Competition Law Liability for Misappropriated IT

November 5, 2012

Computer piracyState and federal authorities are expanding the scope of laws against unfair business competition and practices to include use of misappropriated computer software and other forms of information technology among the prohibited activities.  Under this approach, a business that believes one of its competitors has gained a commercial advantage as a result of its use of misappropriated information technology could sue the competitor for engaging in unfair business practices.

For example, if a manufacturer uses a software product to automate its product design process, and that software incorporates code that has not been properly licensed, the manufacturer’s competitors could initiate litigation based on unfair business practices.  If the competitors can demonstrate that the use of the pirated software resulted in commercial advantage, the manufacturer that used the software could be liable.

Note that these actions do not involve direct intellectual property law claims.  Instead, they are unfair business practice claims in which the illegal practice at issue is use of misappropriated information technology to gain an unfair competitive advantage.

At present, Louisiana and Washington have enacted laws that specifically include use of misappropriated information technology as an unfair business practice.  The attorneys general of 39 states and territories have also requested that the Federal Trade Commission actively enforce the prohibitions against unfair trade practices in the FTC Act to penalize businesses that gain competitive advantage from use of misappropriated software.

It is likely that the FTC and other states will eventually follow the lead of Louisiana and Washington to apply unfair competition laws more aggressively in an effort to deter commercial use of pirated software.  These laws apply to providers of both products and services.  They apply to product manufacturers and to the distributors and retailers who sell the products.

As authorities become more active in their use of unfair competition laws to combat information technology piracy, prudent businesses will implement practices that can help to reduce their risk of liability.  For example, development and enforcement of written codes of practice by businesses directed toward their interaction with manufacturers and suppliers and designed to discourage those parties from using misappropriated information technology will likely be increasingly important.

These laws reflect an effort by governments to expand the fight against software piracy.  They have significant potential impact on a range of businesses which have not traditionally been actively involved in the struggle over piracy.  Those businesses should recognize this new environment and act to protect their interests.