Legislation Within The United States That Involves IT Rules and Regulations To Encourage Fair Competition

3
Legislation within the United States that involves IT rules

and regulations to encourage fair competition
Given the bleak economic situation over the last few years and
the increase in protectionism in the United States domestic
economy to prevent further losses of jobs and revenue to
other countries, unfair competitive practices have received
a siqnilcanL amounL ol aLLenLion. 1he use ol illeqal l1 may
skew Lhe playinq leld and creaLe compeLiLive benelLs lor Lhe
offender; and when a foreign company does so, it may be
considered an unfair trade practice.
The United States has been at the forefront of addressing
unfair competitive behaviour as a result of the use of illegal IT.
The issue is broadly recognized in the United States, from the
federal level down to the grassroots level. The state and federal
governments in the United States are treating the problem
of unfair competitive behaviour from the use of illegal IT very
seriously, and have started to introduce targeted solutions
in Lhe lorm ol specilc leqislaLion, as well as increased
enforcement avenues. Legislation has been put forward to
address this issue in the traditional economy, as well as on the
Internet. In addition, grassroots movements have started to
target the issue as well.
One ol Lhe lrsL sLaLes Lo inLroduce such specilc leqislaLion
was the state of Louisiana in 2010. 0ther states have followed
closely behind and introduced their own measures that take
aim at IT and fair competition. In this paper, we take a closer
look at the State of Washingtons Unfair Competition Act, a
similar piece of legislation that took effect in July 2011. The
rationale for selecting Washington for further insight is that
Washington is one of the more trade-dependent states in the
United States
1,2
, and its volume of manufactured imports in
2011 was more than 30% higher than that of Louisiana
3
.
The following sections give a more detailed analysis into the
legislative and non-legislative trends that have developed to
ensure that illegal IT is not used by companies to unfairly create
an advantageous business environment.
1
Source: US Census Bureau, 2011 US Imports of Goods by State of Destination,
by NAICS-Based Product
2
Seattle, the major port of entry in the state of Washington, ranks as the seventh
largest US port by trade volume. Seattle also ranks second for goods imported
from Asia
3
Source: US Census Bureau, 2011 US Imports of Goods by State of Destination,
by NAICS-Based Product
4
Includes inventory, logistics, and accounting systems
5
Source: State of Washington House Bill 1495, Chapter 98, 2011 Laws
Details of Washington States House Bill 1495
In July 2011, a new law aimed at tackling the unfair
competitive advantage for manufacturers using illegal
IT (or stolen IT) in its business operations
4
was passed in
the State of Washington. Known as Washingtons House
Bill 1495 or as the Unfair Competition Act (UCA), the
law delnes "illeqal l1" as hardware or solLware acquired
Figure 1: Details of the UCA
5

Details on potential liable parties and damages as stated in the UCA
Any manufacturer of products that are sold or offered for sale in
Washington can have actions brought against it. A manufacturer can be
held liable as long as illegal IT is used in its business operations during the
manufacturing process of such a product, regardless of whether the place
of manufacture is within Washington
Third parties with annual revenues of more than US$ 50m (such as large,
chain store retailers) can also be held responsible if they sell or offer for
sale products from manufacturers that utilize illegal IT in their business
operations but only after certain conditions are met (e.g., failure of
manufacturer to appear in court)
1he producL in quesLion can be sold sLandalone or as a parL ol anoLher
product
Possible outcomes include:
in the event of a successful case brought against a manufacturer, the
court may limit future sale of the product(s) in Washington, impose
damages that amount to the greater of actual damages (e.g., economic
loss suffered by the competitor) or the retail price of the stolen IT, and
award costs and reasonable attorneys fees incurred by the plaintiff
in the event of a successful case brought against a third party, the court
may award damages that amount to the lesser of the retail price of the
stolen IT, or US$ 250,000
a grace period for third parties exist no award of damages can be
enforced before January 2013
or utilized in violation of applicable law, and without the IT
owners authorization. The UCA was designed to eliminate any
unfair competitive advantage by manufacturers who use illegal
or stolen IT to the detriment of manufacturers using legally
acquired l1, and in doinq so, assisL in creaLinq an invesLmenL
friendly environment for Washington. Targeting the trade eco-
system is an important part of the UCA, as Washington is one
of the more trade-dependent states in the United States.
4 New rules and regulations on IT and fair competition - Trends and impact
Additionally, the application of the UCA is fairly narrow as it
excludes the following situations:
1. 1he producL is copyriqhLable (e.q., llms, movies or books)
or manufactured for a copyright owner and consists of
elements of copyrighted works
2. The product is regulated by the United States Food and
Drug administration (FDA); alternatively, if the product is
primarily used as a medical or medicinal product
3. The product is a food or a beverage
^. 1he illeqal l1 in quesLion is based on a violaLion ol an open
source license
5. The illegal IT is based on a patent infringement or
misappropriation of a trade secret
The effectiveness of the UCA will likely be a function of several
factors:
1. The ability of a manufacturer to comply with legal IT
requiremenLs
2. The enforcement and audit capabilities of third parties in
ensuring that the manufacturers of products they sell/offer
lor sale adhere Lo Lhe leqal l1 requiremenLs
3. 1he abiliLy (lnancially and Limewise) and propensiLy ol
compeLiLors Lo lle lawsuiLs aqainsL compeLiLors LhaL are
using illegal IT to gain an unfair competitive advantage
Figure 2: Eco-system illustration
6

Eco-system illustration
US lrm A conLracLs an inLernaLional manulacLurer Lo make Loys lor sale aL
iLs chain sLores in WashinqLon and oLher sLaLes. US lrm B, a rival ol US lrm
A in Washington, sues the international toy exporter for unfair competition
The international manufacturer, which uses unlicensed software in carrying
out its business, is found guilty by the Washington court but refuses to
pay damaqes Lo lrm B. ln LhaL case, lrm B has Lhe riqhL Lo sue lrm A, Lhe
third party, for the damages caused by the overseas contractor. However,
by refusing to pay the damages, the international manufacturer is putting
itself at the risk of export blacklisting and its products may be taken off the
shelves
6
Source: Bangkok Post; EY analysis
5
State Bill
8
number: Bill title Status of Bill Comment
Washington SHB 1495:
Sale of products Stolen or
misappropriated information
technology
Bill passed on April 18, 2011 In effect as of July 22, 2011
Arizona SB 1529:
Stolen or misappropriated information
technology
Referred to Senate Commerce and Energy
Committee on February 2, 2011
Includes some amendments to the Washington UCA
California AB 473:
Unfair competition
Died in Judiciary Committee on February 1,
2012
Now a 2-year UCA
Includes some amendments to the Washington Bill
Connecticut HB 6619:
Unfair business practices
Referred to Joint Committee on Judiciary on
March 18, 2011
Illinois SB 1861:
Software piracy
SB 1075:
Unfair Use of Information Technology
Act
9

SB 1861: Re-referred to Senate Assignments
Committee on April 8, 2011
SB 1075: Amendments to the Bill re-referred
to the Senate Assignments Committee on July
23, 2011
SB 1861 was a placeholder bill to create the Software
Piracy Act
Amendments to SB 1075 include language regarding
illegal IT
Indiana SB 529:
Stolen or misappropriated information
technology
Referred to Senate Judiciary Committee on
January 18, 2011
Permits plaintiff the right to enter onto the defendants
business premises to inspect any information
Lechnoloqy, records, lles, or oLher evidence LhaL is
relevant to the alleged unfair practice
10
Kentucky HR 113 (11RS):
Unfair trade practices from stolen
information technology
Adopted by House on February 25, 2011 Non-binding resolution urging the Interim Joint
Committee on Judiciary to examine unfair trade
practices from stolen information technology and to
urge all stakeholders to develop a legislative solution to
address these unfair trade practices
11
Louisiana SB 415:
Unfair trade practices and consumer
protection law
Signed by Executive on June 1, 2010 One ol Lhe lrsL pieces ol leqislaLion Lo address Lhe unlair
competitive advantage that can result from the use of
illegal IT
Massachusetts H.2842:
Unfair competition
Referred to Joint Judiciary Committee on
January 24, 2011. Hearing scheduled for
February 28, 2012
Includes most amendments to the Washington UCA
Missouri HB 1022:
Stolen information technology
Referred to International Trade and Job
Creation Committee on April 12, 2011
Fairly identical to the Washington UCA
New York A.3915:
Illegal use of stolen or misappropriated
software
A.1544:
Unfair competition
A.3915: Re-referred to the Economic
Development, Job Creation, Commerce and
Industry Committee Economic Development
Committee on January 4, 2012
A.1544: Referred to the President, the Federal
Trade Commission and the United States
Congress on June 21, 2012
North Carolina HB 672:
Use of misappropriated IT an unfair
practice
Referred to House Rules Committee on April
7, 2011
Study bill
Oregon HB 3315:
Prohibits sale of product produced
using stolen or misappropriated
information technology
In Business and Labor Committee as of June
30, 2011
Utah SB 201:
Protection against unfair competition
through misappropriated technology
Died in Senate Committee on March 10, 2011 Differs somewhat from the Washington UCA
7
Source: J. Teague, C. Miller, M. Johnson
8
Bills are designated as follows: Assembly (A), Assembly Bill (AB), House (H),
House Bill (HB), House Resolution (HR), Senate Bill (SB), and Substitute House
Bill (SHB)
9
SB 1075 was originally referred to by the title Civil Law
10
Source: Indiana Senate Bill No. 529, Introduced Version
11
Source: Kentucky House Resolution 113, 11 Regular Session
Similar legislation in other states
Bills similar to Washingtons UCA have been introduced in several other states, including Arizona, California, Connecticut, Illinois,
Indiana, Kentucky, Louisiana, Massachusetts, Missouri, New York, North Carolina, Oregon and Utah. However, these bills are largely
in their infancy, or are still in the initial study phase.
