Naked Law

New security requirements for online retailers

From today, major online retailers (those processing at least 20,000 Visa transactions a year) will be obliged to comply with new security standards, set by the major credit card companies, which represent a significant shift in the liability position between the retailers and the finance companies.  These standards may well be extended to smaller retailers in the future.  The requirements cover such issues as protecting customer information through encryption, implementing access control measures, and maintaining a 'vulnerability management program'.  Some of these concepts will be familiar to companies achieving compliance with ISO 17799.

This move may help to reassure an increasingly nervous public: a recent report suggests that 42% of internet users are cutting back their use of online services because of security concerns, leading the Gartner Group to lower its predictions for growth in e-commerce over the next year.  This story appears at the same time as vnunet.com tells us of a newly-detected software glitch that could leave users open to phishing attacks.

When the chips are down

In the US, AMD has filed an anti-trust complaint against Intel, accusing the firm of “worldwide coercion” of computer makers and “illegal acts”. The 48-page suit was filed yesterday and lists 38 firms AMD alleges to have been victims of coercion and contributing evidence.

The suit was filed in the US federal district court for the district of Delaware under the Sherman Antitrust Act, the Clayton Act, and the California Business and Professions Code.

The crux of the complaint is an allegation that Intel has forced customers such as Dell, Toshiba, Sony, NEC and Hitachi to accept Intel-exclusive deals in return for outright cash payments, discriminatory pricing or marketing subsidies. Intel dominates global sales of x86 microprocessors with 80% of sales by volume and 90% by revenue, according to AMD. However, the consequence of this alleged strategy for AMD has been that their ‘chips are down’ and that Intel has "unlawfully maintained its monopoly in the x86 microprocessor market by engaging in worldwide coercion of customers from dealing with AMD".

AMD complains that Intel’s actions include:

• Forcing major customers to accept exclusive deals;
• Withholding rebates and marketing subsidies as a means of punishing customers who buy more than prescribed quantities of AMD processors;
• Threatening retaliation against customers doing deals with AMD;
• Establishing quotas keeping retailers from selling the computer products they want; and
• Forcing PC makers to boycott AMD product launches.

AMD Chairman Hector Ruiz states that:

“For most competitive situations, this is just business. But for a monopolist, this is illegal. These serious allegations deserve serious attention. Earned success is one thing. Illegal maintenance of a monopoly is quite another.”

The AMD litigation follows a recent ruling from the Fair Trade Commission of Japan which found that Intel abused its monopoly power to exclude fair and open competition, violating Section 3 of Japan's Antimonopoly Act. These findings, AMD claimed, reveal that Intel "deliberately engaged in illegal business practices" to stop AMD's increasing market share by imposing limitations on Japanese PC manufacturers.

In light of this, Thomas McCoy, AMD executive vice president stated:

"You don't have to take our word for it when it comes to Intel's abuses; the Japanese government condemned Intel for its exclusionary and illegal misconduct".

Japan's Federal Trade Commission earlier this year called for Intel to halt the practice of requiring PC makers to limit the use of competitors' chips in exchange for monetary rebates. Intel, which accepted the recommendations, noted it disagreed with the agency's findings of fact underlying their allegations and the application of law in the recommendations.

It remains to be seen whether any similar action will be filed by AMD within the EU.

Grokster/StreamCast decision - more reactions

In short, the Supreme Court did not change the Sony test - StreamCast's mistake was in promoting illegal uses.  It's not the technology that caused problems for Grokster - it was the way it was sold to the public.  Justice Souter:

"where evidence goes beyond a product's characteristics or the knowledge that it may be put to infringing uses, and shows statements or actions directed to promoting infringement, Sony's staple-article rule will not preclude liability".

StreamCast's chief technology officer may regret his statement when launching OpenNap that "[t]he goal is to get in trouble with the law and get sued.  It's the best way to get in the new[s]", as quoted by the Court.

