Today’s keynote speaker at ISPCON was Elliot Noss of Tucows.  His keynote addressed how Internet Infrastructure companies can compete with the likes of Google and Go daddy.  His answer:  more customization and real personalization.  He used McDonalds to represent Google and Go daddy, and Starbucks as an example of customization and personalization.  In his presentation Rackspace is the Starbucks of the Internet world.  In his opinion Rackspace succeeds not because it is the cheapest, but because it provides a much more stable experience than most infrastructure providers.  Examples of this include robust mail service with large storage space.

As a frequent conference attendee, I hear this keynote often.  In other conferences the keynote has been entitled, alternately, “How to compete with 1and1 and Microsoft,” “Withstanding the entry of the giants,” and so on, and so forth.  Depending on the audience, the theme always seems to be “specialization and customization”

I wonder, honestly, how specialized and customized companies can get and still make money.  Early on in my practice, one of my clients had the idea of creating different brands for different segments of the hosting market.  The CEO called this the “supermarket” strategy:  he wanted to own the most shelf space in the hosting market.  Consequently the company had over 10 brands, each with a different message, back end, support needs, etc.  Needless to say, this level of specialization became uneconomical over the long term, and we ended up folding all the brands into two major brands.

Similarly, another client sought to compete in various segments of the market.  So he targeted lawyers, doctors and chambers of commerce.  This specialization required an enormous amount of sales time, and very expensive marketing (getting a lawyer’s attention isn’t cheap).  This marketing effort worked, but the customer market was so specialized, and the product not scalable to other markets, it was eventually folded into a standard “unlimited bandwidth, storage, 10 GB e-mail” plan, with resulting churn.

What Elliot talked about, that strikes me as true, based on those of my clients who are successful, is that successful Internet businesses are high touch, and that people will pay to have their problems go away.  Examples of this, and hosting companies that are taking business from 1 and 1, etc., include those that focus on customer support, implementing complex outsourced solutions like exchange, and hold the hand of overburdened IT departments. 

In each of these examples the customization and specialization is applicable across the entire product line, and is not feature based.  So instead of creating an e-mail solution that meets the unique needs of lawyers, they have support that teaches the lawyers how to create the e-mail product they need. 

I see an analogy in my own business:  clients pay me to make problems go away.  They’re not interested in the most recent regulatory pronouncement about green marketing from the Federal Trade Commission, they just want to be able to market their new “green” data center.  Similarly, the nuanced thread that has run through all these keynotes, whatever their title, has been that customers will pay you to make problems go away.  Seems to me that’s a great way to succeed. 

The Supreme Court of New Jersey joined a small, but growing, number of state courts who have ruled that individuals have an expectation of privacy in the IP addresses assigned to them by their ISPs.  The unanimous decision in  State v. Reid was based on the New Jersey state Constitution, rather than the U.S. Constitution. 

At base, the court held that a demand for an IP address must be connected with some sort of judicial proceeding, and not a simple subpoena issued by a court without any kind of review.  The court stated that the demand for the IP address must “bear some possible relationship” to an investigation.  That relationship can be demonstrated by requiring that the subpoena be issued as part of the grand jury process, rather than through a process in which a subpoena may be issued without any demonstration of relevance.  The court refused to go further, and require that a subpoena be issued by a grand jury only upon demonstration of probable cause (the standard necessary to issue a warrant).

This decision shows the difference in privacy rights that is developing between state constitutions and the U.S. constitution.  Federal courts have routinely held that there is no Constitutionally based expectation of privacy in IP addresses, while state courts are increasingly interpreting their constitutions the opposite way.   Like many similar state vs. Federal issues, these different interpretations are ironic since most state constitutions are based on the Federal constitution.  However state courts have a long history of interpreting their constitutions differently than the U.S. constitution.

For hosts, this decision reinforces the need to require some sort of service of process prior to disclosing information about your customers.  It’s important to note that the ISP in this case, Comcast, was not a party to the suit, and not held to be liable for its response to the defective subpoena.  However, what this case does illustrate is the growing body of law supporting customer’s expectation of privacy in information generated by their use of technology.

