BROADCASTING LICENCES: HIGH COURT ISSUES DIRECTIONS TO CCK

A report of the decision of the High Court in:

Wezan Radio Group Ltd v Communications Commission of Kenya

High Court at Nairobi Lady Justice R.N. Sitati

August 27, 2009

(This report was also published in the Daily Nation newspaper on Sept. 7, 2009, p. 14)

On August 27, 2009 High Court Judge Ruth Sitati issued an order allowing a broadcasting investor, Wezan Radio Group Ltd, to formally institute judicial review proceedings challenging the “decision” of the Communications Commission of Kenya (the CCK) to migrate existing broadcasting license holders to a new legal regime for broadcasters without first subjecting the licencees to a vetting process। In the meantime, the CCK has been barred from implementing any such decision.

Until January 2, 2009 when certain amendments to the Kenya Communications Act of 1998 came into force, Kenya did not have a transparent legal regime for the issuing of broadcasting licences. The Ministry in charge of communications would consider applications for broadcasting permits and successful applicants would then be referred to the CCK for the allocation of frequencies. CCK’s mandate was at that time limited to the regulation of telecommunications, radio-communications and postal services. The 2009 amendments established CCK as a fully fledged regulator for all postal, information and communication services, including broadcasting. A new section 46B made provisions on the persons who are eligible to apply for broadcasting licences and on the matters that the CCK will consider in evaluating an application for a broadcasting licence.

In its transitional provisions, the new law provided that the CCK would respect and uphold the rights of parties previously issued with broadcasting permits by the Minister. However, the holders of these old permits would have a period of one year (expiring on January 2, 2010) to operate under the terms on which the permits were issued. Before the expiry of that period, the amendments provided that “such parties shall apply to the Commission to be licenced under [the new provisions of] the Act”.

Wezan Radio's court action was prompted by what it perceived as a decision by the CCK to deem the existing permit holders as having complied with the requirements set out in the new section 46 even without subjecting them to an evaluation process. Magdalene Njeri, the Managing Director, stated in her affidavit that the company expected that all the old broadcasting permits issued by the Minister prior to the amendment would expire in January 2010 and that in the meantime, CCK would put in place an administrative mechanism for evaluating the permit holders afresh along with first-time applicants under the new licensing regime.

But had CCK made any decision to migrate the existing permit holders without evaluating them? There may not have been any formal decision as such. Wezan Radio instead referred to a newspaper report carried on July 21, 2009 in which the Chairman of CCK’s Board of Directors, Eng. Phillip Okundi, had reportedly stated at a public event that CCK was preparing a mechanism for the regulation of broadcast services in line with the new law and that it expected “to start migrating existing broadcasters to the new regime starting September this year”.

Wezan Radio told the High Court that if the CCK proceeded to migrate existing broadcasters to the new regime in contravention of the law, all the available frequencies might be taken up before other interested parties such as itself were afforded an opportunity to enter the market.

Because the application had been filed under a certificate of urgency, it was heard without the knowledge or the presence of CCK. All that Wezan Radio had to demonstrate was that it had an arguable case against CCK, who would later be served with the application and accorded an opportunity to defend itself.

Lady Justice Sitati obserbed that from the statement attributed to the Chairman of the CCK, it was not clear whether the CCK had complied with sections 46D, 77 and 78 of the Kenya Communications Act with regard to the licensing of broadcasters. It was not clear, for instance, if the CCK had taken account of public interest obligations “ in deciding to migrate the current license permits to the new regime”. The Judge reiterated that section 46 of the Kenya Communications Act placed a heavy burden on the CCK to apply the due process of the law in considering applications for licenses. If the CCK was to migrate wholesale all pre-existing permits to the new regime, the Judge noted, it could not be said that there had been a consideration of the licence application in the manner required under the new law. Therefore, an issue had arisen as to whether the CCK had properly exercised the powers conferred upon it by the Kenya Communications Act. Wezan Radio had established that it had an arguable case against CCK.

