Ad blocking – a coming legal battleground?

My latest Computerworld article is online. It is on ad blocking – a subject that has had surprisingly little coverage:

Consider these two facts –

Fact 1: many of the world’s largest internet companies, including Google and Facebook, derive most of their revenue from serving up online advertisements.

Fact 2: one of the most popular browser add-ons is Adblock Plus, free software designed to eliminate online advertising from a user’s browser, with the Firefox version alone recording close to one million downloads per week.

Overall statistics on browser ad blocking are hard to come by, but Mozilla records over 178 million total downloads of Adblock Plus and over 14 million average daily users for its Firefox browser alone. Even when extrapolated over all browsers, this still only represents a small percentage of web traffic. Whether this will grow significantly remains to be seen.

There are also technical ways in which websites try to defeat ad-blockers, but this is somewhat of a cat-and-mouse game between developers, with dynamically-updated filter lists and other techniques giving ad-blockers the upper hand. There is also a growing trend of sites asking users (nicely) to not ad-block them.

The robust health of the online ad industry means that any legal battles over browser ad blocking are probably some years away – if they emerge at all. The attention at the moment seems to be on the nascent but potentially critical cases involving other forms of ad blocking – such as the Fox v Dish litigation currently underway in the US:

Also, browser ad blocking is a slipperier target (practically and legally) than what the likes of Dish are attempting.

Update: Slashdot has picked up the article, with lots of interesting comments.

How robust are your escrow arrangements?

My new Computerworld article talks about the “curious beast” of source code escrow:

The collapse of one of Telecom’s software providers Aldous demonstrates that the value of source code escrow is only as good as its implementation. This column looks at the Telecom situation, and outlines key components to a robust escrow arrangement.

One point of clarification is that my reference to “onerous” contracts does not refer strictly to the receiver’s powers, but to the receiver’s role, and if (as often happens) a liquidator is subsequently appointed, then the liquidator has express powers to disclaim onerous property.

The judgment referred to in the article, Telecom New Zealand Ltd v Aldous Ltd (in Rec) [2012] NZHC 1501 is not yet publically available, so I have attached it to this post (download here).

The situation confirms my thoughts about source code escrow a few years ago:

Except for special/high-end situations, code escrow has become increasingly irrelevant and has probably long been more hassle than it’s worth.

The impact of cloud computing / SAAS is also counterintuitive to source code escrow. I expect that data escrow will emerge as the more relevant consideration in the future.

Accreditation risk

A recent case involved a software firm suing the Government for setting accreditation criteria that allegedly put it out of business.

In Integrated Education Software Limited v Attorney General [2012] NZHC 837. The plaintiff company, IES, had provided school management software since the 1980s. By the 2000s, it was one of a number of software providers to New Zealand schools.

Around this time, the Ministry of Education decided to implement interoperability standards for school management software. As the judgment notes:

The overall market was … very fragmented. There were 37 software vendors providing software to the compulsory education market. Most were small. Some were one-man back shed operations. The school software market had grown organically over the decade since 1989 and, although it was almost entirely state-funded, there were no uniform standards or other controls in place to ensure product quality.

… there was also concern within MoE about the variable quality of software packages and after-purchase support. Lack of technical expertise at school management level meant school leaders were often unable to make good choices. Ultimately it was felt that this represented a risk to government in terms of wasted expenditure where software was not up to spec or the vendor company failed.

So the MoE decided to set an accreditation model whereby software packages that met certain requirements would be accredited. A financial incentive would be put in place for schools that used an accredited package.

After some refinement and teething problems with the accreditation criteria, testing was carried in 2005. Seven vendors received accreditation, but IES did not. Users of IES’s software began to migrate to other, accredited vendors.

As a result, IES claimed that the accreditation process had damaged its business:

Although MoE argues that IES was in fact losing clients before the second accreditation round, there can be no doubt that IES’ failure to achieve accreditation did have a significant impact on that company’s fortunes. This occurred at two levels. First, it made it harder for IES to retain existing clients in the face of monetary incentives to change and MoE’s aggressive change campaign. Second, and for the same reasons, it made it more difficult for IES to attract new clients from the pool of 300 schools hunting for a new provider.

IES brought claims against the Government for:

  • Negligence, on the basis that the accreditation process was misconceived and poorly carried out; and
  • Bias / breach of natural justice (s 27 Bill of Rights Act).

Both of these claims (and another) were rejected.

On the negligence claim, the Court found that MoE’s adoption of an accreditation model was a policy matter, in which Courts are traditionally reluctant to intervene:

 The means by which the government is to fund the provision of SMS services to schools so as to ensure proper interoperability and appropriate standards in an era of widespread computer usage is a policy matter… These are questions for officials and politicians not Judges.