From a micro perspective, hosts should always require that any request for customer information be part of a judicial proceeding, or otherwise authorized by law.  From a macro perspective, it should cause those who are interested in commercializing this information to be careful in how customer information is used.  The line between a host’s ownership of information generated by customer’s use of its technology, and a customer’s expectation of privacy, becomes thinner with every decision in this area.

 

In Fair Housing Council v. Roomates.com, the U.S. Court of Appeals for the 9^th Circuit has further clarified the meaning of the term “publisher or speaker” or the “conduit immunity” status of Internet businesses.  In this case, Roomates.com was alleged to have created a questionnaire that collected information that is prohibited under state and federal fair housing laws.  Roomates.com argued that it qualified for conduit immunity under the Communications Decency Act since it was merely an interactive computer service, rather than a publisher or speaker, who would be liable for the content of information they published (or spoke).  Fair Housing Council argued that Roomates.com fell outside of this category, and was a publisher, of the discriminatory questionnaire, since it developed the questionnaire.  The court agreed with the Fair Housing Council.

The court determined that Roomates.com created the questions and choice of answers used in the questionnaire, and as a result, under the CDA was a publisher of the questionnaire, and not a mere conduit through which the questionnaire was distributed.  The court focused on the creation and development of the questionnaire as the key activity that moved Roomates.com from a conduit to a publisher.  By selecting the questions to be asked, and by actually developing the questionnaire itself, Roomates.com became a publisher.  The court further reasoned that the CDA does not provide immunity for an entity that facilitates a violation of the law by actively soliciting and classifying the information that forms the violation of the law.

What does this mean for hosts?  One of the statements in the opinion is very important for hosts to remember:  hosts can be both a conduit and a publisher under the CDA.  So in the Roomates.com example, unguided postings merely disseminated by Roomates.com would be within the conduit exception.  Developing a method for classifying these ads, and displaying them, in a manner that violated fair housing laws, made Roomates.com a publisher for claims made based on that activity. 

This is an important distinction for hosts to remember.  The fact that you are a host does not automatically grant you conduit status under the CDA.  Rather, it is the activities in which you are engaged that create the circumstances according to which CDA status is accorded. 

As Liam noted in his blog, I’m at Webhostingday.  This is my first hosting event outside the U.S.  As the title above suggests  - the question I’m getting the most is “why are you here?” or with a bit more meat:  “what use are you to hosts and other internet infrastructure providers who are outside of the U.S.?”

Sidestepping the jurisdictional issues (I’m a member of the bars of the District of Columbia and State of New Mexico), this question goes to the fundamental issue facing all hosts, and the Internet in general:  who’s law applies?

Let me answer that in a typical lawyer fashion:  it depends.  Let’s say I’m representing a company in Ohio.  They have a disgruntled customer in Maine.  I’m going to argue that Ohio law applies, since that’s where my client is based.  Let’s say there’s the same set of facts, however the customer in Maine has money in a bank we’re trying to get.  I’m going to argue that Maine law applies.  U.S. law supports both arguments, particularly in the business to consumer context.

In the international context, the arguments are relatively similar, except it’s much more difficult to get courts of one nation to apply the laws of another.  This is VERY true of U.S. courts, who will almost never apply the laws of a foreign jurisdiction, or, for that matter, even cede that a foreign court may have come to a more reasonable decision.

However the Internet is global, and my clients, and the attendees at Webhostingday, have clients all over the world.  So, to make the example above more complicated, how does a datacenter in Cologne leasing space to my client in Ohio, deal with my client’s problem customer in Maine?

The answer that applies 75% of the time is by using a common contract.  In the hosting industry, along with many other Internet industries, a consensus has developed about what is, and what isn’t, acceptable in contracts.  Except in their extreme forms, most hosting contracts (at least those that I’ve written) can be distilled down to very basic principles.  These principles have wide application in almost every country that has accepted the principle of doing business by contract.  By creating contracts that hew to these principles, it is much more likely that they will be enforced by courts from the U.S. to Uruguay.