1he Lable in lqure 3 qives a summary ol bills relaLed Lo sLolen l1 and Lhe sLaLus ol each bill as ol early 2012.
Thus far, response has been relatively encouraging in terms of
the number of states with proposed bills addressing stolen IT
and its impact on unfair competition. The number of bills that
have been introduced shows that many states have started
to seriously consider the potentially large economic impact
from anti-competitive behaviour as a result of using illegal IT.
While it is likely that similar legislation will be passed across the
United States, it remains to be seen if such legislation will be
successful in terms of actual enforcement.
Figure 3: Summary of similar illegal IT bills in the United States
7
Similar legislation at the federal level
At the federal level in the United States, antitrust (or anti-
competitive) behaviour is regulated by the Federal Trade
Commission (FTC), an independent agency established by
Conqress. CurrenLly, Lhe F1C does noL enlorce any specilc
laws or acts pertaining to the use of illegal IT and its impact on
unfair competition.
In his 2012 State of the Union address, US President Barack
Obama indicated that the American manufacturing industry
was being negatively impacted due to unfair competitive
practices by foreign manufacturers. For example, by using
illegal IT, some foreign manufacturers essentially had lower
costs of production, giving rise to predatory pricing which
made iL dillculL lor American manulacLurers Lo lairly compeLe.
This in turn affects the viability of the American manufacturing
industry, and results in losses in manufacturing revenues as
well as jobs.
In order to moderate the impact of unfair competitive
behaviour by foreign manufacturers, one of the steps taken by
President Obama was the creation of the Interagency Trade
Enforcement Centre (ITEC). Newly established in late February
2012, the ITEC will bring the full resources of the federal
government to bear to investigate and counter unfair trade
practices around the world
13
by focusing on a joint approach
with various government agencies to achieve its objectives.
Figure 4: Attorneys-General letter to the FTC, and FTCs response
12

Attorneys-General urge the FTC to take stronger action
A group of Attorneys General from 36 US States and 3 US Territories wrote
to the FTC in October 2011, stating their intention to use either their
respective State laws or Mini FTC Acts to prosecute manufacturers using
illegal IT to gain an unfair competitive advantage
These Attorneys General strongly urged the FTC to use its authority and
resources to take stronger action against the offending manufacturers to
protect the competitive landscape for domestic manufacturers
In response, the FTC acknowledged the unfair competitive advantage
that can arise from using illegal IT, and stated that it is deeply committed
to exploring issues at the intersection of competition and intellectual
property
Given that the ITEC is tasked with ensuring fair competition under
international trade agreements and domestic trade laws, it is likely
that the role of illegal IT in unfair competition will be investigated
and pursued where relevant. This would be advantageous in
setting a federal precedent with regards to the impact of illegal
l1 on a level playinq leld, which would be a boosL Lo domesLic
legislation such as the UCA. In addition, greater scrutiny on this
issue by the United States at a federal level could have an effect on
potentially similar international legislation.
Other trends within the United States
Aside from the trends of legislative efforts that deal with illegal
IT as an unfair competitive advantage, there exist other debates
around the regulation of IT and IPR. In the United States, the
struggle to extend existing laws, or introduce new ones, to cover
the issues of IP violations on the Internet
14
continues. There
have been two main trends in terms of dealing with this growing
issue Lhe lrsL would be Lo desiqn new rules and requlaLions
specilcally lor lnLerneLonly circumsLances; while Lhe second
would be Lo view Lhe lnLerneL as an equivalenL Lo Lhe real world,
and thus give similar treatment to an Internet-based violation as
one would treat a real-world situation. However, extending a real-
world understanding of a situation to deal with online issues can
someLimes backlre.
Dealing with the issue of illegal IT is not easy, regardless of how
and where these transgressions manifest themselves. While it
appears that legislation on real-world situations have started to
inluence Lhe developmenLs in Lhe online environmenL, care should
be taken in applying such rationale as the Internet is, in actuality,
a very different environment that plays by its own set of rules.
Despite this understanding, it can be assumed that progress or
decisions made in the real-world would have an impact on the
trends and developments seen online. This would be especially
true of IT legality issues, as technology remains the basis of all
Internet activity, and the Internet cannot yet be considered a
separate jurisdiction with its own set of binding regulations.
12
Attorneys-Generals letter to the FTC, 4 November 2011; FTC Chairmans letter
to the State of Washington Attorney-General, 13 March 2012
13
Source: The White House, Executive Order Establishment of the Interagency
Trade Enforcement Center
14
Which can be considered a form of illegal IT
7
Figure 5: SOPA/PIPA and the ensuing protest on January 18, 2012
15

SOPA and PIPA
If the UCA is to be viewed as an example of a real-world legislation that has
an analogous online counterpart, its corresponding bill to deal with similar
online situations could be the Congress-introduced Stop Online Piracy Act
(SOPA) and the Protect IP Act (PIPA)
in the case of the UCA, the Bill allows domestic manufacturers in
the United States to bring forth action against foreign (or domestic)
manufacturers for the use of illegal IT
similarly, SOPA and PIPA take aim at foreign (or local) websites that
infringe copyrighted material, by allowing rights holders in the United
States the ability to take down an infringing website, as well as seek
courL orders requirinq paymenL providers, adverLisers, and search
enqines Lo sLop associaLinq wiLh Lhe siLe in quesLion
While the UCA has been met largely with a positive response, SOPA and
PlPA received a siqnilcanL amounL ol neqaLive leedback. ParLies opposed
to these two Bills organized a large-scale, Internet-wide protest on January
18, 2012 by blacking out over 75,000 sites online. As a direct result of
Lhe proLesL, Conqress shelved SOPA and PlPA indelniLely
15
Source: Wikipedia; Wired; Zachary Johnson
In addition to legislative trends that apply to illegal IT on the
Internet, there has also been an increase in the visibility of
grassroots movements speaking out against the unfair competitive
advantage that arises from using illegal IT. Some movements have
canvassed for the support of the United States Governments
continued action against the use of unlicensed software, while
others are focused on protecting their states economy by
protecting innovation in IT. It should be noted that while such
grassroots movements may have their missions rooted in
proLecLionism by equaLinq Lhe use ol sLolen l1 Lo Lhe loss ol |obs,
their shared objective of promoting legal IT use to help level the
playinq leld can be seen as an exLension ol Lhe Lrends LhaL are
occurring across the state and federal levels in the United States.
The issue of using illegal IT as a means to gain unfair competitive
advantage is an important one, particularly with the increased
awareness of the negative effects it can bring about. It can thus be
expected that a sustained interest in this issue will continue, and
more developments are likely to emerge in the near future.
Legislative trends in other countries
The United States appears to be paving the way in introducing
rules and requlaLions LhaL specilcally LarqeL Lhe use ol illeqal
l1 and iLs impacL on compeLiLion. While such specilc laws do
not yet exist in other countries or jurisdictions, it should be
noted that this does not indicate the absence of competition
legislation or copyright and intellectual property (IP) legislation.
In fact, most countries have competition laws that deal with
anti-competitive behaviour, as well as government regulators
that aid in the enforcement of such laws. Laws involving IP
infringement and the use of illegal software are also common in
most countries.
However, the laws that deal with anti-competitive practices are
generally meant to prevent situations such as monopolistic
behaviour, or address issues such as the restraint of
competitive trade for a product or within an industry. Laws
that target the use of illegal IT are typically compartmentalized
from anti-competitive behaviour, and are invoked either by the
copyright holder or the relevant enforcement agency. While
the European Commission
16
is said to be considering changes
to its IP legislation to create greater deterrence to using and
Figure 6: Overview of competition laws in place in selected countries/areas
19

Canada The Competition Act, the oldest antitrust statute in the Western world, was enacted in 1889
ProhibiLs cerLain criminal ollences, such as pricelxinq and bidriqqinq conspiracies, resale price mainLenance, price discriminaLion and
predatory pricing. Allows reviews of mergers and certain business practices (such as tied selling, exclusive dealing, refusal to deal and
abuse of dominance)
Applies to all businesses in Canada, with a few exemptions
Enforced through the Commissioner of Competition, the Competition Bureau, the Competition Tribunal and the Attorney-General
United States Antitrust laws in the US are based on four primary laws the Sherman Act (enacted in 1890), the Clayton Act, the Federal Trade
Commission (FTC) Act and the Robinson-Patman Act
ProhibiLs horizonLal price lxinq, verLical price lxinq, bid riqqinq, cusLomer or LerriLorial allocaLion, boycoLLs and Lyinq arranqemenLs.
Allows reviews of potential mergers to prevent market concentration
Applies to most businesses and business agreements, with exemptions including labor unions, agricultural cooperatives, and banks
Enforced through the Antitrust Division of the United States Department of Justice and the FTC, as well as state Attorney Generals
United Kingdom Competition law in the United Kingdom (UK) is affected by both British and European elements. The Competition Act (1998) and the
Enterprise Act (2002) are the key statutes for cases with national importance
Prohibits two main types of anti-competitive activity, i.e., anti-competitive agreements and abuse of dominant market position
Applies to most businesses and business agreements with some exemptions
Lnlorced Lhrouqh Lhe Ollce ol Fair 1radinq and Lhe CompeLiLion Commission
European Union Competition rules for the European Union (EU) were included in the Treaty of Rome in 1957
Addresses four main areas: cartels, monopolies, mergers and state aid
A unique poinL is LhaL since Lhe LU is made up ol independenL member sLaLes, boLh compeLiLion policy and Lhe creaLion ol Lhe Luropean
sinqle markeL could be rendered inellecLive, wiLh member sLaLes lree Lo supporL naLional companies as Lhey see lL
Enforced through the European Commission and its Directorate General for Competition, as well as national competition authorities and
national courts
China CompeLiLion law was dralLed in Lhe mid1990s buL only lnalized in 2007
Addresses four main areas: monopoly agreements, abuse of dominant market positions, review of mergers, and IP rights
Unlike in the US or the EU, Chinese competition laws apply to state-owned enterprises as well
Enforced through the Ministry of Commerce, the State Administration of Industry and Commerce, and the National Development and
Reform Commission
India In 2002, the Competition Act replaced the Monopolies and Restrictive Trade Practices Act (1969)
Prohibits enterprises to enter into anti-competitive agreements, abusing their dominant position and forming certain classes of
combinations (mergers)
Allows exLraLerriLorial |urisdicLion, i.e., expliciLly allows Lhe CompeLiLion Commission ol lndia Lo declare any qualilyinq loreiqn merqer or
acquisiLion, which allecLs Lhe relevanL markeL in lndia, as void
Enforced through the Competition Commission of India
disLribuLinq illeqal l1, iL remains Lo be seen il specilc leqislaLion
similar to that of the UCA will be introduced. As a whole,
regulations that address anti-competitive behaviour arising
from the use of illegal IT currently remain uncommon outside
of the United States.