~the telecommunications sector is one of the most dynamic and fastest growing not only here in Kenya but globally. That being the case, it must be handled with greatest care and circumspection, not only because of its novelty but because of its competitiveness.~ Lady Justice R. Sitati

Accordingly, the High Court allowed Wezan Radio to institute Judicial Review proceedings against the CCK and in the meantime, issued the following interim orders to stand for 60 days:

(a) nullified the decision of the CCK purporting to migrate existing television and radio broadcasters from the current provisional legal regime to the new legal regime mandated by amendments to the Kenya Communications Act without the publication, consideration and or evaluation of a public tender issued in that regard as required by the provisions of the Exchequer and Audit (Public Procurement) Regulations, 2001 and by the Kenya Communications Act;

(b) CCK prohibited from “migrating existing broadcasters to the new regime starting September this year” without first complying with the provisions of the Exchequer and Audit (Public Procurement) Regulations 2001 and the licensing requirements of Kenya Communications Act; and

(c) CCK prohibited from allowing, licensing, authorizing or acquiescing in, continued broadcast by any person beyond the 02^nd January, 2010 without the full compliance with the provisions of Exchequer and Audit (Public Procurement) Regulations 2001 and the licensing provisions of the Kenya Communications Act.

Wezan Radio will subsequently file the substantive claim and serve it on CCK who will be at liberty to both oppose the claim and to apply for the discharge or non-renewal of the interim orders.

**As long as the litigation is active, the sub-judice rule forbids the writer from discussing the merits (or lack thereof) of Wezan Radio’s claim**.

REGISTRATION OF MOBILE PHONE USERS: MAKING SENSE OF THE PRESIDENT'S DIRECTIVE

By Michael Murungi
July 25, 2009

"There is an inherent technical difficulty in fashioning a legal framework that perfectly balances the spectrum of the legal rights and obligations that stand to be affected by the President’s directive..."

On July 20, 2009, during an event to mark the tenth anniversary of the Communications Commission of Kenya (CCK), President Mwai Kibaki, through a speech read on his behalf by Vice President S. Kalonzo Musyoka, directed “the Ministry of Information and Communication to put in place within six months... an elaborate databank that will ensure all mobile telephone subscribers are registered". The directive was preceded by the President’s concern over a reported increase in phone-related crime.

In the wake of the directive, I took questions from journalists Jevans Nyabiage of the Daily Nation and Michael Ouma of the East African Standard.

Qstn: The president yesterday directed that all SIM cards should be registered within six months. Does the President’s directive constitute a regulation or it has to go through Parliament?

Ans: The President’s directive needs to be more clearly expressed in order for it to be properly applied. The clearest form of expression that it can be given is legislation. Section 27 of the Kenya Information and Communications Act, 1998 empowers the Minister for Information and Communications to make regulations with respect to “the privacy of telecommunication”. This ministerial power would be the first thing to leap into the mind of those in charge of implementing the President’s directive. The Minister can invoke this section to make regulations providing for the collection, storage and use of subscribers’ personal information. Being in the nature of ministerial regulations, they would not need to be considered by Parliament and the Minister may issue them through a Legal Notice. On the other hand, Parliament may take this as an opportunity to pass a comprehensive legal framework governing the collection, management and use of personal information in Kenya not only in telecommunications but in all spheres of commerce and governance. This would be through an Act of Parliament which would take a longer time before it can acquire the force of law.

Qstn: I am just wondering whether [the President’s directive] infringes on the right of privacy of individuals.

Ans:

- While civil libertarians would argue that the implementation of the President’s directive would amount to an infringement on the privacy of individuals, the state would argue that the move is necessary as a matter of national security and in the interests of safeguarding the welfare of the consumers of mobile phone services. The two arguments are equally compelling, though the state would appear to have the upper hand. Save as a broad constitutional norm encompassed in the right against unlawful entry and the search and seizure of one’s property and effects, the right to privacy is not expressly legislated as a constitutional norm in Kenya. As a corollary, there is no express constitutional right to confidentiality and the protection of personal information. Kenyan practice on the right to privacy and confidentiality is guided largely by English Common law – a system of law which has developed from the judicial opinions of the English judiciary. On the other hand, while the Constitution is not clear on individual privacy, it very clearly permits the abrogation of constitutional rights in the interests of public welfare and national security.

Qstn: What are the possible hurdles that the move is likely to face?

