Legal aspects in communities based

business

T-86.5750 Seminar on New Business in Digital Economy - 14.4 - Ville Oksanen

Who’s speaking

• Researcher at Helsinki University of Technology

• SoberIT - Software Business Research Institute

• Lawyer by training (Master Thesis on Law & Economics)

• Partner, Turre Legal

Content

• Legislative framework -web services

• Copyright

• Editorial responsibility

• Contracts & Consumers

• Consumer protection regulation EU&USA

• Sony BMG rootkit case

• Apple iTunes case

service provider’s liability?

• Own material / user created content

• Criminal / civil

• Contract-based / law-based

• Different jurisdictions

Grokster-case

• Main legal question: How far secondary liability goes for copyright infringiment

• Facts:

• Grokster was distributing p2p-software, which was advertised as an alternative for Napster

• The service was decentralized i.e. the company did not have any direct control over the network

Grokster-case

• Lower courts

• District Court: Not guilty since no direct control - legislative action needed?

• Ninth Circuit : "This appeal presents the question of whether distributors of peer-to-peer file-sharing computer networking software may be held contributorily or vicariously liable for copyright infringements by users. Under the

Grokster-case

• Supreme court:

• "For the same reasons that Sony took the staple-article doctrine of patent law as a model for its copyright safe-harbor rule, the inducement rule, too, is a sensible one for copyright. We adopt it here, holding that one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative

Liability in EU

• E-Commerce Directive

• adopted in 2000

• Harmonised rules on:

• transparency and information requirements

• commercial communications

• electronic contracts

What is information society service?

In this act, information society services shall refer to services provided:

1) as distance services, i.e. without the parties being present at the same time;

2) electronically, i.e. by sending and receiving services via devices handling

information electronically or via storage of information so that only cables, a radio

connection, optical equipment or other electro-magnetic equipment are used for

sending, transmitting and receiving services;

3) as data transfers requested personally by recipients of services; and

4) usually against a payment.

Finnish implementation

• “Act on Provision of Information Society Services”

• Follows generally directive quite closely

• However..

Section 15liability in hosting services

When an information society service is provided that consists of the storage of information provided by a recipient (content producer) of the service, the service provider is not liable for the information stored or transmitted at the request of a recipient of the service if he/she acts expeditiously to disable access to the information stored:

1) upon obtaining knowledge of the order concerning it by a court or if it concerns violation of copyright or neighbouring right upon obtaining the notification referred to in Section 22;

2) upon otherwise obtaining actual knowledge of the fact that the stored information is clearly contrary to Section 8 of Chapter 11 or Section 18 of Chapter 17 of the Penal Code (39/1889).

The provisions in paragraph 1 shall not apply if the content producer is acting under the authority or the control of the service provider.

Section 22 - Notice & Takedown

• Formal announcement that rightholder thinks that his or her right’s are being violated

• Limited to copyright

• Process described in detail in law

• If the identity of alleged violator exists, he has to be contacted first

• Missuse sanctioned

• Not if “reasonable grounds to assume

Editorial Responsibility

• Varies from one country to other

• For example, in U.K libel-laws are very strict

• In Finland a web-publication has to have an editor

• Carries responsibility on all posted material

• How to separate internally produced

Consumer protection

Consumer protection

Competition regulation

B2C

B2B, B2C

CopyrightAll matters

Scope of Regulation

Consumers Industry Creators

EU directives

• Doorstep Selling Directive 85/577

• Package Travel Directive 90/314

• Unfair Contract Terms Directive 93/13

• Timeshare Directive 94/47

• Distance Selling Directive 97/7

• Price Indication Directive 98/6

• Injunctions Directive 98/27

• Consumer Sales Directive 99/44

• Unfair Commercial Practices Directive 05/29

EU directives Con’t

“A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer.”

(Unfair Contract Terms Directive)

EU directives Con’t

• Forbidden clauses include e.g.:

• Irrevocably binding the consumer to terms with which he had no real opportunity of becoming acquainted

• Unilateral alteration of the terms of the contract

• Unilateral alteration of characteristics of the product or service to be provided

• Green Paper on the Review of the Consumer Acquis

• More extensive protection for digital sales?

Consumer Protection

Ombudsman

Market Court

Authorities in other EU-countries

Offending company

Discussions, temporary restraining order, daily fines

Permanent restraining order, daily fines

USA: Class actions

• Private enforcement of consumer rights

• Based mostly on different state-level fair trade etc. regulation

• 25-30% of all class action cases in the United States classified as dealing with consumer protection issues

• Lucrative business..

