Law and technology

Justice Minister Simon Power had a day of two halves yesterday. The good: he announced a crackdown on the legal aid system (the Criminal Bar Association is “appalled” at the changes, so they must be good). The bad: he announces that Parliament was to rush through the Copyright (Infringing File Sharing) Amendment Bill under urgency.

While the Bill is being passed under urgency  – with the reason for the indecent haste unexplained and unjustified – it will have an easy ride through, with 111 of 122 MPs voting for it. Only the Greens, Chris Carter and Hone Harawira opposed passing the Bill under urgency. The move was supported by National, ACT, the Maori Party, United Future, Labour and Progressives.

So the substance of the Bill was uncontroversial for most MPs, despite some semantic gymnastics from Labour MPs attempting to explain why they originally supported it in harsher form than present, then opposed a more reasonable version, and are now supporting it again.

There is no question that the use of urgency for this Bill is an abuse of process. The file sharing reforms have kicked around for several years, since controversy erupted after first being introduced (in more draconian form) by the previous Labour Government. There is no explanation for the sudden need to race it through now.

It is also clear that some MPs still have a poor understanding of the issues. For example, in the House last night National MP Katrina Shanks made bizzare comments suggesting that any file sharing was illegal, and that people who choose to install file-sharing software on their computers must be doing so to infringe copyright. I just so happened to be downloading the latest version of LibreOffice using µTorrent when she said that…

On the substance of the bill, there is no question that it is a substantial improvement over the original proposal. In particular, the original draconian termination provision is now only available to a Court, and only if the judge considers:

“suspension of the account holder’s account is justified and appropriate in the circumstances, given the seriousness of the infringing”

This and other changes mitigate much of the “guilt on accusation” stance of the original Bill (and I do wonder whether many of the Twitterati realise this, given some of the incorrect and alarmist comments flying around), although it remains less than ideal.

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.

The recently-enacted Privacy (Cross-border Information) Amendment Act 2010 improves New Zealand’s privacy framework, but also highlights the challenges to privacy caused by the internet. The new law amends the Privacy Act 1993 in 2 main ways:

• It strengthens cross-border privacy co-operation by providing for the referral (by the Privacy Commissioner) of complaints to overseas authorities; and
• It establishes a “mechanism for controlling the transfer of information outside New Zealand where the information has been routed through New Zealand to circumvent the privacy laws of the country from where the information originated” – so, an anti-circumvention measure.

The cross-border co-operation provision is a small but good step. There are ongoing international privacy initiatives, such as the recent APEC Cross-border Privacy Enforcement Arrangement, and an essential aspect of any international arrangements is the ability for local authorities to interact with their foreign counterparts.

The anti-circumvention measure also assists in this regard, to prevent New Zealand being seen as a “privacy haven” – one that permits “data laundering” if you will . As the Privacy Commissioner Marie Shroff says:

Ensuring that European business and regulators see New Zealand as a safe place for information processing is important for New Zealand’s reputation.

The anti-circumvention measure was added as Part 11A of the Privacy Act 1993. Section 114B(1) states:

The Commissioner may prohibit a transfer of personal information from New Zealand to another State if the Commissioner is satisfied, on reasonable grounds, that:

(a) the information has been, or will be, received in New Zealand from another State and is likely to be transferred to a third State where it will not be subject to a law providing comparable safeguards to this Act; and

(b) the transfer would be likely to lead to a contravention of the basic principles of national application set out in Part Two of the OECD Guidelines and set out in Schedule 5A.

This provision will be useful, for example, to help promote New Zealand data centres hosting data for overseas clients. New Zealand firms who do host or receive data from overseas (it does not apply to New Zealand-sourced data) should have processes in place for ensuring that the “transfer” of data out of New Zealand can be halted if required by the Privacy Commissioner issuing a transfer prohibition notice.

But in the age of cloud computing, are things that clear-cut? Often, the cloud (or the internet in general) makes it hard to know just where data is located. A New Zealand firm may receive data from overseas, and “host” that data in its facilities, but if the New Zealand provider itself uses cloud-based storage, what appears to be data being hosted in New Zealand may in fact be hosted overseas again. A key benefit of cloud computing is that providers can (in theory) transfer data anywhere in the cloud seamlessly. Data can be divided to multiple places at once, and be transferred without notice at about the speed of light. In these situations, who on earth will know what information is where? All of which makes the language of section 114B(1) – “if information has been, or will be, received in New Zealand from another State” – sound rather quaint, as if they are dealing with courier packages.