Ans:
- Opposition from civil libertarians who argue that the implementation of the directive would be

an infringement on the individual’s right to privacy.

- The period of six months may be an onerous deadline for mobile phone operators. If we have approximately 18 million mobile phone subscribers in the country, and assuming that the legal framework is in place very shortly after the directive, we are talking about registering 3 million people per month. That’s about 100,000 people per day. Depending on the nature and breadth of the information that has to be registered, the process may be an enormous strain on the infrustructural and financial resources of some of the operators. Spain, which has over 20 million pre-paid mobile phone users, gave a period of almost a year for their registration.
- There is an inherent technical difficulty in fashioning a legal framework that perfectly balances the spectrum of the legal rights and obligations that stand to be affected by the President’s directive: the state’s claim to preserving national security by curbing phone-related crime; the individual’s right to privacy; the mobile operators’ claim to protection from new licensing conditions that roll back on their investment; the consumer’s increased vulnerability to identity theft, etc.
- The implementation of the directive may not achieve dramatic results in crime prevention and it may lead to new forms of crime, such as identity theft.

Qstn: Does the CCK currently have any legislation that compels mobile service providers to demand for identification before issuing out a SIM card to a subscriber?

Ans:

The simple answer to this question would be "no". There is no law that imposes such an obligation on mobile service providers. As I have stated, section 27 of the Kenya Information and Communications Act empowers the Minister for Information and Communications to make regulations with respect to “the privacy of telecommunication” but no such regulations have been made.

Perhaps an equally valid question to ask would be “is there any law that forbids mobile service providers from taking personal identification information from their subscribers?”

The answer again is “no”. Already, many subscribers of the ZAP and M-PESA mobile phone money transfer services have had to give their personal information to the operators as a precondition for registering for the services.

Qstn: What is the position on the matter as contained in the KCA Bill as well as any related legislation?

Ans:

I have previously referred to the Constitution of Kenya and section 27 of the Kenya Information and Communications Act, 1998. In addition, Section 93 of the Act forbids any person from disclosing without consent any “information with respect to any particular business… “which relates to the private affairs of any individual or to any particular business during the lifetime of the individual or business”.

However, the section provides for three instances in which disclosure may be lawfully made:
in the course of the performance of the duties of the CCK;
in the investigation of a criminal offence or for the purpose of any criminal proceedings;
for the purpose of any civil proceedings brought under or by virtue of the Act.
Any disclosure of information that contravenes this section is punishable by a fine of up to Kshs. 100,000/-

Section 31 makes it an offence for a telecommunications operator to intercept or disclose a message sent through the operator’s system or to disclose the statement or account of its subscriber. The prescribed punishment for the offence is a fine not exceeding Kshs. 350,000 (USD 4375) or imprisonment for a term of up to 3 years or to both imprisonment and fine.

Further, section 44 forbids any person from using radio communication apparatus with the intention of obtaining information on the contents, the sender or addressee of any message. Except in the course of legal proceedings, the section forbids the disclosure of any information as to the contents, sender or addressee of any message coming to the person through a radio communication.
A conviction for contravening any of these provisions will lead to a fine of up to Kshs. 1 Million (USD 12,500) or imprisonment for up to 5 years or both fine and imprisonment.

Qstn: Do you think it would be prudent for operators to demand for forms of identification before issuing out new SIM Cards? What would such a legislation have on mobile service providers in as far as penetration and tapping new subscribers volumes is concerned?

Ans: Even though from a national security point of view it may be prudent for operators to retain the identity of their subscribers, it is not in the operators’ economic interests to do so. Even though this may be said of any market for consumer goods, it is especially evident in the mobile telephone services market that operators who are the first to tap into a virgin market acquire a considerable competitive advantage over their rivals. Brand loyalty and the inconveniences of migrating to another operator can be serious barriers to entry for late market comers. Therefore, market hungry operators want to put as little impediments as possible to the acquisition of a SIM card. The mandatory registration of SIM Card buyers would therefore not only slow down market penetration but it would also mean loss of business for the operator from consumers who would prefer not to give up their personal information. Moreover, in the absence of a law compelling them to retain their subscribers’ personal information, any self-interested operator would choose to avoid altogether the operational costs and the attendant legal risks of maintaining and protecting the personal information database.

