Digital Property Revisited

Preface

In Chapter 5 of my book “Collisions in the Digital Paradigm: Law and Rulemaking in the Internet Age” I discussed what I called the property problem and whether a digital file could amount to property. My main argument against such a proposition was based upon technological realities – digital material was paradigmatically different from earlier items or forms that could amount to property. It was a difficult position to sustain, especially in light of the decision of the New Zealand Supreme Court in Dixon v R.

I considered that the property problem was a true collision in the digital paradigm – a collision between accepted theory which had incrementally developed over the years and which had developed defining characteristics for items of property, and the technological realities of digital data.

Furthermore, the particular collision in the digital paradigm is that, with so much information being digitised – and important information at that – it may well be that current remedies for breach of confidence, copyright infringement and the like do not provide a sufficient remedy nor deterrent particularly when the behaviour is accompanied by clear instances of dishonesty associated with the appropriation of information which can be converted into something of value.  The difficulty is, as was observed in the case of Your Response Limited v Data Team Business Media Limited that the law of unintended consequences may come into play.

My view at the time was that the confluence of data on the one hand with information on the other placed the law in an invidious position. Data or electromagnetic impulses scattered across a medium could not be property although the “merger theory” utilised by US Courts seemed to provide a possible solution. I concluded Chapter 5 with the following observation

“The issue of virtual property remains an open question and much depends upon the nature of the terms and conditions that exist between the provider and the customer. It may be that legislation will address this problem in the future, recognising that in a paradigm of continuing disruptive change, changes to perceptions of whether what may fall within the category of intangibles may have value needs to be recognised along with a further recognition that existing remedies under “traditional”   fields of law such as intellectual property and breach of confidence may be too limited to accord sufficient protection. The concept of no property in pure information could remain. Information that is not associated with a medium could remain as intangible. But the digital file associated with a medium would have a level of tangibility sufficient to attract the protection of the civil and criminal law.”

The cases discussed in this paper seem to provide the pathway that I tentatively identified. Hence the title “Digital Property Revisited”.

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Introduction

The Digital Paradigm poses challenges to existing legal concepts. One particular challenge has been whether or not a digital file may be considered property for legal purposes.

Recently the issue has been highlighted by cases involving two important property based issues. The first is whether or not a digital file – in the particular case the contents of a computer including emails – may be property for the purposes of conversion

The second is whether a cryptocurrency such as bitcoin can be property.

The “Property” Issue

Can computer files be property for the purposes of the exercise of a possessory lien or amount to property to sustain an action for conversion? There are diverging lines of authority. The English position is based upon the theory that computer files comprise information and that there can be no property in information.[1] The issue then becomes further complicated by the distinction between choses in possession and choses in action

The English Approach

In the case of OBG v Allen[2]  the House of Lords held that wrongful interference with contractual rights could not constitute the tort of conversion because the tort applied only to chattels and not to choses in action

The position was articulated by Lord Hoffman who pointed out that historically conversion was a tort against a person’s interest in a chattel and expressed the view[3] that the whole of the statutory modification of the law of conversion had proceeded on the assumption that the tort applies only to chattels. 

Although it was suggested by Lord Nicholls and Lady Hale that the tort of conversion should be extended to cover the appropriation of things in action Lord Brown rejected that proposition on the grounds that it would sever the link between the tort of conversion and the wrongful taking of physical possession of property.

OBG v Allan makes clear the sharp distinction in the common law between tangible and intangible property. The issue of tangibility is an important one in considering whether there may be a property right in information.  Information in and of itself has no tangibility at all. Information incorporated into a document is associated with a medium and in such a situation conversion could apply but it relates to the medium – the document – thereby creating an unlawful interference with a physical object to which a commercial value can be attached.  In contrast to chattels, choses in action are intangible things and incapable of the physical possession necessary to support a claim for conversion.

In England the case of Your Response Limited v Data Team Business Media Limited[4] developed the issue.

Rather than being considered within the context of a remedy for conversion the issue was whether or not a possessory lien could apply to a data base.  Data Team Business Media Limited carried on business as a data base manager. It offered customers the service of holding electronic data basis and amending them as required in order to ensure that the information contained was up to date.  In 2010 Your Response engaged Data Team to hold and maintain its data base of subscribers.

Following non-payment of fees Data Team refused to release the data base or give Your Response access to it until all outstanding fees were paid.  In the proceedings that followed the Judge at first instance held that the data manager, Data Team, was entitled to withhold the data until those fees were paid and rejected Your Response’s argument that the exercise of a lien was inconsistent with the terms of the contract and that it was not possible to exercise a lien over intangible property in this case the electronic data.

In his decision the Judge at first instance drew an analogy between information kept in hardcopy in the form of ledgers over which a book keeper could exercise control by means of physical possession and information kept in electronic form over which the data manager could exercise control by electronic means.

The Court of Appeal observed that the Judge had not had his attention drawn to the case of OBG Limited v Allen[5] and went on to consider the nature of a common law possessory lien, observing the possessory aspect of the remedy and the requirement for there to be actual possession of goods, requiring tangibility in contradistinction to a chose in action – essentially personal rights of property which could be claimed or enforced by action and not by taking physical possession.[6]

It was observed[7] that there are indications that information of the kind that makes up a data base – usually but not necessarily maintained in electronic form – if it constitutes property at all – does not constitute property of a kind that is susceptible of possession or of being the subject of the tort of conversion.  Under the provisions of the Copyright Designs and Patents Act 1988 (UK) the nature of protection accorded to the makers of data bases by that legislation reflects a recognition that data bases do not represent tangible property of a kind that is capable of forming the subject matter of torts concerned with the interference of possession.

Davis LJ observed[8] that the subtext of the argument on behalf of Data Team was that the courts should not leave the common law possessory lien stuck in its 18th and 19th century origins in developments but should go on to give it a 21st century application.  Although that appealed to modernism and had its attractions it should be resisted. Davis LJ observed that although that approach found favour with the minority in OBG v Allen it did not find favour with the majority. 

The second point made by Davis LJ was more far reaching. He observed that the law of unintended consequences is no part of the law of England and Wales but it is worth paying attention to it in the appropriate case.  He observed that if a common law possessory lien could arise in a case such as Your Response v Data Team it would be a right in rem and not a right in personam.   

Furthermore a right to such a possessory lien could have an impact upon creditors of the company and could confer rights in an insolvency which other creditors would not have.  In addition the possession of lenders could be affected and, given the number of IT companies and businesses, the impact of Data Team’s arguments, if accepted, could be significant.  Davis LJ also observed that if a data base is to be regarded as tangible property it may have implications for other areas of the law altogether for example, the law of theft (as contrasted with the legislation relating to misuse of computers). 

Davis LJ’s observations about unintended consequences found favour with Floyd LJ. He made the observation that an electronic data base consists of structured information which may give rise to intellectual property rights but again emphasised that the law had been reluctant to treat information itself as property.  He observed that when information is created and recorded there are sharp distinctions between the information itself, the physical medium on which the information is recorded and the rights to which the information gives rise.  Whilst the physical medium and the rights are treated as property the information itself never has been and to accept Data Team’s arguments would result in a fundamental change in the law.[9]

I have discussed Your Response in some detail because it is of significance when the position in New Zealand is considered to which I shall now turn.

The New Zealand Approach – Henderson v Walker

The case of Henderson v Walker[10] dealt with a number of issues following upon the liquidation of Property Venture Ltd of whom the Plaintiff was a director. The defendant was the liquidator of the company and other companies in the group. He was instrumental in the Police seeking and obtaining warrants to seize the records of the companies. The actions of the defendant following receipt of a tape drive and a laptop owned by the Company that was the subject of the case. In particular, there were concerns on the part of the plaintiff that the defendant, fuelled by malice, provided his personal information to the Inland Revenue Department, the Official Assignee and other third parties.

There were some six causes of action pleaded but for the purposes of this discussion only one – in conversion – is relevant. The question was whether or not certain computerised information contained in files and emails was property that could sustain an action in conversion.

Thomas J started by considering the traditional position, taking into account three elements

a)      Plaintiff must have an immediate right to the goods

b)      Defendant’s conduct must be deliberate

c)       Defendant’s conduct must be so extensive an encroachment on the     plaintiff’s right as to exclude him from use and possession of goods.

There was an assumption that the tort applied to personal tangible property. Possession – which underlies the tort – requires physical control and an intention to exclude. Because intangible property is not physical thus it cannot be physically controlled and therefore possessed.[11]

Your Response Rejected

At first blush it would appear that Your Response Ltd was directly on point and would dictate the outcome. That was not to be. Thomas J considered that much of the reasoning in Your Response was specific to the UK context noting that the NZ Courts are not bound by OBG v Allan and that there is no statute that alters the tort of conversion. On that basis it was open to the Court to depart from the UK position.

Thyroff v Nationwide Mutual Insurance Co

Thomas J then considered the US position, noting that the New York State Court of Appeals[12] had explicitly extended the tort of conversion at cover electronic records. That Court focused upon the so-called “merger doctrine” which the courts had developed to allow claims for the conversion of intangible property where that property was represented by a physical asset, such as a stock certificate.

The Court noted:

The merger rule reflected the concept that intangible property interests could be converted only by exercising dominion over the paper document that represented that interest (see Pierpoint v Hoyt, 260 NY at 29). Now, however, it is customary that stock ownership exclusively exists in electronic format. Because shares of stock can be transferred by mere computer entries, a thief can use a computer to access a person’s financial accounts and transfer the shares to an account controlled by the thief. Similarly, electronic documents and records stored on a computer can also be converted by simply pressing the delete button (cf. Kremen v Cohen, 337 F3d at 1034 [“It would be a curious jurisprudence that turned on the existence of a paper document rather than an electronic one. Torching a company’s file room would then be conversion while hacking into its mainframe and deleting its data would not” (emphasis omitted)]).

Furthermore, it generally is not the physical nature of a document that determines its worth, it is the information memorialized in the document that has intrinsic value. A manuscript of a novel has the same value whether it is saved in a computer’s memory or printed on paper. So too, the information that Thyroff allegedly stored on his leased computers in the form of electronic records of customer contacts and related data has value to him regardless of whether the format in which the information was stored was tangible or intangible. In the absence of a significant difference in the value of the information, the protections of the law should apply equally to both forms – physical and virtual.

Unsurprisingly, given the direction of the discussion, it was clear that there were no New Zealand authorities on whether conversion extended to intangible property. There were, however, other cases where the issue of whether there was a property interest in a computer file had been considered. Thomas J referred to the case of Dixon v R.[13]

Dixon v R

Dixon centred around the use of a computer system to dishonestly obtain property – a digital file – in breach of section 249(1)(a) of the Crimes Act 1961 (NZ). In that case the Court of Appeal[14] held that a digital file cannot be property for the purposes of the criminal law. This finding depended upon the way in which various definitions contained in the Crimes Act coupled with the nature of the charge were interpreted by the court. The New Zealand Supreme Court reversed the Court of Appeal and adopted a different approach.

The facts of the case were that Mr Dixon had been employed by a security firm in Queenstown. One of the clients of the firm operated a bar in Queenstown and had installed a closed-circuit TV system in the bar. In September 2011 the English rugby team was touring New Zealand as part of the rugby world cup.  The captain of the team was a Mr Tindal who had recently married the Queen’s granddaughter. On 11 September 2011 Mr Tindal and several other members of the team visited the bar and there was an incident involving Mr Tindal and a female patron which was recorded on the CCTV system. 

Mr Dixon found out about the existence of the footage and asked one of the bar’s receptionists to download it onto a computer that was used at work. This was done under the impression that Mr Dixon required it for legitimate work purposes. The footage was located and saved onto the computer. Mr Dixon accessed the computer, located the relevant file and transferred it onto a USB stick belonging to him.

He then attempted to sell the footage but that proved to be unsuccessful and he posted it on a video sharing site, YouTube, resulting in a storm of publicity both in New Zealand and in the United Kingdom.

At his trial the Judge found that Mr Dixon had done this out of spite and to ensure that no one else would have the opportunity to make any money from the footage.  A complaint was laid with the Police and Mr Dixon was charged under s 249(1)(a) of the New Zealand Crimes Act.[15] 

The charge against Mr Dixon alleged that he had access to computer system and thereby dishonestly and without claim of right obtained property – the video file. The issue before the court was whether or not that file and digital footage stored on a computer amounted to property as defined in the Crimes Act.

In its discussion the Supreme Court referred to both Your Response Ltd v Datateam Business Media Ltd and Thyroff v Nationwide Mutual Insurance Co, but did not find it necessary to consider either in any detail.

The Court also found it strictly unnecessary to determine whether digital files are intangible property or tangible property. The Court emphasised that the meaning of the word “property” varies with context. The Supreme Court noted

“… we have no doubt that the digital files at issue are property and not simply information. In summary, we consider that the digital files can be identified, have a value and are capable of being transferred to others. They also have a physical presence, albeit one that cannot be detected by means of the unaided senses…”[16]

Ortmann v US

The decision in Dixon was referred to in the case of Ortmann & Ors v United States.[17] In that case consideration was given to the identification of “pathway offences” for the purposes of extradition for what could broadly be described as commercial copyright infringement involving among other things films in digital format.

The Court considered whether Section 240 of the Crimes Act was available as a “pathway offence”. Section 240 creates the offence of obtaining or causing loss by deception. There are four circumstances in which the offence may occur, all of them requiring elements of deception on the part of the perpetrator together with an absence of claim of right.

It was conceded that the element of deception could be made out by virtue of false representations that were contained in emails. The element of obtaining was satisfied by the extended definition of obtaining which included retaining.

For the offence to be complete, property had to be obtained. Gilbert J held that the copyright protected films in digital file format were property and cited as authority the case of Dixon v R[18] – the decision of the Supreme Court.

In this commentator’s respectful view Gilbert J read Dixon more widely than was available to him. Dixon was a case that centred around whether or not a digital file was property for the purposes of section 249 of the Crimes Act. The Supreme Court held that it was. What Gilbert J did was to extend the limited purpose identified by the Supreme Court to encompass section 240, thus widening the applicability of the concept of digital property to other sections of the Crimes Act. However, Ortmann was not considered by Thomas J in Henderson.

Information and Data as Property

Thomas J considered competing academic views on the issue of data as property, leaning towards the view that in a modern society intangible property, such as data, is an increasingly valuable resource that requires legal protection. Tangibility, it is argued, is an arbitrary requirement and that the tort of conversion should be brought up to date with advancements in technology.[19]

The academic opponents of extension of property to data focus upon the issue of possession and how that important element of property could be extended to an intangible. The comment in Your Response that although “it is possible to transfer physical possession of tangible property by simple delivery, it is not possible to deal with intangible property in the same way.” 

It is the issue of possession that is significant. Opponents are of the view that the common law should not give total despotic control over anything with economic value. An illustration is that even tangible property does not obtain protection against ephemeral interferences such as visual trespass, and it is the concept of possession that provides the limitation in the case of tangible property.

Thomas J then went on to consider the issue of whether information was property. She acknowledged that information, unlike property, cannot be separated from any person who once possessed it. It is easily acquired, and its free communication is essential to human existence. Furthermore, classifying information as property would undermine all the intricate distinctions and limitations developed by the law of breach of confidence.

Digital Assets

However, Thomas J then developed the concept of digital assets. She said

“However, in my view, it is possible to draw a distinction, as the Supreme Court did in Dixon v R, between information and digital assets. Unlike information, it is possible to apply the concept of possession to digital assets. By digital assets, I mean to include all forms of information stored digitally on an electronic device, such as emails, digital files, digital footage and computer programmes.”[20]

Thomas J then addressed the issue of control in the context of digital assets. Control is an element of possession and may be cognitive control and\or manual control. Physical control is just one aspect of manual control and manual control has within it the elements of excludability and exhaustability.

Something is excludable if others can be excluded from its control, while something is exhaustible if its value can be deprived from others. These criteria fit logically with the basis for conversion because together they enable someone to control property to the detriment of another.[21]

Thomas J considered that digital assets are both excludable and exhaustible. In terms of excludability, digital assets have a material presence in the sense that they physically alter the medium on which they are held, which is illustrated by the fact that hardware only has a finite storage capacity for digital assets, a point the Supreme Court picked up on in Dixon v R.

Physical presence allows others to be excluded from the digital asset, either by physical control of the medium or by password protection, which can be considered analogous to locking-up tangible property with a key.

Conversion requires an extensive encroachment on the possessory rights of the plaintiff, so if exhaustibility is a key component of possession, then it follows that the defendant must in some way deprive the plaintiff of the asset to make out the tort.