The challenges of privacy controls in the cloud-era are well known. Just how much regulation is ultimately attempted, necessary or desirable remains to be seen, bearing in mind that most users are willing to trade privacy for functionality.

Consumer guarantees & online auctions

The Government is now accepting submissions on its reform of the Consumer Guarantees Act, which will extend standard consumer protections to online auction sites such as TradeMe. The proposed text is as follows:

Supply by auction or competitive tender under subsection (3) does not include supply of goods and services by a supplier through a competitive bidding process using an online trading facility.

This will be a welcome change for consumers, and one I expect will be supported by many retailers.

Jailbreaking iPhones deemed legal

The US Copyright Office has ruled that jailbreaking (or unlocking) iPhones or other devices does not infringe copyright law. This clears the way (for now at least) for consumers in the US to legally use third-party tools to install  “unsanctioned” apps on their devices. To date, Apple has kept a very tight grip on which apps can – and cannot – be installed on iPhones (all via its official AppStore). Jailbreaking involves removing or bypassing Apple’s built-in restrictions that prevent unauthorised apps from being installed. Apple (and others) have argued that this breaches copyright law, by bypassing DRM restrictions and unlawfully modifying their code (similar in some ways to the “technological protection measure” provisions in New Zealand’s Copyright Act 1994). Proponents claim that jailbreaking is fair use.

The matter will not end here. Given the revenue involved it is likely to be a contentious issue for years to come. The US Copyright Office is not a Court, so its ruling is susceptible to legal challenge. Also, jailbreaking is still a breach of the iPhone’s EULA:

“You may not and you agree not to, or to enable others to, … modify … the iPhone Software or any services provided by the iPhone Software …”

However the enforceability of such a provision is greatly limited, and in practice largely useless if jailbreaking software and service providers become mainstream.

s92A rolls on

IT lawyer Rick Shera blogs on the New Zealand Law Society’s submission on s92A of the Copyright (Infringing File Sharing) Amendment Bill. He notes the Society’s recommendation that the Bill “should be amended to provide the Court with the power to order that the account holder may not open an account with another ISP during the period of any suspension”. That the existing Bill does allow someone to simply get another account could be seen as a loophole – but part of the reason why I have always thought disconnection was a red herring. In any case, the Law Society’s proposed change is simply draconian.

The Government has cleared up the recent uncertainty about software patent reform by confirming that the proposed exclusion of software patents will proceed. A press release from Commerce Minister Simon Power said:

“My decision follows a meeting with the chair of the Commerce Committee where it was agreed that a further amendment to the bill is neither necessary nor desirable.”

During its consideration of the bill, the committee received many submissions opposing the granting of patents for computer programs on the grounds it would stifle innovation and restrict competition… The committee and the Minister accept this position.

Barring any last-minute flip-flop – which is most unlikely given the Minister’s unequivocal statement – s15 of the new Patents Act, once passed, will read:

15(3A) A computer program is not a patentable invention.

Lobbying

It is clear that the lobbying by pro-software patent industry group NZICT was unsuccessful, although Computerworld reports that its CEO apparently still holds out hope that “[IPONZ] will clarify the situation and bring this country’s law into line with the position in Europe and the UK, where software patents have been granted”. Hope does indeed spring eternal: the exclusion is clear and leaves no room for IPONZ to “clarify” it to permit software patents (embedded software is quite different- see below).

As I wrote earlier, it remains a mystery as to why NZICT, a professional and funded body, failed to make a single submission on the Patents Act reform process – they only had 8 years to do so – but instead engaged in private lobbying after the unanimous Select Committee decision had been made. It also did not (and still does not) have a policy paper on the subject, nor did it mention software patents once in its 17 November 2009 submission on “New Zealand’s research, science and technology priorities”. It is not as though the software patent issue had not been signalled – it was raised in the very first document in 2002. Despite this silence, it claims that software patents are actually critical to the IT industry it says it represents.

The New Zealand Computer Society, on the other hand, did put in a submission and has articulated a clear and balanced view representing the broader ICT community. It said today that “we believe this is great news for software innovation in New Zealand”.

