Law and technology

My latest Computerworld article is now available online:

• Getting to yes, but at what cost? Computerworld 15 June 2010

In New Zealand, several laws are relevant to allegations of deceit or misrepresentation in trade, the most significant of which is the Fair Trading Act 1986. The key part of this Act states that “no person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.” The Act cannot be excluded by contract, and applies to virtually all local commercial dealing.

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BSkyB v EDS provides a useful example, applicable in New Zealand, of a vendor impliedly misrepresenting that there was a proper foundation for making a statement in a pre-contractual situation. The message is that such conduct (making a representation without foundation) may not simply be “negligent” or an oversight, but may be found to be deceitful.

Since publication, it has been announced that HP (which bought EDS) will pay a total settlement of £318 million (~NZ$680 million), and will not appeal the High Court judgment.

An amusing aspect of the trial involving a barrister’s dog is mentioned here.

The judgment itself is here.

P2P operator personally liable for copyright infringement

A US court has ruled that LimeWire, one of the early popular file-sharing sites, induced copyright infringement (Eric Goldman has an excellent summary here of the “intention” issue). While this outcome was really inevitable, what is more relevant is that the Judge also ruled that the founder and sole director, Mark Gorton, is personally liable. This is a clear warning that peer-to-peer operators potentially face personal liability – which some say could have a chilling effect of P2P services.

In New Zealand, section 92B of the Copyright Act provides a limited safe harbour from copyright infringement (see my Computerworld article here) [Note: this part of the Copyright Act is due to be amended] . Whether this would protect a LimeWire-like operation in New Zealand is debatable – s92B does not protect intended infringement.

The US decision also involved liability under trade practices laws. In New Zealand, personal liability can attach to directors of companies under the Fair Trading Act 1986.

50,000 Hurt Locker downloaders to be sued

It is being reported that upwards of 50,000 people are in the process of being sued for pirating the Hurt Locker movie. The movie was leaked to the internet several months before its release, which potentially cost it dearly in ticket revenue. The lawsuits are aimed at generating settlements. Since the first lawsuits were filed in January 2010, about 40% have already settled.

There are no reports of proceedings outside of the US. Class actions in New Zealand are not facilitated by the legal system, and are very difficult to bring (a failing of our legal system) and it is therefore unlikely that proceedings will be brought against New Zealand users due to the high cost of doing so.

iiNet appeal set down

The legal appeal of iiNet’s total victory over anti-piracy group AFACT ’s claims of copyright infringement liability in Australia has been set down for August this year. As with the first ruling, this appeal will be closely watched – enormous resources are being put into heavyweight IP litigation around the world to determine just where the line should lie for ISP / third-party liability for copyright infringement. Several decisions have recently gone against rights-holders, while others (such as the Newzbins case in the UK and the LimeWire case above) went the other way. The iiNet appeal will be heard in the Federal Court. If iiNet wins again, it is likely that AFACT will seek a further appeal to the High Court of Australia.

A defamation lawsuit against an eBay buyer who left negative feedback has received comment from New Zealand defamation experts:

“The law is no different if someone writes it online or in a newspaper” – William Akel of law firm Simpson Grierson.

“People get away with an awful lot online and it’s been going on for a while but I haven’t seen a flood of complaints. We don’t live in a litigious environment.” – David Campbell of Campbell Law.

Victoria University defamation expert Professor Bill Atkin said the online community should remember “the wisest course is often the cautious one”.

This is good advice, although people should not be afraid to state (non-recklessly) their genuine honest opinions. Free speech is protected in New Zealand via two laws. First, section 14 of the Bill of Rights 1990 (an unsatisfactory piece of legislation) states:

Freedom of expression: Everyone has the right to freedom of expression, including the freedom to seek, receive, and impart information and opinions of any kind in any form.

Second, section 10 of the Defamation Act 1992 allows a defence of honest opinion. However, this is not completely unrestricted and generally requires that:

• The opinion is based on true facts;
• The comments must be reconisable as opinion; and
• The opinion is genuinely held.

Two important facts about the eBay lawsuit are:

1. The alleged defamatory comment was: “Bad seller, he has the ethics of a used car salesman“.
2. The buyer’s listing said “We cannot give you any guarantees and must offer it on an as-is, where-is basis only”.

It will remain to be seen whether the claim succeed, bearing in mind that defamation law in the US is relatively restricted.

Possibly the buyer’s mistake was to comment too broadly on the seller’s ethics. It can be safely assumed he is expressing his opinion on that point, but such a broad statement is open to allegations of defamation. Of course feedback comments are supposed to be very brief, but if the buyer had taken a little more care the situation would likely have been avoided. For example, the buyer could have said “I was very misled by this seller’s listing.”  That would be much more difficult to attack because it is a comment on the buyer’s own feelings, not a sweeping accusation of dodgy ethics.

