An outrageous Californian attempt at extra-territorial enforcement of American IP laws

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As reported by several news outlets over the last couple of months, the State of California has filed lawsuits against an Indian and a Chinese textile firm for allegedly using pirated software in their home countries to manufacture textiles which are then exported to the U.S. and in particular California. For some reason we appear to have missed these reports until we read this op-ed. From these reports it appears that the State of California is going to spread this mode of enforcement to other industries including the auto-industry. 
The lawsuit has been filed not under federal American copyright law but under Californian Unfair Competition Law on the grounds that the textiles manufactured using pirated software in countries like India and China provide unfair competition to American textile manufacturers who use legitimate software. I’m yet to get access to the complaint filed by the Attorney General but I think it is safe to say that this lawsuit is pushing at the boundaries of Californian competition law. The relevant provision of the “Business and Professions Code” of Californian law reads as follows: “As used in this chapter, unfair competition shall mean and include any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by Chapter 1 (commencing with Section 17500) of Part 3 of Division 7 of the Business and Professions Code.” 
Typically this law operates in a manner similar to the Consumer Protection act, 1986, in India, although it does allow for even businesses to sue each other. The manner in which it is being used in this present case is unprecedented to the best of my knowledge. For those of you interested in reading more on this law, click here
Make no mistake – these particular lawsuits have been filed on the goading of the Open Computing Alliance (OCA) and they are nothing but a brazen attempt at extra-territorial enforcement of American IP law despite the fact that IP is a territorial law i.e. Indian copyright law should be applicable to Indian manufacturers operating within India. What makes this issue more brazen is the fact that it has been filed by a State Attorney General despite the fact that such issues of enforcement of IP overseas is usually within the domain of the Federal Government, particularly the Office of the United State Trade Representative. The Californian Attorney General Kamala Harris appears to have some higher political ambitions. 
I term these lawsuits as an outrageous attempt for the following reasons: 
(i) American software companies have the right to file copyright infringement lawsuits against Indian companies in India under the Copyright Act, 1957 and they have been exercising this right for the last 10 years with a high rate of success. Just last year, Microsoft filed about 85 lawsuits before the Delhi High Court, through 3 different law firms, for the enforcement of its copyrights. In fact the International Intellectual Property Alliance (IIPA) has not reported any major problems in enforcing their IP rights in India. If anything they are effusive in their praise of the Delhi High Court’s role in this regard. 
(ii) For an Indian manufacturer, fighting a lawsuit in Delhi itself can be expensive but defending a lawsuit in California will be at least 20 to 30 times more expensive. It is very likely that just the pre-trial expenses will outstrip the entire cost of the export consignment. The cheaper option is to buy the software licences and this is exactly what the Americans are counting on. They hope to create enough fear amongst Indian exporters that they flock to the closest American software company and stock up on software. 
(iii) The more significant fear now is that American software companies operating in India will use such lawsuits to extract not only future licence fees but extortionist damages for prior use of software. They have done stuff like this in India and with the axe of a Californian court hanging over the heads of these Indian companies, they are guaranteed a much higher rate of success.

The brazenness of Americans when it comes to IP enforcement never ceases to amaze but the Indian government needs to make it very clear that such extra-territorial enforcement of American laws will not be tolerated by India. Today it’s the textiles industry, tomorrow it will be the auto-industry and the day after it will be the pharmaceutical industry.

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4 thoughts on “An outrageous Californian attempt at extra-territorial enforcement of American IP laws”

  1. That’s a very valid observation and yes this is just another example of America’s machinations to control overseas trade and bully their way through arm twisting tactics which they are so renowned for.

  2. California has long arm jurisdiction over manufacturers who place goods in the “stream of commerce” that eventually land up in their jurisdiction with the manufacturers knwoledge. International shoe, Asahi Metals v Supreme Court of California.

    Frankly I think this is a pretty good way to target people who use pirated copies of software while manufacturing goods that are consumed in California.

  3. Still wondering what is outrageous about it. California has presence of some goods manufactured using pirated software and they do not want such stuff in their market and they are contesting it through unfair competition law. I do not see any “extra-territorial” enforcement here. It is about stopping them from selling in california or may be in USA. Isn’t that the way IP law work? If I have a patent in USA, but not in India, then Indian firms will do good by selling their product in India. Why should I, a US patent or IP right holder go to India to stop them from producing? That’d be extraterritorial enforcement in my opinion. Here, just on reading of this blog, all I can say is they are stopping them to sell in California, but not from manufacturing.

  4. I agree with Rahul.

    I have not read the judgment or the law in detail, but looking at the reports, especially of The Hindu and reading your blogpost, I don’t think they are suing or challenging any manufacturing process or product or asking for damages. They are just, as a part of policy, preventing any product from being sold in their state which has at any stage used a pirated software or such stuff in their supply chain or wherever.

    I may draw relation to probably the UN’s policy (and hence of many countries) of dealing with Blood Diamonds, wherein, even though the products are from conflicted zones outside their country, yet, as a public/moral policy, the countries abnegate the conflicted diamonds. They are not making an outrageous attempt to extra-territorialize their national laws against slavery or child labour, but rather trying to uphold the principles within their country. (I know the case is different, but I am sure there would be many more similar examples.)

    Regarding the three reasons you mentioned, I respectfully beg to differ with your stand:
    For 1:
    Suing in Indian Courts? Why would an American company do so if it is not having significant loss in India! Agreeing that the Courts have been supportive of the fight against Piracy in India, but as rightly said, there is no better means to intimidate them of costly American legal system than suing them in India. They are using nothing by the sanction theory in stronger and smarter sense.
    For 2.
    No where it is written that the American companies are suing the manufacturers in US either. Its the AG who brought the case under the said anti-trust code against the textile exporters. The American companies, at max, would have informed the authorities about the facts, and request a ban, which would be in force until the compliance is made (of not using pirated softwares or hardwares in supply chain). Its upto the manufacturers to choose if they want to challenge the want of compliance and prove that they are not actually using the impugned softwares/hardwares.
    For 3.
    If one is using unlicensed softwares, it is illegal in any situation. Implementation of this new rule if helps the American software companies to get more licensed/legal customers, I don’t find any harm in it. If the exporters really want to save money on licenses, then they should chose not to export to California and as said by the Mr. Executive Director, American Chamber of Commerce in India, ignore the huge US market and be at loss.

    Request you Prashant, for an excellent blogger you are, to kindly let this wonderful blog to be neutral and real.. and not use it for unwarranted personal opinions !!


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