Software Patents: 10 questions for the Minister

The Patents Bill is now hovering near the top of the Order Paper, and looks set to be voted on in coming weeks. While most of the new law is a Good Thing™, unfortunately the Government continues to ignore the calls from New Zealand’s local IT industry to undo its last-minute botch-up of the Bill and exclude software patents. Here’s a list of questions for Commerce Minister Craig Foss, whose one-line change to the Bill has so upset the local IT industry.

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?

Mega and the Sgt Schultz approach to copyright law


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.

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.

Data havens and the constitution

Guest posted on the TUANZ blog.

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?

Silicon Valley’s demand for Obama’s second term: abolish software patents

Vivek Wadhwa, a technology entrepreneur and academic, writes in the Washington Post about what Silicon Valley tech firms – major Obama donors – want from President Barack Obama’s second term. Number 5 on the wish-list is a ban on software patents:

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.


Electronic Transactions Act (Contract Formation) Amendment Bill

A Bill to confirm that standard offer-and-acceptance principles applies to electronic contract formation has been drawn from the Members’ Ballot. It is the Electronic Transactions Act (Contract Formation) Amendment Bill, in the name of National MP Paul Goldsmith. The operative provision of the Bill reads:

“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!