Left vs right?

Is there a political angle to this? While some debate has presumed an open-vs-proprietary angle (a false premise) some I have chatted with have seen it as a left-vs-right issue, something Stephen Bell also alluded to (in a different context) in this interesting article.

Thankfully, it appears not. The revised Patents Bill was unanimously supported by the Commerce Committee, comprising members National, Labour, Act, the Greens, and Maori parties. It reported to Commerce Minister Simon Power (National) and Associate Minister Rodney Hide (Act). Unlike the previous Government’s Copyright Act reform, post-committee industry lobbying has not turned the Government.

What about business? NZICT apart, the exclusion of software patents has received the wide support of the New Zealand ICT industry, including (publicly) leading software exporters Orion Health and Jade, which as Paul Matthews notes represent around 50% of New Zealand’s software exports. The overwhelming majority of NZCS members support the change. Internationally, many venture capitalists and other non-bleeding-heart-liberal types have spoken out against software patents, on business grounds.

Some pro-software patent business owners might be miffed at a perceived lack of support from National or Act, perhaps assuming that software patents are a “right” and are valuable for their businesses. The reality is that only a handful of New Zealand companies have New Zealand software patents (I did see a figure quoted somewhere – will try to find it). Yes, they can be valuable if you have them but that is a separate issue (and remember, under the new Act no one loses existing patents). A capitalist, free market economy (and the less restrictive the better) abhors monopolies, and this decision benefits the majority of businesses in New Zealand. Strong IP protection is essential in modern society – including patents – (see my article “Protecting IP in a post-software patent environment“) but the extent of statutory protection when being reviewed will always come down to a perceived balance, not just for the minority holders of a patent (a private monopoly) but for the much larger majority artificially prevented from competing and innovating by that monopoly.

I have always taken pains to note, like NZCS, that there are pros and cons to software patents. And I am a fan of patents generally. Patents are good! But for software patents, the cons outweigh the pros. There are sound business reasons to exclude them. This specific part of the reform targets one specific area, has unanimous political party support (how rare is that?), and wide local business support. The last thing it can be seen as is an anti-business, left-wing policy (if it was, I’d have to oppose it!)

Embedded software

Inventions containing embedded software will remain, rightly, not excluded under the Patents Bill. Minister Power confirmed that IPONZ will develop guidelines for embedded software, which hopefully will set some clear parameters for applicants.

Software is essential to many inventions, and while that software itself will not be patentable, the invention it is a component of still may be. Some difficult conceptual issues can arise, but in most cases I don’t expect difficulties would arise. This “exception” (if it can be described as such) will not undermine the general exclusion for software patents.

Reports are emerging that the proposed ban on software patents may be dropped. There are certainly a small number of organisations and lawyers who were most upset by the proposal – including NZICT, who apparently instigated the lobbying effort to reverse the change – although it appears to have received broad industry support.

It is too early to tell whether the reported comments of Ministry of Economic Development officials represent Government policy. If they do, it would represent a significant change from the Government’s earlier position as stated publicly by senior Ministers and MPs following the Select Committee report.

It would not be a major surprise, though, for the final bill to be substantially “tweaked”. The proposed exclusion came as a surprise to many, including some who had submitted in favour of it. The fact is there is not a large “anti-software patent vote”, and the Government is not going to upset too many people (relatively) over such an arcane technical issue. For those reasons, the proposal was always susceptible to lobbying.

The suggestion is that the ban might be scaled back to the lesser, “somewhat restricted” position of the European Union – the MED’s view being that if something is patentable in the EU it should be patentable here. There is merit in that suggestion, although in the US and the EU software patents are contentious and somewhat in flux themselves.

Whatever the final outcome is – banned, allowed, or restricted – it is hoped it will at least provide clarity for the market (and not just opporunities for lawyers!). Many of the alleged problems with the current system arise from uncertainty and loopholes. The new law is an opportunity to establish a clear framework for the future. It is also hoped that an explanation for any departure from the Select Committee’s unanimous report (if indeed that occurs) is provided.

The Ministry of Consumer Affairs has released a discussion document on the proposed reform of New Zealand’s consumer law. One of the areas to be addressed is online auctions. Issues include whether online auctions should be regulated in some form, and whether the Consumer Guarantees Act should apply to goods and services bought via online auctions.

