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[1]
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.[2]
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.[3] 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.
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