This requirement removes any inconsistency between the tort’s application to tangible and digital assets. It also mitigates any policy concerns that extending the tort would inhibit the free exchange of digital information.[22]

Thomas J concluded by observing that it seems obvious that digital assets should be afforded the protection of property law. They have all the characteristics of property and the conceptual difficulties appear to arise predominantly from the historical origins of our law of tangible property. There is a real difference between digital assets and the information they record. Such permanent records of information are already convertible when they take a physical form and it would be arbitrary to base the law on the form of the medium, especially now that digital media has assumed a ubiquitous role in modern life.[23]

Observations

My criticisms of Dixon and my support of the English position in Your Response has been based upon technological realities. Essentially, at its most basic form, digital data is no more nor less that a series of electronic impulses recorded upon a medium that require a complex system of devices to render it into comprehensible form. In such a state – dynamic, alterable and often mercurial in that data changes as a computer is started – it can hardly have the stability required of tangible property.

However, in light of the reasoning in Henderson and particularly Thomas J’s characterisation of digital assets I have reconsidered my position, and have come to a middle way that recognizes technological realities and yet conceptually allows digital material to be property. It is based upon the architecture of a computer file system.

A computer file system consists of a number of layers. At its most fundamental is the physical file system which organizes the data which is scattered about the medium. A second layer, which in some considerations may be optional, is the virtual file system which allows support for multiple concurrent instances of the physical file system. Finally, the logical file system provides the application program interface (API) for file operations and passes requested operations to the layer below for processing. This layer provides file access, directory operations, security and protection.

The logical file system is presented to the user in the form of a directory tree which contains file folders and file names. These are labels defined by the user (or in some cases the device) that allow the system to bring together the scattered data into coherent form. In many operating systems file folders are represented as just that – a folder. File names may be accompanied by an icon which represents the type of file that it might be – a Word document, an Adobe pdf, an image file and so on. These correspond to what Thomas J has described as digital assets.

In my opinion, and adopting Thomas J’s conceptual approach, the logical file system can be viewed in this way. There is a differentiation between a file and the information that it contains. In other words, the file itself in total can be seen as a container – akin to a book or a piece of paper which may contain text or information[24]. One can interfere with the book or paper (putting to one side the differences in physical media between such constructs and a digital storage system) and be interfering with property without interfering with the information that either item contains. The problem with Thomas J’s characterization of “digital assets” is that it fails to make the distinction between the logical file construct on the one hand and the data contained on the other.

Therefore, I concede that a digital file can amount to property within the context of the logical file construct of a digital filing system. The question now becomes one of whether or not that approach applies to all forms of digital files and digital constructs, because digital data is often organized in different ways depending upon its use.

One such difference in organization is in the field of cryptocurrencies, which leads me to consider the case of Ruscoe and Moore v Cryptopia Ltd (In Liquidation)[25]

The Cryptocurrency Issue

Before embarking upon a discussion of Crytopia some remarks by way of introduction need to be made.

The issue of whether or not cryptocurrencies such as Bitcoin can be property has been considered in three cases[26], all of which are mentioned in Cryptopia.  What is significant is that the treatment of the issue has been superficial and within the context – as is so often the case – of interlocutory proceedings. Cryptopia is the first case to give a considered analysis of the issue.

Ruscoe and Moore v Cryptopia

Cryptopia – a cryptocurrency trading exchange – went into liquidation after a hack resulted in a loss to the Company of $30 million. The company held cryptocurrencies to a value of $170 million. The issue was the legal nature and status of those digital assets and the potential equitable interests in them.

Cryptoassets Defined

The judge, Gendall J first examined what cryptocurrency was and relied to a considerable degree upon British report of the “UK Jurisdiction Taskforce” entitled Legal Statement on Cryptoassets and Smart Contracts.[27] This report considers broadly the legal status of crypto assets and whether the law treats them as property. The report plays an important role in Gendall J’s decision as it did in the case of AA v Persons Unknown.[28]

Crypto assets arose as a result of a proposal by the pseudonymous Satoshi Nakamoto who proposed a new electronic payment system “based on cryptographic proof instead of trust”, with digital tokens – bitcoins – taking the place of traditional currency. The first bitcoin came into existence in January 2009, not coincidentally at the height of the global banking crisis.

Since then other systems have developed using cryptographic techniques. Most of the applications involve dealing in assets of some sort which are represented digitally in the system. This there is a link between a digital representation and an actual asset. The digital representations are referred to as crypto assets. However, because of the large number of different systems in use and the types of assets represented it is difficult to formulate a precise and all-embracing definition of the term.

In general terms there are common features of crypto assets which, when compared with conventional assets are novel or distinctive.

The starting point is to understand the rules of the system within which the crypto asset exists. Functionally, it is typically represented by a pair of data parameters, one public (in that it is disclosed to all participants in the system or to the world at large) and one private.

The public parameter contains or references encoded information about the asset, such as its ownership, value and transaction history.

The private parameter – the private key – permits transfers or other dealings in the crypto asset to be cryptographically authenticated by digital signature.

Knowledge of the private key confers practical control over the asset; it should therefore be kept secret by the holder. More complex crypto assets may operate with multiple private keys (multisig), with control of the asset shared or divided between the holders.

Dealings in a crypto asset are broadcast to a network of participants and, once confirmed as valid, added to a digital ledger. The main function of the ledger is to keep a reliable history of transactions and so prevent double-spending, i.e. inconsistent transfers of the same crypto asset to different recipients.

The ledger may be distributed and decentralised, that is, shared over the network with no one person having a responsibility for maintaining it, or any right to do so.

A common type of distributed ledger uses a blockchain, which comprises blocks of transactions linked together sequentially, but other models are also in use.

An important feature of some systems is that the rules governing dealings are established by the informal consensus of participants, rather than by contract or in some other legally binding way.

Consensus rules (employing methods such as proof-of-work or proof-of-stake) may also determine which version of the distributed ledger is definitive. The rules are self-enforcing in practice, even if not enforceable in law, because only transactions made in compliance with them and duly entered in the ledger will be accepted by participants as valid.[29]

Thus there are five common characteristics to crypto assets:

  • intangibility;
  •  cryptographic authentication;
  •  use of a distributed transaction ledger;
  • decentralisation; and
  • rule by consensus.

Gendall J also considered how Cryptopia operated and its terms and conditions which governed its relationship with its account holders. The, having established the technological and business model issues he went on to consider the legal position.

Legal Issues Arising

The starting point was the power to give directions to the liquidator of the company in relation to any matter arising in the liquidation.[30] There were a number of questions that the liquidator wanted the Court to answer as to the legal status of the Digital Assets. The first and most relevant to this discussion was whether or not they constituted property as defined by s. 2 of the Companies Act.[31]

There were also questions posed as to the nature of the way in which the assets were held for account holders, whether they were in trust and, depending upon the answers to those questions were a number of supplementary questions which arose. However the Court considered the two main issues were

(a)     Are cryptocurrencies a type of “property” in terms of the Companies Act and, linked to this, can cryptocurrencies form the subject matter of a trust?

(b)     Was Cryptopia, in providing a cryptocurrency storage and exchange service for its customers, a trustee of the currency brought onto the exchange by accountholders and held by it?

The account holders argued that cryptocurrencies must be seen as a form of intangible personal property both at common law and within the definition contained in s 2 of the Companies Act. The liquidators and the creditors disagreed with this. The creditors also contended that cryptocurrencies are not property capable of forming the subject matter of a trust at common law. Alternatively even if they are not property they are capable of forming the subject matter of a trust.[32]

It was contended for the account holders that any finding by the Court that cryptocurrencies are not property would have profound and unsatisfactory implications for the law in New Zealand including in particular insolvency law, succession law, the law of restitution and commercial law more generally. It was also contended that this was a matter for the Court to decide rather than be left to Parliament as argued by the creditors.

The Importance of the Property Issue

The Judge considered why it mattered that a cryptocurrency was property. He referred to a text which stated:

“Property is a gateway to many standard forms of transactions. A crypto-coin can never become the subject matter of a trust or a proprietary right of security, nor will it be an asset in a deceased’s person’s estate, unless it is first recognised as an object of property. The same is true of a secured creditor or trust beneficiary enforcing their claim in property to the unsecured creditors of an insolvent coin-holder. The development of a viable cryptocurrencies derivative market may sometimes require that the primary assets from which secondary claims are constructed are capable of legal recognition as property.”[33]

He then turned to the approach set out on the Legal Statement on Cryptoassets and Smart Contracts and concluded that the cryptocurrencies here situated in Cryptopia’s exchange are a species of intangible personal property and clearly an identifiable thing of value. Without question they are capable of being the subject matter of a trust.[34]

The starting point was that the Courts in New Zealand had accepted that the definition of property was a wide one, and after a brief reference to the case of  National Provincial Bank Ltd v Ainsworth[35] where Lord Wilberforce set out the four characteristics of property[36] (and to which he would later return) he went on to consider other cases involving the issue of cryptocurrencies as property.

Other Cases on Cryptocurrencies

B2C2 Ltd v Quoine Pte Ltd

The first case to which Gendall J referred was that of B2C2 Ltd v Quoine Pte Ltd (Singapore)[37] In that case Quoine had conceded that Bitcoin was a species of “property” but it did not concede that there was any trust. Thorley IJ considered that the concession on the “property” point was rightly made and in his judgment his Honour stated

“Cryptocurrencies are not legal tender in the sense of being a regulated currency issued by government but do have the fundamental characteristic of intangible property as being an identifiable thing of value. Quoine drew my attention to the classic definition of a property right in the House of Lords decision of National Provincial Bank v Ainsworth [1965] 1 AC 1175 (HL) at 1248:

…it must be definable, identifiable by third parties, capable in its nature of assumption by third parties, and have some degree of permanence or stability.

Cryptocurrencies meet all these requirements. Whilst there may be some academic debate as to the precise nature of the property right, in the light of the fact that Quoine does not seek to dispute that they may be treated as property in a generic sense, I need not consider the question further.”

The case went on appeal – one of the major issues was whether the cryptocurrencies were held on trust but as to the property issue the Court of Appeal declined to decide whether Bitcoin was property capable of forming the subject matter of a trust. Menon CJ noted

“There may be much to commend the view that cryptocurrencies should be capable of assimilation into the general concepts of property. There are, however, different questions as to the type of property that is involved. It is not necessary for us to come to a final position on this question in the present case.”

This comment was described by Gendall J as “helpful”.[38] The Singapore decision in B2C2 has previously been much cited despite the brevity of its reasoning.

Vorotyntseva v Money-4 Ltd[39]

In Vorotyntseva Birss J sitting in the Chancery Division of the English High Court granted ex parte a proprietary freezing order over some bitcoin and ethereum currency, stating that the defendant in that case had not suggested that “cryptocurrency cannot be a form of ‘property’ but there was no further discussion on the point.

Shair.Com Global Digital Services Ltd v Arnold[40]

In Shair.com the Supreme Court of British Colombia granted an ex parte preservation order to the plaintiff company against its former chief operating officer with respect to digital currencies that might still be in the defendant’s possession.

Without providing any reasoning the Court accepted that cryptocurrencies could be property within the rules for preservation orders, noting that in the correspondence between the parties that had been filed for the proceeding the defendant had not denied that the plaintiff had an interest to pursue.

AA v Persons Unknown[41]

 In AA Bryan J granted an interim proprietary injunction against a cryptocurrency exchange over bitcoin which represented proceeds of ransom monies paid out to a hacker by the applicant insurance company. The hackers had installed malware into the insurance company’s computer system, and demanded the company pay a ransom in bitcoin, to regain access to its system. The ransom was paid in bitcoin and transferred into the exchange. The insurance company applied to the Court for an interim proprietary injunction against the exchange over the bitcoin, amongst other things.

Only counsel for the applicant insurance company appeared at the hearing in that case and filed submissions. It seems the High Court in AA primarily relied on the Legal Statement on Cryptoassets and Smart Contracts, and that no other argument was addressed to the Court on the issue.

While from the above cases it will be apparent that this was not the first common law decision to consider the status of crypto assets, it is both the first to give detailed consideration to the point, and the first to consider the careful reasoning of the UKJT Legal Statement.

While Bryan J caveated his conclusions, stating that his conclusion is “at least to the level required for the purposes of this application for interim relief”, the otherwise unreserved endorsement and complete adoption of the careful and well-reasoned position taken by the UKJT Legal Statement strengthened the status of that publication, and had given one of its major conclusions a strong judicial endorsement.

New Zealand Cases

Gendall J referred not unsurprisingly to Dixon v R[42]and to Henderson v Walker[43] noting the findings in those cases as to the nature of digital property. He considered that the findings in Henderson, could be properly extended to wrongful interferences with cryptocurrency or digital assets. Any person who gained unauthorised access to the private key attached to cryptocoins and used it would permanently deprive the proper possessor of the cryptocoins of that property and its value.[44]

In the case of Commissioner of Police v Rowland[45] the Court approved a settlement under the Criminal Proceeds (Recovery) Act 2009 that included quantities of two cryptocurrencies – bitcoin and ethereum. The question whether the cryptocurrencies were “property” that was amenable to forfeiture under that legislation, however, was not raised in the proceeding. An assumption was made that they did fall within the definition in terms of that legislation[46].

Importantly the Judge analysed the approach in Dixon and Henderson noting the New Zealand courts involved have accepted that the orthodox position that information is not “property” does not attach to cases involving digital assets. There, digital files were seen as “property” by distinguishing them from “pure information”.

National Provincial Bank Ltd v Ainsworth

Gendall J then went on to consider Lord Wilberforce’s four requirements for property and considered that all four of his requirements could be applicable to computer data.

Identifiable Subject Matter

As to the requirement of identifiable subject matter, in the context of cryptocurrencies, computer readable strings of characters recorded on networks were sufficiently distinct to be capable of then being allocated uniquely to an accountholder on that particular network. For the cryptocurrencies involved here, the allocation is made by what is called a public key – the data allocated to one public key will not be confused with another.

This is the case even though the identical data is held on every computer attached to the network. Indeed, the working of the system is such that the distribution of the data across a large network of computers, when combined with cryptography that prevents individual networks from altering historic data over the network, assists in giving that data stability. It is these features that provide the basic underpinning for the existing cryptocurrencies.[47]  

Thus the combination of the data together with the unique identifier which related to that data fulfilled the criterion of identifiability. This differs from the means of identification of computer data in a container within a logical file system, and shows the difficulty in trying to reach a common and all-embracing approach to computer data as property because of the diverse types of circumstances surrounding the storage and recover of such data.

Identifiable by Third Parties

Can the subject matter be identifiable by third parties. This second item of Lord Wilberforce’s criteria refers to the thing that is identified as having to have an owner capable of being recognised as such by third parties.

This is the aspect of exclusivity that is referred to by Thomas J in Henderson. There has to be a degree of control over the asset to the exclusion of others. That is as much if not more significant than the power to use of to benefit from the asset.[48]

Gendall J considered that exclusivity was achieved with cryptocurrencies by the computer software allocating to each public key a second set of data made available only to the holder of the account (the private key), and requiring the combination of the two sets of data in order to record a transfer of the cryptocurrency attached to the public key from one account to another.

The judge observed that a varied public key and a new private key for the cryptocurrency are generated after each transfer of cryptocurrency. He likened the private key to a PIN. Anyone who learns of the private key attached to a public key can transfer the public key but the private key, having been used once in respect of the public key, cannot be used again.[49]

Assumption by Third Parties

Third parties must respect the rights of the owner in that property. This means that the law will give effect to proprietary rights if a third party asserts a claim to ownership without justification.

Usually, although not invariably, an asset recognised by the law as an item of property will be something which is potentially desirable to third parties such that they would want themselves to obtain ownership of it. It may well be that an asset has no market value, but that matters not.[50]

Degree of Permanence or Stability

It was recognized that some assets have little permanence yet still remain property. Gendall J gave the example of a ticket to a football match which had a short useful or valid life and unquestionably was regarded as property.[51] The judge also considered that there was no problem in situations where the short life of an asset is the result of the deliberate process of transferring the value inherent in the asset so that one asset becomes replaced by another. This is the way that cryptocurrencies work but by the same token bank payments use a similar process which he described as native to the property in question.[52]

He also considered the action of wrongful interference with a cryptocurrency , by someone gaining unauthorised access to the private key or by hacking the address to which an owner intends to send a coin. He considered this from the position of risk, observing that the risk was not markedly greater than those borne by an owner of tangible property or a person relying on the integrity of a bank account record with or without the use of a PIN.[53]

Gendall J concluded his analysis of the Ainsworth categories with the following comment:

“I am satisfied that cryptocurrencies meet the standard criteria outlined by Lord Wilberforce to be considered a species of “property”. They are a type of intangible property as a result of the combination of three interdependent features. They obtain their definition as a result of the public key recording the unit of currency. The control and stability necessary to ownership and for creating a market in the coins are provided by the other two features – the private key attached to the corresponding public key and the generation of a fresh private key upon a transfer of the relevant coin.”[54]

Arguments Against Cryptocurrencies as Property

The Judge then considered some of the arguments against the concept of cryptocurrencies as property. These were identified primarily for the purposes of discounting them.