Regulation of online auction

A preliminary (and, lets be honest, entirely academic…) issue raised in the document is whether online auctions are presently subject to the Auctioneers Act. The document says no, on the basis that the Act only applies to auctions “by outcry”, which is defined as 6 people being physically present:

The reference to “outcry” in the beginning of the definition [of "auction"] applies to the various different auction methods referred to in the definition.

Based on that conclusion the documents goes on to say “the Auctioneers Act definition of auction only applies to auctions where it is possible for the bidders to be physically present with the auctioneer”. I take a different view from the good people at the Ministry. As I wrote previously, in my view “outcry” is not a necessary part of the definition:

there does not appear to be any reason … why the words “by outcry” must apply to the entire definition [of auction] while the other sub-clauses of the definition are read as alternates. Furthermore, to do so would limit the final key words “or where there is a competition for the purchase of any property in any way commonly known and understood to be by way of auction.” These final words are clearly a catch-all intended to prevent anything “commonly understood to be an auction” from being inadvertently excluded by the definition.

So my view is that online auctions are currently covered by the Auctioneers Act (which, as I said, is entirely academic). However, I also noted the craziness that online auctions should be “subjected to rules formulated decades ago and premised on a traditional, physical auction process”.

The fact is that specific regulation of online auctions is not currently enforced. Nor is it not necessary. Practical enforcement would be difficult. The UK, New South Wales and Victoria (among others), get by quite well without special legislation covering online auction providers. Hopefully, our new law will clearly exempt online auctions and other forms of e-commerce from unnecessary red tape.

Consumer Guarantees Act

The reform will also address the perennial issue of whether the Consumer Guarantees Act (or whatever its replacement will be) should apply to online auctions. There is no doubt that, generally, the same rules should apply for online “buy now” sales as for bricks-and-mortar sales. But what about online auctions?

The document says that whether online auctions are presently covered by the Consumer Guarantees Act is a “grey area”. But in my view there has never been much doubt: online auctions, if they are in fact conducted as an “auction” with bids etc, are not covered by the Consumer Guarantees Act (Trade Me probably wisely leaves it open for now). However the document gives a strong indication (for a discussion paper) of the preferred view:

There would appear to be justification, accordingly, to clarify that Trade Me style auctions should not be exempted from the Consumer Guarantees Act.

That would be a very sensible proposal, and my bet is this will be an outcome of the review. There will likely be some push-back from Trade Me-exclusive dealers, but most medium/large retailers (who also operate bricks-and-mortar shops) will support it. They already have full consumer obligations for all goods and services sold in their stores and online (non-auction style). So does every corner dairy and most small mum-and-dad shops. There are too many stories of shonky internet-only dealers who are only too happy that they are exempt from the consumer protection obligations that all these other retailers have. Trade Me does a great job in helping out where it can, but the answer is simple: close this unintended loophole. And it doesn’t create more red tape – it simply levels the playing field between dealers and simplifies the consumer protection regime.

Note that the proposal is not to extend the CGA to private online sellers and auctions. As per the current law, it will only apply to sellers “in trade” – i.e. shops, retailers and dealers.

Legislation website upgrade

The excellent New Zealand Legislation website is to be upgraded over the next few years to improve search functions, among others. A welcome addition will be more historic legislation being made available online.

Aussie internet filter to go ahead

The Australian government is pushing on with its daft mandatory internet filter. New Zealand is currently trialling a similar scheme, but no plans have been announced to make it compulsory. Certainly, while IT-savvy Steven Joyce is ICT Minister this is unlikely to change. The good news is that we will have the benefit of watching how the Australian scheme goes before launching our own (which would have been a great approach for the ETS too…)

Software audits

A local report mentions “rumours” that Microsoft is taking a more aggressive stance on licence compliance audits. While some people typically react with alarm over such suggestions, basic auditing is quite reasonable, and Microsoft is within its rights to do so. It is important for commercial software firms whose revenue base can be substantially undermined otherwise. In my experience, Microsoft is very reasonable about how it approaches these things (a certain “licensing adviser / salesperson” I once dealt with was a different matter, although she was independent of Microsoft).