It also found that the MoE had no duty of care to IES in formulating and carrying out the accreditation process (it is worth noting that the Court suggested that the “proper footing” for a claim of this nature would have been misfeasance in public office), and considered that key facts were not made out.

On the bias claim, IES pointed to evidence it said showed that the MoE’s accreditation criteria favoured another vendor. The Court disagreed, saying there was no evidence to support an allegation of bias.

Lessons

The case provides an example of regulatory risk for IT vendors, and confirms that the Government has a broad (though not unlimited) ambit to implement standards, accreditation regimes and other policies without judicial interference. It is logical and sensible for a Government agency such as MoE to implement baseline standards (e.g. interoperability requirements) for state-funded schools, and accredit providers meeting the standard to allow schools to make an informed choice. It is unfortunate that IES, for whatever reason, could not or did not get accredited in time (in 2005).

The case does not explain why IES could not alter its software to meet accreditation. Software development is often an expensive and time-consuming process, and many vendors would face financial or resource constraints to significantly update what may be a “legacy” package to meet new requirements (which they may consider to be flawed or inapplicable).

But if IES had been able to update its software before or during the accreditation process (over a period of some months and years), presumably it could have reduced it alleged losses. Whether this could have been alleviated by a different contracting model or business model is unknown.

Tech Law update

I have been blogging less because I am working on a technology & law related project (more information soon). In the meantime:

Online Defamation

Kiwiblog noted an interesting Canadian defamation case (Baglow v Smith) involving defamation on political blog sites:

On 30 August 2011 the Ontario Superior Court of Justice handed down judgment in the case of Baglow v. Smith, 2011 ONSC 5131. The decision suggests that an allegedly defamatory statement made in a debate on a blog or internet forum may not be found to be defamatory if the plaintiff previously engaged in the debate but did not respond to the statement despite having the opportunity to do so.

Canadian law firm Heenan Blaikie has a summary of the case here:

At the risk of over-simplifying the matter, the court’s decision can be summarized as this: there is something meaningfully different about online statements, particularly those which are made on political blogs and discussion forums, which militates that they be treated differently for purposes of defamation law. Put somewhat differently (and, again, with the qualification that this over-simplifies matters): impugning someone’s name on the broadcast evening news is different from impugning their name on a blog.

New Zealand courts give weight to Canadian judgments, and it will be interesting to see whether this case is raised in a New Zealand defamation proceeding in due course.

Amazon’s “one click” patent reaffirmed in NZ

Amazon’s infamous “one click” patent has been reaffirmed in New Zealand by a decision of the Commissioner of Patents, Amazon.Com, Inc v Patrick Ryan Costigan [2011] NZIPOPAT 12 (21 July 2011). The opposition to the patent does seem to have been somewhat quixotic – the opponent was not represented at the hearing, whereas Amazon had a team headed by a QC appear to defend its patent, as well as evidence from US and Australian patent experts. The Commissioner also noted that the patent had been upheld in Australia.

Google cleared in Australian ad-word case

The Australian Competition and Consumer Commission – the equivalent of NZ’s Commerce Commission (but rather tougher, it has to be said) – has lost a case it brought against Google alleging that Google engaged in misleading and deceptive conduct by mixing ads into its search results. The Court also found Google had not breached trade practices law by using (or allowing the use of) competitors’ names and trademarks in sponsored links. The full 73 page judgment is here.

UK Govt asks for Search Engine De-optimisation

Computerworld reports:

Google and other search engines, including Microsoft Bing and Yahoo, will be asked by the UK government to push copyright-infringing websites down their search results under new plans.

Which sounds like it could open a can of worms… The article also notes:

… it is understood that there could be forthcoming legislation, within the Communications Bill, if an industry-run solution is not found.

Which will certainly be a can of worms.

Watch the UK Supreme Court live

In what is understood to be a first, the UK Supreme Court (which in 2009 replaced the House of Lords as the UK’s highest court) now transmits a live coverage of hearings. This is a good step forward for open justice, because while most court hearings are open to the public, they are usually rather inaccessible. The Supreme Court coverage is available here streamed via Sky UK.

High Court action against alleged spammer

The Department of Internal Affairs has issued a press release:

The Department of Internal Affairs’ Anti-Spam Compliance Unit is again taking High Court action against an alleged spammer, seeking financial penalties of $200,000 against the company principal and $500,000 against his company. The Department has lodged two statements of claim in the High Court in Auckland alleging breaches under the Unsolicited Electronic Messages Act 2007 by Brendan Paul Battles and Image Marketing Group Limited.

