ICC Commission on Intellectual Property - Jordan

ICC Commission on Intellectual Property - Jordan
and
Arab Society for Intellectual Property

A Seminar on
E-Commerce and Intellectual Property

By
Talal Abu-Ghazaleh, President

- Arab Society for Intellectual Property (ASIP)-Munich

-ICC Commission on Telecommunications, Information Technology and E-Business-Paris

-ICC Commission on Intellectual Property- Jordan

Amman, Jordan

September 8, 2001

A copy of this lecture can be obtained from www.ASPlP.org

Electronic Commerce & Intellectual Property

Ladies and Gentlemen,
I am very pleased to be with you here today and to have the chance to say a few words about one of the most important and central issues of the world today. We have now entered the Information Age, and one of the very interesting and transformational aspects is the increasing utilization of electronic media in business.

E-Commerce — Introduction

Electronic commerce is basically any commercial activity that is conducted over electronic networks. In general, this tends to mean a network of linked computers. The linkage of these many computers is called the Internet.

As technology progresses, computer e-commerce may be succeeded in part by hand-held wireless devices such as mobile telephones and new devices which integrate the functions of phones, organizers, computers, etc. Actually this is happening right now, but we are still in the early stages.

Computers and other devices may be connected to various networks, but the most important and most famous is the Internet. There are also closed proprietary networks, and electronic commerce may take place on closed networks as well. In the past, before the rise of the Internet, the use of electronic networks for commerce and communication was limited to very large companies, as it required a great deal of investment.

The Internet was originally a closed network utilized by the US military, but it evolved into the global phenomenon which we are all now familiar with. In the process bringing down the entry barriers to the point that almost anyone with access to a computer, a modem and a telephone line can utilize it. Now, when we speak of electronic commerce, we are speaking about commerce over the Internet.

E-commerce allows companies to conduct normal business functions in a more efficient and cost-effective way. In particular, marketing and sales over the Internet can effectively reach a large global audience. E-commerce is inevitably linked to, supported by, and supportive of, globalization, as the Internet breaks down geographical barriers allowing instant, virtually free communication between parties all around the world. The cost savings are dramatic.

I recall just a few short years ago how my own global business operation at my firm, Talal Abu-Ghazaleh International (TAGI), required thousands of faxes and physical shipping of documents from county to another at a cost of hundreds of thousands of dollars per year. Now, most of that communication is handled electronically with very extensive savings. Multiply the experience of my company by thousands and millions, and you will begin to see just the beginning of the true significance of e-commerce.

Just as important as the savings on normal operating costs, is the way that it encourages new activity, new relationships, better organization, better communication and faster development of all the economic activities of a society. E-commerce is not only about sales and marketing, but also saves money and simplifies operations of invoicing, managing tenders and suppliers, inventory control, customer service, and much more.

The scale of e-commerce is staggering, and it continues to grow in importance. The global e-commerce market is currently believed to exceed $ 1 trillion. In 1999 there were 171 million Web users world wide; that number is expected to grow to 1 billion by 2005. There is a tremendous unmet demand for connectivity; in India it is estimated that there is an immediate demand for an additional 500,000 Internet connections. There are also some countries where the Internet is essentially forbidden and where usage would rise significantly if government allowed. For example, in Myamar (formerly Burma) possession of a modem is considered a felony and punishable by years in prison.

Up till now, the Internet and e-commerce have been primarily an American phenomenon. Not surprising considering that the Internet originated as a US government network and that Americans account for the majority of the world’s Internet users, and over 90% of the Internet’s content is in the English language. However, it is increasingly taking on a global character.

Today over 50% of the online community originates from outside the US and by next year it is expected that the global e-commerce spending on consumer products will exceed US spending.

It is estimated that by 2003 there will be over 100 million Internet users in Europe, 24.3 million in Latin America and 6 million Arab Internet users. By 2005 American users are expected to be only 30% of total world users. The Internet and e-commerce are becoming a truly global phenomenon, despite their American origins.

Intellectual Property

Tied to the increasing importance of e-commerce is the rising importance of intellectual property. Intellectual property has become one of the major issues in modem economic policy, in a world where wealth is increasingly tied to intellectual rather than physical assets.

We have arrived at the dawn of the knowledge economy, where the real currency, the real key to wealth is knowledge. Puffing this into a real world context, we would speak of the economic value of the knowledge necessary to produce a certain industrial product, or to build and run a chain of hotels or restaurants. Businesses exploit these knowledge resources by licensing their knowledge in the form of patent Licenses or franchise of know-how as in hotels like the Hilton or restaurants like McDonalds or software like Microsoft’s. The last example, Microsoft, is appropriate because it relates to one of the central issues in e-commerce which is that the susceptibility of intellectual property to digital transmission means that it is also among the most important elements of electronic commerce. Particularly important in the online environment, are trademarks and copyrights. Copyrights relate to such creations as music, software and artistic or literary creations (photos, books, music, etc.). Since such things can be transmitted digitally, this allows for completely non-physical e-commerce, no need for any physical delivery or shipping. This offers a large, convenient and lucrative market for online e-commerce.

Although e-commerce offers vast new frontiers to business for exploiting intellectual assets, it also increases the challenges to those rights. Such challenges range from practical to technical to philosophical. Some believe that the traditional concepts of IP are not sufficient to cope with the challenges of e-commerce and those new types of intellectual property need to be devised. Others simply believe that IP laws are no longer enforceable and should not be applied in cyberspace. However, ongoing developments are tending to put these more extreme views to rest in particular the recent case of the major record labels vs. Napster has shown that IP laws can be enforced; and other cases are tending to echo that point. One thing that is certain is that a legal economic and technological struggle is going on and the outcome will affect the way e-commerce and the Internet are used in the future.

