I have written about the new amendment on the Institute of IT Professionals website. Here’s some other, so-far universally positive, reactions.

Commerce Minister Craig Foss, announcing the amendment:

These changes ensure the Bill is consistent with the intention of the Commerce Select Committee recommendation that computer programs should not be patentable.

Labour IT spokeswoman Clare Curran:

This is a victory for our industry, which is worth around 11% of our GDP.

Institute of IT Professionals (NZ’s largest IT representative body):

The Institute of IT Professionals, New Zealand’s largest IT representative body, strongly supports the Government’s announcement today clarifying that software will not be patentable in New Zealand, removing a major barrier to software-led innovation.

Ian McCrae, CEO of Orion Health – New Zealand’s largest software exporter:

We welcome this announcement… In general, software patents are counter-productive, often used obstructively and get in the way of innovation.

John Ascroft, CIO of leading NZ software company Jade Corporation:

We believe the patent process is onerous, not suited to the software industry, and challenges our investment in innovation.

InternetNZ policy lead Susan Chalmers:

InternetNZ (Internet New Zealand Inc) welcomes today’s tabling of a Supplementary Order Paper (SOP) that makes it clear that computer software is not patentable in New Zealand.

Digital technology business group NZRise:

NZRise are delighted that, after years of representations by the NZ digital community, the Government has agreed not to allow patents on software in New Zealand.

New Zealand Open Source Society:

Commerce Minister Craig Foss’ SOP237 – announced today – demonstrates the government’s commitment to ending software patents in NZ… the vast majority of New Zealand software professionals support blocking software patents and will breath a sigh of relief that the spectre of US-style software patent litigation is now unlikely to affect us here.

Blogger David Farrar:

There had been considerable concern that the previous proposed wording with the “as such” clause could lead to a lack of clarity in the law, and that it might not achieve its intention that software is not patentable. This extra clause provides that clarity and is excellent news from the Government and Minister.

Forbes blogger Reuven Cohen:

In doing this, New Zealand is essentially taking the position that existing laws provides enough protection to software as it is; patents only serve to stifle innovation because of the ever-looming threat of being sued by so-called patent troll companies.

Glyn Moody covers the story at TechDirt:

… let’s hope it means that the latest wording won’t need changing again, and that the updated bill banning software patents finally gets passed.

It has also popped up on Slashdot.

Last week I presented at the Ernst & Young / E-Discovery Consulting “Managing eDiscovery in New Zealand” conference in Auckland.

The slides for my presentation, “Document Review: Getting, preparing & reviewing data under the new High Court Discovery Rules” are here:

Judge David Harvey gave the keynote presentation, and has also put up his slides:

Adobe appears to have bowed to public pressure and cut the price of some of its products – a day after being summonsed to the parliamentary commission investigating the rorts. Adobe had earlier refused to attend voluntarily, which seems a rather strange strategy when you know the result will be a parliamentary summons. Whether the timing of the cuts will help the company in the inquiry or be construed as an admission of guilt remains to be seen, but the timing suggests an attempt to stave off some criticism.

It seems that the price cuts apply to New Zealand customers too, which is only sensible given the proximity of the markets and the fact that New Zealand authorities have signaled they are watching the Australian inquiry with interest.

There is no doubt that New Zealand (and Australian) consumers have been paying far more for identical software delivered via the internet. Australians have seen prices for some digital products stay well above pricing for US customers even as the AUD  exceeded parity with the greenback. It is getting technically harder for companies to enforce regional pricing differentials, and also harder to justify to consumers.

Ironically, when I had to buy Adobe Acrobat last year I was able to pay far less than the online price by buying it (from all places) at Warehouse Stationery. It was the first time in probably 10 years that I had bought software in a box, and will probably (hopefully) be the last! The boxed version was exactly the same software as offered via Adobe’s online store, but much cheaper, even with GST added.

I reiterate that companies should be free to set whatever prices they want (subject to competition laws), but it is good that they can be held accountable by public pressure, competition, and light-handed oversight such as the Australian parliamentary inquiry, which in this case at least has already prompted a voluntary response.

In comments to the NZ Herald last week, Foss said this:

The “as such” limitation ensures that computer programs cannot be patented.

