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New rules and regulations on IT and fair competition - EY - China

New rules and regulations on IT and fair competition

Illegal IT hinders fair competition, leads to new laws

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The use of illegal IT isn’t just about the infringement of intellectual property (IP) rights, it could cause unfair competition in some circumstances.

For years, consumers and enterprises alike have relied on illegal IT for a variety of reasons. It might be to lower costs or due to complacency. Players using illegal IT in their business operations are essentially “subsidizing” the cost of providing goods or services.

This in turn makes it difficult for compliant businesses to compete on a level playing field. This could trigger greater economic problems, including losses of revenue and jobs, for an industry or country playing by the IT rules.

There are several areas pertaining to the use of illegal IT and its impact on fair competition:

Trends related to IT rules and regulations 

Unfair competition as a result of the use of illegal IT led to several trends related to IT rules and regulations, such as:

  • The introduction of IT legislation (e.g., the Unfair Competition Act (UCA))1, at the state level in the United States, to tackle unfair competitive behaviour and create an investment-friendly environment. At the federal level, organisations such as the Federal Trade Commission (FTC) have expressed their commitment to addressing this unfair competitive behaviour
  • The proposal of legislations (e.g., Stop Online Piracy Act (SOPA) , Protect IP Act (PIPA) and Anti-Counterfeiting Trade Agreement (ACTA)), in the US and other countries, involving the use of illegal IT on the Internet
  • Increasingly visible support from political leaders (e.g. the Group of Eight leaders) and grassroots movements speaking out against the effect of illegal IT on competitive behaviour and the potential detriment to the economy
  • Response to the new IT rules and regulations have been generally positive

Potential economic impact 

  • On a macro-economic level, the new IT rules and regulations are not expected to have significant impact on an economy’s performance (e.g., nominal GDP for a country/territory with a large manufacturing industry; overall manufacturing costs; redistribution of US import trends)
  • As expected, players along the manufacturing value chain and within the IT ecosystem will experience the greatest impact from the new IT rules and regulations:
    • Players that are adjacent to the manufacturers on the manufacturing value chain will experience the greatest impact, e.g. the need to ensure compliance to the UCA if exporting goods for sale in the state of Washington
    • Companies within each category of the IT ecosystem are likely to experience direct implications and opportunities, e.g., an increase in demand for expertise in implementing Software Asset Management (SAM) systems

Key strategies to mitigate effect of illegal IT use 

  • The impact of the legislations on legal IT and fair competition varies depending on the stakeholder, and the possible strategies in which to address the impact would thus differ. Regardless of the stakeholder, there are two central strategies that can be employed to address the possible impacts:
    • Compliance – ensuring compliance through various measures, ranging from the co-operative to the adversarial
    • Education – changing mindsets to understand that the use of illegal IT has a greater impact on the marketplace as a whole, and that fair competition is an important trait of any economy

1 State of Washington House Bill 1495, Chapter 98, 2011 Laws

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Contacts

  • Stephen Y. Lo 
    Asia Pacific Technology and Telecommunications Industry
    Advisory Leader
    +86 10 5815 2837
  • Edward Chang 
    Advisory Partner
    +86 10 5815 2321
  • Keith Yuen 
    Advisory Partner
    +86 21 2228 2252
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