One Small Step for Paperless Cheques, a Giant Leap into the Unknown for Electronic Cash

By Michael Murungi

Kenya’s Finance Bill, 2009, the Act of Parliament that is the legislative offshoot of the annual budget speech, has introduced the term “cheque truncation” into Kenya’s law. By an amendment to the Bills of Exchange Act (Chapter 27 of the Laws of Kenya), cheque truncation is defined as

“ a system of cheque clearing and settlement between banks based on electronic data or images or both electronic data and images, without the conventional physical exchange of instruments”.

However, while Kenya’s banking industry seems eager to make paperless cheque clearing an industry practice, the Kenya Information and Communications Act, 1998 (the framework legislation for Kenya’s ICT industry), through an amendment introduced as recently as January 2009, expressly excludes “negotiable instruments” (cheques, promissory notes, etc) from the class of documents that can legally exist in paper form (discussed on this blog in the entry for February 16, 2009). Typically, Kenyan’s have greeted this self-evident legal contradiction with a collective yawn. None of the forums conducting post-budget speech reviews and analyses appear to have anything to say about it, much less to consider it as something that needs to be resolved.

Paperless cheque clearing has the potential of reducing the floating time (those agonizing three working days that you have waited for your cheque to clear) by replacing the paper cheque, which has to be hand-delivered at the clearing house to the drawer’s bank, with a digital image of the cheque which is sent by electronic means. An effective paperless cheque clearing system would be a good control experiment for the development of a national electronic cash system - the use of a technological platform that offers national currency in electronic form with the same guarantees as the bank note – unique and serially numbered; capable of transfer without retention; tamper proof and capable of detecting alteration, replication or copying; and widely accepted as legal tender.

In actual fact, the practice of paperless cheque clearing had previously been recognized by law, albeit with a limitation in scope, in an amendment introduced to section 74 of the same Act back in 2005. The law somewhat limited the application of the practice to dishonored cheques, permitting the bank to which the cheque had been presented to return an electronic version of the cheque to the holder rather than the paper cheque itself. Perhaps by introducing the definition of the term ‘cheque truncation’ into the law, Kenya’s parliament intended to not only bring the law up to speed with industry terminology but to also lay the basis for the establishment of cheque truncation as a fully-fledged industry practice – the Finance Bill also gives the Central Bank the power to make rules giving effect to and regulating the practice.

Under section 74B of the Bills of Exchange Act, where a cheque presented for payment is dishonored by non-payment, the presenting banker may issue to the holder an “image return document” (presumably a digital image representation of the dishonored cheque with the appropriate endorsement). For all intents and purposes, the image return document is deemed in law “to be the cheque to which it relates and may be presented for payment to the presenting banker by the holder to whom it is issued” subject to the banker’s endorsement of its validity and to any validity period given by the banker.

The contradiction in the two pieces of legislation and civic apathy is not the great start that enthusiasts of paperless cheque clearing and, ultimately, electronic cash have been looking forward to. However, the idea has the benefit of industry goodwill and as legislators and governments have all too often come to accept in the information age, legislation cannot hold back a market driven industry practice whose time has come. At least not for long.

LIFE, LIBERTY AND (THE PURSUIT OF) GROSS NATIONAL HAPPINESS

By Michael Murungi

International conferences can sometimes be very dreary affairs. Conferencists who in the heat of their passion for international travel fail to establish a logical relationship between the subject of a conference and its relevance to their line of work will not find that lingering sense of fulfillment that is the stuff of which return-journey ponderings are made of. However, when I was recently honored with an invitation to an all-expenses-paid international ICT conference, I discovered that there is more to conferencing than the keynote address, programme and list of resolutions. No matter how alienated a delegate might be from the subject of the conference, he will be sure to pick up a fair measure of wisdom if he keeps an open mind.

It is not that the First Session of the Committee on Development Information, Science and Technology Conference (CODIST-I) (organized by the United Nations Economic Commission for Africa in Addis Ababa, Ethiopia between April 28 and May 1, 2009) was not relevant to my line of work. Far from it. As a matter of fact, the subject matter of one of the constituent sessions, Legal and Regulatory Frameworks for the Knowledge Economy, is my pre-occupation and the conference was one of my most fulfilling.

