Archive for the 'consumer protection' Category

Managing Corporate Risks in an E-Environment

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My colleague Daniel Haeusermann and I just released a new paper entitled “E-Compliance: Towards a Roadmap for Effective Risk Management.” In the article, which is largely based on consulting work we’ve been doing, we argue that the widespread use of digital communication technology on the part of business organizations leads to new types of challenges when it comes to the management of risks at the intersection of law, technology, and the marketplace. In order to effectively manage these challenges and associated risks in diverse areas such as security, privacy, consumer protection, IP, and content governance, we call for an integrated and comprehensive compliance concept in response to the structural and substantive peculiarities of the digital environment in which corporations – both in and outside the dot-com industry – operate today. See also this post. The conclusion section of the paper reads as follows:

Through significant efforts, the legal system has adjusted to the changes in the information and communications technology of daily corporate life—changes at the intersection of the market, technology, and law. Organizations must make adjustments on their part as well in order to deal with the consequences resulting from these changes in the legal system. The observation that led to this essay was that these adjustments represent a greater challenge than the already decreasing entropy surrounding concepts such as “e-commerce law” or “cyberlaw” would suggest. Our initial foray into the concept, characteristics, responsibilities and organizational guiding principles of e-Compliance confirms this observation.

E-Compliance, as discussed in this article, is confronted with the phenomenon of a close interconnection between law and technology, a prominent dynamization of the law, massive internationalization of issues and legal problems, as well as a strong increase in the significance of soft law. These characteristics, which in part may also apply to traditional areas of compliance such as financial market regulation, call in their interplay for the further development of compliance concepts as well as adaptation of the affected aspects of corporate organization. Due to the increasing amalgamation of corporate organizational nexus and ICT, the symbiotic relations between traditional compliance and e-Compliance will be increasingly amplified. The view that e-Compliance represents merely a single risk area among the many of compliance is therefore outdated in our opinion. E-Compliance is actually a multidimensional and multidisciplinary task, although there are certainly areas of law that are particularly affected by digitization (or also which particularly impact digitization) and therefore are of particular importance for the field of e-Compliance.

Thus, in conclusion, the authors do not posit a special “e-Sphere” within or without existing compliance departments. Rather, we argue for an integrated and comprehensive compliance concept that appropriately makes allowance for the structural and substantive peculiarities of e-Compliance as outlined in this essay and stays abreast with the pace of digitization.

Please contact Daniel or me if you have comments.

ICT Interoperability and Innovation – Berkman/St.Gallen Workshop

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We have teamed up with the Berkman Center on an ambitious transatlantic research project on ICT interoperability and e-innovation. Today, we have been hosting a first meeting to discuss some of our research hypotheses and initial findings. Professor John Palfrey describes the challenge as follows:

This workshop is one in a series of such small-group conversations intended both to foster discussion and to inform our own work in this area of interoperability and its relationship to innovation in the field that we study. This is among the hardest, most complex topics that I’ve ever taken up in a serious way.

As with many of the other interesting topics in our field, interop makes clear the difficulty of truly understanding what is going on without having 1) skill in a variety of disciplines, or, absent a super-person who has all these skills in one mind, an interdisciplinary group of people who can bring these skills to bear together; 2) knowledge of multiple factual settings; and 3) perspectives from different places and cultures. While we’ve committed to a transatlantic dialogue on this topic, we realize that even in so doing we are still ignoring the vast majority of the world, where people no doubt also have something to say about interop. This need for breadth and depth is at once fascinating and painful.

As expected, the diverse group of 20 experts had significant disagreement on many of the key issues, especially with regard to the role that governments may play in the ICT interoperability ecosystem, which was characterized earlier today by Dr. Mira Burri Nenova, nccr trade regulation, as a complex adaptive system. In the wrap-up session, I was testing – switching from a substantive to a procedural approach – the following tentative framework (to be refined in the weeks to come) that might be helpful to policy-makers dealing with ICT interoperability issues:

  1. In what area and context do we want to achieve interoperability? At what level and to what degree? To what purpose (policy goals such as innovation) and at what costs?
  2. What is the appropriate approach (e.g. IP licensing, technical collaboration, standards) to achieve the desired level of interoperability in the identified context? Is ex ante or ex post regulation necessary, or do we leave it to the market forces?
  3. If we decide to pursue a market-driven approach to achieve it, are there any specific areas of concerns and problems, respectively, that we – from a public policy perspective – still might want to address (e.g. disclosure rules aimed at ensuring transparency)?
  4. If we decide to pursue a market-based approach to interoperability, is there a proactive role for governments to support private sector attempts aimed at achieving interoperability (e.g. promotion of development of industry standards)?
  5. If we decide to intervene (either by constraining, leveling, or enabling legislation and/or regulation), what should be the guiding principles (e.g. technological neutrality; minimum regulatory burden; etc.)?