In the case of Trade Me / eBay feedback, it will also be interesting to see whether a defence of consent (section 22 Defamation Act 1992) could protect (or limit) otherwise defamatory feedback. When users buy or sell on auction sites, they know that feedback will almost always be given. Users know the purpose of the feedback is to share trading experiences – good, bad or neutral. A user could not reasonably claim that they never expected an upset trader to post critical feedback as “their side of the story”, whether based on correct or incorrect facts. Responding to critical comments is also provided for and expected.

It is also worth noting, in the eBay case, that the plaintiff (the seller) is a Miami lawyer, and the defendant claims to have spent USD$7,000 fighting the $15,000 suit. In the highly litigious United States (where even a dry-cleaned pair of trousers can turn into a $67 million lawsuit) this is relatively small. In New Zealand, which is not litigious, in most cases it would probably be completely uneconomic for an occasional, sole trader to make a defamation claim. The best first step in the case of unfair or defamatory conduct would be to contact the website in the first instance. Trade Me has policies on feedback on its website.

More on NZ’s proposed software patent ban

Computerworld and Slashdot cover the Select Committee proposal for a ban on software patents in New Zealand.

Meanwhile, the United States Supreme Court is expected to rule soon on the ‘Bilski‘ case on whether software and business methods are patentable in the US.

Novell defeats SCO

A jury has ruled that Novell owns copyright in the Unix operating system, defeating SCO in a long running battle over the ownership of Unix.

Website “authorised” copyright infringment

The English High Court has ruled that Newzbin, a UK-based usenet indexing site, is liable for “authorising” copyright infringement.  The judge said (emphasis added):

I have found that [Newzbin] well knows that it is making available to its premium members infringing copies of films… It operates a site which is designed and intended to make infringing copies of films readily available to its premium members. The site is structured in such a way as to promote such infringement by guiding the premium members to infringing copies of their choice and then providing them with the means to download those infringing copies.

Central to the ruling is the judge’s view that there was active assistance, and even encouragement, of copyright infringement. These findings contrast with the recent iiNet ruling in Australia. Both cases highlight the importance of the ISP /website being very careful not to be seen as authorising or promoting infringing behaviour, and having appropriate policies in place.

Newzbin is considering an appeal.

Computerised medial record privacy concerns

Leading New Zealand software developer Orion Health is pushing for more progress on computerised medical records, as computerisation of medial data is gathering pace around the world, particularly in the US where President Obama campaigned on it. At the same time, serious privacy concerns are being raised. Medical / health information is the key area where privacy law will probably most keep up with developments in technology, and is already reasonably advanced in New Zealand.

Google has won a major legal victory, with the European Court of Justice (the EU’s highest court) ruling that Google can continue to sell other companies’ trade marks as AdWords keywords (it was the use of the Loius Vuitton trade mark by a competitor that sparked the suit). This is seen as a major setback to the ability of companies to protect their brands. But the ruling does not green-light all manner of trade mark infringement. Advertisers must still not engage in misleading, deceptive or other infringing conduct in relation to a trade mark. The Court said (via press release):

Google has not infringed trade mark law by allowing advertisers to purchase keywords corresponding to their competitors’ trade marks. Advertisers themselves, however, cannot, by using such keywords, arrange for Google to display ads which do not allow internet users easily to establish from which undertaking the goods or services covered by the ad in question originate.

The Court said it will still be up to EU member courts to assess, on a case by case basis, whether the particular way in which an advertiser has used its AdWords is confusing or deceptive – if so, standard trade mark infringement remedies will apply. Whether the service provider (i.e. Google in this case) could be found liable would depend on:

“whether the role played by that service provider is neutral, … is merely technical, automatic and passive, pointing to a lack of knowledge of, or control over, the data which it stores. If it proves to be the case that it has not played an active role, that service provider cannot be held liable for the data which it has stored at the request of an advertiser, unless, having obtained knowledge of the unlawful nature of those data or of that advertiser’s activities, it failed to act expeditiously to remove or to disable access to the data concerned”.

Service provider role recognised

The ruling draws a clear distinction between the service provider – which would avoid liability if it played merely a “neutral”, “passive” role – and the user of the service (i.e. the advertiser). There seems to be a growing acceptance of the need to make this distinction with online services. Other recent examples include an earlier UK ruling on defamation (again involving Google) and the iiNet case in Australia (currently under appeal).

This ruling applies only to Europe. Other trade mark claims have been brought and settled elsewhere, and further challenges will no doubt arise. But this ruling by the EU’s highest court is a strong endorsement of Google’s position. Due to the conforming nature of the internet, and the relatively consistency of trade mark law globally, the decision is likely to influence any challenge against Google in New Zealand.

Not a never ending licence

A UK court has ruled, and a customer found out the hard way, that what was described as a “perpetual” software licence was not a “never ending” licence. In BMS Computer Solutions v AB Agri Ltd (UK High Court, 10 March 2010) the customer was granted a “UK-wide perpetual licence” for a program. However, the contract granting the licence also required the customer to keep buying support from the developer:

In the event that the software technical support agreement is terminated for any reason whatsoever this agreement shall terminate.