Attorney Generals

• Enforce typically different consumer protection laws

• Elected officials

• Plus: Forces to react quickly to polular themes

• Personality matters e.g. Elliot Spitzer

• "the most egregious and unacceptable form of intimidation we've seen in this country in modern times"

Federal trade commission (FTC)

• Section 5 of the FTC Act

• Prohibits “unfair methods of competition,” and “unfair or deceptive acts or practices”

• Enforcement priorities set in political level (bi-partisan commissioners)

Sony Rootkit case

Sony Rootkit - Background

• Sony BMG wanted to put more effective “copy protection” to its CDs

• New software included so-called rootkit-technology

• Security researcher Mark Russinovich was first to publish the case. He found that “copy protection”:

• Created a security hole, which third-party malware could use

• Consumed computer resources even while no listening took place

• No consent, no easy way to uninstall

Sony’s initial position

"Most people, I think, don't even know what a rootkit is, so why should they care about it?"

The President of Sony BMG's global digital business division Thomas Hesse

News escalationOriginal blog-post

BoingBoing Slashdot

N+1 Other blogs

Other IT-press

Mainstream news

Actions in USA

• 7 Class Action Suits

• 3 Investigations by Attorney Generals

• Investigation by FTC

Non-action in EU

• The protected CD were never “officially” sold inside EU

• Consumer NGO’s demanded action

• There was some discussions -> no offical actions taken

http://www.doxpara.com/?q=/node/1129

http://www.doxpara.com/?q=/node/1129

Outcome

• In United States Sony BMG settled:

• Compensation to consumers

• Payments to States

• Tight restrictions how “copy protections” could be used in the future

• Soon afterwards Sony BGM gave up using “copy protection in CDs

Aftergame

Sony BMG Music Entertainment is suing a company that developed antipiracy software for CDs... Sony BMG is seeking to recover some $12 million in damages from the Phoenix-based technology company..accuses Amergence of negligence, unfair business practices and breaching the terms of its license agreement by delivering software that "did not perform as warranted."

Case: iTunes

Apple iTunes - background

• Apple is using its FairTunes-DRM to “lock” consumers to iTunes/iPod combination

• Very effective, helped to create almost total domination of digital music market

• The iTunes-stores are localized i.e. UI and user agreements translated to different languages

Action in USA

• Two class action suits:

“…alleges two theories of antitrust tying: (1) Apple has used technological restrictions to force purchasers of Apple's iPod (tying product) to purchase only Online Music and Online Video from iTMS (tied product); and (2) Apple has used technological restrictions to force purchasers of Online Music and Online Video from iTMS (tying product) to purchase only Apple's iPod (tied product).”

• So far a decision not to make a summary judgement

Actions in Europe

• The Norwegian Consumer Council (NGO) started the case in 2006 by lodging a complaint to the Consumer Ombudsman

• Apple’s response

• We can clarify the user agreement

• Ombudsman does not have jurisdiction over DRM

Outcome?

• No official conclusion - choices for Apple:

• Drop FairTunes; or

• Licence FairTunes.

• Strong push to force record companies to gave up using DRM

• EMI has agreed, also smaller Indies

• Amazon sells all 4 major’s music without DRM

Survey

• The goal: to find out, how European consumer authories think about the “interface” between copyright and consumer protection

• The answer: they (genereally speaking) don’t

• Limited number of answers

Typical answer

Dear Ville Oksanen

We acknowledge receipt of you email of 5 June 2007 in which you ask if it is possible for the Danish Consumer Ombudsman to answer a short questionnaire. We can inform you that it is the Danish department for culture that administrates the laws you refer to..

(Mette Hartvig Johnsson, Lawyer, Office of the Danish Consumer Ombudsman)

How it actually works

We do not have possibilities to do scientific economical analysis of market situations ourselves. However, part of our job is to find out which are the phenomena that are important for the consumers and try to focus on these problems and situations. Since we can only focus in some of the phenomena in the market, that kind of information has a role in our every day work.

(Juha Eerikäinen, Lawyer, Kuluttajavirasto)

Conclusions 1.

• Both US and EU consumer authorities have real tools to shape how content is being sold to consumers

• A possible scenario: Any license, which forbids the use of EUCD article 5 exceptions is automatically consider unfair

• Swift justice -> formalistic approach, no much analysis

• A danger for decisions that diminish consumer welfare

Conclusions 2.

• There’s not enough competent staff at European consumer agencies

• Likely to change in the future

• More research needed e.g.:

• How to combine competition law and consumer protection law?

• What is the optimal place for regulation that changes the balance in copyright in the first