Tangibles or Choses in Action

The first argument arose from the dicta of Fry LJ in Colonial Bank v Whinney[55] and the theory that the law recognizes only two classes of personal property – tangibles or choses in action. Gendall J was of the view that cryptocurrencies could be classed as choses in action and observed that it would be ironic that something that might be said to have more proprietary features than a simple debt is deemed not to be property at all when a simple debt qualifies.[56]

No Property in Information

The second argument was that surrounding the suggestion that information was not property. I have discussed this in the context of Henderson and I repeat the differentiation that may be made between the contents (information) and the container (the logical file system).

He considered Your Response Ltd but was dismissive of it in a summary manner saying  “[as] I see it, however, the decision in Your Response does not go much further than to make a determination upon the particular facts of that case. I am satisfied it is an inconclusive precedent in a case such as the present.”[57]

There was probably a very simple way to provide a rationale for dismissing Your Response by perhaps observing that there were differences in the subject matter of Your Response (a database) and that of Cryptopia (a cryptocurrency supported by blockchain and with a public\private key authentication process).

The common feature between the two cases is that they involve digital data but the way that data is stored and accessed is quite different and requires an analysis in each case to determine whether or not the legal requirements of “property” are fulfilled.

If there is a problem with Your Response it is that the Court of Appeal placed excessive weight upon the contents of the database which, correctly was the information, as opposed to the container within which it resided – that is the logical framework within which the data was contained.

Gendall J considered whether or not cryptocurrencies could be mere information. On the basis of my analysis the answer is no but Gendall J adopted a different line of reasoning.

Firstly he considered the purpose of cryptocurrencies which was to create an item of tradeable value not simply to record or to impart in confidence knowledge or information. Although cryptocoins are not backed by the promise of a bank, the combination of data that records their existence and affords them exclusivity is otherwise comparable to the electronic records of a bank. The use of the private key also provides a method of transferring that value. This might be seen as similar in operation to, for example, a PIN on an electronic bank account.

He then observed that cryptocoins were no more information than are the words of a contract. At its most basic level this is incorrect because words are capable of being read or heard.[58] Words are information. They inform and have meaning.

But what Gendall J meant, with respect, is that words within the framework of a contract are not information because collectively and cumulatively they create a relationship recognized by equity. The contract is conceptualized as the container for the specific information that establishes the equitably recognized relationship.

Another reason for rejecting the “cryptocurrency as mere information” argument is that the data is not available for those with eyes to read or ears to hear. Every public key recording the data constituting the coin is unique on the system where it is recorded. It is also protected by the associated private key from being transferred without consent.

In addition, cryptocurrency systems provide a more secure method of transfer than a mere assignment of a chose in action. It is possible in equity for the holder of a chose in action to assign it multiple times. Only one assignment will be effective to bind the debtor but the winner may not be the first assignee in time but rather the first assignee to notify the debtor. By way of contrast, a cryptocoin can not only be assigned in that way but it can also be sold only once and that the argument that cryptocurrency is mere information and therefore it is not property is a simplistic one and, in the view of Gendall J  is wrong in the present context.[59]

Conclusion

Cryptopia is a significant case because, unlike its predecessors discussed above, it is the first case to give detailed analysis of the nature of cryptocurrencies and why they are property. It provides a carefully considered rationale for its conclusion and settles a complex question about aspects of digital property.

But it is not a complete answer. It is not a universal authority for the principle that digital data is property or that digital files are property. It is authority only for the proposition that cryptocurrencies are property. With little difficulty the rationale could probably be extended to other aspects of blockchain.

However, what Cryptopia and Henderson do give us is an analytical pathway to a consideration of whether the different flavours of digital data comprise property. Once the analysis recognizes that a consideration of the data alone without a consideration of the way in which it is technologically structured – what could be referred to as “the container theory” –  is a flawed approach, the analytical pathways become significantly clearer.

As is the case with all aspects of the common law, further developments in this field will be incremental. However, on the present state of technological understanding of the Digital Paradigm it is unlikely that at law there will be a Unified Property Theory that will be applicable to all forms digital data.


[1] See Phipps v Boardman [1967] 2 AC 46 (HL).  – information “is normally open to all who have eyes to read and ears to hear” See also Oxford v Moss (1979) 68 Cr App R 183.

[2] [2007] UKHL 21, [2008] 1 AC 1.

[3] Ibid. para [97].

[4] [2014] EWCA Civ 281, [2015] QB 41..

[5] Above n.2

[6] Torkington v McGee [1902]  2 KB 427

[7] Your Response Ltd v Data Team Business Media Ltd above n. 4 at para [17]

[8] Ibid. at para [38].

[9] There have been a number of other cases which have held that information does not amount to property.  In the case of Boardman v Phipps [1967] 2 AC 46 it was held that confidential information was not property.  The position in Australia and in New Zealand is similar – See TS and B Retail Systems v Three Fold Resources No 3 [2007] FCA 151 and Farah Construction Pty v Saydee Pty [2007] HCA 22.  A similar conclusion has been reached in Hunt v A [2007] NZCA 332; [2008] 1 NZLR 368. In Money Managers Limited v Foxbridge Trading (Unreported High Court Hamilton CP 67/93 15 December 1993 per Hammond J) the observation was made that “extreme caution should be exercised in granting proprietary protection to information and that if protection is to be granted at all, it should be in very narrowly circumscribed terms.” The rejection of the argument that information is property was also upheld in Taxation Review Authority 25 [1977] TRNZ 129. 

[10] [2019] NZHC 2184

[11] Ibid at [251]

[12] Thyroff v Nationwide Mutual Insurance Co 8 NY 3d 283 (NY 2007)

[13] [2015] NZSC 147 (SC); [2016] 1 NZLR 678

[14] Above n. 1.

[15] That section provides as follows.

Accessing computer system for dishonest purpose

(1) Every one is liable to imprisonment for a term not exceeding 7 years who, directly or indirectly, accesses any computer system and thereby, dishonestly or by deception, and without claim of right,—

(a) obtains any property, privilege, service, pecuniary advantage, benefit, or valuable consideration; or

(b) causes loss to any other person. (My emphasis)

[16] Dixon above n. 13 [25].

[17] [2017] NZHC 189

[18] Above n. 13.

[19] Henderson above n. 10 para [260].

[20] Ibid para [263].

[21] Ibid para [264].

[22] Ibid para [266].

[23] Ibid para [270].

[24] I advance that comparison tentatively and solely for the purposes of illustration.

[25] [2020] NZHC 728.

[26] B2C2 Ltd v Quoine Pte Ltd (Singapore) SGHC(I) 3, [2019] 4 SLR 17 [B2C2 (SGHC); Vorotyntseva v Money-4 Ltd [2018] EWHC 2596 (Ch) and AA v Persons Unknown [2019] EWHC 3556, [2020] 4 WLR.

[27] UK Jurisdiction Taskforce Legal Statement on Cryptoassets and Smart Contracts (The LawTech Delivery Panel, November 2019) [Legal Statement on Cryptoassets and Smart Contracts] https://technation.io/news/uk-takes-significant-step-in-legal-certainty-for-smart-contracts-and-cryptocurrencies

[28] Above n. 26.

[29] Legal Statement on Cryptoassets and Smart Contracts above n. 27.

[30] Section 284(1)(a) Companies Act 1993.

[31] Section 2 in defining property states “Property means property of every kind whether tangible or intangible, real or personal, corporeal or incorporeal, and includes rights, interests, and claims of every kind in relation to property however they arise.”

[32] Cryptopia above n. 25 at paras [50} – [51].

[33] Ibid [63].

[34] Ibid [69].

[35] [1965] AC 1175 (HL) at 1247–1248

[36] Before a right or an interest can be admitted into the category of property, or of a right affecting property, it must be definable, identifiable by third parties, capable in its nature of assumption by third parties, and have some degree of permanence or stability.

[37] SGHC(I) 3, [2019] 4 SLR 17 [B2C2 (SGHC)

[38] Cryptopia above n. 25 [84].

[39] [2018] EWHC 2596 (Ch).

[40] 2018 BCSC 1512.

[41] [2019] EWHC 3556, [2020] 4 WLR 35.

[42] Above n.13.

[43] Above n.10.

[44] Cryptopia above n 25 [93].

[45] [2019] NZHC 3314.

[46] The Criminal Proceeds (Recovery) Act 2009 defined property.

[47] Cryptopia above n. 25 [105].

[48] Ibid. [109] – [110].

[49] Ibid. [112].

[50] Ibid. [114].

[51] Care must always be employed in considering analogies with exemplars from a different paradigm. See David Harvey Collisions in the Digital Paradigm (Hart Publishing, Oxford, 2017) at p. 63 et seq.

[52] Cryptopia above n. 25 [117].

[53] Ibid. [119].

[54] Ibid. [120]. This identical point is made in the Legal Statement on Cryptoassets and Smart Contracts which says that a cryptoasset is “a conglomeration of public data, private key and system rules.”

[55] (1885) 30 Ch D 261

[56] Cryptopia above n. 25  [124].

[57] Ibid. [126].

[58] As specified by Lord Dilhorne in Boardman v Phipps [1967] 2 AC 46

[59] Cryptopia above n. 22 [127] – [128]

Do Social Network Providers Require (Further?) Regulation – A Commentary

This is a review and commentary of the Sir Henry Brooke Student Essay Prize winning essay for 2019. The title of the essay topic was “Do Social Network Providers Require (Further?) Regulation

Sir Henry Brooke was a Court of Appeal judge in England. He became a tireless campaigner during retirement on issues including access to justice. His post-judicial renown owed much to his enthusiastic adoption of digital technology although he spear-headed early initiatives for technology in courts and led and was first Chair of the British and Irish Legal Information Institute (BAILII) – a website that provides access to English and Irish case and statute law. Upon his retirement many came to know of him through his blog and tweets. He drafted significant sections of the Bach Commission’s final report on access to justice, and also acted as patron to a number of justice organisations including the Public Law Project, Harrow Law Centre and Prisoners Abroad.

The SCL (Society for Computers and Law) Sir Henry Brooke Student Essay Prize honours his legacy.  For 2019 the designated essay question this year was 2000-2,500 words on the prompt “Do social network providers require (further?) regulation?” the winner was Robert Lewis from the University of Law. His essay considers some of the regulatory responses to social media. His starting point is the events of 15 March 2019 in Christchurch.

The first point that he makes is that

“(h)orrors such as Christchurch should be treated cautiously: they often lead to thoughtless or reflexive responses on the part of the public and politicians alike.”

One of his concerns is the possibility of regulation by outrage, given the apparent lack of accountability of social networking platforms.

He then goes on to examine some examples of legislative and legal responses following 15 March and demonstrates the problem with reflexive responses. He starts with the classification of the live stream footage and the manifesto posted by the alleged shooter. He referred to a warning by the Department of Internal Affairs that those in possession of the material should delete it.

He then examines some of the deeper ramifications of the decision. Classification instantly rendered any New Zealander with the video still in his computer’s memory cache, or in any of his social media streams, knowingly or not, potentially guilty of a criminal offence under s.131 of Films Videos and Publications Classification Act 1993. He comments

“Viewing extracts of  the footage shown on such websites was now illegal in New Zealand, as was the failure to have adequately wiped your hard drive having viewed the footage prior to its classification. A significant proportion of the country’s population was, in effect, presented with a choice: collective self-censorship or criminality.”

Whilst he concedes that the decision may have been an example of civic responsibility, in his opinion it did not make good law. Mr. Lewis points out that the legislation was enacted in 1993 just as the Internet was going commercial. His view is that the law targets film producers, publishers and commercial distributors, pointing out that

“these corporate entities have largely been supplanted by the social network providers who enjoy broad exemptions from the law, which has instead been inverted to criminalise “end users”, namely the public which the law once served to protect.”

He also made observations about the maximum penalties which are minimal against the revenue generated by social media platforms.

He then turned his attention to the case of the arrest of a 22 year old man charged with sharing the objectionable video online. He commented that

“that faced with mass public illegality, and a global corporation with minimal liability, New Zealand authorities may have sought to make an example of a single individual. Again, this cannot be good law.”

Mr. Lewis uses this as a springboard for a discussion about the “safe harbor” provisions of the Communications Decency Act (US) and EU Directive 2000/31/EC, which created the “safe harbour” published or distributed.

Mr Lewis gives a telling example of some of the difficulties encountered by the actions of social media platforms in releasing state secrets and the use of that released information as evidence in unrelated cases. He observes

“The regulatory void occupied by social network providers neatly mirrors another black hole in Britain’s legal system: that of anti-terrorism and state security. The social network providers can be understood as part of the state security apparatus, enjoying similar privileges, and shrouded in the same secrecy. The scale of their complicity in data interception and collection is unknown, as is the scale and level of the online surveillance this apparatus currently performs. The courts have declared its methods unlawful on more than one occasion and may well do so again.”

A theme that becomes clear from his subsequent discussion is that the current situation with apparently unregulated social media networks is evidence of a collision between the applicability of the law designed for a pre-digital environment and the challenges to the expectations of the applicability of the law in the digital paradigm. For example, he observes that

“The newspapers bear legal responsibility for their content. British television broadcasters are even under a duty of impartiality and accuracy. In contrast, social network providers are under no such obligations. The recent US Presidential election illustrates how invidious this is.”

He also takes a tilt at those who describe the Internet as “the Wild West”.

“This is an unfortunate phrase. The “wild west” was lawless: the lands of the American west, prior to their legal annexation by the United States, were without legal systems, and any pre-annexation approximation of one was illegal in and of itself. In contrast, the social network providers reside in highly developed, and highly regulated, economies where they are exempted from certain legal responsibilities. These providers have achieved enormous concentrations of capital and political influence for precisely this reason.”

He concludes with the observation that unlawful behaviour arises from a failure to apply the law as it exists and ends with a challenge:

“ In England, this application – of a millennium-old common law tradition to a modern internet phenomenon such as the social networks – is the true task of the technology lawyer. The alternative is the status quo, a situation where the online publishing industry has convinced lawmakers “that its capacity to distribute harmful material is so vast that it cannot be held responsible for the consequences of its own business model.””

The problem that I have with this essay is that it suggests a number of difficulties but, apart from suggesting that the solution lies in the hands of technology lawyers, no coherent solution is suggested. It cites examples of outdated laws, of the difficulty of retroactive solutions and the mixed blessings and problems accompanying social media platforms. The question really is whether or not the benefits outweigh the disadvantages that these new communications platforms provide. There are a number of factors which should be considered.

First, we must recognize that in essence social media platforms enhance and enable communication and the free exchange of ideas – albeit that they may be banal, maudlin or trivial – which is a value of the democratic tradition.

Secondly, we must recognize and should not resent the fact that social media platforms are able to monetise the mere presence of users of the service. This seems to be done in a number or what may appear to be arcane ways, but they reflect the basic concept of what Robert A. Heinlein called TANSTAFL – there ain’t no such thing as a free lunch. Users should not expect service provided by others to be absolutely free.

Thirdly, we must put aside doctrinaire criticisms of social media platforms as overwhelming big businesses that have global reach. Doing business on the Internet per se involves being in a business with global reach. The Internet extends beyond our traditional Westphalian concepts of borders, sovereignty and jurisdiction.

Fourthly, we must recognize that the Digital Paradigm by its very nature has within it various aspects – I have referred to them elsewhere as properties – that challenge and contradict many of our earlier pre-digital expectations of information and services. In this respect many of our rules which have a basis in underlying qualities of earlier paradigms and the values attaching to them are not fit for purpose. But does this mean that we adapt those rules to the new paradigm and import the values (possibly no longer relevant) underpinning them or should we start all over with a blank slate?

Fifthly, we must recognize that two of the realities in digital communications have been permissionless innovation – a concept that allows a developer to bolt an application on to the backbone – and associated with that innovation, continuous disruptive change.

These are two of the properties I have mentioned above. What we must understand is that if we start to interfere with say permissionless innovation and tie the Internet up with red tape, we may be if not destroying but seriously inhibiting the further development of this communications medium. This solution would, of course, be attractive to totalitarian regimes that do not share democratic values such as freedom of expression

Sixthly, we have to accept that disruptive change in communications methods, behaviours and values is a reality. Although it may be comfortable to yearn for a nostalgic but non-existent pre digital Golden Age, by the time such yearning becomes expressed it is already too late. If we drive focused upon the rear view mirror we are not going to recognize the changes on the road ahead. Thus, the reality of modern communications is that ideas to which we may not have been exposed by monolithic mainstream media are now being made available. Extreme views, which may in another paradigm, have been expressed within a small coterie, are now accessible to all who wish to read or see them. This may be an uncomfortable outcome for many but it does not mean that these views have only just begun to be expressed. They have been around for some time. It is just that the property of exponential dissemination means that these views are now available. And because of the nature of the Internet, many of these views may not in any event be available to all or even searchable, located, as many of them are, away from the gaze of search engines on the Dark Web.