Turn left at “common sense”

In the US (of course) a woman is suing Google after she followed its maps into traffic:

When Google Maps’ walking directions instructed Lauren Rosenberg to walk along a very busy highway with no pedestrian walkway, she followed the directions exactly. Unfortunately, she was hit by a car in the process.

I wonder if she applies the same unquestioning adherence to her car navigation system?

A New South Wales appeals court has ruled that downloaded software is not “goods” under that state’s Sale of Goods Act (not dissimilar to New Zealand’s act of the same name). Case link: Gammasonics v Comrad Medical Sysytems [2010] NSWSC 267. Interestingly, the ruling means that software bought over the counter would be included as “goods” (and be covered by statutory guarantees), but the same software downloaded over the internet would not be.

A while back I discussed the consumer liability of software developers in this country. In essence, New Zealand’s Consumer Guarantees Act has, since 2003, included “software” in the definition of goods, which means that (consumer) software receives the same consumer protections as other consumer goods. One thing I didn’t mention was that software is also “goods” under the Sale of Goods Act 1908. In fact, this change was implemented at the same time that software was expressly included in the Consumer Guarantees Act.

The New South Wales version of that act does not mention software, and the New South Wales Supreme Court ruled that downloaded software – not having any tangible element – could not be “goods” falling within the act. However, software provided on physical media would constitute “goods”, because the necessary tangibility is present.

This does result in an inconsistent and illogical state of affairs, but one which will soon be partially corrected. The Australian consumer protection laws (similar to New Zealand’s Consumer Guarantees Act) is soon to be overhauled, and as part of the update, software will be specifically included as “goods”.

One point of interest is that the New Zealand amendments in 2003 which expressly added “software” to the definition of goods, only added software “to avoid doubt“.  (The phrases “to avoid doubt” and “for the avoidance of doubt” are common in legal documents, although mildly controversial. I have encountered some lawyers who refuse to use it, which is a bit extreme – it’s fine if used sparingly). By adding software to the definition of goods only to “avoid doubt” (i.e. clarify the law – a common use of that phrase in legislation), parliament was saying that it considered software to be already included “goods”.

The judge in this case did acknowledge:

it is productive of injustice if consumers purchasing software in the form of CDs or DVDs, either sold in retail shops or via the internet, are protected by the statutory warranties in the Sale of Goods Act, whereas consumers who download the same software directly from the internet or from a supplier, (as was the case here), would not.

A simple law change in Australia will remedy this situation.

ACTA deal and 3-strikes disconnection

ACTA negotiators have issued a statement that the agreement will not require participant countries to implement 3-strike internet disconnection laws. As it happens, the Government’s revised s92A bill (currently before parliament) still provides for disconnection in limited circumstances, but only as a Court-sanctioned remedy.

ICT finance regulation

Computerworld has an article on the upcoming financial services reform and its possible impact on ICT finance providers:

It is not clear which financial providers in the IT industry will be affected. The MED says that, in general, if an organisation is providing credit under a credit contract, then they are offering a financial service and the registration requirement will apply, meaning they have to join a dispute resolution service.

Consumer finance customers (i.e. those obtaining finance for personal or domestic purposes) already receive a good measure of protection under the Credit Contracts and Consumer Finance Act 2003. The new reforms are still being refined; the extent to which they will affect finance operators remains to be seen.

Government indemnities

The Government recently amended clause 4 of the Public Finance (Departmental Guarantees and Indemnities) Regulations 2007 to permit Government departments to agree to:

any guarantee or indemnity contained in the standard terms and conditions for the purchase, licence, or use by the Crown of—

(i) an Internet site;
(ii) software;
(iii) information technology tools, products, or services.

Many websites include indemnities in their standard terms (for example, by even reading the New Zealand Herald you agree to an indemnity). This change makes it more practicable for the Government to use common online and software applications, without having to obtain internal sign-offs.

The “Immortal Soul” clause

On the subject of website terms, a website recently added an “immortal soul” clause to its terms and conditions:

By placing an order via this Web site on the first day of the fourth month of the year 2010 Anno Domini, you agree to grant Us a non transferable option to claim, for now and for ever more, your immortal soul.

While this was an April Fool’s Day prank, it’s purpose was to highlight the fact that very few people actually read website terms. In any case, something tells me this would not be an enforceable website term!