So what about the other 25%.  The other 25% tends to involve issues, such as privacy, reseller and redistribution rights, and price floors, on which many countries disagree.  As companies move up the value chain, and create more varied products and services, their ability to sell over the internet with a standard contract that applies to all customers regardless of country, decreases.  In that case, typically my clients will engage me to prepare a standard contract, and we’ll work with attorneys in targeted countries, or geographic areas, to create a specific contract.

So that, I think, is the general answer to “what can you do for non-U.S.” hosts.  As to other reasons why I’m here:  I’ve done several transactions in the past year where, thanks to the weak dollar, my clients were either acquiring a company in the U.S., or being acquired by a company in the E.U.;  I have clients in the E.U. who have encouraged me to come; and finally, to Liam’s point in a recent blog entry, I’ve always wanted to ride roller coasters as much as I desired without waiting in line.  Just don’t tell my daughter.

I recently closed on a real estate purchase.  If there was one area of life that screams for the web, it has to be this one.  I’m not talking about sites like Realtor.com (yawn), Trulia, Zillow, or hotpads, these are all OK for armchair looking, I’m talking about the process itself:  the process is so *intensely* paper based, I’m quite convinced that half the Amazon rain forest was consumed in my transaction alone.

Let’s start with the offer process.  I offer X.  My Realtor prepares a 37 page offer.  I sign here, initial there, and he faxes it to the seller.  Naturally the seller counters.  His Realtor prepares a 40 page counter.  You can see how this goes on and on.  Of course through all this faxing, the initial copy becomes unclear, necessitating a completely new contract.  I’ve finalized $10 million dollar offers by e-mail.  Why I can’t even make an offer on a piece of property that way boggles my mind.

Next is the lending process.  I started on Lending Tree.  You fill out a 10,000 screen on-line questionnaire and then what?  You start getting e-mails.  To get actual information from these lenders, you are immediately *faxed* 10 pages of paper that must be physically signed, and faxed back, with a copy in the mail.  So I’m already up to a potential 40 pages of paper, just to get a squishy maybe, maybe not, commitment of an interest rate.  Why can’t this be done on-line?  Beats me.  Must be the lawyers.

I ended up not using a Lending Tree lender, and chose Carteret Mortgage instead.  Now here was a company who at least understood my pain.  A simple on-line form, leading to a quick loan qualification letter.  Really the only thing I had to sign were two simple forms stating that the information I’d provided them on-line was correct.

Once you choose a lender, then the fun really begins.  Because I’m self employed, I’m a five headed hydra to most lenders.  Can I give you a screen shot of my on-line banking balance?  Oh no, we need your bank statement.  Well now most banks don’t even give you paper statements any more, and none of my choices for savings even produce statements – that’s why they can pay a higher interest rate.  Does it matter that these very same banks write mortgages?  Nope.  Find some way to get it on paper.  The coup de grace was when my accountant was required to fax in a letter stating that he had prepared my 2005 and 2006 tax returns.  It didn’t matter that he had signed my tax returns, and that I had sworn to the IRS that he had done so.  Apparently banks are a higher authority than even the IRS.  This is simply a small snapshot of the amount of paper that had to be generated simply to get the loan.  Needless to say there is a well worn path from my front door to my mortgage broker’s front door.

So finally the day of closing comes.  Can this be done at least by fax with signed pages in the mail?  Oh no.  It must be done in person (plus $45 in dubious “courier” fees).  Why is this?  I have no EARTHLY idea!  I’ve been practicing law for 17 years, and have closed over 20 transactions of up to $200 million.  How many of these have been in person?  Zero. 

So what can we all learn from this experience, which almost all of us have had?  First is that many of us in the Internet industry live in a bubble.  Some of my pain would have been lessened if I owned a scanner.  I don’t.  Why?  I don’t really need one.  My clients don’t want more paper (or pseudo paper), their customers don’t want paper, the only people who do?  Lawyers.  Indeed, I believe that there is a special place in hell for lawyers who FedEx me DMCA complaints in 10 pound boxes.    