Seventhly, it is only once we understand not only the superficial content layer but the deeper implications of the digital paradigm – McLuhan expressed it as “the medium is the message” can we begin to develop any regulatory strategies that we need to develop.

Eighthly, in developing regulatory strategies we must ask ourselves whether they are NECESSARY. What evil are the policies meant to address. As I have suggested above, the fact that a few social media and digital platforms are multi-national organisations with revenue streams that are greater than the GDP of a small country is not a sufficient basis for regulation per se – unless the regulating authority wishes to maintain its particular power base. But then, who is to say that Westphalian sovereignty has not had its day. Furthermore, it is my clear view that any regulatory activity must be the minimum that is required to address the particular evil. And care must be taken to avoid the “unintended consequences” to which Mr Lewis has referred and some of which I have mentioned above.

Finally, we are faced with an almost insoluble problem when it comes to regulation in the Digital Paradigm. It is this. The legislative and regulatory process is slow although the changes to New Zealand’s firearms legislation post 15 March could be said to have been done with unusual haste. The effect has been that the actions of one person have resulted in relieving a large percentage of the population of their lawfully acquired property. Normally the pace of legislative or regulatory change normally is slow, deliberative and time consuming.

On the other hand, change in the digital paradigm is extremely fast. For example, when I started my PhD thesis in 2004 I contemplated doing something about digital technologies. As it happens I didn’t and looked at the printing press instead. But by the time my PhD was conferred, social media happened. And now legislators are looking at social media as if it was new but by Internet standards it is a mature player. The next big thing is already happening and by the time we have finally worked out what we are going to do about social media, artificial intelligence will be demanding attention. And by the time legislators get their heads around THAT technology in all its multiple permutations, some thing else – perhaps quantum computing – will be with us.

I am not saying therefore that regulating social media should be put in the “too hard” basket but that what regulation there is going to be must be focused, targeted, necessary, limited to a particular evil and done with a full understanding of the implications of the proposed regulatory structures.

Paperless Lawyers, Paperless Courts

A temptation for lawyers is to use technology to mirror paper-based practices. Technology merely means that the screen becomes the functional equivalent of paper and underlying behaviours relating to information do not change. What should make the utilisation of technology different is that underlying the functional equivalent of a paper based file are all the tools and advantages that digital technologies can bring such as indexing searching on the fly annotating and so on.

Andrew Downie, a lawyer in Victoria, Australia, in February of 2014, blogged on the creation of an electronic brief – ahandy “how to” guide focusing particularly upon methods of converting documents and organising them using a computer system.

But electronic case files are not the exclusive preserve of counsel. In New Zealand there are several practice notes on the utilisation of electronic bundles of documents in court.  The Senior Courts Civil Electronic Document Protocol addresses the use of electronic documents in the Higher Courts in New Zealand. The Electronic Document Practice Note 2017 is intended to encourage and facilitate the use of electronic documents for civil cases in the Court of Appeal. The 2016 Practice Note “The Use of Electronic and Common Bundles and Electronic Casebooks in the High Court” sets out guidance about when an order should be made for a common bundle and/or casebook to be filed electronically in the High Court and the default directions that apply. It is to be read and interpreted consistently with the Senior Courts Civil Electronic Protocol.

The concept of functional equivalence is to the fore and it seems to me that one of the purposes of the practice note and the move towards electronic bundles is to save space and paper. This is consistent with the imitative approach adopted in the Electronic Courts and Tribunals Act 2016 (NZ) about which I have blogged here.

What the practice notes do is provide an electronic platform for the assembly of bundles of documents but by doing so it also enables counsel to utilise technology to enhance case presentation and argument.  None of this of course is specified in the practice notes which are designed to encourage and facilitate the use of electronic bundles the various Courts.  The fact of the matter is, however, that by virtue of the advantages bought by the technology, counsel may be creative in the way in which the electronic bundle is utilised.  One of the requirements of the electronic bundle is that all documents be scanned into OCR format.  One would think that it would be unnecessary to have such a requirement, and that rendering pdf documents searchable would almost go without saying but regrettably it needs to be emphasised.  This effectively means that the information in the document may be subject to search and manipulation in a way that would not be possible in mere image format.

The practice notes make it clear that electronic bundles will not be used in every case.  They will only be used in document intensive cases where the common bundle would be likely to exceed a certain number of pages.

In “building” in electronic bundle documents must be contained in electronic folders equivalent to the physical volumes of hard copy bundles and within those folders each separate document must be a multipage pdf document.  Each folder must be named with an appropriate description and if there is more than one volume of a particular electronic bundle the folder for that type of bundle will include subfolders for each volume.  The rules also provide for electronic bundles in document intensive criminal cases.

One of the difficulties in using electronic bundles effectively lies in the fact that the majority of advocates have been bought up in the paper based environment and find it uncomfortable or difficult to make the shift into the digital paradigm with the changes in thinking that such requires.  The concept of functional equivalence gets in the way.  One uses technology merely to mirror what one would normally do with paper rather than utilise the technology to its fullest capacity.  Often software packages will themselves create difficulties.  Some software packages make it almost impossible to move from page to page without entering a code or a key.  Other software packages allow for the utilisation of barcodes whereby documents could be selected and projected using a barcode scanner but the simple fact of the matter is that counsel don’t utilise that aspect of the technology which would save considerable time and effort in moving through document intensive cases.

The various electronic document protocols effectively replace the lever arch paper folder with a USB stick or other form of storage medium. Lawyers and judges maintain an informational distance as a result. Each participant has to locate the “document” the subject of the discussion on his or her own device. A centrally located document bundle to which every participant has access and which can be displayed in Court would expedite matters. Such a tool is available in the form of Caselines which is effectively a digital court platform.

Caselines does not require software or infrastructure. It is a cloud based solution. To connect to a Caselines bundle for a trial or hearing all that is needed is a wireless connection at the Court.

Caselines bundles may be created by the parties or by the Court. Participants in a case have access to the bundle with varying levels of credentials. There are a number of different types of functionality including the ability to make notes, mark up and, importantly, to allow counsel who is referring to a document, image, video or other piece of digital material to make that available to all the participants in the case simultaneously. This means that everyone is on the same page, literally. Caselines is now used throughout the Crown Courts in England and Wales for criminal trials. Digital is the default position. Paper is no longer used

The Digital Paradigm allows lawyers to devise their own means of employing electronic technologies in the practice of law and the Courts judges in the management and presentation of cases.  What will be interesting to see is how courts and judges will respond.

But to make that leap it is necessary to examine some fundamental premises and reasons for why it is that we conduct cases in the way that we do. I have written elsewhere that the practice of law is really an exercise in information exchange, be it by way of receiving instructions from the client, processing those, seeking an information flow from research and communicating the results of that to the client by way of advice, or by way of a case in court where information flows come from witnesses whose information is assessed for relevance and reliability and which in turn inform the decision-maker’s decision which is them communicated to the parties and often to a wider audience by means of digital publication systems or by reporting in the law reports.

In court the information flows were oral exchanges. Indeed, written pleadings were not a part of court procedure until the reign of Edward IV, and most of the cases noted in the Year Books dealt with the technicalities of pleading rather than reports of decisions on substantive points of law. The first reports that revolutionised the way in which cases were recorded were those of Edmund Plowden, first printed in 1571. But the way that cases were presented in court was largely an oral process with witnesses orally stating what they saw or did and the lawyers making their points by oral rather than written argument. Or at least that was the case in the Common Law courts. Prerogative courts such as Star Chamber and the Courts of Chancery used the written record more extensively, albeit a handwritten one.

(For a full description of Star Chamber procedures see Thomas G. Barnes “Due Process and Slow Process in the Late Elizabethan – Early Stuart Star Chamber” (1962) 6 American Jnl of Legal History 221)

But despite the apparent written procedures adopted by Star Chamber and the Chancery Courts, much of the information exchange remained an oral..

The oral nature of information exchange in court over the centuries requires the physical presence of the “players” in the one place – the Courtroom. Indeed it has not been until comparatively recently – and by that I mean since I was admitted to the Bar in 1970 – that judges have countenanced and encouraged the provision of arguments in writing. These may range from the massive briefs that characterise written argument in the United States to the much smaller outline style  “skeleton arguments” in England. Indeed in some appellate jurisdictions – again predominantly in the United States – oral argument is time limited, demonstrating a declining emphasis upon oral argument in favour of documentary material. Yet despite the brevity of oral argument, physical presence is still required.

Another Form of “Presence”

Technology is changing this and there is a declining emphasis on actual physical presence following upon the introduction in New Zealand of the Courts Remote Participation Act 2010 which allows for “presence” of a participant by way of audio-visual link.(AVL) In the majority of cases in the District Court the participant “attending” by way of AVL will be a  defendant who is in custody. I haven’t yet come across the case where counsel has sought to be present by way of AVL and perhaps the custodial remand focus of the technology deployed in New Zealand Courts is responsible for that, although there is nothing in the legislation which excludes the use of Skype or Facetime. I imagine that all that is required for a lawyer and a Judge to break the ice.

The issue of physical presence is one part of the expanded use of technology in case presentation. At the moment document management technology is used in document intensive cases where scanned copies of documents are assembled and presented on screens by means of software tools. I interpolate to express wry amusement that documents are scanned into these programmes rather than using software tools which allow “document” assembly of digital documents in native file format, but perhaps that is yet to come. That is fine as far as it goes.

What about expanding the scope of the hearing so that by using “presence” technology such as AVL – or perhaps, in the future, holography –  counsel may run the case remotely. Where there is a need for text based information to be presented (what we call “documents”, retaining our paper based language despite attempts by legislators to include any information however recorded as fulfilling the definition of a “document” but why retain the use of a word which conceptually is associated with hard copy media?) that can be communicated to the court by electronic means. Witnesses can be present by AVL links. The range of information that is communicable or admissible to inform the Court’s decision could include multimedia, 3D imaging, maps or satellite shots from Google Earth or Street View. All the clumsy time consuming methods currently employed for evidence presentation could be significantly more efficient without compromising information flows or the ability of fact finders or law deciders to reach a conclusion.

Our “presence based” focus has its roots in rituals which, with modern communications technologies, can no longer be justified.

These ideas may seem to be radical – perhaps revolutionary – but the reality of the fact is that we are and will continue to be for some time in the midst of an information technology driven by continuous disruptive change. It is incumbent upon lawyers, judges and those involved in the information exchange process that underlies the activities of all lawyers to maximise and deploy these new technologies.

Medium Messages

A new Bill has been introduced to the New Zealand Parliament. It is called the Legislation Bill. It is meant to be the “one-stop shop” for the law relating to legislation. It is described in a New Zealand Law Society posting as “one legislation bill to bind them all”.

The Bill has some very good proposals. One relates to secondary legislation.  It will  give New Zealand a single, official, public source of legislation, excluding only legislation made by local authorities.

Over 100 agencies are empowered to make secondary legislation on a wide range of matters such as food standards and financial reporting standards. There is no single source for the legislative instruments, many of which are published on agency websites or in gazette notices. The Bill will make it easier to find and access secondary legislation by requiring it to be published on the New Zealand Legislation website alongside Acts of Parliament. This is an excellent move. It will enhance easy access to legal information.

In addition the Bill proposes to replace the Interpretation Act 1999. One of the terms that the Interpretation Act defined was “writing”. That definition reads as follows:

writing means representing or reproducing words, figures, or symbols in a visible and tangible form and medium (for example, in print).

Now that may have been excusable in legislation enacted in 1999 but in fact that definition was placed in the Interpretation Act in 2003 by section 38 of The Electronic Transactions Act 2002. When I saw that the Interpretation Act was being repealed and updated in the Legislation Bill I thought that we had a chance to see an updated medium neutral definition of writing.

But lo – here is the “new” definition which reads as follows

writing means representing or reproducing words, figures, or symbols in a visible and tangible form and medium (for example, in print)

No change at all. So why is this a problem? Simply that it does not reflect the reality of written material in the Digital Paradigm. It holds to the old association of the message (in written form) with the medium (paper) hence the exemplification “in print”.

I have no difficulty with the suggestion that writing is a representation of words, figures or symbols. It is simply a means of encoding and preserving the ephemerality that is oral language or orally based concepts. And of course, writing has to be visible.

But does it have to be tangible?

This is where we run into a problem – one that the law seems to have difficulty understanding in the electronic age. The issue of tangibility has nothing to do with the message. It has everything to do with the medium. The inextricable and historical association of the medium with the message is perpetuated in the requirement that the message be tangible.

This overlooks (or ignores) the reality of information in the digital paradigm. This is what I have said elsewhere ( see Collisions in the Digital Paradigm: Law and Rulemaking in the Internet Age) on the topic:

Electronic data is quite different to its pre-digital counterpart.  Some of those differences may be helpful to users of information.  Electronic information may be easily copied and searched but it must be remembered that electronic documents also pose some challenges.  Electronic data is dynamic and volatile.  It is often difficult to ensure that it has been captured and retained in such a way as to ensure its integrity.  Unintentional modifications may be made simply by opening and reading data.  Although the information that appears on the screen may not have been altered, some of the vital metadata which traces the history of the file – and which can often be incredibly helpful in determining its provenance and may be of assistance in determining a chronology of the events, and when a party knew what they knew, – may have been changed.  To understand the difficulty that the digital paradigm poses for our conception of data it is necessary to consider the technological implications of storing information in the digital space.  It is factually and paradigmatically far removed from information recorded on a medium such as paper.

If we consider data as information written on a piece of paper it is quite easy for a reader to obtain access to that information long after it was created.  The only thing necessary is good eyesight and an understanding of the language in which the document is written.  It is “information” in that it is comprehensible. It is the content that informs.  Electronic data in and of itself does not do that.  It is incoherent and incomprehensible, scattered across the sectors of the electronic medium upon which it is contained.  In that state it is not information in that it does not and cannot inform.

Data in electronic format, as distinct from writing on paper, is dependent upon hardware and software.  The data contained on a medium such as a hard drive requires an interpreter to render it into human readable format.  The interpreter is a combination of hardware and software.  Unlike the paper document the reader cannot create or manipulate electronic data into readable form without the proper equipment in the form of computers.

There is a danger in thinking of electronic data as an object “somewhere there” on a computer in the same way as a hard copy book is in the library.  Because of the way in which electronic storage media are constructed it is almost impossible for a complete file of electronic information to be stored in consecutive sectors of the medium.  Data on an electronic medium lacks the linear contiguity of a page of text or a celluloid film. An electronic file is better understood as a process by which otherwise unintelligible pieces of data are distributed over a storage medium, assembled, processed and rendered legible for a human reader or user.  In this respect “the information” or “file” as a single entity is in fact nowhere.  It does not exist independently from the process that recreates it every time a user opens it on a screen.

Computers are useless unless the associated software is loaded onto the hardware.  Both hardware and software produce additional evidence that includes, but is not limited to, information such as metadata and computer logs that may be relevant to any given file or document in electronic format.

This involvement of technology makes electronic information paradigmatically different from traditional information where the message and the medium are one.  It is this mediation of a set of technologies that enables data in electronic format – at is simplest, positive and negative electromagnetic impulses recorded on a medium – to be recorded into human readable form.  This gives rise to other differentiation issues such as whether or not there is a definitive representation of a particular source digital object.  Much will depend, for example, upon the word processing programme or internet browser used.

The necessity of this form of mediation for information acquisition in communication explains the apparent fascination that people have with devices such as Smartphone’s and tablets.  These devices are necessary to “decode” information and allow for its communication and comprehension.  Thus, the subtext to the description of electronically stored footage which seems to suggest a coherence of data similar to that contained on a piece of paper cannot be sustained.

So why not forget about tangibility and this medium focussed approach to information. Interestingly enough a solution is proposed in the definition in the Bill which contains the following parenthetical remark

(but see Part 4 of the Contract and Commercial Law Act 2017, which provides for meeting written requirements by electronic means)

So what does that say. Simply this

A legal requirement that information be in writing is met by information that is in electronic form if the information is readily accessible so as to be usable for subsequent reference.

Not quite a solution, but getting there. It focusses upon two important concepts that underly any information in writing. First – it must be accessible. Second, there is the concept of utility.

So perhaps a 21st Century medium neutral definition of writing should go something like this

Writing means representing or reproducing words, figures, or symbols in a visible form and in such a format as to be readily accessible and usable for subsequent reference.

There is no need for tangibility. We have moved on from the inextricable message\medium association. But many lawyers and lawmakers seem to be unaware of the unique and paradigmatically different qualities surrounding information in the Digital Paradigm.

 

 

Misunderstanding the Internet

 

I heard an interesting interview on the radio on Saturday last. Kim Hill was interviewing Jonathan Taplin. Taplin has written a book entitled Move Fast and Break Things about the Internet and what is currently wrong with it.

