Articles Posted in Internet Law

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The Internet of Things is a relatively new development that has changed the world. However, the laws were either non-existent or archaic. Now, it’s important to inform our readers that Jerry Brown has signed a cybersecurity law covering “smart” devices. The bill, SB-327, was introduced last year and states in relevant part that:

Existing law requires a business to take all reasonable steps to dispose of customer records within its custody or control containing personal information when the records are no longer to be retained by the business by shredding, erasing, or otherwise modifying the personal information in those records to make it unreadable or undecipherable. Existing law also requires a business that owns, licenses, or maintains personal information about a California resident to implement and maintain reasonable security procedures and practices appropriate to the nature of the information, to protect the personal information from unauthorized access, destruction, use, modification, or disclosure. Existing law authorizes a customer injured by a violation of these provisions to institute a civil action to recover damages.

This bill, beginning on January 1, 2020, would require a manufacturer of a connected device, as those terms are defined, to equip the device with a reasonable security feature or features that are appropriate to the nature and function of the device, appropriate to the information it may collect, contain, or transmit, and designed to protect the device and any information contained therein from unauthorized access, destruction, use, modification, or disclosure, as specified.

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Artificial Intelligence, or AI, has evolved rapidly over the past couple of decades.  The uses of AI have extended to different segments of our society, and humans have benefitted from it in various ways.  Lawyers and legal researchers have also found ways to harness the power of AI.  AI has enabled them to sort through month’s, or even year’s, worth of information in minutes.  This is especially helpful when considering how, according to IBM, over 90% of all data was created in the last two years.  However, AI in the law goes far beyond its practical uses by lawyers for information gathering and discovery.  The rise of AI has presented a number of issues and questions in the legal field, especially involving products liability.

AI and Products Liability

Recently, companies have used AI both in their creation of products, and in the products themselves.  A major issue regarding this is who should be held liable in the event the AI product causes an accident or an injury.  There is debate on whether the programmer or manufacturer of the AI product should be held liable, as well as which legal standard should apply in cases involving AI.  A main reason for this issue is the rapidness that AI has developed over the recent decades.  The government and other regulatory bodies have had difficulty keeping up with how quickly AI has evolved.  This has left people who develop AI and manufacture products from it unsure on how AI will be regulated in the future.  Adding to this issue is how there are a number of different definitions used to describe AI, as well as how it has a wide variety of usages.  While companies have benefitted greatly from AI, they also must recognize the risks its use may create for them.

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Isaac Asimov’s three laws of robotics are important factors in the development of artificial intelligence laws. They are as follows:

  1. First Law: A robot may not injure a human being or, through inaction, allow a human being to come to harm.
  2. Second Law: A robot must obey the orders given it by human beings except where such orders would conflict with the First Law.
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We are continuing our look at the impact of artificial intelligence on copyright laws. In general, copyright’s underlying theory—to protect property rights as defined by the labor a person puts into an object, and to incentivize economic progress by entitling people to the fruits of their labor—will come to bear in face of this new technology.  It will happen in ways equally as novel as the technology at issue.

Although, copyright protection usually requires that a work be original and created by a human being, however, the fruits of artificial intelligence are becoming increasingly original.  It might prove unfair in some circumstances not to afford protection to a highly-complex and refined work of literature, music, or journalism simply because its creator is not human. It could likewise disincentivize the use of such innovation.  On the other hand, the argument is made that the market will disincentivize a human being from going through the laborious task of copying something that was previously made by a computer more efficiently.  The law really comes to a finer point when the issue is one of computer-generated copying of computer-generated works.  This thing intuitively feels unethical, but it is tricky to get the legal outcome that feels right under the current copyright regime. Another argument to be made in favor of not affording protection to works not created by human beings is that employing artificial intelligence to tackle time-consuming endeavors could really help the economy.