Likewise, in a letter dated yesterday, Foss said:

… I would like to further reassure you that the “as such” wording will not lead to computer programs continuing to be patentable in New Zealand.

… the “as such” wording …. will mean that computer programs will no longer be patentable in New Zealand.

So there we have it: clear, emphatic assurances from the Minister in charge of the Patents Bill that following passage of the new law (as amended by Mr Foss), computer programs will no longer be patentable in New Zealand. Which is great, right? After all, isn’t this what New Zealand software developers have overwhelmingly demanded?

Well yes, but the problem is that Minister Foss’s latest assurances contradict his earlier comments that his “as such” amendment would create a legal “grey area“ and allow “hundreds of software patents” to continue to be granted in New Zealand. It also confirms that Minister Foss is squarely at odds with leading IP lawyers who have said that his “as such” amendment will allow software patents.

It will surely also leave members of pro-software patent multinational group NZICT scratching their heads. Following Minister Foss’s “as such” amendment to the Patents Bill last year, NZICT CEO Candace Kinser told her members this:

You may have seen the press release that NZICT generated two days ago voicing support of Hon Craig Foss’ announcements to progress the stalled Patent Bill amendments. Included in this announcement was the decision to allow computer programs as patentable.

So NZICT was happy because they thought Foss had decided to allow software patents. Let’s contrast that with Foss’s recent public assurances about the new Patents Bill:

• The “as such” limitation ensures that computer programs cannot be patented. – Minister Foss, 5 February 2013
• … the “as such” wording will not lead to computer programs continuing to be patentable in New Zealand – Minister Foss, 12 February 2013
• … computer programs will no longer be patentable in New Zealand  – Minister Foss, 12 February 2013

The Minister’s assurances are the polar opposite of what NZICT claimed last year. So it is clear that much confusion has arisen as a result of the Minister’s last-minute amendment to the Bill. But Minister Foss has now clearly stated (even “ensured”) that computer programs will not be patentable under the new Patents Bill. The onus is therefore on Minister Foss to clear up this situation once and for all, for the benefit of everyone.

Of course, the best way of doing so would be to drop his “as such” clause which sparked all this confusion in the first place. But if the Minister isn’t willing to do so (for whatever reasons), then the least the Minister can do is answer the following very simple questions, which I will add as “supplementaries” to my list of 10 questions for the Minister.

Supplementary to the Minister:

1. Does the Minister stand by his statement in the New Zealand Herald on 5 February 2013 that “The ‘as such’ limitation ensures that computer programs cannot be patented“?
2. Does the Minister stand by his statements in a letter dated 12 February 2013 that “the ‘as such’ wording will not lead to computer programs continuing to be patentable in New Zealand” and “computer programs will no longer be patentable in New Zealand“?
3. Can the Minister confirm that those statements accurately reflect the intention of the Patents Bill as it relates to patents for computer programs?
4. Does the Minister agree with the claim by the CEO of NZICT that the intention or effect of the Patents Bill is to “allow computer programs as patentable“.
5. If the Government will not remove the ‘as such’ clause from the Patents Bill, then will the Minister at least include in the explanatory note the statement that he made to the New Zealand Herald on 5 February 2013, that “The ‘as such’ limitation ensures that computer programs cannot be patented.”; and if not, why not?

To the Minister:

