Unfair competition laws adopted by the state of Washington and Louisiana in the U.S., are the first in a growing trend of legislation meant to penalize manufacturers or related third parties for using stolen or misappropriated information technology in any part of the sales process; the laws will have cross border implications for offenders.
The general grounds for regulating unfair competition are provided for by international law. The Paris Convention for the Protection of Industrial Property of 1883 (Paris Convention), established the first set of regulations for unfair competition, defining unfair competition as an act of competition contrary to honest practices in industrial or commercial matters (Article 10.bis). This notion was further developed in different legal systems. In Russia, unfair competition is regulated by the Federal Law On Protection of Competition (the Competition Law).
The Competition Law defines unfair competition as any illegal act by a business entity (groups of entities) that is aimed at obtaining a competitive advantage in the course of doing business, contradicting usual business practices, principles of integrity, reason and fairness, having caused or which may cause damages to competitors or having caused or which may cause damage to a competitor's reputation.
The definition of unfair competition covers production, sale, exchange, or marketing involving the illegal use of information technology. However, not all acts of misusing information technology result in unfair competition, only cases of production, sale, exchange, or marketing involving the use of stolen or misappropriated information technology, resulting in a competitive advantage for the infringer, while the owner of the exclusive rights or a party legally using exclusive rights suffers damages. The goods must be introduced into circulation for the act of information technology infringement to be qualified as unfair competition.
As a rule, regulation of unfair competition has extraterritorial application, thus affecting foreign relations. In this respect, it is important to note that regulation of unfair competition in many foreign countries may directly apply to affected Russian companies.
In 2011, as noted, two states in the U.S. passed laws on unfair competition. The state of Washington and Louisiana are seeking to promote fair competition, by making those guilty of infringing competition laws, through the use of stolen or misappropriated information technology, legally accountable for their actions. The laws make product manufacturers legally accountable for the use of stolen or misappropriated information technology, irrespective of the country of their registration, if their products circulate in the territory of the relevant states. If the information technologies used in the manufacture, distribution, marketing or sale of such products were used illegally, the product manufacturer may be held liable for unfair competition practices.
The laws provide for a two-step procedure for eliminating unfair competition. A manufacturer illegally using information technologies first receives a warning from the owner of the information technology, notifying the manufacturer of the alleged infringement. If the warning is ignored, the following judicial measures may be taken against the infringer and its products: (i) reimbursement of damages in favor of the competitor; (ii) interim measures in the form of prohibiting the manufacturer from using the information technologies in the production of its products illegally and from selling or offering such products in the territory of the states; and (iii) seizure of the product inventory, located in the territory of the applicable states.
As a result of these laws, not only manufacturers engaging in unfair practices, but also contracting third parties may be held responsible for using stolen or misappropriated information technology. If it is proven that a manufacturer violated the law, the aggrieved competitor may claim reimbursement of actual direct losses from the third party selling the infringer's products in the territory of the relevant states.
Consequently, Russian manufactures that directly or indirectly (e.g. through distributors) export their products to the U.S. and who have used stolen or misappropriated information technology in their business operations may be subject to legal liability under the abovementioned unfair competition laws, resulting in a possible ban from selling or offering such company's products in the territory of the respective state, fines (compensation for damages) or even attachment of their products circulating in the United States.
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