Passed by the House January 1, 0001 Yeas 0   ________________________________________ Speaker of the House of Representatives Passed by the Senate January 1, 0001 Yeas 0   ________________________________________ President of the Senate | I, Barbara Baker, Chief Clerk of the House of Representatives of the State of Washington, do hereby certify that the attached is SUBSTITUTE HOUSE BILL 1495 as passed by the House of Representatives and the Senate on the dates hereon set forth. ________________________________________ Chief Clerk | |
Approved ________________________________________ Governor of the State of Washington | Secretary of State State of Washington |
State of Washington | 62nd Legislature | 2011 Regular Session |
READ FIRST TIME 02/17/11.
AN ACT Relating to the unfair competition that occurs when stolen or misappropriated information technology is used to manufacture products sold or offered for sale in this state; adding a new chapter to Title 19 RCW; and prescribing penalties.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
NEW SECTION. Sec. 1 The definitions in this section apply
throughout this chapter unless the context clearly requires otherwise.
(1) "Article or product" means any tangible article or product, but
excludes: (a) Any services sold, offered for sale, or made available
in this state, including free services and online services; (b) any
product subject to regulation by the United States food and drug
administration and that is primarily used for medical or medicinal
purposes; (c) food and beverages; and (d) restaurant services.
(2) "Copyrightable end product" means a work within the subject
matter of copyright as specified in section 102 of Title 17, United
States Code, and which for the purposes of this chapter includes mask
works protection as specified in section 902 of Title 17, United States
Code.
(3) "Essential component" means a component of an article or
product provided or to be provided to a third party pursuant to a
contract, including a purchase order, without which the article or
product will not perform as intended and for which there is no
substitute component available that offers a comparable range and
quality of functionalities and is available in comparable quantities
and at a comparable price.
(4) "Manufacture" means to directly manufacture, produce, or
assemble an article or product subject to section 2 of this act, in
whole or substantial part, but does not include contracting with or
otherwise engaging another person, or that person engaging another
person, to develop, manufacture, produce, or assemble an article or
product subject to section 2 of this act.
(5) "Material competitive injury" means at least a three percent
retail price difference between the article or product made in
violation of section 2 of this act designed to harm competition and a
directly competing article or product that was manufactured without the
use of stolen or misappropriated information technology, with such a
price difference occurring over a four-month period of time.
(6) "Retail price" means the retail price of stolen or
misappropriated information technology charged at the time of, and in
the jurisdiction where, the alleged theft or misappropriation occurred,
multiplied by the number of stolen or misappropriated items used in the
business operations of the person alleged to have violated section 2 of
this act.
(7)(a) "Stolen or misappropriated information technology" means
hardware or software that the person referred to in section 2 of this
act acquired, appropriated, or used without the authorization of the
owner of the information technology or the owner's authorized licensee
in violation of applicable law, but does not include situations in
which the hardware or software alleged to have been stolen or
misappropriated was not available for retail purchase on a stand-alone
basis at or before the time it was acquired, appropriated, or used by
such a person.
(b) Information technology is considered to be used in a person's
business operations if the person uses the technology in the
manufacture, distribution, marketing, or sales of the articles or
products subject to section 2 of this act.
NEW SECTION. Sec. 2 Any person who manufactures an article or
product while using stolen or misappropriated information technology in
its business operations after notice and opportunity to cure as
provided in section 5 of this act and, with respect to remedies sought
under section 6(6) or 7 of this act, causes a material competitive
injury as a result of such use of stolen or misappropriated information
technology, is deemed to engage in an unfair act where such an article
or product is sold or offered for sale in this state, either separately
or as a component of another article or product, and in competition
with an article or product sold or offered for sale in this state that
was manufactured without violating this section. A person who engages
in such an unfair act, and any articles or products manufactured by the
person in violation of this section, is subject to the liabilities and
remedial provisions of this chapter in an action by the attorney
general or any person described in section 6(5) of this act, except as
provided in sections 3 through 9 of this act.
