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Senate passes measure targeting software piracy

Sun., March 6, 2011

Microsoft backs bill; retailers oppose it

OLYMPIA – The state Senate took a stand against international piracy last week. Not the kind that involves ships being raided off the coast of Somalia, but the kind that involves information technology being stolen in China.

On a 39-7 vote, it sent the House a bill designed to help Microsoft and the state’s other software manufacturers keep other companies from illegally using their programs or other intellectual property in creating new products. Instead of cannons and cutlasses, they’d go after IT pirates with lawyers and injunctions.

It’s a proposal that could pit Washington state against China, and already has retail giants like Wal-Mart and Costco squaring off against Microsoft.

The bill’s sponsor, Sen. Lisa Brown, says it aims to make Washington a leader in combating information technology theft by encouraging retailers to make sure their supplies come from legitimate sources. It also allows Washington IT manufacturers to sue companies that use their stolen software in their products sold in the state, and collect up to $250,000 in damages.

Stealing another company’s information technology is illegal in the United States but is common in Asia and Latin American, she said. As much as 90 percent of the information technology used in products made in China is stolen.

That creates an “innovation subsidy” for foreign companies competing with Washington’s IT firms, said Brown, D-Spokane. They get the benefit of the research and development Microsoft and other software companies spend on their products without paying for it.

But one of the bill’s critics, Sen. Mike Baumgartner, said the federal government, not the state, should be fighting this battle. The Spokane Republican was one of a handful of “no” votes on the bill last week.

“Normally I’m a supporter of states asserting their rights,” Baumgartner said shortly after the bill passed. “It’s the wrong tool for the problem. We have congressional representatives that deal with these issues.”

So far, however, the federal government has refused to get tough with China on IT piracy, Brown said. If Washington and other states take action, it could prompt Congress to address the problem and establish uniform rules across the country.

The information technology industry, led by Redmond-based Microsoft, has considerable clout in Washington. The $14 billion industry employs some 186,000 people, including 50,000 in software alone, according to figures released by Brown.

“This legislation is vital to protect competitiveness and jobs in our state because it provides an effective new legal protection against piracy,” said Kevin Kurtz, Microsoft director of public affairs.

But the bill faces opposition from some other heavy hitters, including the Washington Retail Association, Costco and Wal-Mart, who say it creates unfair and unrealistic rules for them.

“It tries to make us somehow the police for Microsoft’s piracy problem,” said Jan Teague, president and chief operating officer of the retail association.

While the software giant’s concerns are valid, Teague said, an individual store owner may not know whether a product purchased from suppliers in China or another foreign country was made with pirated software. “The whole bill just sets us up … if another company wants to sue us.”

Microsoft argues that the bill really focuses on manufacturers and has protections for retailers that make a good-faith effort to keep products made from pirated software out of their stores. A retailer needs only to send manufacturers a letter demanding that they stop using stolen IT and verify that they’ve done so. Once they’ve done that, a retailer can’t be sued.

The prospect of litigation was acknowledged as the bill sailed relatively unimpeded through the Senate Labor Committee last month.

“We’re creating a forum here for significant litigation,” said Sen. Adam Kline, D-Seattle. “Microsoft versus the Republic of China – this isn’t petty stuff.

“Creating litigation is often a no-no here.”

Teague agrees with Baumgartner that Congress, not the individual states, is the place to address IT piracy in foreign countries and doubts that Washington passing a law will spur action in the other Washington. If legislators want to get Congress’ attention, they should go the normal route and pass a resolution, not a law, she said.

As the bill moves through the state House of Representatives, retailers will likely push for a different tactic, a study of the piracy problem to see what steps can be taken by the state and the federal government to combat it.

But derailing the bill could be difficult, given its bipartisan support in the Senate. As Teague noted: “There’s bipartisan support for Microsoft.”

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