Another legal option besides denying copyright protection is to simply attribute authorship to the creator of the program that made the work being copied.  This manner of addressing the issue is practiced in places like Hong Kong, India, Ireland, New Zealand, and United Kingdom. The United Kingdom has a slightly different definition of authorship from that of places whose jurisprudence indicate that a human being is required: “In the case of literary, dramatic, musical or artistic work which is computer-generated, the author shall be taken to be the person by whom the arrangement necessary for the creation of the work are undertaken.”  This seems to allow for computer programmers to be characterized as authors, where in other countries, they may not be.

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This month, our plan is to shift our focus on copyright laws, which at this time, is at a juncture of its own. Artificial intelligence is quickly sweeping across many areas of life.  Google, for example, has just started funding a program that will write local news articles. Perhaps more stirringly, depending on who you are, a group of Dutch museums and researchers unveiled The Next Rembrandt, a portrait created by a computer that had analyzed thousands of the artist’s works.  Google has its hand in the realm of art as well and is working on “Deep Mind” which is a subsidiary-developed software that can generate music by listening to recordings.

For many years computers have been able to generate crude works of art, as though they were tools like many others.  But today, artificial intelligence has reached new technological heights.  It is capable of learning on its own.  Autonomous systems may program themselves based on information they perceive, without the need of being programmed by human beings.  They can evolve and make independent decisions.  With regards to art, machines have not quite achieved the ability to “learn” something so subjective, but the neural networks softwares can generate highly-refined works. You may research Recurrent Neural Networks for more information.

One of the traditional requirements for copyright protection is that a work be original. One of the criteria used to determine whether a work is original is whether it was created by a human being. In fact, Europe and the United States of America have their rationale for this rule. In Europe, where copyright law is based more on a moral theory, centering on the rights of authors and the work, and even parts of their person they put into a piece.  In the United States of America, copyright law is based more on a utilitarian theory – i.e., society and government want to incentivize people to put in the labor and create valuable things with the knowledge that they will be rewarded with the fruits of their efforts, and others won’t be able to steal or unjustly piggyback off the work.

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We end this month’s blog with an overview on virtual currencies and the risks. Last month, we fleshed out our understanding of blockchain technology and the legal quandaries that surround it. This month we narrowed our focus to the specifics of one of its uses: currency.  Virtual currencies have great potential to provide liquidity and trust to markets, and have ushered in the beginning of a modern era of prosperity and exponential economic growth. Regulators have not quite figured out how to manage them because they are innovative and unique. Also, the courts have not quite figured out how to handle cases brought about by disputes surrounding them.

Despite their many attributes, digital currencies pose risks as well. For example, their largely unregulated status leaves them more vulnerable to the threat of hacking and any crime that might be associated with it. There have been cases where virtual currencies have been used for illegal and immoral activities, like sex trafficking and purchasing illegal narcotics.  Not only companies, but potential investors, should be aware of all the risks of noncompliance with regulation.

To quickly clarify, digital currency is any currency that exists in digital form, whereas virtual currency, a subset of digital currency, is digital currency that is not tethered to any “real” or official currency.  All digital currencies pose risks of hacking, but legal approaches to the broader category of digital currency might differ from legal approaches to the narrower category of virtual currency.

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We have explored the emerging technology of virtual currencies, after delving into the blockchain space last month.  We explored how virtual currencies are being regulated—a hitherto unclear area of law that befits our general understanding of the technology itself.  After all, the blockchain was specifically designed to avoid the vicissitudes of politics that accompany regulation, which is what has allowed it to be such an engine of wealth.  The technology can be tethered to tokens and commodities, or simply used in exchange for Central Bank backed currencies.  We explored unclaimed property, gift, licensure, and tax laws, and how each applies to virtual currencies.  This week we hone our gaze on more specific laws and their effects on virtual currency: The Patriot Act and Bank Secrecy Act.  We will also focus on data privacy and security.

These two federal laws have achieved many things. Their statutory requirements can apply when something of value is exchanged between parties (e.g., goods, currencies), or stored value is issued, redeemed, or sold, or even when electronic wallets are simply held.