NEW SECTION. Sec. 3 No action may be brought under this chapter,
and no liability results, where:
(1) The end article or end product sold or offered for sale in this
state and alleged to violate section 2 of this act is:
(a) A copyrightable end product;
(b) Merchandise manufactured by or on behalf of, or pursuant to a
license from, a copyright owner and which displays or embodies a name,
character, artwork, or other indicia of or from a work that falls
within (a) of this subsection, or merchandise manufactured by or on
behalf of, or pursuant to a license from, a copyright or trademark
owner and that displays or embodies a name, character, artwork, or
other indicia of or from a theme park, theme park attraction, or other
facility associated with a theme park; or
(c) Packaging, carrier media, or promotional or advertising
materials for any end article, end product, or merchandise that falls
within (a) or (b) of this subsection;
(2) The allegation that the information technology is stolen or
misappropriated is based on a claim that the information technology or
its use infringes a patent or misappropriates a trade secret under
applicable law or that could be brought under any provision of Title 35
of the United States Code;
(3) The allegation that the information technology is stolen or
misappropriated is based on a claim that the defendant's use of the
information technology violates the terms of a license that allows
users to modify and redistribute any source code associated with the
technology free of charge; or
(4) The allegation is based on a claim that the person violated
section 2 of this act by aiding, abetting, facilitating, or assisting
someone else to acquire, appropriate, use, sell, or offer to sell, or
by providing someone else with access to, information technology
without authorization of the owner of the information technology or the
owner's authorized licensee in violation of applicable law.
NEW SECTION. Sec. 4 No injunction may issue against a person
other than the person adjudicated to have violated section 2 of this
act, and no attachment order may issue against articles or products
other than articles or products in which the person alleged to violate
section 2 of this act holds title. A person other than the person
alleged to violate section 2 of this act includes any person other than
the actual manufacturer who contracts with or otherwise engages another
person to develop, manufacture, produce, market, distribute, advertise,
or assemble an article or product alleged to violate section 2 of this
act.
NEW SECTION. Sec. 5 (1) No action may be brought under section
2 of this act unless the person subject to section 2 of this act
received written notice of the alleged use of the stolen or
misappropriated information technology from the owner or exclusive
licensee of the information technology or the owner's agent and the
person: (a) Failed to establish that its use of the information
technology in question did not violate section 2 of this act; or (b)
failed, within ninety days after receiving such a notice, to cease use
of the owner's stolen or misappropriated information technology.
However, if the person commences and thereafter proceeds diligently to
replace the information technology with information technology whose
use would not violate section 2 of this act, such a period must be
extended for an additional period of ninety days, not to exceed one
hundred eighty days total. The information technology owner or the
owner's agent may extend any period described in this section.
(2) To satisfy the requirements of this section, written notice
must, under penalty of perjury: (a) Identify the stolen or
misappropriated information technology; (b) identify the lawful owner
or exclusive licensee of the information technology; (c) identify the
applicable law the person is alleged to be violating and state that the
notifier has a reasonable belief that the person has acquired,
appropriated, or used the information technology in question without
authorization of the owner of the information technology or the owner's
authorized licensee in violation of such applicable law; (d) to the
extent known by the notifier, state the manner in which the information
technology is being used by the defendant; (e) state the articles or
products to which the information technology relates; and (f) specify
the basis and the particular evidence upon which the notifier bases
such an allegation.
(3) The written notification must state, under penalty of perjury,
that, after a reasonable and good-faith investigation, the information
in the notice is accurate based on the notifier's reasonable knowledge,
information, and belief.