However, the highlight of my learning was a casual and unsuspecting interaction I had with a non-delegate. Debby (not her real name), was a part-time elementary school teacher back in her country. She had accompanied her husband, a highly credentialed expert on science and technology, who was a regular feature on the A-list of guest speakers or delegates in such conferences. For a person who taught grammar and pronunciation to kindergarteners and who confessed to not having any professional or personal interest in ICT, Debby bore the torture of day-long full-plenary presentations by ICT experts with great fortitude.

During a cocktail event organized for delegates, I struck up a conversation with Debby and her husband. She related to me a matter which she had picked from one of the speakers at the conference – the speaker, a university professor, had been critical of the term “knowledge economy” and preferred in its place the term “knowledge society”. She had emphasized that the greater goal should be the cultivation of an information society and not an information economy. Debby told me that even if the conference had adjourned immediately after that speaker had made this point, she would have considered it to have been worthwhile. She (Debby) shared the opinion of the speaker that the term “knowledge economy” revealed the short-sighted and materialistic nature of human motivations. At that point, I knew that we were on the threshold of a quasi-philosophical/religious discussion. Debby felt that humankind’s pre-occupation with economic progress and material wealth was misplaced because it is not necessarily the path to what according to her should be the ultimate motivation for every human action – the happiness and well being of every person on earth. I discreetly glanced at her glass and wondered if the cocktail punch had started to have its way on her. Then she related to me a story that was as simple as it was profound:

An American business magnate once yielded to the escapist appeal of the Spartan life of his
fellow humans in a fishing village in a country on the west coast of Africa. Leaving his 20-room mansion to his family and his business affairs to his deputies, he set out for Africa with only just enough money in his wallet to get him to the grass-thatched and earthen-walled dwelling of his hosts, a quintessential African rural household with a breadwinning father, a shy and aloof housewife mother and two children. The businessman was perplexed by the routine nature of life in the village – every other day, after a bowl of hot fish soup and roasted yam, he would accompany the fisherman on a fishing trip. They would catch just enough fish to eat for two days which the fisherman’s wife would cook and serve for lunch with a side order of vegetables picked from the backyard garden. After lunch, they would drowse belly up in the sun on reed mats spread outside the house, occasionally having their sleep interrupted when the polythene-and-string ball that the children were playing strayed onto the mat. For dinner, they would have the left-over fish and soup and take a stroll in the village, sometimes sharing a drink of palm wine with the neighbours. By the fourth day, the businessman could no longer contain his exasperation with this itinerary.
Businessman: I have an idea. You could do great business with the fish. You can catch enough fish for three households and sell the surplus.
Fisherman: …and then what?
Businessman: And then you can grow the business further…maybe open a small family business where you can cook the fish and sell it to those villagers who prefer to forgo the trouble of fishing.
Fisherman: ….and then what?
Businessman: …and then… who knows, in a few years, you could be operating a highly successful commercial fishing line or a chain of sea food restaurants. You will have lots of money and everything you want.
Fisherman: (mockingly) Oh, I see…and then I will own many cars, meet powerful and influential people, build a big mansion by the sea and when I am tired of the madness of trying to keep all this together, take a holiday to a remote fishing village where life is simple, relaxing and yet more fulfilling?” No, thanks. Here, we have learnt to just skip the formalities and go straight to the holiday”.
(Embellishment supplied).

Debby knew from my sustained nodding that I needed no help in unpacking the moral of the story - that the reference point for all human action should not be economic progress, but whether the action brings happiness and wellbeing to the actor; ergo, economic progress is not an end in itself, it is a means to an end, and that end is happiness and wellbeing. It was hard to argue with the wisdom of Debby’s proposition. Evidently, the blind pursuit of economic progress has been the cause of most of humanity’s afflictions – stress related occupational illnesses, environmental pollution and war. But was it really that simple? Did all of humanity’s troubles stem from a misplaced obsession with the pursuit of happiness rather than with happiness itself?

