In yet another interesting submission to our SpicyIP Fellowship applicant series, L. Gopika Murthy, a 2nd year student at NLSIU, Bangalore sends us this well written post on a new IT specific competition legislation being implemented in USA and the implications it may have on Indian software manufacturers.
The Unfair Competition Act, 2011 and its Implications on Indian Manufacturers
The Unfair Competition Act, 2011 is a statue that aims to deter unfair competition by penalizing manufacturers who use stolen Information Technology in the design, manufacture, distribution, marketing or sale of their products. The statute aims to support the interests of the manufacturers who suffered economic harm as a result of being in direct competition with cheaper products manufactured using stolen IT. The UCA has been passed in the states of Washington and Louisiana in 2011. However, the significant point is that the UCA includes foreign manufacturers within its ambit, thereby including Indian manufacturers as well. The place of manufacture of the product using stolen IT is irrelevant under the UCA provided the sale of such product is in Washington/ Louisiana.
In a scenario where the Attorney- Generals of 36 states and 3 territories in USA have written to the Federal Trade Commission requesting a better enforcement of the existing Federal Trade Commission Act to prevent such unfair competition at the federal level, the implications of this Act on Indian manufacturers must be discussed. The UCA is based on two broad concepts- protecting the IP rights of the legal IT right-holder and the prevention of unfair competition and unjust enrichment through such competition. The UCA aims to foster respect for the IP rights in the IT sector and tries to incentivize such respect for IP rights by establishing a level playing field for all manufacturers.
The relevant provisions of the UCA must be analysed in order to understand the implications of the UCA on Indian manufacturers. S. (1)(7)(a) of the UCA defines stolen IT as hardware or software acquired, appropriated or used by a manufacturer without the authorization of the legal IT right holder. The penalties under the UCA include damages, injunctive relief and in rem attachment for the manufacturer who violated the UCA. It prescribes liability for third parties who sell or offer to sell products which used stolen IT in states where UCA is applicable, to a limited extent. The UCA also mandates that the legal IT right holder (the owner, the exclusive licensee or the owner’s agent) must give the allegedly violating manufacturer ninety days’ written notice to disprove the allegations or to cure the defect. In instances where such manufacturer has started making attempts to cure the defect,c the time period to cure has to be extended by another ninety days. This requirement of notice has to be fulfilled by the legal IT right holder before the affected manufacturers can file a lawsuit.
The relevant question for the Indian market stems from two sets of statistics. First, 60% of India’s software exports in 2010-2011 were to the USA. Secondly, 64% of the software in India in 2010 was pirated. In such a scenario, Indian manufacturers who use such pirated software in their business operations as defined under S. (1)(7)(b) of the UCA and who sell those products in the states of Washington or Louisiana are presently vulnerable to liability as prescribed by the UCA. This is not to imply that persons who pirate software or use stolen IT are not punishable under the Indian legal system. Section 63-B of the Indian Copyright Act, 1957 provides for financial penalty in the range of Rs.50,000 to Rs. 2,00,000 and prescribes imprisonment terms ranging from a week to three years. The Indian Penal Code, 1860 also prescribes penal liability for selling counterfeited software to the public as genuine software. However, with the advent of the UCA, Indian manufacturers can be held liable by the US courts as well.
The response to the UCA has been generally positive from most quarters. In the Indian context, the American Chamber of Commerce in India has issued a public statement urging Indian manufacturers to fully comply with the UCA in its business practices. Law firms such as Anand and Anand have applauded the UCA as a welcome step that will ensure better respect for IP rights in India as well as contribute to a better economy, owing to the increased tax returns from the small and medium enterprises sector. The issue of running a clean, ethical business in all respects which has been rising to prominence in the past few years is also an argument used in the favour of the UCA.
It is my opinion that the fostering of greater respect for IP rights in the IT sector in India is a welcome step and that the UCA is a good law for IP rights in general. Although the UCA involves questions of holding Indian manufacturers liable in US courts, the ninety day notice period which is given prior to the filing of a lawsuit as well as the mandatory extension given to the manufacturers who attempt to cure the defect is a valuable safeguard against the misuse of the law through frivolous lawsuits by disgruntled competitors. However, the manufacturers would be expected to ensure compliance with the UCA along their entire supply chain in order to abide by the UCA. Although this is likely to lead to additional costs, including increased litigation expenditure, and hardship for the manufacturers, I believe that such a step is necessary to protect the IP rights of the legal IT right holder and to protect the manufacturers from unfair competition.