NEW SECTION. Sec. 6 (1) No earlier than ninety days after the
provision of notice in accordance with section 5 of this act, the
attorney general, or any person described in subsection (5) of this
section, may bring an action against any person that is subject to
section 2 of this act:
(a) To enjoin violation of section 2 of this act, including by
enjoining the person from selling or offering to sell in this state
articles or products that are subject to section 2 of this act, except
as provided in subsection (6) of this section. However, such an
injunction does not encompass articles or products to be provided to a
third party that establishes that such a third party has satisfied one
or more of the affirmative defenses set forth in section 8(1) of this
act with respect to the manufacturer alleged to have violated section
2 of this act;
(b) Only after a determination by the court that the person has
violated section 2 of this act, to recover the greater of:
(i) Actual direct damages, which may be imposed only against the
person who violated section 2 of this act; or
(ii) Statutory damages of no more than the retail price of the
stolen or misappropriated information technology, which may be imposed
only against the person who violated section 2 of this act; or
(c) In the event the person alleged to have violated section 2 of
this act has been subject to a final judgment or has entered into a
final settlement, or any products manufactured by such a person and
alleged to violate section 2 of this act have been the subject of an
injunction or attachment order, in any federal or state court in this
state or any other state, arising out of the same theft or
misappropriation of information technology, the court shall dismiss the
action with prejudice. If such a person is a defendant in an ongoing
action, or any products manufactured by such a person and alleged to
violate section 2 of this act are the subject of an ongoing injunction
or attachment order, in any federal or state court in this state or any
other state, arising out of the same theft or misappropriation of
information technology, the court shall stay the action against such a
person pending resolution of the other action. In the event the other
action results in a final judgment or final settlement, the court shall
dismiss the action with prejudice against the person. Dismissals under
this subsection are res judicata to actions filed against the person
alleged to have violated section 2 of this act arising out of the same
theft or misappropriation of information technology.
(2) After determination by the court that a person has violated
section 2 of this act and entry of a judgment against the person for
violating section 2 of this act, the attorney general, or a person
described in subsection (5) of this section, may add to the action a
claim for actual direct damages against a third party who sells or
offers to sell in this state products made by that person in violation
of section 2 of this act, subject to the provisions of section 8 of
this act. However, damages may be imposed against a third party only
if:
(a) The third party's agent for service of process was properly
served with a copy of a written notice sent to the person alleged to
have violated section 2 of this act that satisfies the requirements of
section 5 of this act at least ninety days prior to the entry of the
judgment;
(b) The person who violated section 2 of this act did not make an
appearance or does not have sufficient attachable assets to satisfy a
judgment against the person;
(c) Such a person either manufactured the final product or produced
a component equal to thirty percent or more of the value of the final
product;
(d) Such a person has a direct contractual relationship with the
third party respecting the manufacture of the final product or
component; and
(e) The third party has not been subject to a final judgment or
entered into a final settlement in any federal or state court in this
state or any other state arising out of the same theft or
misappropriation of information technology. However, in the event the
third party is a party to an ongoing suit for damages, or has entered
an appearance as an interested third party in proceedings in rem, in
any federal or state court in this state or any other state arising out
of the same theft or misappropriation of information technology, the
court shall stay the action against the third party pending resolution
of the other action. In the event the other action results in a final
judgment, the court shall dismiss the action with prejudice against the
third party and dismiss any in rem action as to any articles or
products manufactured for such a third party or that have been or are
to be supplied to such a third party. Dismissals under this subsection
are res judicata to actions filed against the person alleged to have
violated section 2 of this act arising out of the same theft or
misappropriation of information technology.
(3) An award of damages against such a third party pursuant to
subsection (2) of this section must be the lesser of the retail price
of the stolen or misappropriated information technology at issue or two
hundred fifty thousand dollars, less any amounts recovered from the
person adjudicated to have violated section 2 of this act, and
subsection (4)(a) of this section does not apply to such an award or
recovery against the third party.
(4) In an action under this chapter, a court may:
(a) Against the person adjudicated to have violated section 2 of
this act, increase the damages up to three times the damages authorized
by subsection (1)(b) of this section where the court finds that the
person's use of the stolen or misappropriated information technology
was willful;
(b) With respect to an award under subsection (1) of this section
only, award costs and reasonable attorneys' fees to: (i) A prevailing
plaintiff in actions brought by an injured person under section 2 of
this act; or (ii) a prevailing defendant in actions brought by an
allegedly injured person; and
(c) With respect to an action under subsection (2) of this section
brought by a private plaintiff only, award costs and reasonable
attorneys' fees to a third party for all litigation expenses
(including, without limitation, discovery expenses) incurred by that
party if it prevails on the requirement set forth in subsection (2)(c)
of this section or who qualifies for an affirmative defense under
section 8 of this act. However, in a case in which the third party
received a copy of the notification described in subsection (2)(a) of
this section at least ninety days before the filing of the action under
subsection (2) of this section, with respect to a third party's
reliance on the affirmative defenses set forth in section 8(1) (c) and
(d) of this act, the court may award costs and reasonable attorneys'
fees only if all of the conduct on which the affirmative defense is
based was undertaken by the third party, and the third party notified
the plaintiff of the conduct, prior to the end of the ninety- day
period.