Two weeks later, an article featured in (no less credible a source than) the New York Times appeared to vindicate Debby. It was about the people of the Himalayan kingdom of Bhutan. They had abandoned the use of Gross Domestic Product and other materialistic metrics of human progress and instead tried out an idea that Debby might easily call her own. “In 1972, concerned about the problems afflicting other developing countries that focused only on economic growth, Bhutan's newly crowned leader, King Jigme Singye Wangchuck, decided to make his nation's priority not its G.D.P. but its G.N.H., or gross national happiness”. Borrowing from its rich Buddhist heritage, Bhutan was engineering a paradigm shift in its political, economic, social and cultural affairs. A shift from a society of human doings to a society of human beings. To borrow from Debby’s analogy, the Bhutanese are seeing themselves as a society and not as an economy. Borrowing from Bhutan’s example, economists and scientists in other parts of the world are reportedly working on a template for human progress that includes such non-economic metrics as “access to health care, free time with family and conservation of natural resources”.

I shared Debby’s story and the New York Times article with a close friend who I knew had a lifetime obsession with metaphysics and Buddhist philosophy. Not surprisingly, he had heard a variant of the-fisherman-and-the-businessman story before but his perspective was more melodramatic. He thought that the ICT revolution was about to make way for the next phase in humanity’s progression in just the same way that the agricultural revolution gave way to the industrial revolution; that humanity was on the threshold of a revolution in human consciousness. He said that I had just witnessed two signs of that revolution – an ICT legal expert’s enlightenment from a chance interaction with a kindergarten teacher and a country that had a critical mass of its population considering personal well-being to be a measure of human progress…..

.......Moving on, at the close of the sessions of the ICT Sub-Committee of CODIST-I, the Economic Commission for Africa’s Member states resolved to:
• Review and reform the education and training system with more emphasis in
mathematics and sciences;
• Equip universities with personnel with scientific, technological and organizational
skills to stimulate research and development;
• Invest in adequate ICT infrastructure (computer laboratories and high speed
Internet) in Universities.
• Encourage linkages between researchers and the private sector and between
innovators and commercial enterprises;
• Facilitate access to financial resources for innovative initiatives, product subsidies
and replication of successful innovative projects;
• Develop ways of protecting innovations and commercialization of innovation;
• Put in place mechanisms for exposing youth and children to ICT skills;
• Encourage and also focus on targeted ICT application development in parallel to
investing in infrastructure; and
• Promote and create technology parks and ICT incubation centers.

THE PIRATE BAY VERDICT - A LEGAL ANALYSIS

By Michael M. Murungi

Black Beard must have been spinning in his grave in April 2009. A burgeoning piracy business on the high seas off the coast of Somalia climaxed into a made-for-the-movies standoff between the U.S. army and a group of pirates and in the same month, the entertainment industry’s effort to combat piracy of copyrighted content in cyberspace resulted in a Swedish court pronouncing a sentence of imprisonment against the owners of The Pirate Bay, a peer-to-peer (p2p) file sharing website.

The Pirate Bay, described as the world’s most high profile p2p file-sharing website with a membership of over 20 million users, is a triumph of bravado over discretion. It is managed by a team of youthful digital libertarians and both its name and logo are unapologetically provocative and taunting to the music, film and video game industries. The logo depicts a mediaeval pirate ship with billowing sails emblazoned with the image of an audio cassette hovering above a pair of cross-bones. Pirate Bay’s owners have made an art form out of writing witty, mocking and derisive letters to the media industry in response to complaints that their website encouraged and facilitated copyright infringement.

On April 17, 2009, a Swedish court found the Pirate Bay Four: Frederik Neij, Gottfrid Svartholm Warg, Carl Lundstrom and Peter Sunde guilty of “promoting other people’s infringement of copyright laws” and sentenced them to a year in jail and a fine of $4.5 million. The complainants in the criminal case were the blue-eyed boys of the entertainment industry: Warner Bros, Sony Music Entertainment, EMI, and Columbia Pictures.

