Is Your Supply Chain Safe?

The newly enacted Unfair Competition Act in two of the states in USA promises to have profound effects on international trade and business practices. With nearly 39 more states showing active interest towards its enactment and implementation, the clash against pirated software is sizzling up with each passing day.

As per the newly enacted law, the manufacturers and retailers that sell products in the two states of Washington and Louisiana could face stiff penalties if their products are made using stolen or misappropriated IT. But the more difficult aspect of this law to subscribe to is that the law also creates provision wherein damages worth thousands of dollars could be claimed against third parties who contract with violating manufacturers and sell their products in the aforementioned states.

First of all, it must be understood that the law is applicable for tangible articles or products only. All forms of services including restaurant services, products subject to regulation by USFDA etc are excluded from the definition. Therefore, it is the manufacturers who are the primary targets of the law.

Moreover, as defined by the Act, “business operations” include manufacture, distribution, marketing or sales of a product or article. Therefore, even if pirated software is being used by any of the vendors or suppliers or in any of the back offices for activities such as accounting, stock keeping, inventory management etc. the product will be considered as a liability under the act if it is sold in any of the two aforementioned states.

This results in a massive burden on the manufacturers to keep their entire supply chain clean of any piracy when it comes to IT. If the use of misappropriated software is detected in any of the links of the value chain of a product which finds its way into the markets of US, it could cause serious damage to the business of the company and its prospects of selling again in the US.

At the same time, for sellers who act as just intermediaries between manufacturers and customers; they will also have to police their entire supply chain to avoid an imposition of any kind of remedy. Various measures will have to be taken proactively in order to prevent such an eventuality.

The sellers could maintain an updated code of conduct in accordance with the provisions of the UCA and ensure that the entire supply chain adheres to the same. They could also provide incentives to the suppliers so as to prevent them from using stolen or pirated IT. They could go for measures such as including remedial measures in their internal contract with the supplier holding him responsible for any inappropriate behavior related to software. Another proactive measure which could be of use is keeping a watch for any lawsuit which is filed under any of the federal or state courts against any manufacturer/supplier of that industry under the UCA. This would prevent other companies who had done or planned to do business with them to stay safe.

Such measures are expected to go a long way towards keeping the entire supply chain for the product safe. Not only the manufacturers and sellers but third party vendors and suppliers are also on the same page, thus ensuring healthy growth in business for years to come devoid of any legal hassles.

References:

Shickich, Daniel, 2012, Finding Safe Harbor: Navigating Washington’s New Unfair Competition Law, Washington Journal of Law, Technology & Arts, Volume 8, Issue 1.