(5) A person is deemed to have been injured by the sale or offer
for sale of a directly competing article or product subject to section
2 of this act if the person establishes by a preponderance of the
evidence that:
(a) The person manufactures articles or products that are sold or
offered for sale in this state in direct competition with articles or
products that are subject to section 2 of this act;
(b) The person's articles or products were not manufactured using
stolen or misappropriated information technology of the owner of the
information technology;
(c) The person suffered economic harm, which may be shown by
evidence that the retail price of the stolen or misappropriated
information technology was twenty thousand dollars or more; and
(d) If the person is proceeding in rem or seeks injunctive relief,
that the person suffered material competitive injury as a result of the
violation of section 2 of this act.
(6)(a) If the court determines that a person found to have violated
section 2 of this act lacks sufficient attachable assets in this state
to satisfy a judgment rendered against it, the court may enjoin the
sale or offering for sale in this state of any articles or products
subject to section 2 of this act, except as provided in section 4 of
this act.
(b) To the extent that an article or product subject to section 2
of this act is an essential component of a third party's article or
product, the court shall deny injunctive relief as to such an essential
component, provided that the third party has undertaken good faith
efforts within the third party's rights under its applicable contract
with the manufacturer to direct the manufacturer of the essential
component to cease the theft or misappropriation of information
technology in violation of section 2 of this act, which may be
satisfied, without limitation, by the third party issuing a written
directive to the manufacturer demanding that it cease the theft or
misappropriation and demanding that the manufacturer provide the third
party with copies of invoices, purchase orders, licenses, or other
verification of lawful use of the information technology at issue.
(7) The court shall determine whether a cure period longer than the
period reflected in section 5 of this act would be reasonable given the
nature of the use of the information technology that is the subject of
the action and the time reasonably necessary either to bring such use
into compliance with applicable law or to replace the information
technology with information technology that would not violate section
2 of this act. If the court deems that a longer cure period would be
reasonable, then the action shall be stayed until the end of that
longer cure period. If by the end of that longer cure period, the
defendant has established that its use of the information technology in
question did not violate section 2 of this act, or the defendant ceased
use of the stolen or misappropriated information technology, then the
action must be dismissed.
NEW SECTION. Sec. 7 (1) In a case in which the court is unable
to obtain personal jurisdiction over a person subject to section 2 of
this act, the court may proceed in rem against any articles or products
subject to section 2 of this act sold or offered for sale in this state
in which the person alleged to have violated section 2 of this act
holds title. Except as provided in section 4 of this act and
subsection (2) through (4) of this section, all such articles or
products are subject to attachment at or after the time of filing a
complaint, regardless of the availability or amount of any monetary
judgment.
(2) At least ninety days prior to the enforcement of an attachment
order against articles or products pursuant to subsection (1) of this
section, the court shall notify any person in possession of the
articles or products of the pending attachment order. Prior to the
expiration of the ninety day period, any person for whom the articles
or products were manufactured, or to whom the articles or products have
been or are to be supplied, pursuant to an existing contract or
purchase order, may:
(a) Establish that the person has satisfied one or more of the
affirmative defenses set forth in section 8(1) of this act with respect
to the manufacturer alleged to have violated section 2 of this act, in
which case the attachment order must be dissolved only with respect to
those articles or products that were manufactured for such a person, or
have been or are to be supplied to such a person, pursuant to an
existing contract or purchase order; or
(b) Post a bond with the court equal to the retail price of the
allegedly stolen or misappropriated information technology or twenty-five thousand dollars, whichever is less, in which case the court shall
stay enforcement of the attachment order against the articles or
products and shall proceed on the basis of its jurisdiction over the
bond. The person posting the bond shall recover the full amount of
such bond, plus interest, after the issuance of a final judgment.
