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| The 5 Big Law Events of 2001 |
January 9, 2006 |
By Jim Middlemiss
It was the year an artificial heart was successfully transplanted into a Louisville, Ken., man. We first heard about Ginger, the two-wheeled transportation device later called The Segway that was supposed to revolutionize personal transportation. It was also a year of business lows and legal woes. Tobacco giant Phillip Morris was left reeling after a jury levied US$3 billion in damages, camera maker Polaroid filed for bankruptcy and the U.S. Federal Communications Commission blessed the merger of AOL and Time Warner.
On top of that, there were five events in 2001 that set the tone for tech and the law, and that still resonate today.
1) Microsoft Fends Off Anti Trust
The year 2001 was a critical period for computing giant Microsoft, which faced the threat of being broken apart by antitrust authorities in the U.S.
The U.S. Justice Department and 20 state Attorneys General sued Microsoft in 1998, claiming it thwarted competition to protect a monopoly on software.
In 1999, U.S. District Court Judge Thomas Penfield Jackson found Microsoft was monopolistic and unlawfully tied its Microsoft Explorer Web browser to its operating system. He ordered the company broken up. Microsoft appealed.
In February 2001, a U.S. appeal court slammed Judge Jackson for his extrajudicial comments and tossed out his break-up order.
Shortly afterward, the Justice Department announced it would no longer seek to dismantle Microsoft and a tentative deal was struck to settle the case in October 2001. Nonetheless, Microsoft continues to tussle with European antitrust authorities.
Craig Wildfang, a competition lawyer at Robins, Kaplan, Miller & Ciresi LLP in Boston, said, “the Microsoft antitrust case was a complicated case economically more so than legally, and the directly traceable results of the government settlement are not obvious. It hasn’t done very much to make the market for operating systems more competitive. I am not sure the settlement had the beneficial effect that the government had hoped for.”
However, he said, the computing world has changed dramatically since that decision. “In the intervening five years, the market for operating systems and related technology has continued to evolve in ways that perhaps were not anticipated.” People are “now worried about Google” and it’s fast becoming the focus of concerns about Web dominance.
Dany Assaf, co-chair of the competition law group at Ogilvy Renault LLP in Toronto, said the interesting aspect of the Microsoft case was “everyone except Microsoft and its customers were kicking and screaming that there was an elephant in the room. Most customers were happy about what they were getting (from the company).”
The case highlights the fine line between aggressive competition and monopolistic practices.
“Microsoft was doing everything it could, tying the product together and bundling it so it looked more attractive to the customer.”
Assaf said the case makes it clear firms need to be more cautious when signing exclusive contracts. They have to ask, “Is there a legitimate business purpose or are you needlessly tying up customers?”
2) The P2P Wars
U.S. courts clamped down on music file sharing in 2001, a decision legal experts say forged the beginning of a long-running battle against peer-to-peer (P2P) network technology on both sides of the border.
In February of that year, the U.S. Ninth Circuit Appeals Court upheld a lower court ruling that music file-sharing firm Napster could be held liable for contributing to copyright infringement. That effectively shut down Napster and the U.S. Recording Industry Association of America has since stopped other services, such as Grokster.
However, users have simply flocked to competing offerings and file sharing is expanding into other copyrighted materials such as movies, books, software and video games.
The Canadian music industry has turned to the courts to advance its concerns, but without the same success. It tried to force Internet service providers to cough up the identities of people engaged in music file sharing. Chris Van Barr, co-chair of the technology industry group at law firm Gowling Lafleur Henderson LLP in Ottawa, said the federal court found in 2004 that the complainants did not produce enough evidence to justify ordering ISPs to disclose the names of people swapping files, and said under Canadian copyright law downloading music was not illegal.
The Federal Court of Appeal agreed on the point of lack of evidence, but said the judge should not have made a decision on whether or not downloading a song violated copyright law, so it’s still an open question.
“We’re back in limbo,” Van Barr said, adding the issue will be before the courts again.
He said improper file sharing is estimated to cost copyright holders millions of dollars.
In fact, statistics suggest that “the Canadian rate of piracy is higher than in many other industrialized countries.
“There is going to be a continued increase in the sharing of content over the Internet. The real question for rights-based industries is can they find an effective licensing model to capture revenues?”
3) The Fall of B2B Exchanges
Experts told everyone business-to-business ( B2B) exchanges would revolutionize procurement and companies took the bait, investing billions of dollars to get in on the ground floor.