First, a confession. I haven’t read Move Fast and Break Things. What I know about Mr Taplin’s views are what I heard him say on the radio and a report of the interview on the RadioNZ website and what I have to say is based on what I heard on the radio rather than a reading of his book. But it does sound to me that Mr Taplin occupies a space along with a number of other disenchanted by the Digital Paradigm including Andrew Keen who wrote The Internet is Not the Answer, Nicholas Carr who wrote The Shallows and Mary Aiken who wrote The Cyber Effect. A common theme among these writers seems to be that for one reason or another the Internet has lost its way, failed to fulfil its promise or that it has been hi-jacked. This last view is that expressed by Mr Taplin.

I don’t have a problem if that is what he thinks. But I do have a problem with some of his assertions of fact which simply do not stand up to scrutiny. Mr Taplin seems to engage in sweeping generalisations to support his position and then argues from that point. In other cases he misinterprets facts in a way that cannot be supported. But his main problem is that he fails to understand the nature of paradigmatic change and that in such an environment things are not going to remain the same, and old models, ways of doing things, concepts and values are either going to be swept away or are gradually going to be eroded and replaced with something else.

Let us look at some of his early assertions that he made on the broadcast. He claims that the Internet originated as the “hipster” project of a group of people who wanted to decentralise control. “Stewart Brand (author of The Whole Earth Catalog, a book which anticipated the internet) was Ken Kesey’s partner in the acid tests, Steve Jobs acknowledges taking LSD. It was a bunch of hippies” – or so Mr Taplin asserts.

Anyone who has studied the history of the Internet will agree that decentralisation was one of the early goals of the development of the network that later became the Internet, originally undertaken by DARPA – the Defence Advanced Research Projects Agency, an agency of the US Department of Defense. DARPA supported the evolution of the ARPANET (the first wide-area packet switching network), Packet Radio Network, Packet Satellite Network and ultimately, the Internet and research in the artificial intelligence fields of speech recognition and signal processing. Hardly a bunch of hippies. And were Brand, Kesey and Jobs involved in this early development. No they were not. Jobs involvement with the Internet came much later. In 1985 he suggested that the most compelling reason for most people to buy a computer would be to link it to a nationwide communications network. But it wasn’t until 1996 that he predicted the ubiquity of the Web. In 1996 Google was still a research project at Stanford and Amazon had only just begun selling books.

What Mr Taplin conveniently ignores is the enormous contribution made by computer engineers and developers to the development of the Internet – people like Vint Cerf and Bob Kahn, Ray Tomlinson who developed email – although that is contested by Shiva Ayyadurai – Jon Postel, Ted Nelson, Tim Berners-Lee and Robert Caillau.

Rather he focussed upon the high profile and very successful entrepreneurs like Peter Thiel, Larry Page and Jeff Bezos. He suggested that they “all are libertarians. They were schooled on Ayn Rand’s work, in which the businessman hero architect is always impeded by the mob, by democracy, by government, by regulation, and he has to be free.”

My reading of Rand would suggest that there are aspects of libertarianism that are inconsistent with her objectivist views. In fact Ayn Rand has become a whipping girl for those who would condemn the forge ahead entrepreneurial spirit untroubled by regulatory systems or collectivist thinking. True, Rand has had an influence on the right and upon libertarianism although some of her views were atypical of rightwing conservative thought. For example she was pro-choice and an atheist. But Mr Taplin throws Ayn Rand into the mix for perjorative rather than evidential value.

Another interesting comment that Mr Taplin made had to do with data. Here is what the report from RadioNZ said

“The core business of Facebook is creating a giant database of information on 2 billion individual people, says Taplin.

“What is the raw material to manufacture a product? You – your desires. You’re willing to leave everything hanging out there and they’re willing to scrape it and sell it to advertisers. It’s called rent. They’re renting [Facebook’s] database.”

That is a degenerate form of capitalism if it’s capitalism at all, he says.

“It doesn’t create anything, you’re renting. That’s the end of capitalism and the beginning of feudalism.”

And that indeed was how it came across on the broadcast. The problem is that Mr Taplin fails to understand the nature of the Digital Paradigm and how it disrupts current business models. He suggests that the user is the raw material – based upon data that has been left behind. I disagree. The data is the raw material of the new digital product and indeed it does create something – a more thoroughly refined and granular understanding the of the nature of markets. Raw materials are necessary for any product. It is just that the raw material now is data in digital format.

What distinguishes digital data from iron ore (another raw material) is that iron ore is sold by the mining company to the refinery or smelter. Iron ore is like any other traditional form of property. You own it by, among other things, exclusive possession. You sell it and by doing so part with exclusive possession. That vests it in someone else.

Now with digital material you can part with possession of a copy but retain the original. The Digital Paradigm turns the traditional property model on its head. Two people can possess the same item of property. And it is here that the “rent” argument advanced by Mr Taplin falls apart. The rent argument only works if there is one instantiation of the property. The “owner” leases the property – be it land or a car – to the tenant or lessee. The owner parts with possession for a period of time. At a later stage the owner retakes possession – when the tenancy or lease comes to an end. But the owner, during the term of the rental does not have possession of the property.

Remember what I said about digital property – two people can possess the same item. That concept is part of the disruptive effect that the Digital Paradigm has on property concepts. Now to say that data is “rented” is using a concept that does not hold up in the Digital Paradigm. To equate renting data with a form of feudalism – which was based upon an exchange of an interest in land for the rendering of a duty – is historically and legally incorrect. And to say that using data does not create anything ignores the fact that data is the raw material – not the individual – and the data goes to creating a profile for any one of a number of purposes of which market research may be one.

So Mr.Taplin’s analogy – like so many attempts to draw analogies between the digital and pre-digital world – fails.

But there is a bigger picture in that paradigm shifts bring paradigmatic change. The Internet and all those myriad platforms that are bolted on to the backbone have revolutionised communication and have opened up a market for digital products. But the content that the Internet enables is only a part of the story.

To understand the nature of the paradigm we need to look below the content layer and comprehend the medium. For, as McLuhan said, the medium is the message. I am sure Mr. Taplin understands this. But what I think he has difficulty in accepting is that the old ways of doing things are going to be swept away. There will be a period of co-existence of the digital and the pre-digital but that won’t last long. The paradigmatically different properties of exponential dissemination, dynamic information, information persistence, permissionless innovation and continuing disruptive change are all factors built in to the technology and cannot be changed. At the risk of sounding deterministic these and other underlying technological qualities are what will drive the inevitability of change.

The music market with which Mr Taplin was familiar has changed dramatically and part of the problems suffered by the industry and those associated with it involved an unwillingness to adapt. iTunes got the idea and now people buy by the song rather than by the album. Adaptation by content providers means that Netflix thrives – despite geoblocking – on-demand has replace appointment viewing and content providers have finally “got it” that consumer demand is for content now – not next week. Hence “Game of Thrones” and “Walking Dead” are advertised in New Zealand as screening on the same day as in the US. The reason for this – the Digital Paradigm provided alternatives – piracy and Bittorrent.

The reality is that many old business models will have to adapt to survive. Those that do not will fall by the wayside. The new paradigm will usher in new industries and new opportunities. But in the Digital Paradigm, business will be done on a global scale rather than from a local storefront. And the result of that scale is that many new digital businesses will do very well such as Google and Facebook and Amazon. Mr Taplin laments the advantages that these companies have, that their power is unaffected by who is in government. But should successful businesses be a matter of concern. For sure, conspiracy theories will abound; the spectre of rampant capitalism will be conjured up. But isn’t this just envy speaking?

I really think we should be embracing the opportunities that the new technologies bring and look for ways in which we can enhance our lives in the Digital Paradigm rather than moaning about it. Because it is not going away.

New News Opportunities

In the newspaper this morning there were a couple of articles that caused me to reflect on the level of understanding of the Digital Paradigm. The first by respected business journalist Fran O’Sullivan was about the consequences of the refusal of the Commerce Commission to approve a merger of media giant Fairfax and NZME. But the real focus of the article was about the effects that digital businesses are having on established organisations and the inroads that are being made to traditional funding models. The second was about Margarethe Vestager, the head of the Directorate General for Competition. That article was about the importance, at least to the EU, of the philosophy that a well-policed economy yields the largest and most widespread benefit for society. Some of the examples of steps that were taken involved digital economy giants like Apple, Google and Amazon.

By way of a very brief background, the New Zealand Commerce Commission has made a few waves lately by refused approval for two significant attempts by large media companies to merge. The first was Sky and Vodafone – a broadcaster and a communications company. The benefits of the merger for both companies were obvious. Access to a large well developed Internet provider (Vodafone) by Sky. Ability to enhance an established content delivery service with an established customer base (Sky, albeit content delivery methods are outdated but the merger would have changed that) by Vodafone. But no, said the Commerce Commission. For reasons expressed in a 140 + page decision, this was not a good idea.

The second attempt was a proposed merger between news media companies Fairfax (an Australian company) and NZME (publisher of the NZ Herald). Not a good idea, said the Commerce Commission once again, failing to see the dire state of the news media market but concerned that one company might have too much control over content, especially in an election year – conceptually, a lack of diversity in the news media market.

So that is the background. What Fran O’Sullivan complains about is the fact that the Commerce Commission overlooked or understated the impact of digital players like Google and Facebook on advertising revenue, and the effect that this is having on the viability of news media operations. And of course, a viable Fourth Estate is an important and critical feature of a modern democracy – prepared to hold authority to account, prepared to ask to hard questions, prepared to investigate and uncover malpractice of any sort in the corridors of power.

The focus of the article of the EU Directorate for Competition (EUDC) is mistrust of large corporates and one wonders whether or not that mistrust is the starting point or develops from an evidential foundation. Although there is a hat-tip to the market, it seems to me that the EUDC is about policing and control.

But common to both articles and especially to that of Fran O’Sullivan is a concern about the disruptive effects that new technologies are having on commercial activity. From the news media perception the concern is palpable. The old model is under threat. The solution, according to O’Sullivan is to regulate what she described as the oppressive behaviour of the digital corporates. She suggests that it is time that politicians woke up to the problem and cites steps that are being taken in Australia to examine the impact on public interest journalism of search engines and social media as well as an investigation into “fake news”.

The disruptive effects of new technologies have been going on for some time. We are well into the Digital Paradigm, but not so far out of the old pre-digital paradigm to be concerned that the past ways of doing things may not continue. We anchor ourselves in a comfortable past and really do not like change – especially when there are those who have the foresight and initiative to profit from disruptive change.

The news media provides an interesting model because in fact it is the child of the first communications technology paradigm shift – the printing press. I have suggested elsewhere that the Digital Paradigm is at least as significant, especially in the field of communications, as the printing press. And for some time it has been having a disruptive effect. Initially news media answered the new technology by putting news content online. Some providers set up paywalls for content – an attempt to continue to monetise what they were publishing. This is not a bad thing. You have to pay to buy a “kinetic” newspaper. Why not do the same online?

Convergence posed its own challenges as newspapers online began to include video content and broadcasters included text articles among their offerings. The question arises as to which standards apply to whom. Are broadcasters who make text available subject to the Press Council? Are traditional print media who make video available via a website subject to the Broadcasting Standards Authority? Since the Online Media Standards Authority (OMSA) was absorbed into the Press Council it would seem that the Press Council may be the answer to the regulatory convergence problem. The Government missed the opportunity presented to it by the Law Commission in 2013 to have a single media regulatory body – a very bad call in my opinion.

But the regulatory bodies that have been set up deal with content. The Press Council and the Broadcasting Standards Authority don’t deal with struggling or failing business models. The Commerce Commission could indirectly have done so but didn’t.

One option is to try and maintain the existing business model. As O’Sullivan suggests, bring the digital corporates to heel in the same way as the EUDC does. In this way they may not pose such a threat to the established model which may just manage to hang on for just a little while longer. But in preserving the existing model it is necessary to call on the coercive power of government. A protectionist perpetuation of a model that has had its day.

Another option is to recognise that the business models that underpin the news media and so-called public interest news media is the child of a paradigm that no longer exists. Unless the news media adapts it will die. And if this sounds like a call for evolution in the face of revolution – a sort of economic Darwinism – that is exactly what it is. The Digital Paradigm is so fundamentally different from what could be called the print or kinetic paradigm that news media companies are going to have to examine more than just content delivery but realise that they must examine, understand and utilise the underlying qualities of the new paradigm to develop their business models. And that takes a lot of thinking outside the box and a willingness to start again from scratch.

The result may be an entirely different method of news dissemination – not local but global. Multinational media companies are not unknown, even now but the business model and the way that business is conducted may be radically different from, say, Newscorp.

The third way may be based on the adage “if you can’t beat’ em, join ‘em” One of the targets of the EUDC has been Amazon. Amazon’s founder and CEO is Jeff Bezos. And Jeff Bezos bought the Washington Post for $250 million – and turned a legacy news media organisation around. Perhaps those who are concerned that the digital corporates are posing a threat to current news media business models should rather view them as an opportunity for change.

Ariadne’s Thread – The Labyrinth of the Dotcom Extradition Case

Now, before Daedalus left Crete, he had given Ariadne a magic ball of thread, and instructed her how to enter the Labyrinth. She must open the entrance door and tie the loose thread to the lintel; the ball would then roll along, diminishing as it went and making, with devious turns and twists, for the corners where the Minotaur was lodged.[1]

 

Introduction

This post considers the appeal against the findings by Judge Dawson in the District Court that Mr Dotcom and his co-appellants were eligible for extradition. The article attempts to explain in plain terms some of the legal issues surrounding the case. One of the main issues was whether or not the offences alleged were extraditable. But a word of caution – perhaps an apologia. This article is not a full academic treatment of the decision. It is an overview and an attempt to explain in straightforward terms a part of a somewhat complex decision.

It was necessary for the Court to consider the indictment that had been proferred in the United States and the charges which the accused appellants were to face in that country and determine whether or not they amounted to extraditable offences for the purposes of the Extradition Act 1999.

There were a number of “overlays’ in that not only did the Court have to consider the Act but also the provisions of an Extradition Treaty between New Zealand and the United States which came into force in December 1970. Article II of that Treaty set out sets of offences which were extraditable and which were particularly relevant in this case. Throughout the decision the question of whether or not the conduct was sufficient to engage Article II.

A further overlay was in the provisions of section 101B of the Extradition Act. That section was inserted by the Extradition Amendment Act 2002 in response to the United Nations Convention Against Transnational Organised Crime (UNTOC). That section has the effect of deeming various offences to be extradition offences under existing treaties with foreign countries that are parties to UNTOC. This applies to the 1970 US/NZ Treaty. The deemed offences include an offence involving participation in an organised criminal group.

What the Court Had to Do

The Court had to determine whether the offences contained in the United States indictment were extradition offences under section 24(2)(c) of the Extradition Act.[2]

First, the Court had to identify the factual allegations that underpinned each count. Then it had to consider whether the totality of those alleged acts of omissions came within the description of an extradition offence for the purposes of the Treaty.

In such an exercise Gilbert J reminded himself that he should not take a narrow view by concentrating on nomenclature or the constituent elements of the offence. He recognised that generically offences may be similar although they may be articulated using different language.

Instead he noted that the Treaty was to be interpreted in accordance with cl 31(1) of the Vienna Convention on the Law of Treaties. This provides:

(1) … a treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.

Furthermore, he observed that it does not matter that the offence charged by the requesting State (in this case the United States) may contain additional elements beyond those implicit in an Article II offence so long as the additional elements do not substantively change the nature of the conduct alleged.

The Charges

The important counts in the indictment involved allegations of copyright infringement. Count 2 alleged conspiracy to commit copyright infringement. Counts 4 to 8 alleged specific instances of copyright infringement. These offences of criminal copyright infringement were the foundation for other charges. Without criminal copyright infringement these other charges could not be sustained. Thus in the decision the Judge considered these predicate criminal copyright allegations first.

The other counts were racketeering (count 1), money laundering (count 3), and the wire fraud charges (counts 9 to 13).

In the argument the United States contended that there were pathway offences in New Zealand law which could be followed to ascertain whether the acts or omissions constituting those offences amounted to an extradition offence. It is not necessary for the extradition offence to match the offence stated in the indictment of the requesting State. Rather there must be, as I have stated, generic similarity.

I shall now proceed to consider the counts in the indictment and how the Court determined whether or not there were qualifying extraditable offences or “pathways” to the Count in question[3].

COUNT 2 – Conspiracy to Commit Copyright Infringement[4]

Pathway Offences

The Court considered a number of different offences under New Zealand law which were pathways to the count in the indictment alleging conspiracy to commit copyright infringement. In doing so the Court considered the applicability of certain offences in the Crimes Act that did not directly address copyright infringement but where the behaviour might involve that include that activity.

Conspiracy to Defraud[5]

Conspiracy to defraud was an offence that was stated in Article II.16 of the Extradition Treaty.

