By Eric Priest, Assistant Professor, University of Oregon School of Law
China’s pervasive intellectual property piracy problem, and the resulting impact on American industry and jobs, is a constant refrain in U.S. media and even the presidential campaign. But are some U.S. companies also benefitting from the infringement? Some policy makers and software companies are beginning to ask whether U.S. businesses are actually indirect beneficiaries of pirated intellectual property in China (and elsewhere). When an upstream producer such as a Chinese factory uses pirated software in its manufacturing or logistics operations, the cost of production is reduced. Some of those savings can also be passed along to the U.S.-based firm that hired the factory, or to the retailer that sells the product. These cost savings arguably give the overseas manufacturer and the seller of such a product in the U.S. an unfair edge over competitors in the U.S. market.
Louisiana and Washington State passed laws in 2010 and 2011, respectively, that make it an act of unfair competition to sell a product manufactured using “stolen or misappropriated” information technology. The Louisiana statute is terse and therefore broad, while the Washington statute contains detailed limitations on liability and requires that the defendant be given notice and have the opportunity to cure. The Washington statute creates liability for the manufacturer as well as for certain third parties (i.e., sellers other than the manufacturer), although it limits potential third-party liability to large companies with over $50 million in annual revenue, which are better positioned to police suppliers.
In addition, Attorneys General from thirty-six states and three U.S. territories last November requested that the FTC consider using its broad unfair competition authority under § 5 of the FTC Act to pursue manufacturers who sell in the U.S. goods that they produced using pirated software in competition with law-abiding manufacturers. In addition to such federal action, some state Attorneys General have indicated they would consider the possibility of using existing state unfair competition laws (the “mini-FTC Acts”) to the same effect.
Theft is normally considered harmful to society for several reasons. Most importantly, if theft is allowed to become common, the linkage between effort and reward is weakened for law abiding citizens, thus reducing or eliminating incentives for individuals to provide the efforts to be productive. If the neighborhood thug is capable of taking all the fruits of your labors, you lose an incentive to labor. It is also the case that individuals and governments spend resources trying to reduce theft (so that individuals will have incentives to work) and these are resources that could have been used for other more productive purposes if not for theft.