s sites in different countries, while generally extremely successful,have remained discrete; users in one country rarely interact with users in anothercountry (even within the EU), and user interfaces have been extensively customized.Such customization goes far beyond translation and spelling to include virtuallyall aspects of the “look and feel” of the sites and the specific functionality thatusers in different countries demand. The U.S. site is operated by the parent company(USP), and it was the first site to be established. It developed the businessmodel used by all Group members (which is not proprietary, and has been extensivelyreplicated by third parties), and the IT platform, also used by all Groupmembers. All of the Group’s non-U.S. sites are operated by its wholly-owned subsidiaryin Europe (FS), each through a separate legal entity (themselves subsidiariesof FS). Network effects have been an extremely important factor in the Group’ssuccess.The telephone industry in its early stages is an often-cited example of networkeffects. At the outset, the industry consisted of very small local networks,or local exchanges, that could not communicate with one another. AT&T provided