1. Is the Minister aware that legal experts have said that his last-minute “as such” amendment to the Patents Bill (SOP 120) reverses the exclusion of software patents as unanimously recommended by the Commerce Committee, and will result in “no real change in the law“?
2. Why has Minister changed the Patents Bill in a way that, by his own admission, creates a “grey area” that will allow “hundreds of software patents” to continue to be granted in New Zealand?
3. What benefit does the Minister see in deliberately introducing a “grey area” into important legislation, in particular in the much-litigated field of software patents which are causing so much harm overseas?
4. Given that New Zealand software developers have overwhelmingly rejected the Minister’s amendment to allow software patents, and given that the previous Minister had confirmed that the original software patent exclusion would not be altered, in whose interest was the current Minister acting by amending the Bill to allow software patents to continue?
5. Does the Minister accept that his last-minute change to the Patents Bill to allow (in his own words) “hundreds of software patents” is inconsistent with the unanimous recommendation of the Commerce Committee to exclude software patents (a recommendation which the previous Minister had said would not be changed), and why did he not refer the matter back to the Committee for proper consideration?
6. Is the Minister aware of the numerous reports and studies confirming that software patents harm innovation and are “sapping billions out of the economy and crushing technology startups“, and if so, why has he amended the Patents Bill to allow software patents to continue to be granted in New Zealand?
7. Why is the Minister ignoring calls from New Zealand’s IT industry, including the Institute of IT Professionals, InternetNZ, NZRise, NZ Open Source Society, and over 1,200 signatories to an industry petition, to protect New Zealand from the threat of software patents by removing his “as such” amendment to the Patents Bill?
8. Is the Minister aware that an October 2010 MED report advised that no software patent exclusion, anywhere in the world and in any form, had ever been found to breach the TRIPS agreement, and that “there is no obligation for TRIPs signatories to provide patent protection” for software inventions; and if so, why has the Minister claimed that the “as such” amendment is necessary to compliance with TRIPS?
9. Can the Minister give any assurances whatsoever to New Zealand software developers and software users that they will not be threatened or harmed as a result of any software patent granted in New Zealand under the new Patents Bill; and if not, why?
10. Can the Minister confirm that the Government will provide financial assistance to help New Zealand software developers or software users defend against any future lawsuits brought by the holder of a software patent granted under the new Patents Act?

Sgt Schultz sees nothing, not even copyright infringement

“I think Mega is using encryption not for the security of their users but their own personal legal protection,” Woodward added.  “I cannot imagine anyone who understands encryption would trust their precious data to Mega’s scheme as it currently stands. It would appear that Mega is after people who are looking for somewhere to store their data with a provider who wishes to adopt a position of ‘see no evil’.”

- Alan Woodward, from the Department of Computing at the University of Surrey

The most touted aspect of Kim Dotcom’s new Mega site is its encryption – but this feature is said to be as much for Mega’s protection as for its users:

According to Dotcom, Mega has a sophisticated encryption system which will allow users to encode their files before they upload them onto the site’s servers, which Dotcom says are located both in New Zealand and overseas…

As a result, the site’s operators would have no access to the files, which they say would strip them from any possible liability for knowingly enabling users to distribute copyright-infringing content.

Any allegation of copyright infringement against Mega would presumably be met with a response along the lines of “I see nothing!” due to Mega’s claimed (and self-imposed) inability to access the user-encrypted files.

But is it that simple to avoid prosecution for copyright infringement – by simply “seeing no evil”? In a word, no: though a lack of actual knowledge can make prosecution more difficult, a person may still be liable on the basis of constructive knowledge of infringing material. For example, section 36(a) of the Copyright Act 1994 states:

Copyright in a work is infringed by a person who, in New Zealand, other than pursuant to a copyright licence … possesses in the course of a business … an object that is, and that the person knows or has reason to believe is, an infringing copy of the work.

On the issue of constructive knowledge in copyright cases, Justice Smellie said in Husqvarna Forest & Garden Ltd v Bridon NZ Ltd [1997] 3 NZLR 215:

Constructive knowledge is appropriately imputed in other areas of law, if a party wilfully closes its eyes to the obvious or wilfully fails to make those inquiries that an honest and reasonable person in the circumstances would have made.

Thus, adopting a “see no evil” approach does not provide a free ride over copyright law.

In some cases the inability to access stored files will actually make it harder to gain protection from “safe harbour” provisions designed to protect service providers. In New Zealand, section 92C of the Copyright Act 1994 provide such safe harbour protection. However, this protection does not apply where the website:

… does not, as soon as possible after becoming aware of the infringing material, delete the material or prevent access to it.

This requirement does not apply only where the website has actual knowledge of copyright infringement; it also applies where there is “reason to believe” (i.e. the constructive knowledge test mentioned above) that there is copyright infringement. In either case if, having received a complaint, the website does not delete or prevent access to the allegedly infringing material, they will potentially lose the legal protection the section affords.

