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Patents for software andbusiness methodFollowing the recent UK Patent Officeconsultation 'Should Patents Be Grantedfor Computer Software or Ways of DoingBusiness?' UK Government E-MinisterPatricia Hewitt announced on 12 March2001 the Government's decision onpatents to protect computer programsand Internet trading methods.

Patents are restricted to the protectionof technical inventions. Present UK law(the Patents Act 1977) and the EuropeanPatent Convention (1973) exclude com-puter software as such, and methods ofdoing business from patent protection.

These exclusions have been in place formany years but the pace of change oftechnology and the growing importanceof e-commerce is calling into question thecurrent regime.

Meanwhile, following judicial deci-sions, US practice has moved towardsgranting patents for software and non-technical business methods.

Such divergence of practice promptedreconsideration of the European regime.

As regards patents for software, the UKGovernment has reaffirmed the principlethat patents are for technological innova-tions.

Technological innovationSoftware should not be patentable wherethere is no technological innovation, andtechnological innovations should notcease to be patentable merely because theinnovation lies in software.

However, the UK Government acceptsthat the law is not clear enough. The

question is of how to define the boundarydetermining when software is, and is not,part of a technological innovation.

The UK Government intends to takethis matter up with its partners in theEuropean Union and the EuropeanPatent Convention as a matter of urgency.

Business evidenceAs regards business method patents, theUK Government’s conclusion is thatthose who favour some form ofpatentability for business methods havenot provided the necessary evidence thatit would be likely to increase innovation.

Unless and until that evidence is avail-able, ways of doing business shouldremain unpatentable.

Limitation of liability clauses make a comeback? In the UK, Provisions in a standard con-tract that limit or exclude the supplier'sliability will not be enforceable unlessthey are reasonable under the UnfairContract Terms Act (UCTA).

In a recent UK case — WatfordElectronics Ltd v Sanderson CFL Ltd. —for the supply of computer software, thecontract included a clause under whichthe supplier purported to exclude liabilityfor indirect or consequential losses and tolimit its liability to the price paid by thecustomer.

Following the failure of the goods toperform, the customer sought to recoverdamages for breach of contract totalling£5.5 million in respect of loss ofprofits/depression of turnover and

increased costs of working. The total paidby the customer under the contractamounted to £104 596.

At the first hearing, the Technology andConstruction Court ruled in favour of thecustomer, following a line of cases wherethe courts have ruled limitation andexclusion clauses unreasonable underUCTA and therefore unenforceable.However, on appeal, the Court of Appealsaid that the contract had been negotiatedbetween experienced businessmen ofequal bargaining power and skill.

They decided that the court should notinterfere with the limitation of liabilityclauses unless satisfied that one party hadeffectively taken unfair advantage of theother, or that a term was so unreasonableas plainly not to have been understood orconsidered.

The case is good news for suppliers inthe UK. For customers it highlights thedanger of ignoring exclusion clauses inthe hope that they will be ruled unen-forceable under UCTA.

The Court of Appeal has applied thebrakes to what was a rather dangeroustrend of re-writing contracts; in the latestcase, the question of what insurance thesupplier carried seemed to be less of anissue than in previous cases. The case alsoconfirms that a liability limit equal to theprice being paid — which is a commonposition — can be regarded as reasonable.It indicates that Customers should con-sider their own terms of supply as thesewill be relevant in looking at what thecustomer regards as reasonable.

Note that the case only relates to busi-ness to business contracts; the position onbusiness to consumer contracts is differ-ent and will continue to be much morestrictly assessed.

New .name gTLD for individualsIf you have recently tried to register a domain name, you will have experi-enced the shortage of Internet "realestate." Luckily a new gTLD has beenlaunched to solve the problem. Theupcoming .name gTLD will create more

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Cyberlaw RoundupNigel Miller

This is a round-up of the state of play of some of the sticking legal matters in thefield of computer security today. We kick off with the thorny issue of patenting. Arethere limitiations to what is it appropriate to patent? From there we will discuss thelimitiation of liability in business-to-business contracts for software.