The issue in considering this count was whether the crime of conspiracy to defraud could include behaviour that involved copyright infringement. The Court held that it could and cited considerable authority in support of its finding.[6] It was argued that the Copyright Act was a code but in light of the authority cited, the Court rejected that argument, although it should be noted that the authorities cited are quite nuanced on this point[7]. However, the issue becomes a contentious one when sections 228 and 249 of the Crimes Act come into play along with the foundation of Dixon v R[8] which is discussed below.

The Court considered whether the elements of conspiracy to defraud were present in this case[9] and stated that  wilful infringement of copyright can properly be characterised as a dishonest act. Such infringement deprives the copyright holder of something to which it might be entitled. The money obtained through participation in the alleged conspiracy to defraud any person – that is to cause the copyright holders economic loss by depriving them of something to which they might be entitled – by fraudulent means (intentional infringement of copyright) is the allegation in Count 2 which is sustained.

It was argued that the safe harbour provided by section 92B and 902C of the Copyright Act provided relief. Although the Court held that the safe harbour was not engaged in this case the discussion of the distinction between the scope of 92B and 92C and the general observations on the availability of the safe harbour provides a useful guide for the scope of these sections.

That would have been enough to dispose of the matter in that by using the conspiracy to defraud pathway it was found to be an extradition offence within Article II.16.

However, it was necessary to consider other pathways given the fact that the matter would go on appeal.

Dishonestly Taking or Using a Document – s. 228 Crimes Act[10]

In his discussion of Article II.16 and the state of the Crimes Act at the time of the Extradition Treaty, Gilbert J considered the applicability of the former section 257 of that Act. Section 257 has been replaced by section 228 which involves dishonestly taking or using a document with intent to obtain property, a service, pecuniary advantage or any other benefit.

The first consideration was whether a digital file can be a document. That is in fact the case and is clear from the definition in s. 217 Crimes Act and affirmed in Dixon[11]. This is not a contentious proposition.

The Court then restated the proposition that wilful infringement of copyright can amount to an act of dishonesty – that is an act done without a belief that there was express or implied consent to, or authority for, the act from a person entitled to give such consent or authority (the copyright owner).

It was argued that s.228 of the Crimes Act did not mention copyright but for the reasons given in the extensive discussion of the availability of the Crimes Act to encompass infringing behaviour in certain circumstances in support of the conspiracy argument it mattered[12]  not that copyright in a document (a digital file) is not singled out in the section.

The Court observed that although Megaupload was a cyberlocker it still made use of copyright infringing material in storing the files and making them available to generate advertising and subscription revenue. Use was not an essential element of the offence but obtaining a document for pecuniary advantage was, and the definition of “obtain” includes retaining. Therefore it was enough for Megaupload to retain the files on its servers the fulfil the requirement of “obtaining”

The particular conduct was undertaken for the purposes of pecuniary gain and thus the conduct in Count 2 is covered by s. 228 and is deemed to be included in the Treaty and the requirements of s. 101B(1)(c) are made out. In that section 228 is an offence punishable by a term of imprisonment of seven years.  Finally, it was noted in the interests of completeness that the appellants were in New Zealand.

The next associated issue was whether or not there was an organised criminal group.[13] This involved a consideration of the provisions of section 101B(1)(c)(ii) of the Extradition Act. The elements that are required – combining the UNTOC definitions of an “organised criminal group” and “serious crime” are as follows:

 

(a) a structured group;

(b) of three or more persons;

(c) existing for a period of time;

(d) acting in concert;

(e) with the aim of committing;

(i) offences established in accordance with UNTOC; or

(ii) a serious crime, being conduct constituting an offence punishable by imprisonment of four years or more;

(f) in order to obtain financial or material benefit directly or indirectly.[14]

The Court was satisfied that all these elements were fulfilled and there was sufficient evidence to support all the allegations together with the fact that copyright infringement in the US carried a maximum penalty of 5 years thus fulfilling that requirement and on that basis s. 228 provided an extradition pathway.[15]

Accessing a Computer for a Dishonest Purpose – s. 249[16]

Section 249 of the Crimes Act makes it an offence to access a computer and dishonestly or by deception and without colour of right obtain any property, privilege, service, pecuniary advantage, benefit, or valuable consideration or cause loss to any person. This section was considered as a pathway offence to Count 2 in the following way.

For the same reasons as those given in respect of s. 228, the allegation of dishonesty as an element of s. 249 was satisfied by wilful infringement of copyright.

It was argued that there was no access of a computer system – rather merely providing a computer facility for others which could be used lawfully or unlawfully. The issue of access was dealt with in this way. The data (the copyright infringing file) was received from the uploader onto Megaupload’s computer system, stored in that system and made available to others to access using the link provided by Megaupload using the computer system[17]. All of this involved making use of the resources of the Megaupload computer system. This fulfilled some of the elements of the definition in section 248 of the Crimes Act to which reference was made – “access, in relation to any computer system, means instruct, communicate with, store data in, receive data from, or otherwise make use of any of the resources of the computer system.”

It was also held that the purpose of such access was to obtain pecuniary advantage or financial gain, thus fulfilling that element of s. 249 and the penalties brought the offence within the 4 year definition of serious crime for the purposes of s. 101(B(1)(c).

It is important to note that the discussion of section 249 at this stage is very narrow indeed and suggests that the sectioncan be used as an alternative to commercial copyright infringement. There was no discussion of the nature of “property” and whether a computer file amounted to property as held in Dixon. Further use of section 249 and Dixon in the context of other sections of the Crimes Act is considered in the context of the wire fraud charges.

Section 131 Copyright Act[18]

Section 131 of the Copyright Act creates criminal liability for certain types of copyright infringement that have a commercial quality. The question was whether or not the appellants were involved in the exhibition in public or distribution of infringing copies.

At first glance it would seem that distribution would encompass the activities of Megaupload. The difficulty was that there was another specific form of infringement that covered digital material and that was what is known as the communication right.

The communication right and the distribution right are differentiated in the World Intellectual Property Organisation (WIPO) Copyright Treaty 1996. The Treaty recognises the important distinction between dissemination by the transfer of possession of a physical embodiment of a protected work (distribution) and dissemination through electronic transmission (communication). Fundamental to the distribution right is the necessity for a tangible object.

In New Zealand the communication right was incorporated into Statute by the Copyright (New Technologies) Amendment Act 2008. But the provisions of section 131 were not amended to include a breach of the communication right as a form of commercial criminal copyright infringement.

This was not accidental. There were submissions to Parliament that the communication right be incorporated into section 131 from Microsoft and the Motion Picture Association. Indeed the legislation in the United Kingdom incorporated such a provision but New Zealand chose not to follow.

In addition as a further indication that Parliament did not intend to criminalise the commercial infringement of the communication right, section 198 created a criminal offence of dealing in illicit recordings of performances rather than objects which were infringing copies of a copyright work.

The Copyright Act was again reviewed in 2011 when Parliament enacted the Copyright (File Sharing Infringing) Amendment Act 2011. It did not at that time take the opportunity to include a breach of the communication right in section 131.

Thus section 131 relates to tangible objects rather than communication of intangibles such as digital files and was thus not available as a pathway to Count 2 of the indictment.

This was not an unexpected outcome, at least to this commentator, but creates a contradiction. When the search and provisional search warrants were issued the offence alleged was against section 131 of the Copyright Act. Now it transpires that offence was not available. In a case that has not been without its legal controversies, this is one more.

However, the absence of section131 as a pathway does not end the matter. There were, as has been discussed,  other pathways to Count 2 and there were other counts which will be considered, all of which have their own pathways.

 

Count 4 – Copyright Infringement of the Movie “Taken”[19]

This count alleges that the appellants infringed copyright by distributing a work – the movie Taken) being prepared for commercial distribution in the US.

The Court concluded that neither this nor any of the specific infringement allegation contained in Counts 4 – 8 contained any other elements described in Article II.16 of the Treaty. They were not charged with obtaining property or money and the offending did not match the offending set out in Article II.16

However, the offence did correlate with sections 228 and 249 of the Crimes Act. The requirement of both sections that there be an element of commercial advantage or financial gain were both satisfied. They obtained and used a document – a digital file – dishonestly and without claim of right and this involved accessing a computer which is an element of section 249. In addition the Court considered that the appellants were acting as part of an organised criminal group and on that basis section 101B(1)(c)(ii) was satisfied

 

Counts 5 – 8 – Other Copyright Infringement[20]

In these counts the nature of the infringement alleged was different. Wilful reproduction and distribution of copyright protected works with a total retail value of more than $US2500 was alleged.

Once again section 131 was not available as a pathway and nor was Article II.16. However, the Judge held, for reasons already articulated, that sections 228 and 249 of the Crimes Act are available to fix the conduct alleged with the necessary criminality.

 

 Count 3 – Conspiracy to Commit Money Laundering[21]

Critical to this count was the necessity of a finding that there were pathways to the copyright allegations. Those pathways having been found the way was open to consider this count since it was predicated on the availability of copyright offences.

The Court analysed the elements, pointing out that money laundering was not an offence in New Zealand when the Treaty was signed in 1970. However, the Treaty did contain in Article II.19 the inclusion of any offence in addition to the listed offences that “transporting” or “transportation” was an element.

The Court observed that there were transfers of money – the proceeds of copyright infringement – by electronic funds transfer. This was in effect a wire transfer and the Court held that the conveying of funds electronically amounted to a transfer and thus Article 11.19 was engaged and thus the offence was an extradition offence.

Counts 9 – 13 – Wire Fraud[22]

There were a number of allegations made by the United States that supported an allegation that the appellants devised a scheme to defraud copyright owners and obtain money by means of false and fraudulent representations and promises. Some of these included misleading copyright owners that access to a file would be disable when in fact only the link was disabled; falsely representing that repeat  infringers had access terminated when in fact they were allowed to continue infringement and were rewarded for it and misrepresenting the Megaupload abuse tool and their notice and takedown procedure.

The US argued that Article II.16 and sections 228, 240 and 249 provided pathway offences for these counts.

 

Pathway Offences for Wire Fraud

Article II.16

The Judge found that the conduct alleged in these counts corresponded to Article II.16 of the Treaty. It was alleged that the appellants obtained money as a result of false representations. That is another way of saying they received money by false pretences . This allegation satisfied the causal nexus between obtaining money and false pretences.

In addition the counts alleged the money was obtained by a conspiracy to defraud the copyright holders, the essence being that they devised a scheme to defraud copyright holders. That is tantamount to an allegation of conspiracy to defraud and thus article II.16 provided an extradition pathway.[23]

Section 228 – Crimes Act[24]

It was conceded that the emails that were sent to copyright owners in furtherance of the allegedly fraudulent scheme were documents.  Although it was argued that it was necessary to establish that the document had to be used to obtain property or money and that the files were already on the Megaupload system – thus no obtaining. The Judge observed that the definition of obtain meant to obtain or retain. In addition the Judge found that the requirements of s. 101B(1)(c) were satisfied in that the offence was punishable by imprisonment of 4 years or more and involved an organised criminal group. Thus section 228 provided an extradition pathway.[25]

Section 240 Crimes Act[26]

Section 240 of the Crimes Act creates the offence of obtaining or causing loss by deception. There are four circumstances in which the offence may occur, all of them requiring elements of deception on the part of the perpetrator together with an absence of claim of right.

It was conceded that the element of deception could be made out by virtue of false representations that were contained in emails. The element of obtaining was satisfied by the extended definition of obtaining which included retaining, as discussed above.

For the offence to be complete, property had to be obtained. Gilbert J held that the copyright protected films in digital file format were property and cited as authority the case of Dixon v R[27] – a decision of the Supreme Court.

In this commentator’s respectful view Gilbert J read Dixon more widely than was available to him. Dixon was a case that centred around whether or not a digital file was property for the purposes of section 249 of the Crimes Act. The Supreme Court held that it was, and in doing so has introduced a level of uncertainty in the law surrounding the issue of whether or not there is a property right in information. It is my contention – and I have argued it in detail elsewhere – that Dixon was wrongly decided and is both legally and technologically unsound. Nevertheless, until the Supreme Court reconsiders its decision it must stand. However, the scope of the holding, on a strict reading of the decision, is that a digital file is property is limited to the provisions of section 249 of the Crimes Act.[28] The Supreme Court held thus, and to expand the scope of the finding to include digital files as property for offences other than under s. 249 is, in my respectful view, a misinterpretation of Dixon.

But the Court found that s. 240 of the Crimes Act provided an available pathway for the wire fraud counts.

Section 249 Crimes Act[29]

Section 249 of the Crimes Act provided an available pathway for some of the other counts. As far as counts 9 – 13 are concerned it was argued that the purpose of the section was to address computer hacking rather than to cover dishonest acts associated with copyright infringement.

The judge answered this by observing that the definition of a computer system was very broad and included using any of the resources of a computer system. Email plainly fell within that broad scope.

The Judge could also have observed that computer hacking was not the target of section 249 because it did not include unauthorised access to the system as an element of the offence. The important element associated with accessing the computer system is a dishonest or deceptive state of mind associated with certain activities such as obtaining property, a privilege, a service, a pecuniary advantage, a benefit or an advantage.

The behaviour of the appellants that brought them within the scope of section 249 was as follows:

  1. They caused knowingly false responses to be sent to copyright holders in response to takedown notices
  2. To do this they accessed the Megaupload computer system
  3. As a result of accessing the system in this way they thereby dishonestly and by deception and without claim of right obtained a benefit. The benefit was that it enabled Megaupload to retain copyright infringing files on its system. This met the causal connection of accessing the computer system and obtaining a benefit.

 

It is of interest that Gilbert J preferred to focus on the benefit aspect of section 249 rather than that of property, this invoking Dixon within the context of the Supreme Court finding of the fact that a digital file is property. His focus on the benefit aspect accords with the holding of the Court of Appeal in Dixon.

Count 1 – Conspiracy to Commit Racketeering[30]

Racketeering involves an enterprise – that is a group of individuals and entities associated in fact – engaged in interstate and foreign commerce where the members of the enterprise conspired to conduct its affairs for the purposes of enriching themselves through racketeering activity – in this case criminal copyright infringement, money laundering and wire fraud.

Pursuant to the decision of the Court of Appeal in US v Cullinane[31] racketeering was held not to be an offence under Article II of the Treaty. Racketeering was described as an “umbrella” crime and the Court warned against the use of allowing extradition for umbrella crimes where the offences, if charged separately, would not amount to extradition offences.

However, Cullinane was decided before the enactment of s. 98A of the Crimes Act which creates the crime of participating in an organised criminal group as well as s. 101B(1)(a) of the Extradition Act. This allowed the Court to reconsider whether or not racketeering could fall within the scope of an extraditable offence.

In essence the allegation was that the appellants were associated in fact and this amounted to an enterprise under US law. It was alleged that they continued as a functioning unit for the common purpose of achieving the objectives of the enterprise which was to enrich its members through criminal copyright infringement, money laundering and wire fraud. Furthermore they all actively participated in the enterprise.

The Judge found that the constituent offences – criminal copyright infringement and wire fraud – correlated to New Zealand offences punishable by at least 4 years imprisonment. The common purpose in the US indictment correlated with the requirements of section 98A of the Crimes Act which, if it had occurred in NZ, would be an extradition offence.

 

Extradition Offences – Conclusion

The result of the Judge’s analysis was that all the counts in the indictment were held to qualify as extradition offences.

One of the very significant aspects of the decision is the way in which provisions of the Crimes Act have been used to provide pathways to copyright infringement. This doesn’t mean that these offences are pathways to only extradition offences, although that it the way that they have been used in this case. The generalised holding means that there are alternatives means of criminalising copyright infringement apart from the provisions of section 131 of the Copyright Act 1994.

The citation of authority by Gilbert J to suggest that for some time criminal offences have been available to address copyright infringement cannot be displaced. In some cases these comments were speculative[32] –in others they were more direct.[33] The decision of Gilbert J now cements these comments into the structure of the law.

This means that copyright owners have different avenues by which they may pursue infringers in the criminal courts where section 131 is not available. Furthermore, while Dixon is still good law, copyright owners may use the provisions of the Crimes Act (given Gilbert J’s wide interpretation of that case) or at least section 249 to pursue infringers for what is effectively “on-line theft” of copyright material. I commented that when it was decided potentially the holding in Dixon could give truth to the mantra “copyright infringement is theft”. That potential has been realised.

Other Aspects of the Extradition Decision

The principle focus of this examination has been upon the identification of the extraditable offences. Given the focus upon the availability of criminal copyright infringement this analysis, although a summary of the decision without reference to the authorities cited, has been undertaken to understand the process by which the identification of extraditable offences was undertaken. However, as far as the case was concerned there were other issues which I shall tough upon briefly.