The customer wanted to terminate the support agreement, but keep using the software. Terminating the support agreement would terminate the contract which had granted the licence. It is quite common for specific terms of a contract (including software licences) to survive termination (assuming that is what the parties intended). The question in this case was whether the grant of the “UK-wide perpetual licence” intended to create a never-ending licence that would survive termination of the main contract. The judge said:

The word “perpetual” can carry different shades of meaning. It can, for example, mean “never ending” (in the sense of incapable of being brought to an end) or it can mean “operating without limit of time”.

The judge found that in this instance, the “perpetual licence” meant a licence “operating without limit of time”, i.e. it continued until either party terminated it for some valid reason (such as ending the support agreement).

The ruling does not mean that every “perpetual licence” is perpetual until terminated. A contract (such as a licence) is always interpreted according to its terms and intentions of the parties. In some cases, “perpetual” will clearly mean “never ending” (in which case it may be a good idea to record it as “perpetual, irrevocable licence”). In this case, the “perpetuality” was trumped by the tied support requirement, and could not have been intended as never-ending – either a case of poor drafting by the customer, or good (or fortuitous) drafting by the developer.

Smoking gun emails

The major court battle over copyright infringement between YouTube and Viacom currently underway in the US has turned up some pretty damaging internal emails between the founders. E.g. this from YouTube co-founder Steve Chen to Jawed Karim:

“jawed, please stop putting stolen videos on the site. We’re going to have a tough time defending the fact that we’re not liable for the copyrighted material on the site because we didn’t put it up when one of the co-founders is blatantly stealing content from other sites and trying to get everyone to see it.”

While the founders probably aren’t too concerned (having long since cashed out), the evidence may yet cause YouTube’s owner Google a headache. Another reminder not to put damaging comments in writing – in litigation, almost everything is potentially discoverable.

More audio/visual technology in NZ courts

“A bill that will allow greater use of audio visual links in courtrooms passed its first reading in Parliament yesterday.” more…

Nestlé trade marks Kit Kat shape

Nestlé has won an appeal allowing it to trade mark (in Australia) the shape of a Kit Kat bar (or as the application prosaicly calls it, “Chocolate confectionary being chocolate-coated confectionary blocks or bars and chocolate-coated wafer biscuits”). Trade marking shapes is permitted in New Zealand and other countries (for example Toblerone chocolate in some countries). In fact, many “non-lexical” things can be trade marked, including (in New Zealand) colours, smells, sounds, and tastes.

Strangely, chocolate has long been a major battle-ground for trade mark disputes. In New Zealand, Cadbury lost a 2008 Court of Appeal battle to trade mark the word “purple” (though not the colour, which it already trade marks). Last month in Australia, Guylian lost a Federal Court battle to trade mark its seahorse shaped chocolates, which the court found “not sufficiently inherently distinctive”.  In contrast, two years ago a Japanese court allowed Guylian the same trade mark in Japan, finding that the shape was sufficiently distinctive.

I’m sure the story about the unfortunate “fudge this” comment accidentally left in a set of company accounts is familiar to many lawyers, especially those involved in litigation (or M&A, when rounds of revised documents are flying through the small hours).

This latest example is embarrasing but really not too bad. The real mistake was using the word “fudge”. Anyone who has helped put together (or dissect) accounts and other reporting data knows that occasionally something does need to be a “best estimate” (a more advisable term).

In litigation a lawyer’s job often involves poring over documents, looking for mistakes, inconsistencies, and things that are generally helpful to your client’s case. Much money and sweat is expended on discovery and hoping to find the elusive smoking gun. It does happen, but in my experience unless it’s an outright admission of guilt/breach/bad faith/etc (or something similar), it’s usually not as damaging as it might at first seem.

It’s more productive to focus on the links between documents and “data mine” what you already have (or can get easily). Many lawyers on the other side of major disputes I’ve been involved in have done a terrible job (apparently, based on the results) of data mining their material.

But in terms of what’s in the documents themselves, far better (or worse) than a simple comment, can be tracked changes left in a document. These are great because they record the exact changes made to specific words, the user who made the change and the time. I recently had a situation where this was especially useful in proving certain negotiations between a first and second draft of a contract. There are stories of clients (and lawyers) being caught out by some unmerged tracked changes, or Word’s less-understood “versioning” feature.

The upcoming changes to the District Court Rules make the old discovery process obsolete. It is no longer necessary for the parties to disclose all relevant, non-privileged material. But thanks to email, litigants tend to have far more of the “other side’s” documents than ever before. And thanks to electronic documents, tracked changes and the like, there is more data in the documents than ever before. It will be interesting to see how the new DC discovery process goes, and whether it results in litigants focussing more on data mining what they have, in preference to wrangling over what they don’t.