Legislative trends in anti-competitive behaviour
Competition law
17
, also referred to as antitrust law, is law
that promotes or maintains market competition by regulating
anti-competitive conduct by companies
18
. As of 2008, 111
countries had enacted competition laws. In other words, more
than 50% of countries with a population exceeding 80,000
people had competition laws in place by 2008. Figure 6
provides a brief overview of the competition laws currently in
place in selected countries.
While the use of illegal IT may not be explicitly stated in
competition laws, these should in theory cover the use of illegal
IT to gain unfair competitive advantages in the marketplace. In
practice, however, there does not yet appear to have been any
siqnilcanL cases involvinq Lhe use ol illeqal l1 as a main driver
for anti-competitive behaviour.
9
Legislative trends in the infringement of
software IP rights
Software IP rights infringement has become an increasingly
important issue across the globe. Many countries have put in
place legislation that addresses software IP rights infringement,
allowing the copyright holder to seek redress in a court of law.
ln relecLinq Lhe seriousness ol solLware lP riqhLs inlrinqemenL,
the penalties have, correspondingly, become more severe. In
general, the enforcement of software IP rights legislations is
carried out by a government regulator or enforcement agency.
While enforcement of this legislation plays an important
role in the protection of software IP rights, the ability and
effectiveness of the regulator or enforcement agency varies
from country to country.
The table below gives a comparison of the types of penalties for
infringing on software IP rights in some countries.
Figure 7: Comparison of penalties for infringing on software IP rights
in selected countries and territories
20
Country/
territory
Maximum hnancial penalty Maximum length
of imprisonment
21
China
(mainland)
Up to RMB 100,000
(approximately US$ 15,800) or
a sum equivalenL Lo economic
losses incurred by the IP rights
holder, depending on ease of
calculation of losses incurred
Up to seven years
imprisonment for
channel unlicensed
usage
Hong Kong
SAR
Up to HKD 50,000 per
infringement
(approximately US$ 6,400)
Up to four years
imprisonment
India Up to Rs 200,000
Up to three years
imprisonment
Malaysia Up to RM 20,000 per
infringement
Up Lo lve years'
imprisonment
Singapore Up to S$ 20,000
Up to six months
imprisonment
United
Kingdom
Up to 10,000 (U$ 15,800) in
sLaLuLory lnes, while puniLive
damages are not recognized
Up to ten years
imprisonment
United
States
US$ 150,000 in statutory
lnes per inlrinqemenL (civil
cases), and additional punitive
damages; or
up to US$ 250,000 (criminal
cases)
Up Lo lve years'
imprisonment
With legislation tackling the issue of software IP rights
infringement, as well as effective enforcement, most countries
have managed to reduce their unlicensed software usage rate
year-on-year. Along with legislation and enforcement, other
factors such as education on software IP rights infringement
and counLryspecilc pricinq ol licensed solLware (e.q., peqqed
to a countrys expendable income or average household
income, etc.) have also contributed to the decrease in the rate
of unlicensed software usage.
A key issue of the relationship between IP law and competition
law (regardless of country) is that IP rights, by and large, can
be considered Lo be monopolisLic (or quasimonopolisLic)
in nature, i.e., IP rights are exclusionary, for example, with
patents and grants. The rationale for applying for IP protection
is Lo ensure recoqniLion (and iLs relevanL benelLs) ol one's
innovation. Seemingly contradictory to this would be that
competition law is meant to prevent monopolistic practices.
However, in the instance of a manufacturer using illegal IT to
gain an advantage in business competition, competition law is
likely Lo have a sLronqer inluence on such a siLuaLion (when
compared to IP rights laws). Hence, for jurisdictions that do
noL yeL have a specilc leqislaLion Lo deal wiLh such a siLuaLion,
it can be argued that competition law would play a bigger role
in assigning liability than software IP rights laws. It should
be noted that an important difference between the UCA and
existing IP rights laws is the impact on infringers outside their
own |urisdicLion, wiLh consequences LhaL are noL |usL lnancial,
but indeed have greater impact such as the potential loss of a
key export market.
16
The European Commission is the executive body of the European Union
(EU). It is responsible for proposing and upholding EU legislations, and has
representation from all 27 EU member states.
17
Competition law typically encompasses three main elements:
1. Prohibiting agreements or practices that restrict free trade and competition between
businesses. In particular, this is meant to address the negative impact on free trade
caused by cartels
2. ProhibiLinq abusive behavior by a lrm wiLh markeL dominance, or anLicompeLiLive
practices that tend to lead to such a dominant position. This may include pricing-related
practices such as as predatory pricing or price gouging, as well as deal-related practices
such as tying arrangements, boycotts (i.e., refusal to deal), etc.
3. Reviewinq and overseeinq Lhe merqers and acquisiLions ol larqe corporaLions, includinq
some joint ventures. Transactions that are considered a threat to the competitive
process can be stopped, or approved subject to constraints to reduce potential market
dominance issues
18
Source: Martyn D. Taylor, International competition law: a new dimension for
the WTO?
19
Source: Legal publications of the listed countries; EY analysis
20
Source: Legal publications of the listed countries
21
For criminal cases
22
Source: CMBJ; Wikimedia Commons
23
Signatories are Australia, Canada, Japan, Morocco, New Zealand, Singapore,
South Korea, United States, the European Union and 22 of its members states
Figure 8: ACTA signatories as of January 2012
22, 23
Signatories of ACTA
Signatories also covered by
signature of the European Union
Non-signatories covered by
signature of the European Union
Other countries involved in
drafting ACTA
Other trends related to IT rules and regulations to
encourage fair competition
The concern over illegal IT and unfair competition continues to
spread across the globe. One way in which it has manifested
itself is through a multi-national treaty that is similar to the
SOPA and PIPA in the United States. Known as the Anti-
Counterfeiting Trade Agreement (ACTA), this treaty aims to
establish international standards for IP rights enforcement.
The objective of ACTA is to develop an international legal
framework to deal with counterfeit products, generic
medication and copyright infringement on the Internet all of
which have an impact on fair competition.
ACTA supporters back the Agreement as they believe it will
contribute to a global movement to clamp down on the sale
of counterfeit products and the illegal trade of copyrighted
content. However, as with SOPA and PIPA, ACTA was met
with opposition from some fronts. Opponents have voiced
concern about the Agreements potential effect on freedom
of expression and privacy, and widespread protests were held
across Europe.
To date, 31 signatories have shown their support for ACTA.
However, ACTA is not currently in force as it has yet to be
raLiled.
In addition, the issues and importance of IPR protection and
enforcement recently received strong support from the Group
of Eight (G8) leaders meeting in May 2012. At their meeting,
the G8 leaders highlighted the importance of ensuring high
standards for IPR protection and enforcement, as these have
a direct impact on jobs and economic growth. The G8 leaders
sLaLed Lheir allrmaLion lor lPR proLecLion and enlorcemenL
through both international and domestic avenues, such
as international legislation and assistance agreements, as
well as governmental and private sector processes and best
pracLices all Lhe while promoLinq Lhe lree low ol inlormaLion.
The support of IPR protection and enforcement from these
international leaders and their countries is expected to increase
the momentum of the cause.
Responses to IT rules and regulations to encourage fair
competition
The response to the UCA and similar legislation in the United
States has been generally positive, both in and outside the
country. Proponents of such legislation applaud the greater
emphasis on IT responsibility, while opponents are concerned
that factors beyond their control may still result in the potential
lor liabiliLy and added lnancial burden. 1he inLroducLion ol
the UCA has been a talking point across the globe, with Asian
newspapers and publications paying a particular focus on its
implications, given the large export volume of manufactured
Asian goods to the United States.
Figure 9: UCA-related news headlines from selected Asian newspapers
24
Bangkok Post US states get tough on piracy
February 24, 2012
Thailand could turn the UCA challenge into an opportunity [by using] the law as a competitive advantage when competing with rivals,
especially China, a country with a higher software piracy rate.
The Nation Kg^loYj]jekkYqMKdYo_gg\^gjcaf_\ge
October 3, 2011
The Association of the Thai Software Industry is hopeful that the US Unfair Competition Act will encourage more Thai businesses to go
leqal" lor Lhe benelL ol Lhe enLire socieLy. [.| Coinq leqal may noL come cheap, buL Lhe cosL ol solLware leqalisaLion is worLh Lhe peace
of mind
The Jakarta Post Aehjgnaf_hjgl][lagfakelgY\\j]kk][gfgea[[jak]k
December 12, 2011
Indonesia could probably well be the target of the law implemented in these two US states. In that kind of situation, the government
apparently cannot just sit around and do nothing.