Second, let’s get off our addiction to the paper format.  How about a New Year’s resolution to decrease our use of the .pdf format 50%.  The receiving party either has to print the file out, or make their comments by e-mail, which generally have to be printed out to be understood.  I remain unconvinced that sending everything in .pdf form leads to fewer changes/comments.  A “living” document like Word or some other changeable format, typically leads to better deals anyway.  .pdf files also have to be printed out, signed and faxed.  Just as legally binding are services like Echo Sign that provide evidence of signature and an unchanged contract.

Finally, let’s all stop being so risk averse.  Why do I get DMCA complaints in 10 pound boxes?  So that someone can argue that I had actual knowledge of the facts set out on the documents in the box.  Both case law and the Federal Rules offer ways to demonstrate that knowledge without further harming the environment with paper and the jet fuel needed to get it to my doorstep by 7 am.  It may take some additional thinking, but in the end, it should all make our lives simpler, and more efficient.

What won’t change?  My engagement letters.  My malpractice insurer requires them to be on paper and physically signed.  Sigh.

 

Wednesday January 25^th’s Domainfest keynote was presented by John Battelle CEO of Federated Media.  John chronicled his business career in traditional media, and how it led to his current position.  While his career is basically a timeline of the booms and busts of Web 1.0 to Web 2.0 (a term I loathe) his major point was that the web, what users expect, and what you can do, has changed.  This point has been driven home to me again and again at the conference, and honestly, why I was encouraged to attend.

Many of the speakers, presenters and the live domain auction itself, focused on topics like increasing  pay per click revenues by doing things like adding pictures.  That this gambit is short term at best was illustrated when John showed a screenshot of the site be.com.  It’s difficult, if not impossible, to come up with a reason why you’d want to navigate to this site – there really is nothing on the landing page that is in any way related to the two top uses of the word “be” (at least according to Google), as the stock ticker symbol for BearingPoint or the country Belgium (or for that matter, one of my fraternity brothers band “be”).  Rather, there are the standard links that every site seeking to capture “type in” traffic includes:  Dating, Cars, Electronics, etc. etc.  Now while I’m sure that the owner of be.com makes a decent living, and Hitfarm, the company that provides the landing pages is in fact optimizing the landing page to reflect traffic patterns, I can’t help but think that something’s missing.  The “parked pages” concept seems to be a concept that does not reflect current use of the Internet, or those uses that are right around the corner.

I wonder how difficult it would be for domain owners to utilize new technologies to truly optimize their sites.  While I fully understand the power of Big IP, I wonder how difficult it would be to create a series of template sites that capitalize on the current use of the domain name?   If you can’t figure that out, how about a wiki?  People who come to the domain could tell you what they came there for.  What about some “Office 2.0” tools you get for free that enhance the value of the page to the users?  Features like this might increase the value of the domain itself, but also remove some of the legal issues surrounding domaining, that make life difficult for domainers.

Sticking with what works is a decent business philosophy, but keeping your eyes open, and creating a nimble organization is, I’d say, a crucial component to success.

Lest you think I’m picking on domainers, let me make one thing clear:  I think it’s worse in the hosting world.  For crying out loud, how much bandwidth, disk space, and free domains can the industry give out before hosting is totally free?  For hosts, business is moving in the same direction as domains.  The cost of including new tools has significantly declined, and your ability to include them with minimal engineering has increased.  Look, for example, at Hostway.  Hostway’s business has expanded from shared, and now includes domain parking services.  It’s really only a matter of time before the services provided to parked pages is expanded to include creating sites of more apparent value.

I think, sometimes, we need to venture out of our comfort zones to see what else might be out there. 

Last Wednesday morning’s domainfest 2008 keynote presentation was from the Internet Commerce Association (ICA).  The ICA represents the interests of domain name owners in congress.  My initial “initiation” into the hosting industry was at a 1999 gathering of hosts to discuss legal and regulatory issues that were affecting hosts at the time.  Amazingly, some of those issues remain.

What does the industry gain from participating in the political process?  The short answer is a voice in Congress.  Make no mistake, companies like Amazon, Yahoo, Google and Microsoft are making sure that their voice is heard, and that their concerns about legislation that may affect their hosting businesses are presented to decision makers. The interests of those companies are likely to be significantly different than yours.