Breyer J even went so far as to give a lengthy defence of the Sony rule, including this helpful summary:

"the law will not impose copyright liability upon the distributors of dual-use technologies (who do not themselves engage in unauthorized copying) unless the product in question will be used almost exclusively to infringe copyrights (or unless they actively induce infringements as we today describe)".

Initial reactions to the Grokster judgment:

• A statement from Sony to the Beeb: "the court made it very clear that we can go after damages ... we will do that if necessary, but my hope is that we will find new bridges to legitimise a lot of services that formerly were confused about what was right and wrong, legal and illegal".
• The Beeb comments: "the Supreme Court has not outlawed legitimate file-sharing. It has simply called Streamcast to account for encouraging the infringement of copyright."
• The Register says that the Court's comments will "add another layer of confusion", that it "left alone the principle that a significant non-infringing use suffices to make a technology legal" but that "a company's behavior might not be".  In summary, "P2P software is not, in itself, infringing".
• ZDNet says that the "decision is unlikely to put a damper on the illegal sharing of music and other media online anytime soon", and that it "muddies P2P waters".
• The Guardian runs a leader stating "it is not yet clear what effect yesterday's judgment will have on the daddy of all the filesharers, BitTorrent, which is reckoned to account for 30% of all data sent down the internet. This is because BitTorrent - a conduit for downloading films, music and TV programmes - adopts a low profile and does not evangelise".
• The Times says that "the focus of the music industry inevitably will turn to pursuing the creators of file-sharing software and trying to turn them into networks for legitimate business".

P2P sites lose out to Hollywood

The US Supreme Court today unanimously ruled that file sharing networks can be held liable for software infringement by their users.  The decision is a blow to P2P sites such as Grokster and Morpheus – they had sought to rely on the earlier Betamax case which protected video recorder manufacturers from legal action for copyright infringement, and which is often cited as showing that a manufacturer cannot be liable where its products are used to infringe copyright if they also have legitimate potential uses.    This view looks set to change…

Facing the music

We were called last week by a local radio station asking about the story of an action by the BPI against the mother of a 14 year old girl who was alleged to have been downloading music illegally.  This was part of the BPI's wider campaign to clamp down on music piracy on P2P networks, and has coincided with the publication by the BPI of Online Music Piracy: The UK Record Industry's Response.  This confirms that the BPI's actions are based on infringement of the copyright owner's right to copy, and the new right to communicate to the public "by electronic transmission in such a way that members of the public may access it from a place and at a time individually chosen by them" (introduced by the Copyright Regulations).

None of the BPI's actions have yet reached the courts, with the majority of those sued choosing to reach a settlement, which is probably an indicator of the strength of the BPI's claims.  The ploy appears to be working: following a recent survey, there are predictions that legal downloads will outnumber illegal downloads within the next six to twelve months.

Software patents - the story continues...

Another twist in the sorry saga that is the draft European software patent directive. The Register reports that the European Parliament's Legal Affairs Committee, has voted to scrap most of the amendments to the directive that the Parliament had proposed.

When the Parliament votes on the directive in July, if it follows the line taken by the Committee (as it is expected to do), it may help to avert a head-on collision with the Commission and the imposition of the so-called conciliation procedure.

This would be welcome news to practitioners in the area, who have been flummoxed by the vociferous opposition to this directive which is merely attempting to harmonise member states’ laws on the patentability of computer implemented inventions.  What seems to have been omitted amidst all the media hype is the fact that many member states in Europe already grant patents in respect of software – for example, the UK's current position is that computer programs cannot be patented "as such", in other words, that software can potentially be patented if it is 'wrapped up' as part of a hardware solution.

Spam prosecution in Oz

The Australian Communications Authority is bringing its first prosecution under Australia's Spam Act against an alleged global spammer based in Perth.  This action follows the successful prosecution in the US of Jeremy Jaynes (apparently the world's 8th most prolific spammer), who in April was sentenced to 9 years in jail under the federal CAN-SPAM Act.  No such luck over here in the UK - not a single prosecution has been brought against spammers under the Privacy and Electronic Communications Regulations since they came into force in 2003.