The Star =phgjl]jklgMKlgd\lgmk]da[]fk]\kg^loYj]
January 12, 2012
"All Lhey need is Lo qeL an audiL cerLilcaLion lrom Lheir exLernal audiLors Lo show LhaL Lhe solLware used is paid lor. For Lhis, l would
imagine incremental cost to be low.
New Straits Times MKdYolYj_]lkeYfm^Y[lmj]jkmkaf_klgd]fAL
December 7, 2011
"[.| presenLs a qolden opporLuniLy lor SouLheasL Asian manulacLurers who have cleaned up Lheir l1 acL Lo muscle inLo Lhe Chinese
export territory.
China Daily L`]f]oMf^Yaj;geh]lalagf9[lg^l`]klYl]gÔYkàf_lgfYf\alk]^^][lkgfl`]eYfm^Y[lmjaf_af\mkljqg^;àfY
December 27, 2011
The effects of this act upon the manufacturing industry of China mainly include: (i) Facing bigger intellectual property risks [...] (ii)
Facing bigger risks of losing customers and market shares
Vietnam
Investment Review
M;9Yf]d]h`Yflafl`]jggel`Ylf]]\kY\\j]kkaf_
December 12, 2011
This is perhaps where there is an opportunity for Vietnam to increase exports to the US to seize this opportunity and encourage
companies to make sure they are in compliance with the UCA
Countries with strong manufacturing interests have advised their manufacturing industry to comply with these IT legislations,
indicating that compliance could be a competitive differentiator in the future. To reduce the possible negative impact on business
operaLions, many Lrade associaLions, indusLry associaLions, and law lrms have been advisinq Lheir members and clienLs on Lhe besL
way to comply with the UCA and similar legislation in the United States.
24
Source: Bangkok Post (Thailand), The Nation (Thailand); Jakarta Post
(Indonesia); The Star (Malaysia), New Straits Times (Malaysia); China Daily
(mainland China); Vietnam Investment Review (Vietnam)
25
Source: Various sources; EY analysis
Figure 10: Selected responses to the UCA and similar legislation
25
Technology industry
Both proponents and opponents exist within the technology
industry
Proponents have applauded the law for its emphasis on the
responsibility of IT use
Opponents are wary of the potential for frivolous lawsuits
and the added cost in ensuring compliance across their
supply value chain
Law hrms
Trade and industry associations
Manufacturing and retail industry
1here has been qenerally posiLive response lrom Lhese
associations. Informational circulars have focused on how
members should comply, emphasizinq Lhe benelLs ol compliance
1he manulacLurinq indusLry, by and larqe, does noL
appear to have had any negative response to the UCA
and similar legislations. Already compliant manufacturers
have welcomed the opportunity for a competitive
dillerenLiaLor and level playinq leld
Some members ol Lhe reLail indusLry have been less enLhusiasLic abouL
Lhese leqislaLions, due Lo Lhe possibiliLy ol added lnancial burden and
liabilities for factors outside of their control
Law lrms wiLh an inLernaLional clienL base or local
presence in countries where the manufacturing industry
is a siqnilcanL parL ol Lhe economy have been proacLive in
releasing circulars on how their clients can comply with the
legislations
Lxamples include lrms wiLh inLernaLional presence such as Baker &
McKenzie, Perkins Coie, Hoqan Lovells , Mayer Brown, and local lrms
such as 1illeke & Cibbins (1hailand and VieLnam), Anand And Anand
Advocates (India)
Lxamples include associaLions such as AC1
(international), QBPC, CCCME (mainland China), HKTDC
(Hong Kong), ACMA (India), MATRADE (Malaysia)
Responses to
UCA and similar
legislations
As with any legislation spanning borders and industries, responses have been somewhat varied. However, the overall response to
the UCA and similar legislations remains positive, and some legal and IP experts have predicted that such laws will become status
quo in Lhe luLure, boLh in Lhe UniLed SLaLes and worldwide.
11
Expected impact of the new
IT rules and regulations
With the new IT rules and regulations that address the use of illegal IT and its unfair
advantage in the competitive marketplace, several types of impact are expected. The
type of impact depends on the player involved, e.g., players in the manufacturing
industry are expected to see greater impact than those outside of the manufacturing
industry. Areas in which these rules and regulations are most expected to initially
impact include a countrys GDP growth, trade impact and import distribution, as
well as indusLryspecilc impacL areas such as Lhe expecLed impacL on players in Lhe
manufacturing value chain and the IT industry.
This chapter looks at how the UCA and similar legislations are expected to impact
selected countries and industries, as well as the opportunities that may arise as a
resulL. ln addiLion, Lhe emerqinq Lrends can qive rise Lo a loL ol lexibiliLy and sLraLeqies
with which to deal with impact, and examples of these strategies are detailed as well.
Expected impact on selected countries
There could be several direct and indirect macro-economic
implications of the UCA and similar legislation addressing
the use of illegal IT and the unfair competitive advantage
it presents. For example, it could be argued that countries
wiLh a siqnilcanL amounL ol Lrade wiLh Lhe UniLed SLaLes,
particularly those that have a large manufacturing export
industry, are more likely to be affected. Our initial thoughts
set out the possible impact in four areas:
1. GDP growth compliance wiLh Lhe UCA would require
increased IT spending to procure legal IT within the
manufacturing industry. If this increase in IT spending
is siqnilcanL, iL could lead Lo an increase in CDP lor Lhe
country.
2. Manufacturing overhead/costs an increase in IT
spending would directly lead to an increase in the
manufacturing cost of goods being produced. This
increase in manufacturing cost would likely impact the
selling price of products for export.
3. Global manufacturing export distribution
changing mindsets to understand that the use of
illegal IT has a greater impact on the marketplace as
a whole, and that fair competition is an important
trait of any economy. However, this is not expected to
have any siqnilcanL impacL in Lhe shorLLomedium
term.
4. US manufacturing import distribution in order
to avoid the risk of not being compliant under the
UCA, manufacturers could choose not to export their
products to the United States, particularly if the US
does noL currenLly make up a siqnilcanL porLion ol
the manufacturers exports. This could then lead to a
redistribution of imports in selected countries.
12 Trends and impact related to new rules and regulations on IT and fair competition
13
Figure 11: Economic impact model how
Direct impact
Input
Factors for consideration
Result
Potential impact on nominal GDP
As a result of the UCA and similar legal IT legislation,
manufacturers may decide to increase their IT
spending so as to ensure compliance. This in turn
leads to an increase in IT spending within the
economy, which can have an impact on GDP growth
il Lhe quanLum ol l1 spendinq ol Lhe manulacLurinq
industry is large. Our model puts this hypothesis to
test, but the output shows that there is no evidence
ol manulacLurer l1 spendinq havinq a siqnilcanL
impact on an economys nominal GDP. This is driven
by several factors, i.e., IT spending as a percentage of
nominal CDP is noL siqnilcanL across Lhe economies,
and IT spending within the manufacturing sector is
relatively small compared to overall IT spending.
As most of the economies within our model presented
similar characteristics in IT spending, we chose to
use China as a basis of comparison for the increase
in manufacturer IT spending as a result of the UCA
and similar leqislaLion. ln lqure 12, we can see LhaL
China's pro|ecLed nominal CDP qrows aL a siqnilcanL
rate - more than doubling between 2010 and 2016.
ln lqure 13, wiLh Lhe increase in manulacLurer l1
spending as a result of the UCA, Chinas overall
manufacturer IT spending is expected to account for
less than 0.2% of nominal GDP. Hence, any increase
in manufacturer IT spending as a result of the UCA,
or similar legislations, is not expected to have a
siqnilcanL impacL on China's nominal CDP. 1his is also
true of the other Asian countries in our model.
Figure 12: Projected nominal GDP growth in selected
economies (US$ bn)
26
20,000
15,000
10,000
5,000
0
2008
US
Taiwan
China
Malaysia
India
Philippines
Indonesia
Vietnam
Turkey
2009 2010 2011 2012 2013 2014 2015 2016
26
Source: IHS Global Insight
27
Source: IHS Global Insight, US Census Bureau,
CCW Research; EY analysis
Figure 13: Forecasted manufacturer IT spending as a
percentage of nominal GDP
27
0.4%
0.3%
0.2%
0.1%
0.0%
2010 2012 2014 2011 2013 2015 2016
US IT/GDP China IT/GDP (with UCA) China IT/GDP
A high-level economic model was developed to analyze the possible impact in the four areas as described. The logic driving the
model can be seen in lqure 11. 1he model was resLricLed Lo counLries and LerriLories in Asia wiLh relaLively larqe manulacLurinq
industries, namely China, India, Indonesia, Malaysia, the Philippines, and Vietnam. Turkey was also included as its trade export
volume is fairly similar to the Asian countries listed here; and also because the performance of its manufacturing industry has
shown Lo be quiLe reacLive Lo economic condiLions worldwide.
UCA and similar
legislations
Impact on
manufacturing
Increase in IT
spending
IT spending
as percentage
of GDP in
selected
country
GDP trends
Impact on GDP growth
in selected countries is
noL siqnilcanL
Increase in
manufacturing industry
cost may impact
products sold to the US
and other countries
Manufacturing
distribution trends
unlikely to change
siqnilcanLly
Redistribution of
import trends in
selected countries may
occur
Global
manufacturing
distribution
US import
distribution
Manufacturing
overhead
includes IT cost
Labor cost
impact on
manufacturing
distribution
Shift in
manufacturing
competitiveness
Affected
products
entering the US
Impact on US
import
Increase in
manufacturing
cost
14 New rules and regulations on IT and fair competition - Trends and impact 14
Potential impact on manufacturing overhead/costs
Building on the IT spending model in the previous section, we
can also perform some high-level analysis on the potential
impact of the UCA on manufacturing overheads in countries
outside of the United States. Manufacturer IT spending as a
percentage of manufacturing output (value added) is projected
to see an increase over the years as a result of the UCA.