I’ve beat the association drum for a long time.  Most hosts I’ve talked to about this issue have argued that nothing has affected their business so far.  To address this argument, I’ve set out four items in a “wish list.”

DMCA reform:  entities and individuals who use the DMCA process should be required to state, under the penalty of perjury, that they have a good faith belief that the material identified in the complaint is infringing.  Currently, many copyright owners shoot first and ask questions later.  This has led to a situation where legitimate websites are shut down, only to demonstrate to the copyright owner that they have a license to use copyrighted information.

Clarification of data retention requirements:  web hosts should not be required to preserve evidence, or potential evidence, in third party litigation without compensation.  Recent revisions to the Federal Rules of Civil Procedure create incentives for third parties to demand that web hosts and other Internet infrastructure providers preserve data without compensating them.  The cost of preserving backup tapes, without recycling them, is, in some cases, enough to significantly squeeze a company’s profit margins.

Privacy / Data Integrity:  any legislation or rulemaking in this area should recognize the rights of web hosts who collect data to use that data in their business, and monetize it, with the consent of their customers.  As the web develops, creative businesses have found ways to enhance the user experience.  Any privacy legislation should not unduly limit these business ideas.

ICANN:  changes to domain name registration policies don’t unduly discriminate against domain name resellers.  Many hosts use cheap domain names to drive business.  ICANN regulations should facilitate internet commerce, not establish a registrar cartel.

The second day of domainfest 2008 concluded with a two hour live auction of domain names.  At the start of today’s auction “sex.la” had the highest minimum required bid (surprise surprise).  This auction in particular, and domainfest in general, got me to thinking about whether domain names should be considered to be real property, similar to real estate, or intellectual property, similar to trademarks and copyrights.  Based on the chats I’ve had in the exhibit hall, and at other conferences, it seems that domainers like the idea of giving domain names some, if not all, of the attributes of real property.  On the other hand, Big IP has been firm in its assertion that domain names should be considered to be intellectual property only.  While using either of these analytical frameworks would add a certain amount of legal certainty, I think that using either framework, exclusive of the other would be a missed opportunity to create law that reflects the particular place that the Internet occupies in society. 

Why do I hold this opinion?  Based on my experience, and that of other lawyers active in the domain space, the law applied to domain name disputes has diverged significantly from the reality of domains today.  While typosquatters and cybersquatters still exist, the era of “nikke.com” has long passed.  Ignoring this, Big IP still treats the domain name space as their own province based on the cybersquatting era. 

To illustrate this, one needs no better than the questions posed to my legal panel this morning.  The vast majority of them dealt with how to deal with requests from the general public to buy a domain name.  Why is this such a pressing legal issue that no fewer than three different permutations of this question were posed to the panelists?  The short answer is that the ACPA, and panel decisions under the UDRP, have given great weight to “excessive” requests for compensation for domain names, particularly when a domain name isn’t being put to “productive” use.  As a result, domain name owners have had to develop elaborate ways of answering questions about the value of their domains without triggering a presumption that they are in violation of the law.  This presumption, and other presumptions, like a parked domain is not being put to productive use, illustrate for me the application of a tortured interpretation of intellectual property law to domain names.

I can’t think of another area of the law where similar presumptions operate.  Using the real estate analogy, do we force a sale for a “reasonable price” on a person who has purchased a parcel of land in anticipation that it might be a good place for a shopping mall? 

Other than as a simple rubric for legal analysis, however, real estate doesn’t work very well for domain names.  The Internet isn’t Oklahoma in the 1880s.  The Internet is more of a public/private partnership in which societal concerns, and facilitation of commerce may need to be given priority over private gain and speculation limited to provide opportunities for more robust use.

As the linchpin of Internet functionality, the law needs to recognize that domain names cannot be subject to one legal theory exclusive of others.  Rather creative judges and legislators must recognize the importance of domain names both as a cradle of Internet innovation, and a natural extension of current trademarks.

 

 

I’ve come across a couple of news stories lately that cover an interesting turn of events for copyright owners.  Apparently, a number of vociferous members of the copyright police don’t believe in the saying “what’s good for the goose is good for the gander.”  This article from the Washington Post essentially sums up the issue:  companies seem to have run out of “real people” for their ads, so they’re “borrowing” images from sources like Flickr and personal blogs.  Indeed, in Fox’s case, not only did they borrow the image, they altered it to fit their commercial needs.