The decision, which the Pirate Bay Four have described as “bizarre” and outrageous and against which they will file an appeal, might only be a chink in the armor for the online file sharing community and it may not realize the same results for the entertainment industry as the decision in the American case of Napster (discussed bellow). The Pirate Bay website will continue to operate as will many other file-sharing platforms in cyberspace. However, from a legal standpoint, the decision brings to the fore a subtle legal and technological point that has enormous implications for both the entertainment industry and the laiser faire culture that is characteristic of cyberspace.


The Pirate Bay website did not host the copyrighted music, movie and video game files that may have been the subject of the entertainment industry’s complaint. It only acted as a search engine providing a catalogue of the files which was mapped to the computers of individual users on which the files were located. The files were linked to the client host computers by bit torrent files, which enabled multiple users to simultaneously download a file that was saved in the computer of another user (the host).

“A distinguishing characteristic of a P2P file sharing network is that content is not stored at a server within the network but rather on peer computers at the edges of the network. A user wishing to utilise a P2P file sharing network needs a software application program downloaded from a P2P software provider’s web site that will enable the user to locate other users on the network, an ability to locate content available from the network edges, and a communications protocol to exchange files”.

Meisel, B. John: Entry Into the Market for Online Distribution of Digital Content: Economic and Legal Ramifications, Scripted- Volume 5, Issue 1, April 2008. Available at http://www.law.ed.ac.uk/ahrc/script-ed/

From a legal standpoint, three issues emanate from the infrastructure of peer-to-peer file sharing:
- The file-sharing website does not host the files that are shared by its users – it only provides links (electronic pointers) to them. The files are stored on the computers of the individuals accessing the file sharing website and as such, there is no direct act of infringement of copyright committed by the owners/administrators of the website;
- A p2p file-sharing platform is inherently a legal technology. It may be used as much to share material for which there is no restriction on copying as it may be used to share copyrighted material. The managers of the website leave it to the good sense of the users to decide what they want to share or download (The Pirate Bay four argued that over 80% of the works downloaded using their website were not copyright protected).
- Human intervention by the owners or the managers of the file-sharing website is rare. All the major forms of control and intervention over the shared files are relinquished either to the users themselves or to decentralized automated computer processes – (Pirate Bay operates an infrastructure of redundant servers located in different parts so that shutting down one cluster of active servers will not permanently disable the website).

These considerations were important pillars in the Pirate Bay Four’s defence.

Among the evidence produced in the trial by the complainants was copyrighted content said to have been downloaded through torrent links availed on the Pirate Bay, screenshots of the download procedure and correspondence exchanged between Pirate Bay and the complainants. For instance, one of the complainants argued that a copy of the popular television series Prison Break had been made available on Pirate Bay on 3rd Dec 2005 and it had been downloaded 48,104 times between that time and May 31,2006.

Referring to at least one communication given by Pirate Bay as a response to a notice that it was infringing or abetting the infringement of copyright, another complainant argued that the impertinent wording of the response showed that Pirate Bay “did not care” about copyright infringement. All the complainants told the court that Pirate Bay had contemptuously refused to avail itself of the many opportunities it had to remove torrent files providing links to copyrighted content.

The lawyers defending the Pirate Bay four presented several lines of defence. First, that their clients’ website did not supply the shared files. All it did was to legally provide a technological platform on which individuals could share content. Secondly, that there was no copyrighted material on the website’s servers and that Pirate Bay did not know the persons uploading and was not in touch with them. The lawyers argued that the Pirate Bay was not even the creator or supplier of bit torrent technology. The technology could be found anywhere on the internet and the same files could have been shared through other websites such as those of Google and Yahoo search. They asked the court to consider that Pirate Bay was merely the supplier of a service and thus under Swedish law, they were exempted from any legal liability arising from the transmission of information by third parties outside of their control. This argument was bolstered by their renunciation of all characterizations of the Pirate Bay as a commercial project.

Two American judicial decisions stand out in the international legal discourse on the use of technology in a manner that may infringe on intellectual property. Sony Corp. of America v. Universal City Studios, Inc., 464, US 417 (1984) (The Betamax Case) and A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (9th Cir. 2001) (The Napster Case).