A comparison between the IT spending as a percentage of
manufacturing output (value added) in the US versus that of
China can be seen in lqure 1^.
However, it should be noted that even with the impact
of the UCA, IT spending is not expected to exceed 3% of
manufacturing output (value added). Compared to labor costs,
which typically make up 30% - 40% of manufacturing output
(value added), Lhe quanLum ol l1 spendinq can be considered
Lo be lairly insiqnilcanL. As such, Lhe impacL on overall
manufacturing costs is not expected to be substantial enough
Lo inluence overall cosL Lrends and composiLion; in addiLion,
this impact is unlikely to affect other factors that may be cost-
driven
29
.
Potential impact on global manufacturing export
distribution
While the UCA may contribute to changing the manufacturers
mindsets to understand that the use of illegal IT has a greater
impact on the marketplace as a whole, it is not expected to
have any tangible impact on global manufacturing export
distribution patterns in the short-to-medium term. However, in
the long run, manufacturers in countries with a higher rate of
illegal IT usage may eventually become less competitive in the
global export marketplace.
Figure 14: Forecasted manufacturer IT spending as a
percentage of manufacturing output, value added
28
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
2010 2012 2014 2011 2013 2015 2016
US China (with UCA) China
28
Source: World Bank ; EY analysis
29
Such as raising product prices to account for higher IT spend
30
Source: US Census Bureau, BSA; estimates from industry experts
Figure 15: Percentage of US imports from selected countries/
territories vs. estimated rate of enterprise unlicensed
software use, 2011
30
Country/
Territory
% of US
imports
Key imports Rate of
enterprise
unlicensed
software use
China
(mainland)
18.1% Computers and
computer-related
products, household
goods, toys
79%
Hong Kong
SAR
0.2% Jewellery, telecoms
equipmenL, compuLer
related products, toys
45%
India 1.6% Gems, apparel,
pharmaceutical products
42%
Indonesia 0.9% Apparel, natural rubber 87%
Malaysia 1.2% Semiconductors,
Lelecoms equipmenL,
computer-related
products
56%
Philippines 0.4% Semiconductors,
computer-related
products, food oils
69%
Taiwan 1.9% Household goods,
semiconductors,
computer-related
products
37%
Turkey 0.2% Cars, iron-related
products, apparel
62%
Vietnam 0.8% Apparel, furniture,
footwear
82%
Potential impact on trade import distribution in the
United States
In this section, we look at the potential impact on trade import
distribution in the United States, as the legal IT and fair
competition legislation is currently in effect in several states.
Additionally, as Washington is a major import hub for the
United States, we assume here that the location of import is not
a factor in the possibility that the imports will not be affected
by the UCA.
Of the countries selected for analysis (i.e., China, India, et al),
the majority of the economies are not major exporters to the
United States. However, China stands as an exception Chinas
exports to the United States comprised 18% of total US imports
in 2011.
Assuming that countries/territories with more than 60% of
enterprises using unlicensed software run a higher risk of
non-compliance with the UCA and similar legislation, we can
infer that those that could be more vulnerable to the impact of
the UCA would be Indonesia, Vietnam, China, the Philippines
and Turkey. However, output from our model has shown
that an increase in IT spending (to ensure compliance with
Lhe UCA and similar leqislaLion) does noL have a siqnilcanL
impact on manufacturing costs. Given this information, it can
be expected that an increase in manufacturer IT spending
is unlikely to directly result in price increases of US imports.
Hence, the impact of the UCA and similar legislations can be
expected to be more direct, i.e., directly driven by a lack of
compliance instead of being driven by a price increases as an
indirect impact of the UCA. This would also imply that it would
be advantageous for a manufacturer to ensure compliance in
order to secure future manufacturing contracts from partners
in countries with legal IT legislation in place.
Taking a look at the top import partners and corresponding key
imports for the United States can also give an indication on the
potential impact of the UCA and similar legal IT legislation (that
exist within the US). Figure 16 highlights a couple of factors:
Rate of unlicensed software use: For the majority of the
top import partners, the UCA and similar legislation is
unlikely Lo have a siqnilcanL impacL due Lo Lhe relaLively
low rate of unlicensed software use within the country.
Manufacturing-related imports: Countries that have a
high rate of unlicensed software use may not necessarily
export manufacturing-related products to the United States.
For example, Venezuela has a high rate of unlicensed
software use (88%), but its key exports to the US are oil and
petroleum-related products. These countries are, therefore,
unlikely to be affected by the UCA and similar legislation.
Figure 16: Top 15 US trading partners for imports, 2011
31
Rank Country/
Territory
Imports
(US$ bn)
% of total
US imports
Key imports % of unlicensed
software use
32
1 China (mainland) 399.3 18.1% Computers and computer-related products, household goods, toys 79%
2 Canada 316.5 14.3% Oil and other petroleum products, cars 28%
3 Mexico 263.1 11.9% Oil, other manufactured products, cars 58%
4 Japan 128.8 5.8% Cars, industrial machinery 20%
5 Germany 98.4 4.5% Cars, pharmaceutical products, industrial machinery 27%
6 South Korea 56.6 2.6% Cars, household goods, semiconductors 40%
7 United Kingdom 51.2 2.3% Pharmaceutical products, other petroleum products, cars 27%
8 Saudi Arabia 47.5 2.2% Oil and other petroleum products 52%
9 Venezuela 43.3 2.0% Oil and other petroleum products 88%
10 Taiwan 41.3 1.9% Household goods, semiconductors, computer-related products 37%
11 France 40.0 1.8% Pharmaceutical products, aircraft and aircraft-related products 39%
12 Ireland 39.2 1.8% Pharmaceutical products, household goods, beverages 35%
13 India 36.2 1.6% Gems, apparel, pharmaceutical products 42%
14 Russia 34.6 1.6% Oil and other petroleum products 65%
15 Italy 34.0 1.5% Cocoa beans, sugar, meat products 49%
1he redisLribuLion ol imporL Lrends may occur, buL is hard Lo quanLily aL Lhe momenL as Lhe shilL in imporL Lrends can depend on
several factors such as the importers risk appetite, legal activity resulting from UCA and related legislations, availability of substitute
imporLs, percenLaqe ol a counLry's exporLs LhaL consisL ol manulacLured producLs, eLc. CurrenLly, Lhere is no quanLilable evidence Lo
demonstrate that US import trends from selected countries/territories will be affected by the UCA and similar legislation, but this may
change in the future.
15
31
Source: US Census Bureau, BSA, estimates from industry experts; EY analysis
32
Source: BSA; estimates from industry experts
Expected impact on manufacturing value chain
1he UCA and similar leqislaLion were desiqned Lo specilcally address Lhe use ol illeqal l1 wiLhin Lhe course ol business operaLions
for offending manufacturers. In addition, third parties such as retailers can also be held liable for the lack of compliance by its
suppliers. As a result, it can be expected that the impact of the UCA and similar statutes of law are most prominent for players
within the manufacturing value chain.
Figure 17 describes the players within the manufacturing value chain, as well as the key functions they support.
Figure 17: Manufacturing value chain and its key functions
33
It should be noted that some manufacturers are end-to-end players, and thus encompass all the key functions listed here under one
entity. These tend to be the larger manufacturers, such as certain OEM manufacturers for technology companies that are global or
industry leaders. In such situations, it would be unrealistic to consider the implications on a compartmentalized basis, as the use (or
the lack thereof) of legal IT within the company would affect all the downstream and upstream processes in the manufacturing value
chain.
Product
Development
Procurement
and Logistics
Marketing, Sales
and Distribution
Manufacturing
After Sales
Design of prototype
Development of
prototypes
Testing of prototypes
Finalization of
product
Supply of
components and raw
materials
Transportation and
warehousing
Inventory
management
Actual production
of goods for sale
Marketing of
products
Sales and
distribution through
various channels
Domestic and
export markets
Service and
maintenance of
sold products
(if applicable)
Implications for players in the manufacturing value chain
Fiqure 18 expands on Lhe implicaLions, poLenLial benelLs, and poLenLial impacL on cosL LhaL are likely Lo be experienced by each
type of player in the manufacturing value chain. Players that are adjacent to the manufacturers on the manufacturing value
chain are most likely to see the greatest impact. Conversely, players upstream of the retailers and distributors are not expected
Lo see any siqnilcanL impacL on Lheir businesses, as Lhe UCA and similar leqislaLion has been desiqned Lo specilcally address Lhe
manufacturers and third-parties such as retailers.
33
Source: Value Chain Group, Supportian; EY analysis
17
34
Source: SelecLed lqures lrom CarLner; LY analysis
Figure 18: Manufacturing value chain and its key functions
Manufacturing value
chain player
Implications Potential benehts Potential impact on cost
34
Product development
houses
Would need to ensure compliance with the
legal IT regulations as these players tend to
rely on l1 quiLe siqnilcanLly in Lheir business
operations
Companies may be more inclined to
invest their efforts in creating innovative
products, if they know that the products
that are being created with legal IT are
likely to have a competitive advantage in
export markets
Given that IT plays a major
factor in the product
development process, the
cost of procuring legal IT
could be lairly siqnilcanL il
the company is not already
using legal IT
Suppliers of components
and/or raw material
Sales of components and/or raw materials may
be adversely affected if upstream players are
found to be liable in lawsuits involving legal
IT (i.e., if products are banned from being
imported by countries such as the United
States)
Ensuring compliance could lead to an
increase in demand for components and/
or raw material as manufacturers seek
out compliant suppliers in line with the
UCA and similar legislations
Given the business
requiremenLs ol Lhese
suppliers, total annual IT
spending (for legal IT) is not
expected to exceed more
than 3% of annual operating
expenditure (OPEX)
Transportation hrms Demand for transportation services may be
affected if upstream players are found to be
liable in lawsuits involving legal IT
Conversely, demand could be unchanged if
upstream players decide to shift their existing
exports to other countries with less stringent
legislations, resulting in no change in the
amount of product being exported
Could result in new transportation routes
if upstream players decide to explore
export alternatives
Annual IT spending is
estimated to be less than 4%
of annual OPEX
Warehouses Warehousing IT systems will need to be
compliant to ensure that partners continue
to be comfortable doing business with the
warehousinq lrms
However, iL is likely LhaL warehousinq lrms
already use legal systems given the degree of
specializaLion and cusLomizaLion required lor
such software
If manufacturers are unable to sell
their products, warehouses may or may
noL benelL. ll Lhe componenLs or raw
material have already been ordered,
addiLional warehousinq may be required
aL Lhe benelL ol Lhe warehouses
However, the manufacturers may also
decide to reduce production output,
Lhereby requirinq lewer componenLs
or raw material, which would then
negatively affect the warehousing
requiremenLs
The warehousing
management system is
expected to take up the bulk
of software spending, but it
is unlikely that such software
is unlicensed.
