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New US State Law Affects Global Manufacturers

Issued: August 01 2011

Manufacturers whose products are sold in the US state of Washington must ensure full legal compliance in the use of their IT, or risk legal liability under a new unfair competition law that was recently passed there.

Manufacturers whose products are sold in the US state of Washington must ensure full legal compliance in the use of their IT, or risk legal liability under a new unfair competition law that was recently passed there, say lawyers at Baker & McKenzie. The new law, which came into effect on July 22, 2011, allows manufacturers or the Washington State Attorney General to commence civil proceedings against manufacturers who compete unfairly by using stolen or misappropriated IT in the manufacture, distribution, marketing or sale of their products, which are sold or offered for sale in Washington state.

A similar law has been passed in Louisiana. The firm says there is a possibility that similar laws may be passed in other states in the US.

“Failing to comply with the new law puts manufacturers at risk of having to pay damages, having their goods seized and even losing access to lucrative US markets,” lawyers at the firm say. “On the other hand, manufacturers that use legal IT will reap benefits under the new law, which will level the playing field for manufacturers who have previously suffered a competitive disadvantage against manufacturers that compete unfairly by using stolen IT.”

Two categories of businesses may be sued under the new law:

 Manufacturers of products that are sold or offered for sale in Washington (whether separately or as a component of another product). Such manufacturers will potentially be liable under the law if they use stolen IT in the manufacture, distribution, marketing or sale of such products, provided that such products are being sold or offered for sale in competition with a product that has not been manufactured, distributed, marketed or sold using stolen IT. Once these conditions have been satisfied, the place of manufacture, or the place where the use of stolen IT takes place, does not matter, say the firm’s lawyers.

 Third parties (such as retailers) who sell or offer for sale such potentially infringing products in Washington. Once a judgment has been entered against a manufacturer, a plaintiff may also bring an action against third parties who have a direct contractual relationship with the manufacturer (as regards the manufacture of the infringing products), where the manufacturer either fails to make an appearance in Washington or does not have sufficient attachable assets to satisfy a judgment against him.

There are only two persons who may commence an action under this law, competing manufacturers of products that are sold or offered for sale in Washington, and the Washington State Attorney General.

“An action may then be brought only if the defendant fails to establish that its use of the stolen IT is not infringing, or fails to cease use of the stolen IT within 90 days after receiving the notice,” the Baker & McKenzie lawyers said. “The court may injunct the defendant from selling or offering to sell the infringing
products in Washington, or award the plaintiff the greater of either the actual damages suffered or statutory damages of no more than the retail price of the stolen IT. In addition, the award of damages may be tripled if the defendant’s use of the stolen IT is willful.”

The lawyers note that the new law promotes fair competition by providing strong incentives for manufacturers to take responsibility for their IT systems. “Responsible manufacturers are rewarded for investing in and using legitimate IT systems and for ensuring that their businesses are competing fairly. On the other hand, errant manufacturers who compete unfairly by using stolen IT in their business operations face legal consequences, such as damages, seizure of their goods and even loss of access to the marketplace,” they said.


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