Businesses losing out on IP

A recent Patent Office survey suggests that as many as 70% of UK businesses risk losing out on intellectual property rights in their dealings with other businesses.  According to the survey, 40% of businesses assume that they will automatically own copyright in software developed by a contractor for the business, and 30% do not know who will own the copyright.

In practice, where an agreement is silent, a software developer will generally own the copyright as the author of the software; however, the commissioning party will usually have an implied licence to use the software.  It is dangerous to rely on such an implied licence, though - it is up to the courts to decide what licence scope was intended by the parties.  As a result, the commissioning party cannot be certain what rights it has to use (and to sub-licence) the software unless they are explicitly stated in the development agreement.

A party paying a contractor to produce bespoke software will generally want to have the rights in that software assigned to them, or at least to obtain the grant of an exclusive licence (so it can be sure that nobody else can use the software it has paid for).

To blog, or not to blog ...

Whilst not necessarily the question, this is certainly a question that all bloggers are having to ask themselves.  Where blogging (and this probably applies to the web as a whole) once promised an escape route from the earthly confines of jurisdiction and law, bloggers are waking up to the fact that what they write may expose them to risks and liabilities that are all-too-familiar from the world outside.

There is no doubt that, at least in some parts of the world, blogging can be a risky business.  Iranian bloggers were taken to prison and fined for "insulting the country's leaders and making anti-government propaganda"; Chinese bloggers using Microsoft's MSN Spaces site will find themselves censored if they try to use words like "democracy" and "freedom".  Even in the US and UK, there have been some salutory reminders that a post on a blog is a publication that can give rise to real world consequences.  First there was the sacking of air hostess "Queen of the Sky" for posting pictures of herself in uniform; then Joe Gordon, writer of the Woolamaloo Gazette, was sacked by Waterstones for comments he made about his employers; then Apple forced bloggers to reveal their sources for leaks about the company's new technology.

The indignant members of the blogosphere, habitual champions of free speech, don't like it at all.  A number of them have decided that it is better "to take arms against a sea of troubles,/And by opposing end them".  There was a groundswell of support for Joe Gordon (and satisfaction when he was offered his job back and able to turn it down in favour of Forbidden Planet).  The Committee to Protect Bloggers "is devoted to the protection of bloggers around the world" and is guided by a "belief in the free exchange of ideas".   There is even a new "adopt a Chinese blog" website that attempts to undermine the restrictions imposed by the Chinese government.

Bloggers should, though, consider the legal risks and liabilities of writing publicly.  Employees must remember their employment obligations before they post; in the UK, bloggers should also remember the laws on defamation (which has rather more teeth than in the US), and copyright.  Far from being a private refuge from the laws where we live, blogs are public documents and may be used in evidence against us.  In the light of the recent actions by the BPI to expose the names of P2P music sharers, it may be only a matter of time before the likes of Typepad and Blogger are forced to reveal the names of their subscribers as part of an action for defamation or breach of copyright.

In the context of the apparent risks of blogging, it is perhaps unsurprising that so few UK lawyers have so far taken up the baton (it didn't need the Law Society Gazette to point out that blogs written by UK lawyers are few and far between).  This is, though, in striking contrast to the US, where an entire website is devoted to indexing the many on offer.

In fact, lawyers should be better positioned than anyone to understand what can and can't be posted on a blog - which is one of the reasons why we set up Naked Law.

Not invented here

Judge for yourself!  Another view of inventorship from the UK Court of Appeal.  In Markem the Court of Appeal decided to ignore the claims in deciding what the inventions were, and discount the fact that the idea for the invention had first been made at the inventor's previous employers.  Why?  They found that what had been done at the previous employer was non-confidential wish-list, which was not then an invention; not until a method of implementing it had been devised.