Hence, the potential impact
on cost is expected to be
insiqnilcanL
Manufacturers Being held liable for the use of illegal IT could
produce the side effect of a ban on their
product sales in the United States
Some manufacturers have indicated that it
would be easier for them to consider exporting
to countries without such regulations, so as to
avoid having to be compliant
Manufacturers might take a wait-and-see
attitude before considering their next steps
PoLenLial benelLs include cosL and Lime
savings, competitive advantages in the
marketplace, improved security, and
lnancial advanLaqes
These opportunities are outlined in
greater detail later
An increase in the cost
of IT (due to the need
for legalization and
compliance) may affect the
manufacturers overall costs.
This could then impact the
selling price of its product,
not just to countries with
legal IT regulations
Annual IT spending is
expected to be between 3-4%
of OPEX
Marketing and PP hrms Would require workinq knowledqe ol Lhe UCA
and similar laws to ensure that marketing and
PR messages are appropriately scripted to
tackle the compliance angle
Potential increase in the demand for
marketing and PR campaigns on behalf
of manufacturers (to spread the message
that they use legal IT)
Impact on cost is not
expecLed Lo be siqnilcanL
Distributors and other
sales channels
Domestic retailers in the United States need to
be very vigilant in terms of their downstream
value chain players, to ensure that their
possible lack of compliance does not become
an issue
Could requesL prool ol compliance lrom
suppliers and manufacturers when negotiating
agreements
Leqal represenLaLives wiLhin Lhese lrms
need to be familiar with the UCA and similar
legislations to be able to provide advice and
suggest strategies to limit liability
Consumers may be more likely to
purchase products that were made in line
with legal IT legislation
Cost impact could be a
result of the additional due
diliqence required Lo ensure
compliance of downstream
value chain players
May incur siqnilcanL leqal
cosL il required Lo mounL a
defence
Service and
maintenance companies
Unlikely Lo be impacLed in a siqnilcanL manner
because these players are upstream from the
manufacturing and retail players that are the
target segments in the UCA
Unlikely Lo see any siqnilcanL benelL Unlikely to see any
siqnilcanL cosL exposure
Communications Software
Services Consulting
Hardware
IT Ecosystem
Servers and storage
NeLwork equipmenL
End-user computing and peripherals
Software licenses
Support and maintenance
System planning and design
Disaster recovery and business continuity
Training, education and other consulting
Application development and integration
Infrastructure support and management
Helpdesk and user support
Voice services
Data services
Converged services
Figure 20: High-level IT ecosystem
36
Implications and opportunities for IT players
Given that the new IT rules and regulations address the use of illegal IT and its adverse impact on fair competition, it can be
expecLed LhaL Lhere will be direcL implicaLions and opporLuniLies lor l1 players. ln Lhis secLion, we Lake a look aL Lhe qualiLaLive
impact on the various players of the IT ecosystem ranging from hardware players, to software players, to players in IT consulting.
Dehnition oI the IT ecosystem
For Lhe purposes ol Lhis paper, Lhe l1 ecosysLem is delned as conLaininq l1 players in Lhe caLeqories ol hardware, solLware, services,
communicaLions, and consulLinq. DeLails ol Lhe various componenLs wiLhin each caLeqory are shown in shown in lqure 20.
Figure 19: Case study of IT spending and legal IT awareness in an
Asian manufacturing industry
35
IT spending and legal IT awareness in an Asian manufacturing industry
IT spending breakdown:
Approximately 30% for software and 70% for hardware
Software spending is further split into enterprise applications (60% -
70%) vs. desktop applications
Growth in IT (particularly software) spending over the past few years for
several reasons:
Higher enforcement on use of licensed IT
ConsideraLions surroundinq lonqLerm cosL reducLion and ellciency
improvement
Realization of the future value of software integration (and
virtualization)
Manufacturers, on the whole, appear to have heard about the UCA and
similar legislations
A factor in this is the communications that they have received from
industry associations
Awareness of legal IT issues is higher in cities that have more
international business relationships. Compliance remains an issue in
smaller cities
Medium-to-large enterprises are more likely to ensure compliance to
improve their core competitiveness
IT service providers are knowledgeable about the UCA and legal IT
requiremenLs, and are keen Lo use Lheir experLise Lo assisL Lheir clienLs in
becoming compliant
Conclusions that can be drawn from this case study include the
following:
Willingness to spend on IT: Manufacturers are increasingly
willing to spend on IT, given the right drivers. Education
plays an important role in encouraging manufacturers to
adopt legal IT in their business operations.
Importance of local governments and industry
associations: Local governments and industry associations
play an important part in educating enterprises on the need
to use legal IT. Governments and industry associations
should conLinue Lo emphasize Lhe benelLs ol usinq leqal l1
to encourage its use.
Gap in awareness and compliance: While awareness of the
need for legal IT is fairly high across the board, compliance
remains an issue, particularly in areas where enforcement
remains weak.
Service providers can be valuable partners in
compliance: Service providers have the skills and expertise
to assist their clients in becoming compliant with legal IT
requiremenLs. However, many manulacLurers are sLill Lakinq
a wait-and-see attitude. Service providers can do more in
reaching out to their clients in order to change this mindset.
35
Source: Interviews with various IT service providers in Asia; EY analysis
36
Source: Ovum; EY analysis
We conducted several interviews with IT service providers in
Asia to gain a better understanding of the existing state of play
for IT spending in the manufacturing industry. The following is
a case study of the IT spending and legal IT awareness in the
manufacturing industry in Asia.
19
37
Source: IDC; EY analysis
38
Note: Application solutions refers to applications such as ERP, CRM and SCM
applications; application tools refers to development, middleware and data
analysis software; system infrastructure software refers to security, system
and storage software.
39
Source: Industry experts estimates based on BSAs 2010 Piracy Study
Figure 22: Quantum of enterprise software spending by region,
2010 (US$ bn)
37, 38
AsiaPacilc EMEA Americas
System infrastructure software
Application tools
Application solutions
42
27
16
10
24
35
73
45
20
Figures 22 and 23 give an idea on how IT spending (in
particular, software spending) could be affected by the UCA
and similar legislation addressing legal IT and fair competition.
lL can be seen LhaL Lhe AsiaPacilc reqion solLware spendinq
is far less than that of the Americas and EMEA regions one
explanation for this could be the high rates of use of illegal
software within the region.
Given that the leading manufacturing exporters for the United
SLaLes are locaLed wiLhin Lhe AsiaPacilc reqion, iL would
be reasonable Lo assume LhaL solLware spendinq (Lo acquire
licensed software) could increase as a result of the UCA and
similar legislation. However, it should be noted that informal
conversaLions wiLh some manulacLurers wiLhin Lhe AsiaPacilc
region have indicated a near-term preference to stop exporting
their products to the United States, instead of investing in
strategies to ensure that their business operations are driven
solely by legal IT.
Figure 21: Implications for the IT ecosystem
Hardware lnlrasLrucLure equipmenL may see an increase in demand il Lhere exisLs a misuse ol volume licenses, i.e., more solLware is deployed Lhan is
paid for
To reduce efforts spent in-house on compliance, enterprises may choose to lease hardware from compliant service providers instead
Software Previously unlicensed copies ol solLware will have Lo be converLed Lo leqal licenses Lhis is likely Lo be siqnilcanL in counLries LhaL have a
large manufacturing industry, coupled with high rates of illegal software use
BenelLs boLh local and inLernaLional solLware providers, irrespecLive ol Lhe size ol Lhe solLware company
SupporL and mainLenance could increase as well il Lhese solLwarerelaLed services are required in line wiLh Lhe deploymenL ol leqal solLware
licenses
Services There will likely be opportunities to address the need for legal IT compliance, such as the implementation of Software Asset Management
(SAM) and IT Asset Management (ITAM) systems
Opportunities also exist in developing compliance measures for companies that currently do not use legal IT
Communications There may be an increase in opportunities for data service provision due to the implementation of SAM/ITAM systems (and the resultant use
within the company)
However, Lhere will unlikely be siqnilcanL impacL oLherwise as a resulL ol Lhe new l1 rules and requlaLions on leqal use and lair compeLiLion
Consulting There will likely be opportunities to offer consulting services to new clients that need assistance with issues surrounding compliance and
legal IT, e.g., IT audits, contract/agreement reviews, etc
In addition, there will likely be potential training opportunities, e.g., employee education on the importance of legal IT in the workplace,
Lraininq proqrams Lo ensure sullcienL prolessionals Lo provide compliancerelaLed services
Potential impact on the IT ecosystem
The potential impact on the IT ecosystem, and its various players, largely depends on the touchpoints of these players with the issue
of illegal IT. For example, it can be expected that software players will see the greatest (positive) impact as a result of these new IT
rules and regulations, simply due to the fact that illegal IT in companies is often driven by the use of unlicensed software, or the
misuse of volume licenses. However, other players such as those in the consulting and services category will potentially see positive
impact as well. Figure 21 gives an indication of the types of impact and opportunities that may exist for each type of player within
the IT ecosystem.
