Skip to main navigation

Trends related to IT rules and regulations - Part 1: US - EY - China

New rules and regulations on IT and fair competition

Trends related to IT rules and regulations - Part 1: US

  • Share

Details on potential liable parties and damages as stated
in the UCA

  • Any manufacturer of products that are sold or offered for sale in Washington can have actions brought against it. A manufacturer can be held liable as long as illegal IT is used in its business operations during the manufacturing process of such a product, regardless of whether the place of manufacture is within Washington
  • Third parties with annual revenues of more than US$ 50m (such as large, chain store retailers) can also be held responsible if they sell or offer for sale products from manufacturers that utilize illegal IT in their business operations – but only after certain conditions are met (e.g., failure of manufacturer to appear in court)
  • The product in question can be sold stand-alone or as a part of another product
  • Possible outcomes include:
    • In the event of a successful case brought against a manufacturer, the court may limit future sale of the product(s) in Washington, impose damages that amount to the greater of actual damages (e.g., economic loss suffered by the competitor) or the retail price of the stolen IT, and award costs and reasonable attorneys' fees incurred by the plaintiff
    • In the event of a successful case brought against a third party, the court may award damages that amount to the lesser of the retail price of the stolen IT, or US$ 250,000
    • A grace period for third parties exist – no award of damages can be enforced before January 2013

Source: State of Washington House Bill 1495, Chapter 98, 2011 Laws

Figure 2. Summary of similar illegal IT bills in the US

Source: J. Teague, C. Miller, M. Johnson

An important difference between the UCA and existing IP rights laws is the impact on infringers outside their own jurisdiction, with consequences that are not just financial, but indeed have greater impact such as the potential loss of a key export market.

The US has been at the forefront of addressing unfair competitive behaviour as a result of the use of illegal IT. The issue is broadly recognised in the US, from the federal level down to the grassroots level.

The US state and federal governments are treating the problem very seriously, and have started to introduce targeted solutions – in the form of specific legislation. Enforcement avenues have also increased.

In July 2011, the state of Washington introduced UCA – designed to eliminate any unfair competitive advantages by manufacturers who use illegal IT2 in its business operations3 to the detriment of law-abiding manufacturers.

Any manufacturer, found to be using illegal IT, with goods being sold or offered for sale in Washington could have actions brought against it, regardless of its business operation or registration location.

Details of the UCA

Additionally, third-parties (such as retailers) can be held responsible4 for the sale of goods produced by manufacturers using illegal IT.

The application of the UCA is fairly narrow as it excludes the following situations:

  • The product is copyrightable (e.g., films, movies or books) or manufactured for a copyright owner and consists of elements of copyrighted works
  • The product is regulated by the US Food and Drug Administration (FDA); alternatively, if the product is primarily used as a medical or medicinal product
  • The product is a food or a beverage
  • The illegal IT in question is based on a violation of an open source license
  • The illegal IT is based on a patent infringement or misappropriation of a trade secret

An important difference between the UCA and existing IP rights laws is the impact on infringers outside their own jurisdiction, with consequences that are not just financial, but indeed have greater impact such as the potential loss of a key export market.

Fourteen states within the US have introduced legislation to address the same concerns about illegal IT use.

At the federal level, the Federal Trade Commission (FTC) has expressed its continued commitment to “exploring issues at the intersection of competition and intellectual property.” Currently, the FTC does not enforce any specific laws or acts pertaining to the use of illegal IT and its impact on unfair competition.

The Interagency Trade Enforcement Centre (ITEC) was set up in February 2012 to help moderate the impact of unfair competitive behaviour by foreign manufacturers.

It is likely that the role of illegal IT in unfair competition will be investigated and pursued where relevant. Setting this federal precedent would be a boost to domestic legislation such as the UCA.

Other trends include legislation involving the use of illegal IT on the Internet, and increasingly vocal grassroots movements.

Legislations addressing the issues of IP violations on the Internet have been proposed (such as SOPA, PIPA and ACTA), but have yet to be passed. There has also been an increase in the visibility of grassroots movements promoting legal IT use to help level the competitive playing field.


2 As defined by the UCA, “illegal IT” is hardware or software acquired or utilised in violation of applicable law, and without the IT owner’s authorisation
3 Includes inventory, logistics, and accounting systems
4 But only after certain conditions are met – conditions include a minimum revenue threshold of US$ 50m, failure of manufacturer to appear in court, etc.


« Previous | Next » 

Contents

Download \'New rules and trends on IT and fair competition\' as a printable document

 

Related content


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
Back to top