IP is one of the most valuable commodities in the world, and as such it has caused many disputes in the area of e-commerce. The range and complexity of issues is extensive, but I will attempt to briefly summarize the major issues and suggest some priorities for the Arab world.

Copyright

The most basic issue is what role IP should and can play in cyberspace. Copyright and the related area of “neighboring rights” is one of the most prominent areas of concern. The nature of the Internet has put tremendous pressure on copyright owners to control their rights. Words, music and computer programs can be stored in digital form and downloaded or printed from millions of web sites around the world.

The Internet has been described as the largest copying machine in the world. The question is how copyright’s owners prevent their creations from being copied without receiving fair compensation. A number of people have suggested that if copyright is unenforceable, we should do away with copyright protection. While this approach has a certain populist appeal, it fails to address one of the key purposes of intellectual property protection, which is the stimulation of creativity by compensating the creator.

Technology Solutions

Less radical solutions are likely to be the ultimate solution. Since the invention of the printing press technology has continued to open up vulnerabilities in copyright, and some believe that it will be technology that will be the ultimate solution. While technology has greatly facilitated copyright piracy, technologies are developing which will give copyright owners greater control. Encryption technologies are one of these. Another, is trusted systems which may allow authors to have more control in the online area than they traditionally had in the offline environment. For example, some systems require a user to download certain software on to their computer to access documents. If they misuse the information or fail to pay, the software which they have used to access the document may remove all copies of the copyrighted information from their hard drives, even including other documents that may incorporate part of the copyrighted material.

In other words, if you had copied a paragraph from an online book into a major presentation, you could turn on your computer and find that the copyright protection capabilities of the on-line publishers had deleted documents from your computer: While this is still uncommon, it does exist to some extent already. Other technologies are being developed as well that would be able to track down copyrighted packets of information throughout the Internet, while others will identify users of information. The real potential exists that the on-line world may become more perfectly regulated than the off-line world, through the power of technology.

Copyright and Contract

In the meantime, a far more simple and well-known legal instrument is being used as an alternative to on-line copyright protection contract. Contracts are a separate legal area but traditionally, they are a very effective way to protect rights.

If you have browsed the Internet, you will no doubt have come across many web pages that begin with online contracts; these agreements usually require you to click on an “I accept” button to proceed; they are known as “clickwrap” licenses, and are particularly important for mass-market industries like software companies and other on-line service and product vendors.

Legal challenges have arisen regarding the enforceability of “clickwrap” licenses on the basis that there is no opportunity for negotiation between the parties, and therefore they give too much power to big companies. However, not to enforce these on-line “clickwrap” style contracts would be very harmful to the on-line business community, and therefore we can probably look forward to seeing these agreements continue as a standard and generally enforceable part of the on-line environment.

Actually a recent amendment to the Uniform Commercial Code (Article 2B) in the USA makes “clickwrap” agreements legal and binding. Agreement in this case may mean only clicking on the “I Accept” button. The fact that most people never read these agreements does not change the fact that they are binding contracts. However, such agreements often carry terms that people might not accept, if they knew about them and if they had a choice. So remember to always read the terms of use and read all contracts and agreements that you see in cyberspace and never click the “I Accept” unless you are sure you do.

Trademarks

The area of trademarks is the other key intellectual property subject in cyberspace, along with copyrights. Trademark issues most often arise in connection with domain names. Domain names are the addresses we use to find particular sites on the Internet. The domain name system (DNS) is what allows users to navigate the Internet. Every domain name has an underlying Internet Protocol (IP) number. The domain name is a user- friendly way for people to remember these numerical addresses. Originally domain names were created to make it easier for people to remember the IP address for different computers. However, domain names have taken on a new significance for their commercial value as trademark-like addresses, but there is a difference.

Trademarks are organized by industry and geography and so the same trademark may be used by different types of businesses in different places. The domain name, however, is a unique global identifier and cannot be duplicated or divided by location or industry.

In connection with the rising commercial importance of the Internet and e-commerce, this characteristic gave domain names an exceptional value and gave rise to a phenomenon called cyber-squatting. Because domain names were available on a first-come first-serve basis, many clever operators registered famous and not-so- famous names and trademarks that they assumed would be valued by others. They then sought to extort large amounts of money for these, and in many cases companies paid dearly to get their domain names(s) back.

Since the mid-90’s, many such cases have been working their way through the legal system. Companies with valid trademark rights have often sued cybersquatters on the basis of trademark infringement, trademark dilution and unfair competition, and have had good results in cases where bad faith was evident. However, there was still dissatisfaction in many circles, and in 1999 the Anti-cybercasting Piracy Act (ACPA) was passed in the USA to provide additional legal protection against cybersquatters.

The Domain Name System (DNS)

Before I continue, let me just take a minute to summarize the domain name system (DNS). The DNS is extremely important because it is upon it, the whole functioning of the Internet is based. Because the Internet was created by the USA, it was originally the American government that administered the DNS. The US Government administered the system by sub-contracting responsibility to Network Solutions Inc. (NSI), a private company, and to the Internet Assigned Numbers Authority (lANA).

With the explosive growth and increasingly global character of the Internet, the American government decided that the administration should be handled by an international organization. It, therefore, created the Internet Corporation for Assigned Names and Numbers (ICANN), an international private non-governmental organization. Membership in ICANN is open to all interested parties, with various types of membership depending on the particular interest that the organization has in the Internet and domain names.