Figure 23: Estimated rates of illegal software used in enterprises,
by country/territory
39
China (Mainland)
79%
45%
42%
87%
56%
69%
37%
62%
82%
20%
Hong Kong (SAR)
India
Indonesia
Malaysia
Philippines
Taiwan
Turkey
Vietnam
United States
Opportunities that may arise
Beinq in line wiLh Lhe currenL (and luLure) l1 rules and requlaLions will require a company's commiLmenL Lo usinq leqal l1, as well as
initiatives to educate stakeholders about the pitfalls of failing to do so all of which come at a cost. However, a company can look at
Lhe cosLs as a lorm ol invesLmenL in order Lo realize poLenLial lonqLerm benelLs, such as:
Cost and time savings: Having an automated, consolidated software asset management system that can help reduce software
licensing and support costs, as well as reduce the time spent on tracking and updating software licenses
Competitive advantages: Having competitive advantages over companies that do not use legal IT in their business operations,
as foreign partners are more likely to work with companies that use legal IT in their business operations
Improved security: Avoiding security risks from using illegal IT and preventing business disruptions as a result
Financial considerations: Avoidinq poLenLial lnancial penalLies lrom Lhe use ol illeqal l1 some counLries view Lhe use ol illeqal
l1 as a lorm ol Lax evasion, which can incur heavy lnancial penalLies il discovered. ln addiLion, leqal cosLs can be siqnilcanL il a
law suit were to be brought against a company as a result of a law such as the UCA
Alonq wiLh companywide poLenLial benelLs, indusLrywide opporLuniLies will likely be seen across Lhe l1 indusLry. 1his secLion
presents a discussion on some of the opportunities that will arise in the IT ecosystem as a result of legislation addressing the use of
illegal IT and its impact on fair competition.
Service-based opportunities
Ensuring compliance with legislation revolving around legal IT and fair competition would be a key factor for manufacturers and
potentially, for entities in other industries in the future. IT service providers are already providing services that address compliance
concerns, and iL would be lairly sLraiqhLlorward Lo exLend such exisLinq services Lo meeL Lhe requiremenLs lor compliance wiLh leqal
IT legislation.
Figure 25: Potential opportunities for IT service providers
41
Potential service
opportunities
Asset management
services, e.g., ITAM,
SAM
Compliance
services
Contract
optimization
services
Outsourced
solutions
Cloud solutions
IT audit services
IT governance
services
Figure 24: Distribution of enterprise software spending by region, 2010
40
System
infrastructure
software
Application
tools
Application
solutions
Clobal averaqe Americas LMLA AsiaPacilc
29%
25%
47%
28%
23%
49%
28%
25%
47%
34%
22%
43%
An analysis of the regional enterprise IT spending patterns
could give an indication of the increase in IT spending that
could occur as a result of the UCA and similar legislation. For
example, looking at the enterprise software spending by region
lor 2010 (reler Lo lqure 2^), counLries wiLhin Lhe AsiaPacilc
region tend to spend more on system infrastructure software,
and less on application solutions, when compared to the other
reqions. ll more companies wiLhin Lhe AsiaPacilc reqion
decide to implement an SAM system to assist in compliance
to the UCA and similar legislations, there could be an increase
in the IT spending on application solutions to that of EMEA or
North American levels.
40
Source: IDC; EY analysis
41
Source: Various IT service providers; EY analysis
In addition, there may be an increase in the demand for
Lraininq proqrams Lo ensure a sullcienL number ol Lrained
professionals exist to provide the aforementioned services.
These training programs may be of greater demand in countries
where manufacturers are more likely to be affected by legal IT
legislations.
New certihcaticns/standards
Currently, there does not exist a unifying body that oversees
Lhe cerLilcaLion ol Lhe use ol leqal l1 wiLhin a company.
However, some software vendors currently have their own SAM
programs, which they encourage their customers to implement
as a way in which to ensure that legal IT is being utilized.
ln Lhe luLure, larqe OLM buyers may require Lheir vendors Lo
issue cerLilcaLion or prool ol leqal usaqe ol l1 producLs lor
their IT infrastructure. To meet these demands, a third party
cerLilcaLion orqanizaLion auLhorized by ma|or solLware vendors
may provide IT audit and compliance services for enterprises.
Additionally, an internationally-respected and recognized
body may provide a whitelist service that would allow trade
partners to perform background checks on manufacturers, so
as to ensure that they are dealing with manufacturers that use
legal IT in the course of their business operations. This would
reduce the due diligence necessary on the trade partners
parL, savinq on Lime and cosL, which in Lurn benelLs Lhe end
consumer.
Figure 26: Examples of potential opportunities for IT service providers
42
Service category Objective Examples of possible services
Asset management
services
Mitigate risk exposure due to
the use of illegal IT within the
enterprise through detailed
asset tracking
Assessment, design and implementation of a Software Asset Management (SAM)
system
Assessment, design and implementation of an IT Asset Management (ITAM)
system
Adherence to SAM/ITAM ISO standards and principles
Compliance
services
Ensure that the enterprise
understands and adheres to
compliance requiremenLs,
while identifying external
parties that may have
compliance issues
Review and analysis of vendor, partner, external agreements and contracts to
ensure compliance
Assessment of supply chain compliance
Review and gap analysis of software license compliance for internal and external
parties
ldenLilcaLion ol l1 licensinq requiremenLs Lo aid purchase neqoLiaLions (e.q., wiLh
software vendors)
Educational sessions on the need for compliance and licensing
IT audit and
governance
services
Ensure that policies and
processes are in place to
enable ease of IT licensing
and compliance
Review of applications and infrastructure that may impact compliance
Assessments on areas of potential risk
Review and improvement of company policies and procedures
Review and improvement of processes and controls
Review of regulatory compliance
Outsourced
services
Mitigate exposure to illegal IT
by outsourcing part, or all of,
an enterprises IT systems
Managed services, e.g., fully outsourcing IT systems to an external vendor
Implementation and maintenance services
Cloud-based solutions
42
Source: Various IT service providers; EY analysis
21
Summary of strategies for countries and companies to deal with
the potential impact
The impact of the legislation on legal IT and fair competition
varies depending on the stakeholder, and the possible
strategies in which to address the impact would thus differ. For
example, the impact on a company would be fairly different
from the impact on a country, and different strategies would
then have to be used to address the potential impact. However,
regardless of the stakeholder, there are two central strategies
that can be employed to address the possible impacts:
1. Compliance ensuring compliance through various
measures, ranging from the co-operative to the adversarial
2. Education changing mindsets to understand that the use
of illegal IT has a greater impact on the marketplace as a
whole, and that fair competition is an important trait of any
economy
This section will look at the strategies that countries and
companies can employ in order to deal with the potential
impact of legislation on legal IT and fair competition.
Strategic options at the national level
While it may be challenging to derive the potential negative
lnancial impacL on Lrade beLween counLries as a resulL ol
laws similar to the UCA, it is important that countries with
large manufacturing export industries implement strategies
to address the possible negative effect. Strategies targeted at
the root of the problem (i.e., the use of illegal IT) are expected
to be long-term in nature, and hence have less of a short-term
impact. These strategies and initiatives will revolve around
compliance and education.
Strategies that can be employed at a country-wide (national)
level include:
Greater enforcement of IP rights: IP rights laws are fairly
strong in most countries, but countries with high rates of
unlicensed software use typically have poor enforcement
capabilities. Increased enforcement can take several
forms, depending on the country. For example, greater
enforcement could be a result of increased raids or routine
inspections, stiffer penalties for infringing parties, the set
up of specialized departments to deal with legal IT use, etc.
Programs to incentivize the population: Programs could
include those that encourage whistleblowers to come
forward with information on the use of illegal IT at their
workplace (e.g., via incentives and rewards), or tax breaks
or rebates for companies that can show proof of use of legal
IT throughout their business operations.
Alternative options to consider: In countries where the
cost of legal software licenses is a barrier of entry to the
marketplace for companies, in particular for small- and
medium-sized enterprises (SMEs), the government or
relevant industry association could perhaps work with IT
companies Lo develop counLryspecilc pricinq so as Lo
encourage legal IT use. Additionally, industry associations
could suggest other options such as using alternative
platforms and/or services, using solutions produced by the
domestic market (which are typically more affordable), etc.
Introduce new educational initiatives: Education is
an important aspect of dealing with the use of illegal IT,
and many countries already have educational or social
awareness initiatives in place. Educational initiatives
targeted at industries should address and discourage the
use of illegal IT in business operations, highlighting the
trade impact for both the country and the company in
quesLion. ln addiLion, iniLiaLives Lo chanqe Lhe mindseL ol
the population in general can also be considered. The aim of
such initiatives would be to inculcate the importance of IP
rights and the use of legal IT both at home, in the school or
at the workplace.
23
Strategic options within a company
The overarching strategy that a company (be it a manufacturer
or third party) can employ to deal with the potential impact
of the new IT rules and regulations, with respect to fair
competition, would be to ensure compliance. This compliance
needs to be within the enterprise itself, as well as along its
supply chain, where possible. Compliance with this new
legislation can be achieved in different ways, which will be
discussed in the latter portion of this section.