(3) In the event the person posting the bond pursuant to subsection
(2)(b) of this section is entitled to claim an affirmative defense in
section 8 of this act, and that person establishes with the court that
the person is entitled to any affirmative defense, the court shall
award costs and reasonable attorneys' fees to the person posting the
bond and against the plaintiff in the event the plaintiff proceeds with
an action pursuant to section 6(2) of this act against the person
posting the bond.
(4) In the event that the court does not provide notification as
described in subsection (2) of this section, the court, upon motion of
any third party, shall stay the enforcement of the attachment order for
ninety days as to articles or products manufactured for the third
party, or that have been or are to be supplied to the third party,
pursuant to an existing contract or purchase order, during which ninety
day period the third party may avail itself of the options set forth in
subsection (2)(a) and (b) of this section.
NEW SECTION. Sec. 8 (1) A court may not award damages against
any third party pursuant to section 6(2) of this act where that party,
after having been afforded reasonable notice of at least ninety days by
proper service upon such a party's agent for service of process and
opportunity to plead any of the affirmative defenses set forth in this
subsection, establishes by a preponderance of the evidence any of the
following:
(a) Such a person is the end consumer or end user of an article or
product subject to section 2 of this act, or acquired the article or
product after its sale to an end consumer or end user;
(b) Such a person is a business with annual revenues not in excess
of fifty million dollars;
(c) The person acquired the articles or products:
(i) And had either: A code of conduct or other written document
governing the person's commercial relationships with the manufacturer
adjudicated to have violated section 2 of this act and which includes
commitments, such as general commitments to comply with applicable
laws, that prohibit use of the stolen or misappropriated information
technology by such manufacturer; or written assurances from the
manufacturer of the articles or products that the articles or products,
to the manufacturer's reasonable knowledge, were manufactured without
the use of stolen or misappropriated information technology in the
manufacturer's business operations. However, with respect to this
subsection (c)(i), within one hundred eighty days of receiving written
notice of the judgment against the manufacturer for a violation of
section 2 of this act and a copy of a written notice that satisfies the
requirements of section 5 of this act, the person must undertake
commercially reasonable efforts to do any of the following:
(A) Exchange written correspondence confirming that such a
manufacturer is not using the stolen or misappropriated information
technology in violation of section 2 of this act, which may be
satisfied, without limitation, by obtaining written assurances from the
manufacturer accompanied by copies of invoices, purchase orders,
licenses, or other verification of lawful use of the information
technology at issue;
(B) Direct the manufacturer to cease the theft or misappropriation,
which may be satisfied, without limitation, by the third party issuing
a written directive to the manufacturer demanding that it cease such
theft or misappropriation and demanding that the manufacturer provide
the third party with copies of invoices, purchase orders, licenses, or
other verification of lawful use of the information technology at
issue; and for purposes of clarification, the third party need take no
additional action to fully avail itself of this affirmative defense; or
(C) In a case in which the manufacturer has failed to cease such a
theft or misappropriation within the one hundred eighty-day period, and
the third party has not fulfilled either option (c)(i)(A) of this
subsection or option (c)(i)(B) of this subsection, cease the future
acquisition of the articles or products from the manufacturer during
the period that the manufacturer continues to engage in the theft or
misappropriation subject to section 2 of this act where doing so would
not constitute a breach of an agreement between the person and the
manufacturer for the manufacture of the articles or products in
question that was entered into on or before one hundred eighty days
after the effective date of this section; or
(ii) Pursuant to an agreement between the person and a manufacturer
for the manufacture of the articles or products in question that was
entered into before one hundred eighty days after the effective date of
this section. However, within one hundred eighty days of receiving
written notice of the judgment against the manufacturer for a violation
of section 2 of this act and a copy of a written notice that satisfies
the requirements of section 5 of this act, the person must undertake
commercially reasonable efforts to do any of the following:
(A) Obtain from the manufacturer written assurances that such a
manufacturer is not using the stolen or misappropriated information
technology in violation of section 2 of this act, which may be