The new Mega has a top legal team behind it – it claims to have “the most legally scrutinsed business plan in start-up history”, and the old saying about Telecom being a law firm with a large IT department comes to mind – and to be clear Mega is not, to my knowledge, betting the legitimacy of its site solely on the “see no evil” basis described by some media. Lead adviser Ira Rothken makes the comparison with the early legal challenges mounted against the VCR, in which Hollywood studios claimed that VCR’s facilitated copyright infringement:

Rothken responds that many technologies have dual uses, but on balance provide more public good. That’s how the VCR stayed on the market, despite facilitating video piracy. The same argument applies to cloud computing as a whole, he says.

Rothken is referring to the famous decision in which the US Supreme Court ruled (5-4) that VCRs were lawful because even though they could be used to break the law, they had significant non-infringing uses. It is perhaps a stretch to apply that to cloud computing as a whole, but certainly an argument can be made. In New Zealand there is also the availability of section 92B of the Copyright Act, which states (in part):

Merely because [a person] uses the Internet services of the Internet service provider in infringing the copyright, the Internet service provider, without more, does not infringe the copyright in the work…

The scope of this section, and what “without more” means in each case (including in relation to relatively new legal scenarios such as Mega raises), are the key questions and ones on which international case law and evidence will likely be relevant.

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:

• Fox sues Dish over ad-blocking feature; Dish fires back
• Fox Seeks Ban on Dish’s Ad-Skip Feature Pending U.S. Trial
• Fox denied injunction against Dish ad-skipping service

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.

TUANZ CEO Paul Brislen has written a thought-provoking article on the prospects of turning New Zealand into a data haven. There’s a lot going for the idea, but as Paul notes, there are a couple of stumbling blocks, one of which is the legal situation:

The final problem then, is the legal situation. We would need to become the neutral ground, the data Switzerland if we’re to gain their trust. Publicly adhered to rules regarding data collection and retention. Privacy built in, access only under the strictest conditions.

It would indeed require some law changes to become a “data Switzerland” where, as Paul envisages, “we treat bits as bits and that’s that”, and don’t allow the Armed Offenders Squad to swoop in with helicopters if someone uploads the latest series of Mad Men.

Exactly what those laws would be is a huge kettle of fish: privacy rights, intellectual property rights, safe-harbour provisions, search-and-seizure, criminal and civil procedure, etc. But putting aside the content of those laws (and their desirability), it is worth noting that New Zealand is in a somewhat disadvantageous situation in one respect vis-a-vis most other countries. Whilst New Zealand ranks as one of the most politically stable, corruption-free, and rule-of-law-abiding countries – ideal attributes for a data haven – we are in the very rare category of countries that are both:

• Unicameral, unlike Australia, the UK, the US, Canada, most of the EU, Japan, India, and others; and
• More importantly, have no written constitution that entrenches rights, limits Government power, and can strike down non-compliant laws. Only a handful of countries (notably including the UK) are in this category (and this is putting aside Treaty of Waitangi complications).

By my quick reckoning, the only other country with both of the above attributes is Israel.

What this means for us, as Sir Geoffrey Palmer wrote many years ago, is that whoever is the current Government of the day has unbridled power. Theoretically, there are little if any limits on what can be passed into law – all it takes is a 1-vote majority in the House of Representatives. This includes major constitutional change and retrospective law. For example, in the past decade-and-a-bit we have seen a Government change New Zealand’s highest Court from the Privy Council to a new domestic Supreme Court on a narrow majority, and retrospectively amend the law (also on a slim majority) to keep a Minister in Parliament – both things that may may well have faced constitutional challenge in other countries, but here were able to be effected with the same legislative ease as amending the Dog Control Act.

What’s this got to do with becoming a data haven? Well, it means that we cannot give the highest level of assurance that a future Government won’t do certain things that might undermine our data haven credentials.

