Counterfeiting and piracy is estimated to cost the U.S. hundreds of billions of dollars every year. According to the Business Software Alliance, if the U.S. could reduce piracy by 10 percent in two years, it would add $52 billion in GDP, $8 billion in tax revenue, and create more than 25,000 new jobs. California alone is losing an estimated $34 billion annually because of counterfeiting and piracy. Much of the problem is related to foreign companies violating the intellectual property rights of U.S. companies.
Traditionally, U.S. companies have used three primary weapons in their fight against foreign violators: (1) civil lawsuits; (2) complaints with the International Trade Commission; and (3) criminal prosecution. Each of these measures have pros and cons which may make them more or less suitable depending on the circumstances of the particular situation. Recently, U.S. companies have seen a new addition to the arsenal – State Attorneys General suing foreign intellectual property thieves for unfair competition.
Earlier this year, Kamala D. Harris, the Attorney General of the State of California, filed two separate lawsuits in Los Angeles Superior Court against Chinese and Indian apparel manufacturers alleging they were unfairly competing against California companies. The California lawsuits allege that California companies are injured when foreign companies impermissibly use or copy their intellectual property, but also that domestic apparel manufacturers face unlawful competition when foreign competitors illegally use software without paying the license fees domestic companies pay. The Attorney General alleges that the defendants’ conduct violates California’s Business and Professions Code section 17200, et seq., and seeks injunctive relief, certification that the defendants are in compliance with all software licensing requirements, the appointment of a trustee to verify the certifications, and a civil penalty of $2,500.
By filing these lawsuits, California is taking a page from the playbooks of Attorneys General in Massachusetts and Washington who have already had success with similar tactics both in and outside of court, without prolonged litigation, in obtaining certifications that alleged foreign violators will comply with all software license requirements. The ultimate efficacy of this strategy depends on a number of factors which may make it a disfavored option in many situations. For starters, Section 17200 does not provide for damages or attorneys’ fees for the injured companies, and jurisdictional and venue requirements make the approach inherently unsuitable for violators which do not do business in the U.S. Moreover, service is complicated for defendants which do business in the U.S. but do not have a U.S. agent for service of process. For example, the Chinese defendant sued in California has yet to be served almost eight months after the filing of the complaint. Conversely, the Indian defendant was served in June, and its demurrer to the complaint has been set for hearing in November. To be sure, the outcome of these two lawsuits will be watched with great interest by U.S. owners of intellectual property, the U.S. companies competing with the foreign companies which violate intellectual property rights, and perhaps also by foreign companies violating U.S. intellectual property rights.