In July 2011, an Act Relating to the Unfair Competition that Occurs when Stolen or Misappropriated Information Technology Is Used to Manufacture Products Sold, or Offered for Sale, in the State (the “Act”), came into force in Washington State, USA.
In fact, the Act also has certain extraterritorial application, as it also applies to any and all products imported into the state, including those products manufactured in other countries (including the Russian Federation).
The fact that the Act applies to products manufactured in the Russian Federation, among other jurisdictions, can be implied from an open letter sent by the Attorneys General of 36 states to the U.S. Federal Trade Commission. In the letter, the Attorneys General urged all U.S. States to pass similar legislation, as the amount of goods being manufactured using stolen or misappropriated information technology (the “Stolen IT”) in foreign countries (including Russia) has increased significantly over the past decade, resulting in substantially lower U.S. economic growth rates.
Content of the Act
The Act applies only to persons and entities manufacturing or marketing products; not to those providing services. The Act does not apply to the manufacture/sale of food; beverages; products primarily used for medical or medicinal purposes; and products protected by U.S. copyright law such as books, films and music etc.
A manufacturer is deemed to have engaged in an act of unfair competition if the manufacturer:
- makes use of Stolen IT in the manufacturing of products;
- sells or offers for sale, products or their components, which are manufactured using Stolen IT in the territory of Washington State; and
- sells or offers for sale such products in competition with products sold or offered for sale in the same state that were manufactured without using Stolen IT, thus causing substantial harm to competition.
A manufacturer that meets the above criteria (an “Unfair Manufacturer”) can face:
- an action seeking the prohibition of the use of Stolen IT; and
- a claim for damages (available only after the court has determined that the person has made use of the Stolen IT).
An action seeking the prohibition of the use of Stolen IT can be brought by:
- the Attorney General of the State;
- a manufacturer producing a similar product without the use of Stolen IT, for example, the owner of the IT or the owner’s authorized licensee(s) (a “Bona Fide Manufacturer”); or
- an agent representing a Bona Fide Manufacturer.
A Bona Fide Manufacturer is entitled to bring an action, provided that:
- the products manufactured by the Bona Fide Manufacturer are in direct competition with the products manufactured using Stolen IT;
- the price difference between the products manufactured by the Bona Fide Manufacturer and those manufactured using Stolen IT exceeds 3% of the product’s average retail price over a four-month period of time;
- the products manufactured by the Bona Fide Manufacturer were not manufactured using any Stolen IT; and
- the value of the Stolen IT being used in manufacturing the Unfair Manufacturer’s products exceeds USD 20,000.
Before bringing an action, however, a claimant must give notice of the infringement to the Unfair Manufacturer.
Upon receipt of the notice, the Unfair Manufacturer has 90 days to cease using the Stolen IT, or replace the Stolen IT with other technologies the use of which does not violate the provisions of the Act. The 90-day period must be extended by an additional 90 days if the Unfair Manufacturer has commenced and has thereafter proceeded diligently to replace the Stolen IT following receipt of the notice.
The damages claimed from the Unfair Manufacturer may not exceed the actual direct damages suffered by the claimant, or statutory damages of no more than the retail price of the Stolen IT.
If the court finds that the Unfair Manufacturer’s use of the Stolen IT (as well as selling the products manufactured using Stolen IT) was willful, the court has discretion to award up to three times the actual damages that would have otherwise been recoverable.
Along with the Unfair Manufacturer, third parties involved in the manufacturing or marketing of products manufactured using Stolen IT can also be sued for damages (up to a maximum of USD 250,000) under certain conditions, e.g. if their contribution to the value of the end product is 30% or more.
The adoption of the Act (and similar acts will soon be adopted in other U.S. States) aims to: provide a fair market for all manufacturers; protect the interests of the owners and rightholders of the IT technologies; and provide a straightforward procedure that will allow all market players to comply with the new requirements.