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availability and will allow a greater dis-tinction between individuals andcorporations.

Individuals can benefit from the abilityto register a personalized Domain Name,independent of commercial connota-tions. For celebrities that have beenplagued by cybersquatters and trademarkdisputes, .name may provide a way toprotect an online identity.

The registrar for .name in the UK isThe Global Name Registry (GNR), aBritish company created to operate thenew gTLD.

With the new .name gTLD, an individ-ual's Domain Name will be broken downinto first and family name — for examplePeter.Smith.name. GNR will reserve sec-ond-level names, such as .Smith.name andregister only the third level name, such asPeter, to the individual. GNR believes thatthis will make cybersquatting on individ-ual names less attractive, since users cannotregister the entire name.

There will be no pre-registration periodfor .name, and all registrants will berequired to certify their interest in regis-tering a Domain Name for personal use.In case of a dispute, Domain Name hold-ers may be required to produce evidenceof their personal usage.

GNR will fully implement the UniformDispute Resolution Policy (UDRP) todeal with any issues of dispute.

Which country's laws applyon the Internet? Some people believe that the Internet isunregulated. In fact, the opposite is true.Not only must businesses with websitescomply with laws in their own countrybut, as a recent case showed, they need toavoid inadvertently infringing the laws ofother countries, even if they do notspecifically target their sites towards thosecountries.

YahooThe case involved the sale of Swastika-emblazoned flags and other Nazi col-lectibles on Yahoo Inc.'s auction site atyahoo.com.

Two French groups sued theCalifornian-based portal for breakingFrench law, which prohibits the exhibi-tion or sale of racist material. Yahoo'sFrench language site actually barred thematerial, but people in France could stillfind it through the internationally avail-able yahoo.com site.

Yahoo contended that blocking allFrench users would be technically impos-sible. Nevertheless, in November 2000, aFrench court ruled against it and gave itthree months to find a way to preventFrench users from accessing auction pageswith Nazi-related objects.

The court said Yahoo would be fined$13 000 for each day after the deadlinethat it did not comply. Yahoo initially saidthat it would ignore the ruling and refuseto pay the fines unless they were enforcedby a US court, but it has since withdrawnthe offending material from its .com site.

However, it has continued to fight theorder in the Californian courts by arguingthat France had no jurisdiction over it asits site was based in the US.

Irrespective of whether the Californiancourts decide to enforce the Frenchcourt's ruling, the outcome will not set aprecedent for the enforcement of foreignrulings in the UK courts. However, theYahoo! case acts as a warning to business-es who ignore other countries' laws thatthey do so at their peril.

In practice, though, rulings fromaround the world will only have effect ifthey are enforceable where the defendantis based, has assets or does business.

EU copyright legislation toinclude the Internet The European Parliament has cleared,with a number of changes, new EU copy-right legislation extending European lawson copyright to take into account theInternet and other digital media.

The approved text, which has beenthree years in the making, says authors,performers, producers and broadcasterswill, in principle, enjoy exclusive rights totheir works, with certain exceptions andlimitations for copying for private use.

The directive allows the use of "techni-cal measures", including encryption, tostop people making unauthorized copies of copyright works. It will restrictcopies, made by individuals, of films and music to strictly private use andreduces the range of defences to copy-right infringement that can be recog-nized in Member States. The directivewill allow broadcasters to use materialfrom their archives on the Internet with-out authorization from the copyrightholders.

The EU move follows a decision by theUS appeals court to order the onlinemusic swapping service Napster to stoptrading copyrighted material.

The draft Directive is designed to giveeffect to the WIPO Copyright Treaty of1996. It will probably become law in the2001 but first has to be approved by thegovernments of Member States. If adopt-ed, Member States will have 18 monthsto bring the legislation into their nationallaw.