The latest court application alleges that in February and March 2009 Image Marketing Group Limited and Brendan Battles sent, or caused to be sent, 44,824 SMS (Short Message Service) messages to mobile phones connected to networks in New Zealand operated by Vodafone New Zealand Limited and Telecom New Zealand Limited.

It is alleged that the SMS messages were unsolicited commercial electronic messages with the primary purpose of inviting the recipient to purchase over the internet a mobile phone antenna booster. In its statement of claim the Department alleges the SMS messages contravened section 9 of the Act in that they were unsolicited, section 10 as they did not include accurate sender information and section 11 as they did not contain an unsubscribe facility that could be used by the recipient at no cost.

The reference to the lack of an unsubscribe facility comes on the heels of allegations that Telecom has contravened the Act for the same reason.

The DIA is seeking the maximum penalties – $200K for an individual, and $500K for a company. Hopefully, no spammer makes amounts in excess of these penalties (surely not??) – otherwise they’d still end up in the black!

It will be interesting to see how the claim is framed against Brendan Battles personally, and his company Image Marketing Group Limited. Unless Battles was sending emails in his own right, and not via Image Marketing, issues of the “corporate veil” arise. Such issues are common in commercial litigation. For example, liability under the Fair Trading Act 1986 can attach to company officers, even though they were acting under the veil of the company (see Personal Liability of Directors under the Fair Trading Act, PDF).

However, the anti-spam act contains a specific section covering “third party breaches” (accessory liability), and also includes sufficiently expansive language, to cast the net wide enough to enable personal liability to attach to company officers and employees.

Telecom txt spam – RTFC

Stuff reports that Telecom has been accused of “probably” breaching the anti-spam law:

Internal Affairs is looking into whether Telecom may have breached spam laws by sending text messages to customers that did not include instructions on how customers could unsubscribe from receiving such messages… Victoria University law student Hamish McConnochie drew attention to the texts, promoting Telecom’s pre-pay top-ups and roaming services …

Here’s a quick tip: look at Telecom’s Term’s & Conditions (see below).

The anti-spam law (the Unsolicited Electronic Messages Act 2007) requires certain types of commercial electronic messages to offer an unsubscribe facility. This law is “technology neutral” – it applies to all types of electronic messages, including emails, text messages, instant messages, etc. However, the unsubscribe facility is not needed where there is a “contract, arrangement or understanding” between the sender and receiver not to include an unsubscribe. Telcos are well aware of this law and usually take necessary steps to comply. Telecom argues it has such an arrangement as follows:

Telecom sent customers text messages in November telling recipients that unless they objected then, Telecom would deem they had agreed future text messages from the company need no longer include an opt-out message. Spokeswoman Anna Skerten said those messages created such an arrangement.

A “no response means you accept” text cannot create a contract. However, it is arguable that it could create an “arrangement or understanding” – which are clearly intended to mean something less than a contract or other form of express consent.

But what is unusual is that Telecom’s spokeswoman did not simply refer to Telecom’s mobile service terms and conditions (link is for the prepaid version – others exist). Clause 13(3) states:

From time to time we may send you sales and marketing information about Telecom products and services. You can let us know at any time if you do not want to receive sales and marketing information by contacting Telecom Customer Services

There is no need for messy arguments over whether some text sent last year created an “arrangement”, when there is a contract which clearly applies. Together with Telecom’s “opt-out” text, that would probably suffice (there may be a more specific opt-out in some of the other T&C’s but I’m not going to read them all…) Importantly, Telecom’s T&C’s, like most others, also include a “changes” provision allowing Telecom to modify its terms. So if Telecom decides it needs to change or clarify its T&C’s in response to this reportage, it can do so. It should. Vodafone’s T&C’s are much better, as they clearly state:

You agree that we and our Agents may send you marketing messages, electronic or otherwise, about our special offers, products and Services, and those of our selected Agents and third parties which may be of interest to you. You agree too that the electronic marketing message we, our Agents and third parties send need not include an unsubscribe facility.

Internal Affairs could allege that Telecom’s terms (together with the opt-out text) were insufficient and launch a prosecution. I don’t think it would succeed, and it would probably be a waste of taxpayer money:  the worst outcome for Telecom would be a relatively minor fine that would most likely not cover the costs of a defended prosecution. Also it is highly unlikely that any customer will be able to claim compensation (which requires loss to have occurred).

Finally there is room for argument that under clause 11(2)(a), third-party texts would still not be covered by the telco’s terms & conditions, but that is a separate question.