A motivating factor for a foreign manufacturer to comply
with the new IT rules and regulations dealing with fair
competition would be that compliance can become a
competitive differentiator for the manufacturer. Along with
beinq a compeLiLive dillerenLiaLor, Lhere are several benelLs
Lo compliance, and a broad overview ol Lhe benelLs is
shown in lqure 29. 1hese benelLs can evenLually drive Lhe
companys overall business strategy for example, by actively
differentiating itself from other non-compliant companies, the
potential for foreign trade contracts and the ability to build
stronger relationships with trade partners would be higher.
Figure 28: Benehts oI compliance and education on a national level
Benehts oI compliance
Competitive differentiator
Time and cost savings
lncrease in qualiLy ol loreiqn
and domestic investment
dollars (due to stronger
compliance)
Productivity gains
Improved reputation in the
international marketplace
Benehts oI education
Driver for the Knowledge
Economy
Change in mindset of
future generations
Increased innovation and
creativity
Domestic industry growth
These initiatives and programs can be a result of a well-drafted,
end-to-end government-backed compliance strategy model. For
example, the Department of Commerce of the Government of
Western Australia has developed a comprehensive framework
Lo ensure compliance wiLh requlaLory requiremenLs. AlLhouqh
this framework was designed for consumer and employment
laws, it can serve as a guide in the development of a compliance
strategy model for legal IT.
Regardless of the strategies that are adopted and implemented,
Lacklinq Lhe use ol illeqal l1 requires siqnilcanL Lime and ellorL
particularly as a main factor in the success of these strategies
would be that of changing the mindset of the population.
DespiLe Lhis, Lhe benelLs are siqnilcanL and Lanqible, and Lhe
outcome will be an important drive in cementing a countrys
reputation in trade fairness and IP rights protection.
Tightened government measures cut software piracy
BLlJlNC CovernmenL's inLensiled ellorLs Lo rooL ouL solLware piracy are
brinqinq concreLe benelLs Lo solLware providers.
This year, China has organized teams of inspectors to canvass central and
local government computers to ensure that all the departments are using
authorized software, and stepped up inspections of software pre-installation
on computers sold in the country.
1he qovernmenL's lrequenL campaiqns aqainsL inLellecLual properLy
infringement helped create a sound business environment and greatly
boosted the development of the countrys software industry.
Figure 27: Examples of governmentled initiatives
dealing with illegal IT
43
Philippine antipiracy drive focuses on enterprises
MANlLA A coaliLion ol law enlorcemenL aqencies has uncorked an inLensiled
nationwide campaign against software piracy, focusing primarily on the
countrys business districts.
Members ol Lhe Philippine AnLiPiracy 1eam (PAP1) said in a press brielnq
Thursday that the crackdown would soon commence in Makati City, the
counLry's main lnancial hub, where businesses have been qiven unLil Mar. 26
to legalize their software or face the risk of a raid or routine inspection.
Thai police target 3% drop in software piracy
BANGKOK Police are stepping up the war on personal computer software
piracy and aim to reduce it by a further 3 per cent this year, the Economic
Crime Division said on Tuesday.
The renewed crackdown would begin this month and initially target Samut
Prakan, Chon Buri, Rayong, Chanthaburi and Trat provinces, ECD deputy
commander Chainarong Chareonchaiyanon said.
The crackdown will focus mainly on business and commercial companies
where use of pirated software is carried out on a larger scale.
43
Source: ZDNet Asia, March 2010; Bangkok Post, January 2012; China Daily,
December 2011
Governments and industry associations will need to emphasize
Lhe benelLs ol any iniLiaLive LhaL is implemenLed Lo address Lhe
potential negative impact on trade as a result of using illegal
l1. Fiqure 28 qives examples ol poLenLial benelLs LhaL can be
realized through compliance and education on the importance
of using legal IT.
44
Source: AmCham India; EY analysis
45
Source: State of Washington House Bill 1495, Chapter 98, 2011 Laws
Competitive strategies to consider
The underlying rationale for the legal IT legislation is the need
for fair competition in a marketplace. Manufacturers compliant
with the legal IT and fair competition legislation can use their
compliance as a (fair) competitive advantage over other players
in Lhe leld. A manulacLurer LhaL is complianL can promoLe iLsell
as a safe trading partner in the global marketplace, which
could improve its relationships with foreign trade partners. This
in turn could result in an increase of trading agreements as
well as an increase in the number of partners the manufacturer
deals with.
Having an external party perform IT audits on the legality of IT
used in an enLerprise, or perhaps wiLh a cerLilcaLe as prool ol
use ol leqal l1 LhrouqhouL Lhe enLerprise, could be benelcial Lo
a manufacturer. This would allow greater ease in negotiations
with foreign partners, which would be another competitive
advantage over those using illegal IT. In the future, there may
even exist a whitelist of compliant manufacturers that would
enable contract negotiations to be carried out without the need
for extensive background checks.
Third parties such as retailers could use the knowledge that
its supply chain is compliant with legal IT legislations as a
marketing tool. Past advertising campaigns have exhorted
consumers to shun counterfeit or illegal products in favour
of legal or original products. Retailers could likewise spread a
similar marketing message to their potential consumers that
the products available for purchase would have been produced
without the use of illegal IT. This could appeal to consumers
who believe in the importance of using legal IT.
Specihc IeaI strateies fcr third parties (with reards tc
the UCA)
With regards to the UCA, a third party can potentially defend
itself through the following avenues if a lawsuit were to be
brought against it
45
:
ll iL can show LhaL iL is an end consumer ol Lhe producL in
quesLion
ll iL can show LhaL iL purchased Lhe producL made usinq
illegal IT from an end consumer
ll iL can show LhaL iL does noL have any conLracLual
relationships with the manufacturer using illegal IT
ll iL has exisLinq code ol conducL Lo qovern iLs relaLionships
wiLh manulacLurers (e.q., conLracLual requiremenLs Lo use
legal IT)
ll iL has obLained wriLLen assurances LhaL no illeqal l1 was
used in the manufacture of the product
However, Lhe UCA does noL currenLly sLaLe Lhe specilc deLails
regarding the types of evidence that a third party can use
as parL ol iLs delense. 1his is likely Lo be clariled in Lhe near
future, as non-compliant manufacturers and third parties are
brought to task.
Figure 29: Benehts oI a manuIacturer's compliance with the new IT rules and regulations pertaining to Iair competition
44
Secure
Differentiate
Benehts cf
compliance
Enhance
Strengthen
Reduce risk of business
disruption due to
security breaches or
legal action resulting
from the use of illegal IT
Create a competitive
differentiator against
manufacturers using
illegal IT
Create a solid foundation
for the companys brand
by enhancing global
reputation
Develop stronger, lasting
relationships with trade
partners in countries
with legal IT and fair
competition legislations
A company can employ several strategies to ensure that it is in line with the new IT rules and regulations involving the use of legal IT
and fair competition. For example, the company can:
Be proacLive in ensurinq compliance ol exisLinq and luLure l1 sysLems lor example, by workinq wiLh l1 consulLinq lrms wiLh
relevant compliance expertise
ObLain cerLilcaLion lrom an inLernaLionallyrecoqnized cerLilcaLion board (or cerLilcaLion provider) Lo show compliance or
legality of existing IT
Lnsure conLracLs wiLh exLernal parLies include indemniLy clauses LhaL clearly sLaLe LhaL leqal l1 should be used in Lhe parLners'
business operations, thereby reducing the risk of future business disruptions due to legal action resulting from the use of illegal
IT down the companys supply chain
Provide educaLion wiLhin Lhe company on Lhe imporLance ol complyinq wiLh such leqislaLion, and Lhe adverse ellecL on business
operations otherwise
Lmploy a combinaLion ol Lhe above sLraLeqies, or oLher sLraLeqies LhaL have noL been specilcally discussed here
25
Conclusion
The trends arising from IT rules and regulations with respect to
fair play in the marketplace can be expected to impact the way
companies do business. While the macro-economic impact of
these rules and regulations cannot yet be discerned, there is
expected to be some impact across the entire manufacturing
value chain and IT ecosystem. Players that are adjacent to the
manufacturers on the manufacturing value chain are most
likely to see the greatest impact, while players upstream of the
reLailers and disLribuLors are less likely Lo see any siqnilcanL
impact on their businesses. Similarly, the potential impact on
the IT ecosystem and its various players will largely depend on
the touchpoints of these players with the issue of illegal IT.
How these players react to the rules and regulations will
depend on the strategies they implement to do so in order
to be in line with the IT rules and regulations, such strategies
are likely to center on the pillars of compliance and education.
While there may be costs involved in order to comply with these
new rules and regulations with regards to the use of illegal IT,
Lhere are also likely Lo be poLenLial benelLs lor players wiLhin
the value chain. Essentially, a company can look at such costs
as a form of investment in order to realize potential long-term
benelLs lor example, cosL and Lime savinqs, compeLiLive
advanLaqes, improved securiLy, and possible lnancial upsides,
alonq wiLh oLher benelLs.
The eventual effectiveness of the IT rules and regulations that
address the use of illegal IT and its impact on unfair competition
is largely dependent on how compliant the value chain players
will be. This in turn depends on how stringent the enforcement
ol Lhese rules are, be iL Lhrouqh requirinq cerLilcaLion Lo prove
that legal IT is employed, or through an increase in legal action
against offenders, or via other avenues.
Ultimately, IT rules and regulations that target unfair
competition as a result of illegal IT use are expected to become
more commonplace not just across the United States, but
also globally. Players within the manufacturing industry and
IT ecosystem would put themselves in better position by
implementing relevant strategies, in order to ensure that they
can realize Lhe benelLs LhaL could presenL Lhemselves as a
result of these rules and regulations.
Stephen Y. Lo
Asia Pacilc 1echnoloqy and
Telecommunications Industry
Advisory Leader
+86 10 5815 2837
[email protected]
Edward Chang
Advisory Partner
+86 10 5815 2321
[email protected]
Keith Yuen
Advisory Partner
+86 21 2228 2252
[email protected]
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