For example, being a true data haven would presumably mean strong freedom of speech laws. You would want a reasonable assurance that a data centre would not be forced to hand over or delete data due to hate speech laws (present or future), except perhaps in the very strongest cases. New Zealand does have its peculiar Bill of Rights Act covering matters such as free speech, but this does not limit parliamentary power – in fact, Parliament regularly tramples various provisions of the Bill of Rights Act, with the only requirement for doing so being that the Attorney-General must inform the house. Nor does it prevail over inconsistent Acts: if another Act removes or abrogates a right, then the Bill of Rights Act doesn’t change that. So Parliament could potentially pass a law, on the slimmest of margins, that limits freedom of speech. This is not as far-fetched as one might think in an “open and free” democracy: the process is well advanced in the UK, where people face arrest and criminal prosecution for making statements considered by the authorities to be “insulting” (such as calling a police horse “gay”). Could this extend to limiting free speech (or content) hosted in data centres? There is nothing that says it can’t, or won’t.

Compare this with the US, where most of the internet’s infrastructure, governance and data centres are located. The federal Consitution provides the highest protection possible against Government limitation of free speech. Now this obviously does not (and is not intended to) stop situations like a US federal agency shutting down Megaupload and seizing data, in that case partly on the basis of alleged intellectual property infringement. But at least the limits on what the US Government can do are constitutionally defined and proscribed.

This issue is obviously much broader than data centres, but it does highlight the question: is it acceptable, in the information age, for there to be no effective limits on Government power over our information?

Legal battles over patents dominate the tech industry headlines. It’s not only Apple-versus-Samsung — smaller technology companies are frequently being trampled by patent trolls. As I’ve explained before, because of flaws in the patent system and government leaders’ misunderstandings, there is an arms race of sorts happening in the tech industry, which is sapping billions out of the economy and crushing technology startups. The larger technology companies have invested fortunes in their patent portfolios. But senior executives have said to me privately that they would rather disarm than waste the time and money they presently do on patent wars.

And with good reason. Evidence of the harm caused by software patents continues to mount, including a recent report from the Congressional Research Service that discusses the harm caused by the subversion of the patent system from a shield into a sword by “patent assertion entities”, a practice largely prompted by software patents:

First, patent litigation is expensive, and there is no quick or affordable way to get rid of a patent suit except to settle. Defendants frequently find settlement the most cost-effective option, even if they are certain that they are not infringing…

Second, where injunctive relief is available to PAEs, what commentators call the “patent holdup” problem arises as PAEs leverage the threat of an injunction in royalty negotiations to “capture far more than the intrinsic value of their invention.” Those wielding this power have described it as a “Damocles sword.” Patent holdup is said to be particularly acute in the IT sector because products incorporate dozens or even thousands of patented features or components, and the owner of any one of them can keep the entire product off the market…

Third, by contrast to their targets, PAEs have nothing to lose and much to gain by litigating aggressively. Unlike most other patentee-plaintiffs, PAEs pursuing infringement suits “do not risk disruption to their core business” because “patent enforcement is their core business.”

Even Jeff Bezos, head of Amazon which famously patented its 1-click buy-now technique, last month spoke on the need for reform (rather more decisively than last time):

Patents are supposed to encourage innovation and we’re starting to be in a world where they might start to stifle innovation.

There was some limited reform during President Obama’s first term, although even that was the result of a seven year struggle. The chances of substantial reform in the next 4 years must be slim.

“32A Contract formation

An offer that can be accepted by electronic communication is deemed to be accepted at the time of receipt of the acceptance by the offeror.”

Which simply confirms the general law that is presumed to apply anyway. The only exception is the old postal acceptance rule, which says that a contract is formed as soon as acceptance is posted in the mail (which could be several days before the offeror hears about the acceptance). There has been occasional talk over the years about whether the postal acceptance rule should extend to online scenarios – it’s good law school fodder – but the prevailing view is it should not. The issue was briefly considered in a 2009 Australian Federal Court case, Olivaylle Pty Ltd v Flottweg GMBH & Co KGAA (No 4) [2009] FCA 522, in which the judge concluded in effect that the postal acceptance rule should not apply to acceptance by email.

So it will be perhaps somewhat nice to have this confirmed, but having such an anodyne and relatively trifling Bill in the Members’ Ballot does raise the prospect of (smart) “ballot stuffing” by Government MPs, to reduce the chances of more controversial bills, such as same-sex marriage or euthanasia bills, being drawn!