On 22 June 2011, it became an act of unfair competition in Washington state for product manufacturers whose products are offered for sale in Washington state to use "stolen or misappropriated IT" in their business operations.
Importantly, the "stolen or misappropriated IT" need not be incorporated into a product sold in Washington State; the law provides for liability if a manufacturer uses "stolen or misappropriated IT" in its business operations. As many product manufacturers are outside the jurisdiction of Washington state, the law also provides plaintiffs with a cause of action for damages from certain third parties who sell the products in Washington state and an in rem action against certain products themselves, as further mentioned below.
The Washington Attorney General or a competitor injured by the sale of offending products in Washington State can bring a claim of unfair competition. Plaintiffs may seek to recover from a manufacturer the greater of actual direct damages or statutory damages equal to the retail price of the "stolen or misappropriated IT," as well as treble damages if the use was willful and costs and attorneys fees. Should the manufacturer lack sufficient assets in the state to satisfy any judgment, then an injunction may be issued against the sale of offending products to which the manufacturer retains title. However, injunctive relief is limited in several ways: a private plaintiff is entitled to injunctive relief only if it has suffered "material competitive injury," and an injunction shall not extend to products destined for a third party if such products are "essential components" of such third party’s own products.
If the manufacturer fails to appear or does not have sufficient assets to satisfy a judgment, a plaintiff may also join to an action third parties that offer to sell the manufacturer's offending products in Washington state (“Product Sellers”) and may seek damages of the lesser of the "retail price of the stolen or misappropriated IT" or $250,000, less any amounts recovered from the manufacturer. In such circumstances, the law also provides for in rem attachment of the offending products to which the manufacturer retains title. Product Sellers can avoid a damages award and/or in rem or injunctive relief by satisfying one of several statutory affirmative defenses or, with respect to an attachment order, by posting a bond equal to the lesser of the retail price of the allegedly "stolen or misappropriated IT" or $25,000.
Manufacturers and sellers of everything from automobiles to zippers and sporting goods to apparel are implicated. Several types of products, however, are excluded entirely from the law, including medical products regulated by the U.S. Food and Drug Administration, food and beverage products, restaurant services, and products subject to copyright or mask work protection.
This law is the first of its kind, although it may not be the last, as similar legislation has been introduced in several states and is strongly supported by Microsoft. Microsoft's primary goal is to prevent the use of pirated software abroad, particularly in China, by pressuring U.S. Product Sellers to cause their foreign suppliers to cease using pirated software.
We are happy to discuss this quite complex new law and give practical tips for product manufacturers and sellers.