These requirements run the gamut regarding what those who fall under the federal statutes must accomplish. For example, often those engaging in the above-listed activities must retain specific information on whatever transfer or holding they engaged in the transaction. This helps the government track information it needs to bring the transactions under whatever legal scope it deems proper. Yet, much information is already stored, however, as the blockchain essentially acts as a ledger, but it can also be difficult to extract sometimes.

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We are continuing our discussion about virtual currencies and the related issues. Because this is a burgeoning technology producing a wonderful array of blockchain innovations, regulators have struggled to determine how, or whether at all, they should regulate it.  It poses an array of novel legal questions, and its economic impact renders it of crucial importance.  Hence, it behooves regulators to assess the market and technology in order to tailor regulation. Also, many companies are not well versed in the areas of law that might affect them.  In fact, many simply follow suit, and repeat what they see other companies doing, and assume the technology’s novelty leaves them in the clear.  However, it can steer them into problems, and they often will not know they are not in compliance with the legal requirements.

In general, taxation is one area where policy matters is one that unfortunately pervades most people. Congress is currently laying the groundwork for new regulations that are innovated and tailored towards virtual goods and virtual currencies.  It is conducting congressional studies to see how best to accomplish the task. So, congressional hearings on the subject are a frequent occurrence on Capitol Hill.

As it stands, a number of states have already passed legislation imposing the taxation of “digital downloads.”  Although, this type of legislation is not directly aimed at virtual currencies and goods specifically, some state statutes are so broad that they could effectively envelop such areas.  To date, this is the extent of laws applying to virtual goods, virtual currencies, and virtual-currency transactions in our country. There has yet to be comprehensive and standard legislation that applies definitively to the whole country in these areas.  As a result, specific guidance on how to comply with taxes is spotty and unreliable, and there are no institutions that shine a guiding light.

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Last month, we explored the area of law surrounding blockchain technology.  Last week, we focused on a narrower realm of blockchain technology – i.e., virtual currencies.  Today, we delve further into digital currencies that are adding so much value to the modern economy.  Because the technology is so innovative and new, its legal landscape remains hazy and nuanced.  Today, we explore the legal interplay between virtual currencies and money-transmittal licensure.

At this time, state, federal, and international laws require that individuals and companies obtain licenses to engage in activity that involves the acceptance of funds coupled with the agreement to transfer or pay them to another party. In some circumstances, the law even requires special registration.  The only exception to this typically is when the recipient of the funds uses them to pay directly for goods and services offered by someone else. This has a close bearing on virtual currencies because they are often considered to be funds themselves. Depending on the exchange, such currencies may be considered merely placeholders for an asset, rather than assets or funds themselves.  This means, however, for exchanges in which virtual currencies are considered funds, licensure laws apply.

Although, the word “funds” is used often in this regulatory sphere, it might not be in the traditional sense.  As it is applied in licensure law, funds do not require real cash or money to be involved.  Really, most any type of monetary value is covered within the language of these laws. This includes, but is not limited to, electronic value.

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We have narrowed our focus on blockchain’s legal issues to cryptocurrencies specifically.  Tokenizing is a recent capital innovation and its legal landscape is hazy and nuanced at this time. This week, we will hone our focus further to shed light on this new technology, its economic and social benefits, and its legal implications, so that its use may be optimized.  There is no legal constant for virtual currencies.  Instead, legal characterizations vary with the currency’s implementation.

In general, virtual currencies can be acquired and used in numerous ways.  Simple purchases with real money, to gambling, to sweepstakes, allow users to exchange it for other real-world products and services.  Furthermore, there are “dual currency” models, which limit the conditions regarding how the currencies may be spent and earned.

As we discussed in the previous post, jurisdiction often becomes a key issue in this space. Sometimes, simply offering a virtual currency to someone within a given jurisdiction is enough to trigger the application of that jurisdiction’s laws.  There are a number of areas of law that can be triggered jurisdictionally.