Apparently companies like Fox, Virgin Mobile, Microsoft, and HBO think nothing of violating the express copyright statements on sites like Flicker in which users have reserved certain copyright rights, and prohibited commercial use of their images.  In the case of Fox, the use of the image directly contradicted an express statement of copyright ownership at the bottom of the owner’s blog.

So what do I make of this?  First, it reinforces my impression that the Internet Intellectual Property debate (if there still is such a thing) continues to favor Big Intellectual Property.  As evidence of this point, you really need go no further than the fact that spokesmen for Fox, Virgin Mobile and Microsoft were all “unavailable for comment.”  Hmm.  If any of those companies were truly remorseful, I suspect they may have made a spokesman available to the Post.  Clearly, when Fox steals an image from a blog, it’s not a big deal.  However when you download the new season of Fox’s 24, the FBI needs to be involved.

Let me make one thing clear:  I don’t believe that Intellectual property infringement is acceptable for any reason.  However, my day-to-day experience with this issue leads me to believe that Big IP feels that there are no limits to their power.  Not a week goes by when, in my capacity as DMCA agent for some of my clients, a DMCA notice is withdrawn because someone from Big IP shot first, and asked questions later.  Who is the victim in that case?  Certainly not the copyright owner.  It’s the site owner whose site goes down for a couple of days while they try to straighten the dispute out with the IP owner, or their representatives, who, in many cases, have zero interest in moving quickly.

What should be done?  When sending a DMCA take down notice, copyright owners should be required to make a good faith effort to ensure that their statements are accurate, and should be liable for the statements made by their representatives.  The DMCA should be clarified so that the “penalty of perjury statement” applies to both the “good faith” statement of illegality *and* the statement of authorization.  While many courts have held that this is the case, most copyright owners and their representatives assert that it only applies to the statement of authorization. 

Making these changes would go a long way to reinforcing for Big IP that their actions, both as copyright owners, and as users, have implications.

A recent case filed by Dell against a number of domain tasters and their registrars attempts to hold the registrars liable for infringing some of Dell’s intellectual property.  The claims that are relevant to domain name registrars allege that at least 3 registrars created a chain of registrars who took advantage of the ICANN 5 day redemption period to profit off Dell’s trademarks.  Dell alleges that these registrars allowed domain tasters to redeem domain names at one registrar and subsequently register it at an affiliated registrar.  This would preserve the taster’s interest in the domain name, and allow the affiliated registrars to share in any click through revenue created by the registration of the name.

Without going into the technical legal arguments raised by this case, a suit against domain name registrars has serious implications for hosts and other internet infrastructure providers.  Dell’s arguments are very similar to copyright infringement claims made in the early days of the web:  that those who facilitated the infringement of the copyrighted work were liable as third parties since they facilitated the infringement, and profited from it through the fees they collected.  While the facts in Dell’s case are pretty sensational (a chain of registrars profiting off a nuance in ICANN rules), the case shows that transparent attempts to exploit legal loopholes, are often only temporarily successful.  In this case, setting up a chain of (allegedly) related registrars to profit off of a registered trademark merited a swift response from Dell.

So what does this mean for hosts and other Internet infrastructure providers?  The first lesson is that the doctrine of third party liability for intellectual property infringement is alive and well.  This means that you need to remain aware and vigilant about your business activities.  This vigilance is important particularly in the area of trademarks, where, unlike copyrights, there is no “safe harbor” for businesses who are simply links in the chain of bad acts of customers or third parties.  A second lesson relates to Domaining.  While initially a suspect business, domaining has become a legitimate part of the Internet.  Hosts and other Internet infrastructure providers need to be aware that registering domain names involves a different risk assessment than other business efforts.  Because domainers tend to be very creative in their business, and business creativity often requires a higher level of legal analysis, those who provide business services to domainers need to examine whether the processes and procedures they have put into place effectively isolate the risk that these new customers may pose to their business.