satisfied, without limitation, by obtaining written assurances from the
manufacturer accompanied by copies of invoices, purchase orders,
licenses, or other verification of lawful use of the information
technology at issue;
(B) Direct the manufacturer to cease the theft or misappropriation,
which may be satisfied, without limitation, by the third party issuing
a written directive to the manufacturer demanding that it cease such
theft or misappropriation and demanding that the manufacturer provide
the third party with copies of invoices, purchase orders, licenses, or
other verification of lawful use of the information technology at
issue; and for purposes of clarification, the third party need take no
additional action to fully avail itself of this affirmative defense; or
(C) In a case in which the manufacturer has failed to cease the
theft or misappropriation within the one hundred eighty-day period, and
the third party has not fulfilled either option (c)(ii)(A) of this
subsection or option (c)(ii)(B) of this subsection, cease the future
acquisition of the articles or products from the manufacturer during
the period that the manufacturer continues to engage in the theft or
misappropriation subject to section 2 of this act where doing so would
not constitute a breach of such agreement;
(d) The person has made commercially reasonable efforts to
implement practices and procedures to require its direct manufacturers,
in manufacturing articles or products for such person, not to use
stolen or misappropriated information technology in violation of
section 2 of this act. A person may satisfy this subsection (1)(d) by:
(i) Adopting and undertaking commercially reasonable efforts to
implement a code of conduct or similar written requirements, which are
applicable to the person's direct manufacturers, that prohibit the use
of stolen or misappropriated information technology by such a
manufacturer, subject to a right of audit, and the person either: (A)
Has a practice of auditing its direct manufacturers on a periodic basis
in accordance with generally accepted industry standards; or (B)
requires in its agreements with its direct manufacturers that they
submit to audits by a third party, which may include a third-party
association of businesses representing the owner of the stolen or
misappropriated intellectual property, and further provides that a
failure to remedy any deficiencies found in such an audit that
constitute a violation of the applicable law of the jurisdiction where
the deficiency occurred constitutes a breach of the contract, subject
to cure within a reasonable period of time; or
(ii) Adopting and undertaking commercially reasonable efforts to
implement a code of conduct or similar written requirements, which are
applicable to the person's direct manufacturers, that prohibit use of
stolen or misappropriated information technology by such a
manufacturer, and the person undertakes practices and procedures to
address compliance with the prohibition against the use of the stolen
or misappropriated information technology in accordance with the
applicable code of conduct or written requirements; or
(e) The person does not have a contractual relationship with the
person alleged to have violated section 2 of this act respecting the
manufacture of the articles or products alleged to have been
manufactured in violation of section 2 of this act.
(2) A third party must have the opportunity to be heard regarding
whether an article or product is an essential component provided or to
be provided to a third party, and must have the right to file a motion
to dismiss any action brought against it under section 6(2) of this
act.
(3) The court may not enforce any award for damages against such a
third party until after the court has ruled on that party's claim of
eligibility for any of the affirmative defenses set out in this
section, and prior to such a ruling may allow discovery, in an action
under section 6(2) of this act, only on the particular defenses raised
by the third party.
(4) The court shall allow discovery against a third party on an
issue only after all discovery on that issue between the parties has
been completed and only if the evidence produced as a result of the
discovery does not resolve an issue of material dispute between the
parties.
(5) Any confidential or otherwise sensitive information submitted
by a party pursuant to this section is subject to a protective order.
NEW SECTION. Sec. 9 A court may not enforce an award of damages
against a third party pursuant to section 6(2) of this act for a period
of eighteen months from the effective date of this section.
NEW SECTION. Sec. 10 A violation of this chapter may not be
considered a violation of the state consumer protection act, and
chapter 19.86 RCW does not apply to this chapter. The remedies
provided under this chapter are the exclusive remedies for the parties.
NEW SECTION. Sec. 11 If any provision of this act or its
application to any person or circumstance is held invalid, the
remainder of the act or the application of the provision to other
persons or circumstances is not affected.
NEW SECTION. Sec. 12 Sections 1 through 10 of this act
constitute a new chapter in Title