Forrester Research estimated business conducted over B2B exchanges would hit US $2.7 trillion globally by 2004 and US $218 billion in Canada alone.
IDC Canada predicted 20 to 25 B2B exchanges would control the lion’s share of Canada’s procurement market.
Covisint, a B2B exchange for the automotive industry led by the major automakers, was held up as the poster child.
Today, revenues for global B2B commerce platforms have declined from US $384 million annually in 2001 to about US $280 million, according to Forrester, and Covisint was sold to a technology company in an auction.
So what happened? “Predictions regarding the rate of change were wildly mistaken,” Van Barr said.
His partner, Brad Limpert, agreed, noting “people thought B2B would essentially take over commerce and a lot of people made a lot of big bets that the only way to buy, sell or trade something would be the Internet.”
Limpert said the law is not holding things up, noting “online procurement is no different than regular procurement; for all intents and purposes it’s one and the same.”
The problem, Van Barr said, is “a lack of common infrastructure between businesses.”
Everyone predicted there would be a huge XML-based data exchange among businesses, but “it didn’t happen.”
Rather, Van Barr said, what is happening is hybrid commerce, “a sort of reversion to old-style commerce over the Internet.” Which means taking traditional communications, such as faxes and paper, and delivering them electronically.
But as computing standards improve, information becomes digitized and the computing infrastructure is better integrated, so he said B2B commerce should actually grow. Limpert said there are now some niche markets where people developing sites “have very specialized expertise and are doing very well,” such as commercial real estate and precious metal exchanges.
“ B2B has not taken over the world,” he said, at least not yet. “We’re still in the very early days of the Internet generally and how businesses will use the Internet.”
4) Privacy Concerns Take Root
The seeds of privacy law were effectively sown in 2001, the year the Canadian government brought in the far-reaching Personal Information Protection and Electronic Documents Act. It requires organizations to set policies and procedures for protecting the personal information they gather about individuals.
The law has increased the power of the federal and provincial privacy commissioners, and these commissioners are changing the way companies deal with their clients.
Limpert said “the privacy legislation we have in Canada has revolutionized the relationship between consumers and companies and also between citizens and government.”
What’s also significant, he said, is the difference between how Canada deals with privacy vs. its largest trading partner, the United States. “The U.S. is just starting to look at whether they should have laws pertaining generally to the privacy of data supplied by consumers.”
Limpert said when it comes to enforcement, privacy commissioners “have been quite restrained. Their enforcement largely relies on the impact to a reputation when they make a general finding against someone who has infringed privacy rights.”
The problem for companies, he said, is that “there is a lot of uncertainty of how they will interpret and enforce the law.”
5) 9/11: The Low Point
Terrorism also reared its ugly head in North America in 2001 with the Sept. 11 attacks.
That single day impacted the entire continent, as governments on both sides of the borders scrambled to implement a new host of laws and regulations governing everything from the way goods and people cross borders to the way financial institutions track money launderers.
The terrorists’ actions also had the side effect of forcing companies to re-examine their disaster recovery and business continuity plans and the legal impact they face in the event they are unable to recover quickly from a disaster, said George Takach, a technology lawyer at McCarthy Tétrault LLP in Toronto.
He said many firms already had disaster plans in place from 1999, when concerns about the upcoming date change prompted action.
“Y2K was a wake-up call that had already put this on the agenda for most companies.
Most companies after 9/11 brushed up their Y2K disaster plans.”
Many discovered the plans did not consider a catastrophic event such as the loss of entire buildings and infrastructure systems such as phones.
To facilitate better disaster planning, trade associations and regulators on both sides of the border began stressing the need for sophisticated business recovery and continuity plans.
For example, Takach said, the Federal Deposit Insurance Corp., which regulates U.S. financial institutions, published a comprehensive business continuity-planning handbook to help firms make sure their “plan is up to snuff,” he said.
They also developed a series of documents that tell an institution what auditors look for when they come knocking on the door.
Canada’s financial regulators were more reserved in their response, he said, dealing with disaster recovery primarily when someone wants to start a bank or insurance company or a financial institution wishes to send work offshore.
Events like 9/11, he said, force businesses to think about worst-case scenarios. “We got calls from a number of U .S. businesses...about what it’s like to do business in Canada.
I think it was people asking the question, ‘If we needed to continue [our operations in] Canada, how can that be done?’ I don’t think anyone acted on it per se,” he recalls. “I think they decided pretty quickly that nobody was safe.”
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