As always, comments are welcome. Last, but not least, thanks to Richard Staeuber and Daniel Haeusermann for their excellent preparation of this workshop.

FTC Hearing: DRM Interoperability

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This morning, I had the pleasure and honour to speak – “as the European voice” – at the FTC hearing on “Protecting Consumers in the Next Tech-ade” (check out the official weblog for more information and summaries of the discussion.) I was asked to report about the legal and regulatory discussions on DRM in Europe and to focus on DRM interoperability in particular. The latter question is also part of an ongoing research collaboration between the Berkman Center at Harvard Law School and our St. Gallen Research Center for Information Law. The research project is aimed at exploring the interaction between interoperability and e-innovation, an important aspect that was only briefly mentioned at today’s hearing.
Here is the longer and slightly modified (links added) written version of my statement. For a more detailed discussion, check out the excellent paper “DRM Interoperability and Intellectual Property Policy in Europe” by Mikko Valimaki and Ville Oksanen.

Over the past few years, much of the legal/regulatory debate in Europe about DRM has focused on the legal protection of technological protection measures and its ramifications for the digital ecosystem, because EU member states have faced the challenge to transpose the rather vague EU Copyright Directive into their national laws and comply with the relevant anti-circumvention provisions of the WIPO Internet Treaties.

Introducing and harmonizing anti-circumvention laws across Europe has been a long and an enormously controversial process. As far as DRM is concerned, three topics in particular have caused heated controversies:

  • DRM and its legal protection vis-à-vis traditional limitations on copyright such as the “right” (or privilege) to make copies for private purpose;
  • DRM and “fair compensation”;
  • DRM and interoperability.

Given our panel’s topic, please let me address the interoperability issue in some greater detail – a topic that has gained much attention in the context of iTunes’ penetration of the European market, esp. in France.

At the European level, though, no coherent DRM interoperability framework exists, although DRM interoperability has been identified as an emerging issue by the European Commission, which has established – among other things – a multi-stakeholder High Level Group on DRM that has also addressed DRM interoperability issues.

The lack of specific and EU-wide DRM interoperability provisions leaves us with three areas of law that address this issue more generally, both at the EU level as well as the level of EU member states. The areas are: copyright law, competition law, and consumer protection law.

Copyright Law

The EU Copyright Directive, mandating the legal protection of DRM systems, does not set forth rules on DRM interoperability. Recital 54 only mentions that DRM interoperability is something member states should encourage, but does not provide further guidance and seems to trust in the market forces. However, one might argue that the anti-circumvention framework itself allows the design of interoperable systems – e.g. a music player able to play songs encoded in different DRM standards – by outlawing only trafficking in such circumvention devices that are (inter alia) primarily designed and marketed for circumvention of effective TPM. Along these lines, at least one Italian Court has ruled – in one of the Bolzano rulings – that the use of modified chips aimed at restoring the full functionality of a Sony PlayStation (incl. its ability to read all discs from all markets despite region coding) is not illegal under the EUCD’s anti-circumvention provisions.

At the EU member state level, France has taken a much more proactive approach to DRM interoperability. A draft of the revised copyright law (implementing the EUCD) introduced an obligation of DRM providers to disclose interoperability information upon requests without being compensated. This “lex iTunes” has triggered strong reactions by the entertainment industry, and the final version of the law softened up the original proposal. Current French law states that a regulatory authority mediates interoperability requests on a case-by-case basis. Under this regime, too, DRM providers can be forced (under certain conditions) to disclose interoperability information on non-discriminatory terms, but they now have the right to reasonable compensation in return.

Competition Law

The baseline is: Competition law in Europe may become relevant in cases where a company with a dominant market position refuses to license its DRM standard to its competitors. However, to date, there exists no case law at the EU level where competition law has been applied to the DRM interoperability problem. But there are important cases (IMS Health and Magill, but also the anti-trust actions against Microsoft) illustrating how competition law — at least in exceptional circumstances — can give the need for interoperability more weight than the IP claims by dominant players. In France, Virgin Media tried to use competition law as an instrument to enforce access to iTunes FairPlay system. The French competition authority, however, has ruled in favour of iTunes, partly because it considered the market for probable music players to be sufficiently competitive (click here for more details).