Corporate communications— a new regime The recent increase in access to theInternet has resulted in pressure for anoverhaul of the paper-based system ofcorporate communications. In the UK,legislators have responded to thisdemand, and amendments to theCompanies Act 1985 to permit electroniccommunications came into force shortlybefore Christmas 2000.

The amendments apply to communica-tions between the following: • Companies and Companies House; • A company and its shareholders;• Shareholders and their company.

Companies and Companies House: Significant amendments have been madeto the Act, which now permits any docu-ment to be delivered by a company to theRegistrar of Companies by electronicmeans.

The amendments have also removedone of the principal barriers to electroniccommunications which previously existed

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under the Act, in that a number of appli-cations to Companies House need to besupported by a statutory declaration ofcompliance with the relevant provision ofthat Act.

A statutory declaration must be swornby an officer of the company before asolicitor or notary. These applicationsdo not therefore lend themselves to elec-tronic communications but are requiredin a number of common situations, forexample: in support of an applicationfor incorporation; on the re-registrationof a private company as a public compa-ny; in the case of a public company, inconnection with the application for acertificate that it is entitled to com-mence business; on satisfaction of amortgage or charge over a company'sassets.

The Companies Act now provides thatall of these applications may be madeelectronically, including incorporationsalthough, in practice, it is likely to besome time before Companies House isable to receive all applications in this way.

The requirement for the delivery of astatutory declaration has been replaced inrelation to electronic applications — theelectronic application in question must beaccompanied by a statement from an offi-cer of the company in question that therelevant requirements of the Act havebeen complied with.

Company and shareholdersAgain, major amendments have beenmade to the Act. A company is now per-mitted to issue notices of meetings byelectronic means.

Similarly, copies of a company's audit-ed accounts (which all shareholders havethe right to receive) may be made avail-able electronically.

In both cases, the documents may bemade available either by sending thosedocuments to an email address notified tothe company by the shareholder for thatpurpose; or making the documents avail-able on a website, provided that the com-pany and the shareholder have agreed tothis method of distribution.

In addition, the shareholder must be notified of the publication of the documents on the website and be

provided with details of how to accessthose documents.

Consequential amendments have alsobeen made to the model form of articlesof association set out in Table A to theAct, which form the basis of the articles ofassociation of the majority of privatecompanies.

These amendments permit any noticeto be given pursuant to the articles of acompany to be transmitted electronically.Any company which wishes to utilizeelectronic communications should takesteps to make appropriate amendments toits articles.

Shareholder to the companyForms of proxy may now be delivered bya shareholder to the company by electron-ic means. This applies notwithstandingany contrary provision in that company'sarticles of association. It remains to beseen how quickly companies and theirshareholders will take advantage of elec-tronic communications. Nevertheless, theamendments should prove to be a wel-come relaxation of the corporate commu-nications regime.

About the authorNigel Miller is a partner in the City ofLondon law firm, Fox Williams.

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Companies HouseCompanies House is a chartered publicservice trusted third party. It has three main functions: 1. The incorporation, re-registration

and striking-off of companies.2. The registration of documents that

must be filed under company, insol-vency and related legislation;

3. The provision of company informa-tion to the public — for this pur-pose we enforce compliance withlegal requirements.

These changes will make it easier for theGovernment to conduct multi-jurisdic-tional and multi-point wiretaps, collectDNA samples, share informationbetween law enforcement and intelligenceagencies in various countries, and prohib-it journalists and others from writingabout certain aspects of U.S. intelligencegathering.

Shortly following the attacks, theJustice Department proposed two ver-sions of an anti-terrorist law — theMobilization Against Terrorism Act(MATA) and the Anti-Terrorism Act(ATA) of 2001. The Senate, without

Privacy Safeguards To BeRolled Back In Wake OfAttackWayne Madsen, US correspondent

In the wake of the 11 September terrorist attacks on New York and Washington,Attorney General John Ashcroft, once a champion of privacy rights, has submitted ahuge laundry list of changes to current law to facilitate investigation of terroristactivities.