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E-BUSINESS + LAW (Release.30 - 08.04.1999)


Last week David L Smith of New Jersey was arrested by state authorities and charged with a number of offences including: interference with public communications, conspiracy, theft of computer services and causing damage or gaining wrongful access to computer systems. The charges arise out of investigations that have identified him as the man alleged to have developed and disseminated the "Melissa" Word macro e-mail virus. If convicted Smith, who has been released on bail, could face as many as 40 years in prison and US$ 480,000 in fines.

Smith is refusing to comment on the allegations but New Jersey officials say Smith was identified by a number of "cyber sleuthing" techniques including a "digital fingerprint" that traced the serial number of the Microsoft Word document containing the virus back to a hackers web site Smith was known to have used and the use of a stolen America Online email account that traced the virus to a phone line at Smith's house. The virus takes its name from a topless dancer called Melissa that Smith once met in Florida. Apparently the next virus to watch out for is "Chernobyl" - this is expected to appear on 26th April, which also happens to be the 13th anniversary of the disaster at the Ukrainian nuclear reactor.

In the USA, Senator Charles Schumer of New York has introduced legislation to place additional curbs on firearm transfers over the Internet. The Internet Gun Trafficking Bill will require anyone offering a firearm for sale on the Internet to have a federal license to sell weapons and require all sites that host gun sales to register with the Department of the Treasury.

A Virginia court has ruled that Internet domain names are property that can be seized and auctioned off to pay a debt. The case, involving a man who registered the domain name of a sporting goods maker and then tried to license it back to the trademark holder, is believed to be the first US action to touch on the issue of garnishing web sites. Network Solutions Inc, the company that had historically controlled registration of domain names, unsuccessfully argued that all domain names were the property of NSI and only leased to users on a conditional basis.

In another US case, NSI is asking a Pennsylvania federal judge to reverse an order that required it to unregister a name that violated a trademark and also barred it from ever assigning any similar name to anyone else. NSI claims an order made on 4th March by Judge Bruce Kauffman, in the case of Worldsport Networks v Artinternet, unfairly converted it into "an Internet police force".

Core Design, who created the Lara Croft character for the highly successful "Tomb Raider" computer games series, are suing a US web site operator for US$ 1.1 million in damages after its "" began displaying pictures purporting to show naked versions of the fictional Ms Croft. Core bases its action on the argument that it owns the copyright on all forms and permutations of the Lara Croft image.

The Microsoft anti-trust case has been rescheduled to resume on 10th May, the additional month out of court will allow Microsoft and the US Justice Department extra time in which to discuss settlement options.

The International Federation of the Phonographic Industry (IFPI) has commenced legal action against the Norwegian software company FAST Search & Transfer. The move follows the launch of a new MP3 Search system on the Lycos Internet search engine that makes it easier for users to locate web sites containing downloadable music recordings in the MPEG 3 file format. The IFPI alleges that FAST, which licensed the MP3 search software to Lycos, is encouraging infringement of copyright on a mass scale". The IFPI is also considering taking legal action against Lycos in the USA.



The recent ruling that Internet service provider Demon Internet could be held responsible for allegedly defamatory material appearing in a newsgroup posdting has created a flurry of speculation as to what this means for ISPs and Internet publishers. Was it a correct interpretation of the Defamation Act 1996? Or, was the key element the fact Demon apparently ignored a complaint? While we will have to wait for the case to come to trial to discover the full story, JGR partner David Judah, who has acted for Demon in seven previous "cyber libel" actions, offers the following observations. (Note: This particular case was handled by Olswang not JGR. The full text of the ruling can be found at

COMMENTARY BY DAVID JUDAH, JEFFREY GREEN RUSSELL. Judgment was given on 26 March 1999 in the first defamation case in the UK involving the liability of Internet Service Providers for third party content. Demon were unsuccessful in resisting an application by Laurence to strike out their Defence that they were not liable either because they were not publishers or because they were entitled to the statutory defence under s.1 of the Defamation Act 1996.

Laurence, who has brought several other defamation actions in the past, sued Demon because of a defamatory posting to a newsgroup (soc.culture.thai) hosted by Demon. The posting was made in the USA. It was not known where it came from but Laurence's name was mis-spelt with a 'w'. The posting appears to have been a forgery. The posting remained on the Newsgroup for around 10 days after Laurence had asked Demon to remove it.

Mr Justice Morland rejected Demon's claim that it should not be liable because it was not a publisher and was also not persuaded by the argument that Demon could rely on the Defamation Act defence.

This was a bad result for Demon and even worse for the industry. Demon have stated that they will appeal. The impact of this decision, if not overturned, will have a profound effect on ISPs. It could well open the floodgates for a rash of claims and put UK-based service providers at a distinct disadvantage to their US competitors. That is, unless litigants here decide that they are not also going to sue US service providers who are hosts to web sites and usenet news. In finding that Demon was the publisher of the Newsgroup, Mr Justice Morland has put ISPs in a very vulnerable position.