Evidence to Justify Trial on Each Count[34]

Because of the provision of the Extradition Treaty the United States was entitled to submit a record of the case (ROC) for the purposes of determining eligibility for surrender. There was considerable criticism of the ROC by the appellants. It was suggested, for example, that the ROC contained commentary that was opinion or hyperbole which the Court should ignore in determining sufficiency of evidence.

In the case of Dotcom v US (Disclosure)[35] the nature of the ROC was considered. Glazebrook J agreed that there were conclusory statements in the ROC but that the evidence that was relied upon was set out and that evidence supported the conclusions and inferences that the United States wanted to draw to support the existence of a prima facie case. There was a recognised risk in this process in that if insufficient material was provided, the extradition judge not be satisfied that a prima facie case had been made out.

The mere fact that the ROC and its supplements may contain material that cannot be relied on as evidence does not render the document inadmissible in its entirety. The Judge conducting the eligibility hearing  would have to ensure that there is sufficient summarised evidence to justify each appellant being committed for trial on each extradition offence. In carrying out this function, the Judge will differentiate between what qualifies as a summary of evidence and what does not. Gilbert J observed that The Court is required to determine whether the evidence that is summarised in the record of the case is sufficient to establish a prima facie case. The Court is not excused from this responsibility merely because some of the material in the record of the case does not qualify as summarised evidence[36].

Preservation of Evidence[37]

There was concern that the evidence that had been gathered and its availability might be in question. There was an additional concern about the possible deterioration of the electronic evidence. The Judge noted

“It is for the requesting State to decide what evidence it will rely on to support its request for extradition. The extradition Court is only concerned with whether this evidence is sufficient to justify a trial if the conduct constituting the offence had occurred within the jurisdiction of New Zealand. This will be the case if the Court is satisfied the summarised evidence is sufficient to establish a prima facie case and this evidence has been preserved for use at trial. “The evidence” in s 25(3)(a) plainly refers to the evidence summarised in the record of the case and not to every piece of evidence that has been reviewed in the course of the investigation or which could be relevant at trial. If the appellants’ argument was right, it would mean that if any of Megaupload’s data was lost, no matter how inconsequential for the purposes of a

committal hearing, the entire record of the case would become inadmissible. That

cannot have been what Parliament intended when enacting s 25(3).”[38]

 

No challenge had been made to the statements that the evidence summarised in the ROC had been preserved for use at trial. It was not a matter of concern for the extradition court to enquire as to whether other evidence had been preserved. That was something that would be evaluated in the context of fair trial issues in the requesting state and it would be contrary to the principle of comity upon which extradition is based for an extradition court to trespass into this domain.

Other Matters

There were a number of other matters of a somewhat technical nature that were raised on behalf of the Appellants. One involved the certification of the ROC by a representative of the US Attorney General’s office a Mr Prabhu.

The purpose of the ROC procedure was to summarise the evidence. Detail was not required. The ROC process is based on the Treaty and the comity and trust between the Treaty partners. In that regard the ROC need not contain briefs, “will say” statements or other documentary proof.

Because the ROC is received the Court requires an appropriate assurance that it discloses the existence of evidence sufficient to justify a trial in the exempted country and the evidence relied on for extradition purposes has been preserved for trial.  The Court observed:

“The purpose of the record of the case is to enable the extradition Court to

determine whether the evidence establishes a prima facie case if the conduct

constituting the offence had occurred within the jurisdiction of New Zealand. This

determination is made according to New Zealand law. The extradition Court in

New Zealand is not concerned with whether the evidence is sufficient to justify a

trial in the exempted country and it would be wholly inappropriate for it to enquire

into this. Parliament intended that the extradition Court would rely on a certificate in proper form from a person qualified to give it. Absent cogent evidence showing that such a certificate is a forgery or has been given in bad faith, the extradition Court cannot look behind it.”[39]

 

There was also concern expressed about the weight and sufficiency of evidence and the fact that there were a number of conclusory statements in the ROC. Although this matter had been earlier adverted to, it was conceded that such statements did not assist the Court in carrying out its fundamental obligation of weighing the evidence to determine whether the appropriate threshold had been reached. It was for the extradition court to carry out the evaluative process.[40]

Another argument arose about the question of transposition.[41] Transposition arises in extradition cases because the extradition Court is required to proceed on the basis of the fiction that the relevant conduct constituting the offence had occurred within its jurisdiction. But the focus of the extradition Court under the Act is on the conduct constituting the alleged offence, not the offence itself.[42]

Once the Court is satisfied that the request relates to an actual extradition offence there is no need to consider whether the conduct constituting the offence in the requesting state would be an offence under the law of New Zealand if the conduct had occurred here.[43] Thus the extradition Court should not have to determine whether or not conduct constituting the offence would have been an offence under New Zealand law if it had occurred in New Zealand at the relevant time. To do so would be to import a double criminality requirement and that was held not apply in Cullinane.

Within the context of the allegations relating to the movie Taken Gilbert J held that the extradition Court was solely concerned with the alleged conduct constituting the offence, namely that the appellants wilfully infringed those rights by making the film available to members of the public on a computer network.[44]

Thus for the purposes of its determination under s. 24(2)(d)(i) of the Extradition Act the Court had to concentrate on the acts or omissions of the requested person, being those acts or omissions identified for the purposes of s 24(2)(c) as constituting the extradition offence.

In a case involving alleged copyright infringement by making a copyright protected work available to members of the public without licence, the question of whether or not copyright subsisted in the relevant work in the United States at the relevant time is not an act or omission of the requested person and falls outside the scope of the enquiry. The extradition Court is not required to determine this issue, which would necessitate consideration of foreign law, a task it is ill-suited to undertake. The existence of copyright in the works at the time is a circumstance or “state of things” that is transposed to New Zealand as part of the relevant legal environment against which the evidence of the requested person’s conduct must be assessed.[45]

The Judge went on to consider in some detail the evidence as it related to each of the offences[46] and concluded that the evidence contained in the ROC disclosed a prima face case on each count. This effectively disposed of the extradition issue. It should be noted that there were a number of other technical arguments that were raised and which I will not discuss in this context. In addition there were applications that were made by the appellants for a stay of proceedings on the grounds of unfairness arising from lack of funds to properly mount an opposition to the application and for judicial review of the approach by the Judge in the District Court to the conduct of the proceedings. Those matters, although tied in with the original proceedings do not take the issue of extradition any further.

Conclusion

This case is a helpful one for those involved in extradition law. The Judge carefully articulated the principles and outlines and defined the processes by which extradition cases should be approached and considered. Although the Law Commission has released a paper on Extradition and recommends possible changes that can be made to the law, it may well be some time before those recommendations, or any of them, find their way to the statute book. The methodical approach undertaken by Gilbert J provides Ariadne’s thread for judges who will have to consider extradition in the future.

The case is particularly significant for the way in which Gilbert J considers the conduct that is criminalised by the counts in the US indictment and then looks for various pathway offences in New Zealand law which mirror that conduct.

The problem was that the United States case was grounded primarily upon copyright infringement. It tried to invoke section 131 of the Copyright Act as a corresponding offence at New Zealand law. But for the reason that a particular type of infringement was not specified in s. 131 – the communication right – that section was not available. So the judge went looking for other pathways which could incorporate the behaviour or conduct that reflected the count in the indictment. In so doing he held that the provisions of sections 228, 240 and 249 of the Crimes Act could, in cases involving certain types of behaviour, provide alternative pathways to what is effectively copyright offending.

This is somewhat curious because notwithstanding the invocation by the Judge of a number of authorities that supported the extension of the criminal law to include certain types of infringing behaviour, the issue is by no means uncontroversial and there are those who argue that the Copyright Act is a code, dealing with interference with a statutorily created property right, and one should not go beyond that legislation to seek a remedy.

Indeed, in his consideration of the applicability of section 131 the Judge gave a detailed analysis of the history of the legislation to demonstrate that the omission from section 131 of the communication right was deliberate and not an accidental oversight. Thus it was clearly a policy decision made by the Legislature.

Yet this case judicially extends the scope of the Crimes Act to include behaviour that would otherwise be caught by the civil infringement provisions and which is not caught by section 131. With respect, this seems to fly in the face of his careful analysis of Legislative intent in terms of criminal copyright infringement.

In Stevens v Kabushiki Kaisha Sony Computer Entertainment Ltd[47]  at issue was the question of the interpretation of a provision of Australian copyright legislation. The High Court cautioned against Courts getting involved in making policy decisions about legislation which was properly the bailiwick of Parliament. The Court observed

“The Parliament having chosen such an elaborate and specific definition for the key provision of the legislative scheme, a court should pause before stretching the highly specific language in order to overcome a supposed practical problem.”[48]

 

Although that comment is directed towards a particular provision of legislation and the scope thereof, it is suggested that the argument can be extended to address the criminalisation of infringing behaviour that does not fall within the scope of the Copyright Act. Using the Judge’s own reasoning path, if Parliament had intended such behaviour to be criminalised, it would have said so, and indeed had ample opportunity to do so from 1998 onwards.

The difficulty is this. It appears that the law of unintended consequences has resulted in the criminalisation of certain types of infringing behaviour. Factor in the use of a computer and s. 249 of the Crimes Act comes in to play. I doubt it was intended that this section would be used to criminalise copyright infringement. Nor is it my view that the Supreme Court in its expedient decision in Dixon expected that its definition of “property” as a digital file could have criminal copyright infringement consequences. This is what I have called else where a Collision in the Digital paradigm.

The collision assumes  greater proportions when one realises that, although Gilbert J’s findings were within the context of developing pathways for the purposes of identifying an extraditable offence, his interpretation applies with equal force to domestic law. The question now becomes one of whether copyright owners will pick their way through the collision and seek Police assistance in prosecuting individual acts of copyright infringement that fall outside s. 131. The matter requires legislative consideration.

Gilbert J’s decision will not be the final word on the subject – indeed he acknowledges this and it explains why the decision is so detailed, complex and voluminous. He is writing for the appeal court as well as for the parties. But the appeal pathways are not that straightforward. A strict approach to the appellate process means that not all these cases will automatically end up in the Supreme Court. As matters stand the Court of Appeal is the final court for the extradition matter. However, the judicial review proceedings do still have an appeal pathway to the Supreme Court. Whether or not the Supreme Court, for the sake of convenience, decides to grant special leave to appeal the extradition side of the case, remains to be seen.

But wait – do I hear you say? Aren’t you assuming something here and that is that there WILL be appeals. Given the past conduct of the parties, I suggest that it is inevitable that the appeal process will go as far as it possibly can. Although the US effectively “won” before Gilbert J there remains the issue of the applicability of section 131. My view is that path was never available but I have no doubt that the US will cross-appeal that aspect of the decision. The Dotcom case has further contributions to make to the development of legal principle in the Digital Paradigm.

 

[1] Robert Graves The Greek Myths “Theseus in Crete”

[2] Ortmann & Ors v US [2017] NZHC 189 at paras [37] – [45].

[3] The “Ariadne’s Thread” of the title.

[4] Ortmann above n. 2 at paras [57] – [192].

[5] Ibid. at paras [77] – [133].

[6] Ibid. at paras [87] – [112].

[7] See for example World TV Ltd v Best TV Ltd (2005) 11 TCLR 247.

[8] [2015] NZSC 147; [2016] 1 NZLR 678.

[9] Ortmann above n 2 at para [132].

[10] Ibid. at paras [134] – [160].

[11] Above n. 8.

[12] Ortmann above n.3 at para [143].

[13] Extradition Act s. 101B(1)(c)(ii) as defined in the Transnational Organised Crime Convention (TOC).

[14] Ortmann above n. 3 para [150].

[15] Ibid. para [160]. The full analysis is contained in paras [147] – [160].

[16] Ibid. paras [161] – [168].

[17] Ibid. at para [166].

[18] Ibid para [169] – [192].

[19] Ibid. para [193] – [199].

[20] Ibid. para [200] – [201].

[21] Ibid. para [202] – [212].

[22] Ibid. paras [213] – [230]

[23] Ibid. para [217] – [219].

[24] Ibid. para [220] – [222].

[25] Ibid. para [220] – [222].

[26] Ibid. para [223] – [225].

[27] Above n. 8.

[28] Dixon above n. 8 para [50] – [51].

[29] Ortmann above n. 3 para [226] – [230].

[30] Ibid. para [231] – [238].

[31] [2003] 2 NZLR 1 (CA).

[32] See Cooke P in Busby v Thorn EMI Video Programmes Ltd [1984] 1 NZLR 461

[33] See Scott v Metropolitan Police Commissioner [1975] AC 819 (HL)

[34] Ortmann above n. 3 at paras [239] – [245]

[35] Dotcom v US (Disclosure) [2014] NZSC 24; [2014] 2 NZLR 629.

[36] Ortmann above n 3 at para [253].

[37] Ibid. para [254] – [259].

[38] Ibid at para [258].

[39] Ibid. at para [263].

[40] Ibid at para [273].

[41] Ibid at paras [274] – [294].

[42] Ibid at para [277].

[43] Ibid at para [279].

[44] Ibid at para [291].

[45] Ibid at para [294].

[46] Ibid at paras [302] – [386].

[47] [2005] HCA 58.

[48] Stevens v Sony at para [204].

Technology for Lawyers: A competence requirement?

There has been a bit of publicity of late about the difficulties that some law firms are having in adapting to the continuing disruptive change that characterises the Digital Paradigm. The introduction and use of information technologies provides one example.

A lawyer’s stock in trade is not time, as has been suggested in the past. It is, in fact, information. The law office is an information hub with information flows coming in and out in the form of instructions, advice, the provision of information necessary to complete transactions, the preparation of materials to inform the Court of the nature of a dispute and the like. Information technologies must be a part of everyday legal practice. Technology enables law firms to do better in the provision of their services, and can assist in providing clients with cheaper, high-quality and nimble services.

Smaller law firms face a real challenge. There is not the division of labour in a smaller form, tuned to fulfilling client needs, to step back and take a deep perspective view of the future. Big law firms are able to attend to this aspect of practice management and often have internal teams working on little else. The smaller firms and the sole practitioners need to focus on things like websites, digital marketing, social media, e-discovery and cloud-based tools for practice and case management—hopefully giving them a competitive advantage in job market and spurring the use of new technology in every day legal practice. Cloud technology, for example, “is removing many obstacles by reducing hardware and in-house IT investments, quelling cybersecurity concerns, easing the complexity of scaling and updating software, and providing better overall access to general computing power. Additionally, as vendors continue to place more of a premium on providing online training modules for their products, the last great barrier to remain will simply be motivation” according to Mike Susong of Legaltech News.

At a recent forum titled “The Future of Legal Services in the United States: The ABA Issues a Clarion Call for Change” discussions centred on the problems citizens faced getting access to legal services. William Hubbard, immediate past-president of the American Bar Association suggested lawyers think more creatively about how they deliver legal services meaning that lawyers should “embrace technology and the benefits technology can bring to provide new avenues to provide legal services to those in need.”

There is a significant recognition, especially by the ABA, of the importance of technological knowledge and understanding as part of professional competence requirements. Four years ago, in 2012 the ABA Model Rules of Professional Conduct required, as part of the commentary to Rule 1.1, that lawyers have a duty to keep abreast of the benefits and risks associated with technology.

In September 2016 the Florida Supreme Court took the matter one step further, issuing an opinion adopting the Florida Bar Association’s proposal for mandatory technology Continuing Legal Education (CLE).

“In addition to adding the three-hour requirement, the court also amended a comment to its rule on lawyer competence to say that lawyers could retain non-lawyer advisers with “established technological competence in the relevant field.”

The court added that competent representation may also involve cybersecurity and safeguarding confidential information. “In order to maintain the requisite knowledge and skill, a lawyer should engage in continuing study and education, including an understanding of the risks and benefits associated with the use of technology,” the court held.”

It will be interesting to see if this move catches on. There can be no doubt that CLE programmes contain technology oriented modules, but the Florida move now makes it mandatory. This must be viewed as a necessary step as we move further and further into the Digital Paradigm and more and more aspects of technology permeate the legal landscape.

I have argued in the past that lawyers who argue technology related cases need to understand the technology and how it works. There is no point arguing a case about publication of material on social media without knowing how the platform operates, what its parameters and settings are, what the settings were at the relevant time and, importantly, how those settings can be located and examined. There is not really a “one size fits all” approach that can be adopted to social media and it would be unwise to make generalised assumptions about the qualities and operation of a platform.

There is little point in attending a case management conference about e-discovery unless the lawyers are aware of the various technologies that are available and, as importantly, how they work so that a reasonable and proportionate discovery proposal can be reached.

The nature of digital information, in and of itself, is paradigmatically different from that which is recorded on paper. Lawyers must understand this and recognise that although content is king most of the time, what lies beneath the content can be as informative, if not more so, than the content on the face of the document.

There are many more examples but the message is clear. Lawyers cannot be resistant to the Digital winds of change that are blowing. Bend, adapt, adopt must be the message for lawyers in the Digital Paradigm.