Consumer Protection

From a consumer protection law perspective, three issues seem particularly noteworthy. First, the Norwegian Consumer Ombudsman has been very critical about Apple’s iTMS interoperability policy in response to a complaint by the consumer council. The Ombudsman argues that iTMS is using DRM and corresponding terms of services to lock its consumers into Apple’s proprietary systems.

Second, a French court fined EMI Music France for selling CDs with DRM protection schemes that would not play on car radios and computers (check here and here). EMI violated consumer protection law because it did not appropriately inform consumers about these restrictions. The court obliged EMI to label its CDs with the text: “Attention – cannot be listened on all players or car radios”.

Third, a recent proposal by the European Consumers’ Organisation proposes to include DRM in the unfair contract directive. The idea behind it is that consumer protection authorities should also be able to intervene against unfair consumer contract terms if the terms are “code-” rather than “law-based”.

iTMS in Conflict with Norwegian Law

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In May 2005, I reported here about Apple iTunes Music Store’s questionable practice to impose English law on its Norwegian and Swiss consumers and speculated about the enforceability of such a choice-of-law agreement. According to a report by The Register, the Norwegian Consumer Ombudsman now ruled that iTMS breaks the Norwegian consumer protection law and has given the company two weeks to revise its terms of contract. Read more, and more.

New OECD Reports on Digital Media Policy

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Two new documents by OECD on digital media policy. The first report is the official summary of the OECD – Italy MIT Conference on the Future Digital Economy: Digital Content, Access and Distribution (see Terry Fisher’s main conclusions and the interesting policy items at the end – monopoly of search engines, DRM, user-created content).

The second report is an OECD study on Digital Broadband Content: Digital Content Strategies and Policies. As complement to the above conference, this OECD study identifies and discusses six groups of business and public policy issues and illustrates these with existing and potential OECD Digital Content Strategies and Policies.

International Herald Tribune Quotes Berkman Study

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The International Herald Tribune’s weekend edition features an interesting article by David Goodman entitled “Consumers fight copy protection.” You will find references, inter alia, to a Berkman Center study on the EU Copyright Directive I co-authored with Michael Girsberger.

Consumer’s Perspective on DRM

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Natali Helberger, Institute for Information Law, University of Amsterdam, has written yet another good piece on Digital Rights Management from a Consumer’s Perspective.

OECD Music Industry Report

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Find here a terrific report by the OECD on the digital music industry (pre-release.) The report includes, inter alia, references to Terry Fisher’s seminal book Promises to Keep as well as to the Berkman Center’s iTunes case study.

The report concludes that online music distribution will grow significantly over the next few years, will force the music industry to reconsider their business models, and will continue to pose regulatory challenges to governments. The study includes a detailed impact analysis of digital music distribution on artists, consumers, the record industry, and new intermediaries.

The OECD underlines the positive potential of digital distribution, both as a new business model and a cultural phenomenon. It’s report further concludes that Internet-based piracy may be reduced, if licensed file-sharing and new forms of superdistribution evolve.

The study, part of the OECD Project on Digital Broadband Content, is the outcome of work involving a wide range of stakeholders, including many governments. It’s among the first roadmaps exploring as to how public policy should be re-evaluated in this space.

The Berkman Center’s Digital Media Team was invited to comment on a draft version of this report. Today, we congratulate the study’s authors to a thorough multi-stakeholder analysis, written in a challenging environment.

Stay tuned.

Update: The OECD report is also featured in the latest edition of The Economist (subscription required.) See also WIRED News with reactions from IFPI.

DVD Copy Control: Class Action in France

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BNA’s Electronic Commerce & Law Report (subscription required) reports that French attorneys have filed a class action against six of France’s leading audio-visual sector firms, claiming that the use of copy control technology on DVDs violates consumers’ right to make private copies for personal use. The complaint is based on a French appellate court’s ruling mentioned here.

INDICARE Releases Supplement to DRM Report

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INDICARE has published an interesting supplement to its state-of-art report on digital rights management. Here’s the abstract:

The issue of DRMs and Consumer Concerns is beginning to draw attention. This is one conclusion of the first supplement of the INDICARE State-of-the-Art Report. After the INDICARE State-of-the-Art Report, published in December 2004, has provided a first overview of the social, technical, legal and economic discussion about Digital Rights Management (DRM) solutions, the INDICARE-team continued to monitor the developments in this sector. The present supplement reports on new developments since December 2004. It also responds to a number of comments INDICARE received on the first report from experts and interested parties. Central in the present publication is a selection of issues that reflect new developments or that, in the view of the INDICARE team, deserve more attention in future discussions.
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