The traditional concept of publication as applied in defamation actions in the past has little relevance to the Internet particularly when applied to ISPs hosting newsgroups or web sites. What constitutes publication on the Net? Does publication take place on the computer that generates an e-mail or posting to newsgroup, on the server on which it is stored, or on the PC on which it is downloaded?

'Publisher' is defined in the Defamation Act as "a commercial publisher... whose business is issuing material to the public or a section of the public and who issues that material in the course of that business" Whilst that definition might properly apply to a content provider, it should not catch ISPs.

It was thought by many that the Defamation Act would provide a defence to ISPs in just the sort of claim made by Laurence. Although he considered the American cases which were referred to him, the judge decided that they were of only marginal assistance because of the different approach to defamation across the Atlantic.

It is a great shame that he didn't give them greater weight. In a similar fact case of Zeran -v- America Online decided in 1997, the court considered the effect of the US Communications Decency Act 1996, and rejected Zeran's argument of notice-based liability for ISPs.

Section 230 of the Communications Decency Act provided that "No provider or user of an inter-active computer service shall be treated as the publisher or speaker of any information provided by another information content provider". Although not in exactly the same terms as the Defamation Act defence, I believe that the two acts were both designed to protect ISPs who have an almost impossible burden of regulating the content which they host in one way or another.

In the Zeran case, the Court held that notice-based liability would create a disincentive for service providers to review content for potentially objectionable material and would place upon them a burden of an investigation and judgment far greater than that required of traditional print publishers - "an impossible burden in the Internet context, and a clear invitation to third parties to foment law suits and leverage settlements by merely sending notice and demanding action. The case does just that.

It is entirely inappropriate, as Mr Justice Morland did, to regard ISPs as analogous to booksellers. Booksellers and public libraries do not find themselves in a position where they decide to stock a publication only to find that the original author, or the world at large, is able to gain access to their premises to change the content of that publication at will, and without their knowledge.

In this context ISPs should be regards as landlords of a virtual marketplace with thousands of individual market stalls able to stock whatever material their stallholders decide. ISPs have no real ability to police this material comprising literally tens of millions of pages of content which could change by the second. A landlord of a real marketplace would have no liability in defamation for material sold at a bookstall and it is difficult to see why ISPs should be treated any differently.

This case constitutes a litigants charter for those looking for a soft target. It is to be hoped that it will be overturned by a higher court.



The Department of Trade & Industry (DTi) has published a new and highly readable discussion paper - "The Advance of Electronic Publishing" - that looks at some of the opportunities and problems facing UK publishers as they come to grips with online and other forms of electronic publishing in the late 1990s. Based on a survey of over 1000 publishers and related businesses, the paper identifies a number of product, technical, training, financial and legal-related issues that are currently causing concern.

On the legal front, the protection of copyright and legal liability is described as "remaining a source of considerable anxiety" with almost 70 percent of respondents identifying copyright infringement as a key concern and 60 percent admitting to being worried by the potentially unknown legal liabilities created by electronic distribution. There were also concerns about the security of electronic payment mechanisms and a widespread conviction that current data protection laws are restricting electronic publishing opportunities. The full text of the report can be found at

The insurance industry's three largest EDI/electronic underwriting networks - the Brussels-based RINET reinsurance system, the WIN World Insurance Network, which was created by the four largest insurance brokers in the market, and the London market's own LIMNET service - have agreed to collaborate on the development of a global e-commerce infrastructure to support online broking and underwriting. The new organisation, which has yet to be named, will commence operations in June.

The Royal Mail has launched one of the UK's first trusted third-party electronic commerce security services. Called ViaCode, it will initially offer email encryption and digital signature/authentication services to businesses but will eventually expand its operations into the consumer market.

Amid growing concerns that the US Federal Trade Commission may introduce new laws to regulate the way web site operators collect and use personal information about users, the computing giant IBM has announced that it will be withdrawing all Internet advertising from any web sites in the United States and Canada that do not carry a clear statement of their privacy policies. IBM reckons that currently only about 30 percent of the 800 sites where it advertises make such disclosures. IBM says it hopes it can lead a voluntary industry effort to protect privacy on the Internet before the US Government introduces mandatory controls.

A new study, by UK software consultancy Quidnunc Limited, suggests that most of the UK's top 20 largest retailers "seem ill-prepared for the online world". Only four companies included any reference to electronic commerce, the Internet or digital strategy in their current annual reports, seven did not have a web site and over half referred calls regarding web sites to their IT departments rather than customer service.

According to Quidnunc, a number of factors are to blame, including complacency, cultural factors and a generation gap "with senior managers whose appreciation of technology is too little or too late". Quidnunc suggests that on this evidence retailers fall into three categories: the e-ready, the e-aware and the e-blind.



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