Memory Illusions and Cybernannies

Over the last week I read a couple of very interesting books. One was Dr Julia Shaw’s The Memory Illusion. Dr. Shaw describes herself as a “memory hacker” and has a You Tube presence where she explains a number of the issues that arise in her book.

The other book was The Cyber Effect by Dr Mary Aiken who reminds us on a number of occasions in every chapter that she is a trained cyberpsychologist and cyberbehavioural specialist and who was a consultant for CSI-Cyber which, having watched a few episodes, I abandoned. Regrettably I don’t see that qualification as a recommendation, but that is a subjective view and I put it to one side.

Both books were fascinating. Julia Shaw’s book in my view should be required reading for lawyers and judges. We place a considerable amount of emphasis upon memory assisted by the way in which a witness presents him or herself -what we call demeanour. Demeanour has been well and truly discredited by Robert Fisher QC in an article entitled “The Demeanour Fallacy” [2014] NZ Law Review 575. The issue has also been covered by  Chris Gallavin in a piece entitled “Demeanour Evidence as the backbone of the adversarial process” Lawtalk Issue 834 14 March 2014 http://www.lawsociety.org.nz/lawtalk/issue-837/demeanour-evidence-as-the-backbone-of-the-adversarial-process

A careful reading of The Memory Illusion is rewarding although worrisome. The chapter on false memories, evidence and the way in which investigators may conclude that “where there is smoke there is fire” along with suggestive interviewing techniques is quite disturbing and horrifying at times.

But the book is more than that, although the chapter on false memories, particularly the discussions about memory retrieval techniques, was very interesting. The book examines the nature of memory and how memories develop and shift over time, often in a deceptive way. The book also emphasises how the power of suggestion can influence memory. What does this mean – that everyone is a liar to some degree? Of course not. A liar is a person who tells a falsehood knowing it to be false. Slippery memory, as Sir Edward Coke described it, means that what we are saying we believe to be true even although, objectively, it is not.

A skilful cross-examiner knows how to work on memory and highlight its fallibility. If the lawyer can get the witness in a criminal trial to acknowledge that he or she cannot be sure, the battle is pretty well won. But even the most skilful cross-examiner will benefit from a reading of The Memory Illusion. It will add a number of additional arrows to the forensic armoury. For me the book emphasises the risks of determining criminal liability on memory or recalled facts alone. A healthy amount of scepticism and a reluctance to take an account simply and uncritically at face value is a lesson I draw from the book.

The Cyber Effect is about how technology is changing human behaviour. Although Dr Aiken starts out by stating the advantages of the Internet and new communications technologies, I fear that within a few pages the problems start with the suggestion that cyberspace is an actual place. Although Dr Aiken answers unequivocally in the affirmative it clearly is not. I am not sure that it would be helpful to try and define cyberspace – it is many things to many people. The term was coined by William Gibson in his astonishingly insightful Neuromancer and in subsequent books Gibson imagines the network (I use the term generically) as a place. But it isn’t. The Internet is no more and no less than a transport system to which a number of platforms and applications have been bolted. Its purpose –  Communication. But it is communication plus interactivity and it is that upon which Aiken relies to support her argument. If that gives rise to a “place” then may I congratulate her imagination. The printing press – a form of mechanised writing that revolutionised intellectual activity in Early-modern Europe – didn’t create a new “place”. It enabled alternative means of communication. The Printing Press was the first Information Technology. And it was roundly criticised as well.

Although the book purports to explain how new technologies influence human behaviour it doesn’t really offer a convincing argument. I have often quoted the phrase attributed to McLuhan – we shape our tools and thereafter our tools shape us – and I was hoping for a rational expansion of that theory. It was not to be. Instead it was a collection of horror stories about how people and technology have had problems. And so we get stories of kids with technology, the problems of cyberbullying, the issues of on-line relationships, the misnamed Deep Web when she really means the Dark Web – all the familiar tales attributing all sorts of bizarre behaviours to technology – which is correct – and suggesting that this could become the norm.

What Dr Aiken fails to see is that by the time we recognise the problems with the technology it is too late. I assume that Dr Aiken is a Digital Immigrant, and she certainly espouses the cause that our established values are slipping away in the face of an unrelenting onslaught of cyber-bad stuff. But as I say, the changes have already taken place. By the end of the book she makes her position clear (although she misquotes the comments Robert Bolt attributed to Thomas More in A Man for All Seasons which the historical More would never have said). She is pro-social order in cyberspace, even if that means governance or regulation and she makes no apology for that.

Dr Aiken is free to hold her position and to advocate it and she argues her case well in her book. But it is all a bit unrelenting, all a bit tiresome these tales of Internet woe. It is clear that if Dr Aiken had her way the very qualities that distinguish the Digital Paradigm from what has gone before, including continuous disruptive and transformative change and permissionless innovation, will be hobbled and restricted in a Nanny Net.

For another review of The Cyber Effect see here

Further Obscurity on the Internet – Collisions in the Digital Paradigm VIII

 

Introduction

Yet again a Court of law has made an order against Google, requiring it to deindex search results in a particular case. This example does not deal with the so-called “right to be forgotten” but with issues surrounding efforts by one company to infringe the intellectual property rights of another. But Google’s involvement in this case as not as a party to the action. They were not involved. No wrongdoing by them was alleged. All they did was provide index links via their automated processes. These links were to the infringers. An injunction was sought to compel de-indexing not just in the country where the case was heard but world wide.

Equustek v Jack

Equustek v Jack came before the British Columbia Supreme Court in 2014. The circumstances of the case were these.

Equustek manufactured electronic networking devices for industrial use.  A company named Datalink created a competing product. Equustek claimed that one of its former employees conspired with Datalink, and the competing product used Equustek’s trade secrets and trademarks.

Equustek commenced proceedings against Datalink and a number of individual defendants.  The Datalink defendants did not play any part in the litigation and their defences were struck out but they continued to sell products from a number of websites.

Pending trial the Supreme Court made a number of interlocutory orders against the defendants including an  order prohibiting the defendants from dealing with Equustek’s intellectual property. Even the issue of a criminal arrest warrant against one of the defendants did not stop the sale of the disputed products on the web from undisclosed locations.

So far the case is procedurally unremarkable. But what happened next is quite extraordinary. Equustek turned to Google and asked it to stop indexing the defendant’s websites worldwide. Google voluntarily removed 345 URLs from search results on Google.ca. But the problem remained. Almost all the infringing material was still available online. So Equustek took the matter a step further.

Remember, Google was not a party to the original suit. They had not been involved in the allegations of intellectual property infringement . Google’s response to Equustek’s approach was a co-operative one. They did not have to comply with Equustek’s request.

Equustek sought an order from the Court restraining Google from  displaying any part of the websites with which it was concerned on any search results worldwide. The order was in the nature of an interlocutory injunction. The grounds for the application were that Google’s search engine facilitated the defendants’ ongoing breach of court orders.

Google argued that the court did not have jurisdiction over Google or should decline jurisdiction, In any event it should not issue the requested injunction. The Court observed that the application raised  novel questions about the Court’s authority to make such an order against a global internet service provider.

The court held that it had jurisdiction over Google because Google, through its search engine and advertising business, carried on business in British Columbia. This in itself is not remarkable. It is consistent with the theory of connection with the forum jurisdiction and the concept of the grounding of activities in the forum state that gives rise to  a Court’s jurisdictional competence. Cases abound arising from e-commerce and Internet based business activities.

The court considered that Google’s search engine websites were not passive information sites, but rather were interactive and displayed targeted advertisements. The court noted that this rationale might give every state in the world jurisdiction over Google’s search services, but noted that was a consequence of a multinational doing business on a global scale rather than from a flaw in the territorial competence analysis.

Again this is a reality of jurisdictional theory. In the Australian defamation case of Dow Jones v Gutnick it was observed that a cause of action might lie in every country where publication of the defamatory article had taken place. Mr Gutnick undertook to commence only in Australia because that is where his reputation lay and needed to be vindicated.

The court also refused to decline jurisdiction over Google, because Google failed to establish that another jurisdiction (California) was a more appropriate forum and the court could effectively enforce its order against Google outside Canada. This is what is called a forum conveniens argument – it will arise in the context not of whether or not a court has jurisdiction but where jurisdiction may lie in two states (in this case British Columbia, Canada and California, United States of America) which court should properly hear the case.

The Court found that it had authority to grant an injunction with extra-territorial effect against a non-party resident in a foreign jurisdiction if it is just or convenient to do so.

The judge observed that new circumstances require adaptation of existing remedies  – an aspect of the reality of e-commerce with its potential for abuse. This would be especially so if there was to be any credibility and integrity of Court orders.

The court then considered the test for ordering an injunction against a third party. The standard test was modified.

 (1) a good arguable case or fair question to be tried (which relates to the plaintiff’s claim against defendant); and

 (2) a balancing of the interests (irreparable harm and convenience) of the plaintiff and the non-party to whom the injunction would apply.

The court identified a number of relevant considerations, including

  1. whether the third party is somehow involved in the defendant’s wrongful acts;
  2. whether the order against the third party is the only practicable means to obtain the relief sought;
  3. whether the third party can be indemnified for the costs to which it will be exposed by the order;
  4. whether the interests of justice favour the granting of the order; and
  5. the degree to which the interests of persons other than the applicant and the non-party could be affected.

The court granted the injunction against Google requiring Google to block the defendants’ websites (identified in the court order) from Google’s search engine results worldwide finding that Google was unwittingly facilitating the defendants’ ongoing breaches of court orders, and there was no other practical way to stop the defendants.

Google appealed to the British Columbia Court of Appeal who upheld the order issued at first instance.

Equustek v Google

The Court of Appeal observed that it is unusual for courts to grant remedies against persons who are not parties to an action. The reasons for this are obvious – most civil claims are concerned with the vindication of a right, and the remedial focus will be on that right. Further, notions of justice demand that procedural protections be afforded to a person against whom a remedy is sought. The usual method of providing such protections is to require the claimant to bring an action against the respondent, giving the respondent the rights of a party.

However, this does not mean that the Courts are powerless to issue orders against non-parties. What is known as a Norwich Pharmcal order was cited as an example. There are, in fact, many types of orders that are routinely made against non-parties – subpoenas to witnesses, summonses for jury duty and garnishing orders are common examples. Many of these orders have a statutory basis or are purely procedural, but others derive from the inherent powers of the court or are more substantive in nature.

The Appeal Court observed that Canadian courts have jurisdiction to grant injunctions in cases where there is a justiciable right, even if the court is not, itself, the forum where the right will be determined. Canadian courts have also long recognized that injunctions aimed at maintaining order need not be directed solely to the parties to the litigation.

Google argued that the Court should not grant an injunction with extraterritorial effect. It submitted

As a matter of law, the court is not competent to regulate the activities of non-residents in foreign jurisdictions. This competence-limiting rule is dictated both by judicial pragmatism and considerations of comity. The pragmatic consideration is that the court should not make an order that it cannot enforce. The comity consideration is that the court refrains from purporting to direct the activities of persons in other jurisdictions and expects courts in other jurisdictions to reciprocate.

The Court did not accept that the case law establishes the broad proposition that the court is not competent to regulate the activities of non-residents in foreign jurisdictions.

The Court noted that the case exhibited a sufficient real and substantial connection to British Columbia to be properly within the jurisdiction of the Province’s courts.

From a comity perspective, the question must be whether, in taking jurisdiction over the matter, British Columbia courts have failed to pay due respect to the right of other courts or nations. The only comity concern that was articulated in this case was the concern that the order made by the trial judge could interfere with freedom of expression in other countries. For that reason, there had to be considerable caution in making orders that might place limits on expression in another country. The Court stated that where there is a realistic possibility that an order with extraterritorial effect may offend another state’s core values, the order should not be made.

In considering the issue of freedom of expression the Court noted that there was no realistic assertion that the judge’s order would offend the sensibilities of any other nation.

It was not suggested that the order prohibiting the defendants from advertising wares that violate the intellectual property rights of the plaintiffs offended the core values of any nation. The Court noted that the order made against Google is a very limited ancillary order designed to ensure that the plaintiffs’ core rights are respected.

The Court also noted that there were a number of cases where orders had been made with international implications. Cases such as APC v. Auchan Telecom, 11/60013, Judgment (28 November 2013) (Tribunal de Grand Instance de Paris); McKeogh v. Doe (Irish High Court, case no. 20121254P); Mosley v. Google, 11/07970, Judgment (6 November 2013) (Tribunal de Grand Instance de Paris); Max Mosley v. Google (see “Case Law, Hamburg District Court: Max Mosley v. Google Inc. online: Inform’s Blog Moserly v Crossley – Hamburg) and ECJ Google Spain SL, Google Inc. v. Agencia Española de Protecciób de Datos, Mario Costeja González, C-131/12 [2014], CURIA are well known to Internet lawyers.

Some of the cases involving extraterritorial implications have been controversial, such as La Ligue contre le racisme et l’antisémitisme c. La Société YAHOO!Inc., Tribunal de Grande Instance de Paris (May 22, 2000 and November 20, 2000), Court File No. 00/05308 and YAHOO! INC. v. La Ligue contre le racisme et l’antisémitisme, 169 F.Supp. 2d 1181 (N. Dist. Cal., 2001) rev’d 379 F.3d 1120 (9th Cir., 2004) and 433 F.3d 1199 (9th Cir. en banc, 2006)).

This extensive case law does indicates that courts in other countries do not see extraterritorial orders as being unnecessarily intrusive or contrary to the interests of comity.

Commentary

Google appealed to the Supreme Court of Canada and leave to appeal has been granted. Thus, there is one more act to this drama to be played out.

One issue that will need to be resolved is whether the order that was made can be even be granted against a third party not involved in any wrongful activity. If so, the test to obtain such an order will need to be determined, as well as its geographic and temporal scope.

What about the issue of access to justice? In many areas of law, courts have expressed concern that effective remedies should not be limited to individuals or companies with deep pockets. The type of order granted against Google is certainly an effective additional remedy from a plaintiff’s perspective. But are only large corporates expected to be the sole parties in cases such as these simply because they are large corporates with a high profile. Only Google seems to be a party in this case – no other search engine features.

Furthermore what are the boundaries of a Canadian court’s territorial jurisdiction. May a Canadian court order a search engine company in California to prevent users in other countries from viewing entire websites? It is also expected that Google will raise constitutional issues, specifically whether blocking search results limits access to information or freedom of expression on the Internet.

But there is more to the case than this. It involves the ability to locate Internet based information that is facilitated by search engines. This case has the same impact on the Internet as Google Spain  – its consequence is de-indexing of information.

The decision is unremarkable for its application of conflict of laws theory. But having said that, the issue of extraterritorialty is a complex one, and because other jurisdictions and Courts have made extraterritorial orders that may or may not be enforceable does not mean that such an order is correct of justified in law. The anti-Nazi organisations LICRA and UEJEF found this out when Yahoo, having had extraterritorial orders made against it in France came to the US Courts seeking a declaration that they were unenforceable. Would Google be on less firm ground if it adopts a similar course of action against Equustek – assuming that a US Court has jurisdiction?

Throttling the Web

The development of the World Wide Web was, in the vision of Tim Berners-Lee, to assist in making information available and, creating a method of accessing stored information and sharing it.  Yet it had already become clear, even pre-Web, that locating information was a problem and the solution lay in developing search engines of means of locating a specific piece or pieces of information. Search engines such as Gopher provided a form of a solution in the pre-graphical interface, pre-Web environment, and there were a number of search engines such as Altavista, Lycos, Find-What, GoTo, Excite, Infoseek, RankDex, WebCrawler Yahoo, Hotbot, Inktomi and AskJeeves that provided assistance in locating elusive content. However, the entry of Google into the marketplace, and the development of innovative search algorithms meant that Google became the default source for locating information.

What must be remembered is that Google is a search and indexing engine. It does not store the source information, other than in cached form. Using some advanced mathematics, founders Larry Page and Sergey Brin developed a method for measuring the links across websites by ranking a website more highly when other sites linked to it. Putting it very simply, the algorithm measured the popularity of a webpage. Utilising the hypertext link of Berners-Lee, Google locates content and enables a user to access it.

As a lawyer\technologist, I see Equustek v Google in the same way as I saw Google Spain – as a clog on progress that may slow the development and promise of information systems that depend upon a reliable search facility to locate information on the greatest central source of information that the world has ever known. The propositions that underlie Google Spain and Equustek and the application of law in this area amounts to a real and significant collision in the Digital Paradigm. Perhaps it is time for the Courts to understand that an automated indexing system that is completely content neutral and involves no human input into the way that it identifies and indexes should be seen as simply an intermediary and no more. Google is able to monetise its search engine  but to suggest that its search engine is not a passive information system, but rather is interactive and displays targeted advertisements in and of itself is, in my respectful view, insufficient justification to require a de-indexing of search results.