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Piracy Bill Pits Microsoft Against Tech Giants

Microsoft backed anti-software-and-hardware piracy measure is drawing sharp opposition from other giant technology companies and a group of big-name retailers.

OLYMPIA, Wash. (AP) -- A Microsoft backed anti-software-and-hardware piracy measure moving through the Washington state Legislature is drawing sharp opposition from other giant technology companies and a group of big-name retailers, setting up a contentious political fight among these multi-national companies that could spread to other states.

Fifteen tech companies -- including IBM, Dell, Intel and Motorola -- sent a letter this past Friday urging lawmakers to reject the bill as they increase their lobbying following overwhelmingly supportive votes for the measure. Retailers like Wal-Mart and the Washington Retail Association have actively lobbied against it as well. Lawmakers said Apple has lobbied against it, too.

The proposed measure would allow a company to sue businesses that use stolen or misappropriated software or hardware to manufacture products sold in Washington state, and allows the state to pursue legal action as well in such cases.

The bill is Microsoft's priority this session, part of a multi-state strategy to have other legislatures adopt similar laws, as they fight against piracy coming from Asia and Latin America.

"We think this is about fairness," said Brad Smith, Microsoft's general counsel and senior vice president. "The message is simple. The time is right for American companies to send a message to their supply chain that they should stop stealing American technology. It's as simple as that. This bill gives them ample time to do that in a practical and reasonable way."

The Motion Picture Association of America is a supporter of the bill, and Smith said that Microsoft has worked with companies like Amazon, Cisco, and Comcast to address their concerns.

But unmoved opponents are mounting a spirited fight. They argue that as it stands, the bill leaves them vulnerable to frivolous lawsuits and forces them to vet computers and other electronic devices coming from abroad, an added expense on their checkbooks.

"American businesses that unwittingly buy from companies alleged to be using unlicensed software could be unfairly penalized. The onerous remedies in the bill -- including monetary damages, potential seizure of products, and injunctions barring sale of products in the state -- would invite baseless and burdensome litigation that could be used in an anti-competitive manner," the letter obtained by The Associated Press states.

The chief culprits of piracy are based in China, other Asian countries and Latin America, experts say. Software piracy is also not just cheap packages with misspelled English words.

Computers are not made by one company that contracts with Microsoft, rather there are different streams of sources.

IT piracy also applies to companies abroad that use stolen information technology to make another product, that's not necessarily a tech one.

"Our industry has a fundamental problem, when we visit manufacturing companies overseas and point out they're using pirated software, they laugh in our faces, they say the local courts will not take action," Smith said. "If state legislatures enact this type of bill manufactures overseas are going to hear the message."

Smith added that it's too early to say whether similar bills will be pursued in Congress.

So far, though, the measure's opponents are facing an uphill battle in Washington, where Microsoft is one of the largest private employers.

The two companion bills are moving through the chambers with flying colors. The House bill was approved in late February on a 90-4 vote, where an amendment to delay implementation was voted down. The Senate version of the bill, which was amended to include language to better address the concerns of retailers, passed 39-7.

The two bills now await further consideration. The House and Senate bills are scheduled for committee hearings Monday.

Spokesman Kevin Kutz said that Microsoft has focused its lobbying efforts in Washington and Utah, where a similar bill was introduced, but was not enacted. He declined to say where else Microsoft is lobbying.

Louisiana approved a similar bill last year, according to a legislative committee report. Opponents say that similar bills have been introduced in Kentucky, Indiana and Georgia as well, where they didn't get much traction.

"I don't think the solution is a temporary fix," said Christopher Padilla, vice president of governmental programs at IBM. He's also a former undersecretary for international trade at the U.S. Department of Commerce. "The Legislature should reject this ill-considered bill. We'll encourage legislators around the country to do so."

Still, no one is disputing the problem of piracy in Olympia.

According to a report by the Business Software Alliance, more than four out of 10 software programs installed on personal computers around the world in 2009 were stolen -- a commercial value of $51 billion.

Microsoft argues that piracy is costing the state jobs and money. The software giant says that the bill aims to create incentives through notices and to create responsible supply chain standards to ensure manufactures using stolen IT don't profit.

It has amended the original bill to try to appease some of the retailers' concerns about lawsuits, saying that retailers can avoid disruptions to their supply chain by sending warning letters to suppliers.

The bill also doesn't affect companies that make less than $50 million a year in revenue. Lawsuits can't be brought forward unless warnings are issued and the company fails to solve the problem. A lawsuit can't be brought if a company that sells products with pirated software is not directly contracting with the manufacturer violating the rules.

But Jonathan Zuck of the Association of Competitive Technology, a trade group of small technology firms backed by Microsoft and other technology companies, says that companies already have a system of checks on their supply chains. He says, for example, companies are supposed to check whether products or parts do not come from child labor.

"It's reasonable to have an expectation of manufacturers and retailers for them that to make sure that their supply chain is not made up of goods with stolen IT," Zuck said.

Currently, the differing sides are trying to hammer out agreements, lawmakers involved in the process said. But compromise seems unlikely.
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