The Betamax Case
The decision of the United States Supreme Court in the case of Sony Corp. of America v. Universal City Studios, Inc. supported the proposition that where a type of technology is capable of being used both for a legal purpose that does not infringe on copyright and also for an illegal purpose that infringes on copyright, it should not be the duty of the creator to prevent the use of the technology for an infringing purpose. According to this view, if a product is capable of substantial non-infringing use, then in the interests of innovation and the advancement of science, its use should not be curtailed merely because it is also capable of some form of infringing use. Betamax was a video tape recording fomat developed by Sony in the 1970s (but later overtaken by the VHS format). The film industry, led by Universal Studios, was opposed to the Betamax because it could potentially be used to copy and distributed copyrighted film material. The case was filed in the Carlifornia District Court but it ultimately came before the US Supreme Court which ruled that the making of individual copies of complete tv shows for purposes of time-shifting (watching the show at a time more convenient to the viewer) amounted to statutory fair use and did not constitute copyright infringement. (See http://en.wikipedia.org/wiki/Sony_Corp._v._Universal_City_Studios). The Court also ruled that the manufacturers of home video recording devices, such as Betamax could not be liable for infringement. The decision was a turning point in the American film industry and it is arguably singularly the most important factor in the subsequent growth of the home video market. It did not even matter to the court what percentage of users were actually using the product for non-infringing uses as long as the technology was capable of being applied in substantial non-infringing use.

The Napster Case
The Napster case was the first major application of copyright laws to peer-to-peer file sharing. Napster provided a platform for users to upload and download music files in a compressed digital format. Major record companies took Napster to court as a “contributor and vicarious copyright infringer”. (See http://en.wikipedia.org/wiki/A_&_M_Records,_Inc._v._Napster,_Inc.) In the final decision in the case, the U.S. Court of Appeals for the Ninth Circuit found that the Betamax defence of substantial non-fringing use did not apply where there was actual knowledge of specific infringements. The court stated: "We agree that if a computer system operator learns of specific infringing material available on his system and fails to purge such material from the system, the operator knows of and contributes to direct infringement”. As Meisel argues, “this ability to control maintains the connection with the primary infringement, and is what distinguishes the Napster case from the Betamax case”.

Ultimately, Napster had to shut down because it was unable to comply with a court order requiring it to prevent the sharing of copyrighted material through its website and particularly to disable access to infringing material once it is notified about the location of the material.

The online p2p file sharing platforms that emerged after the Napster decision had evolved their architecture into a form that attempted to circumvent the effects of the legal reasoning of the U.S. Supreme Court. The owners/administrators of these next-generation platforms such as Madster, Morpheus, Limewire, Kazaa, Streamcast, Grokster and of course Pirate Bay attempted to relinquish all forms of control or contact with the file sharers or the actual files. The function of the search engine for the bit torrent files (the equivalent of library cataloguing) was pushed away from the platform’s central server to the periphery of cyberspace, so that the central server did not have the names of the shared files. Instead, as Meisel observes again, “all of the machines on the network communicated available files using a distributed query approach”.

But the Swedish court would make nothing of this artifice or indeed of any of the arguments advanced in defence of the Pirate Bay Four. It found that the evidence in the case against them had established that their file-sharing application infringed on the complainants’ copyright. From this threshold finding, the court almost by necessary implication established that the offence of facilitating copyright infringement had been committed by the Pirate Bay Four; and that they had acted as a team in operating the file sharing service in contempt of their knowledge that they were facilitating the sharing of material protected by copyright. The Four were thus sentenced to a year in jail and ordered to pay a fine assessed by the court as representing the loss suffered by the complainants.

As the case goes to appeal, peer-to-peer sharing of copyrighted material continues to flourish in cyberspace. As a matter of fact, it experienced a sudden spike in the wake of the publicity generated by the Pirate Bay verdict. There was no order requiring Pirate Bay to shut down – indeed, such an order would have been unlikely and the most the Swedish court can do would be to require Pirate Bay to disable torrent links to protected material upon notice from a copyright proprietor – like in the Napster case.

Analysts have predicted that regardless of both what the verdict of the appellate court might be and whether it may result in the shutting down of the Pirate Bay or not, it will not be last word on the legality of p2p file sharing websites. The verdict will not apply to websites managed or controlled outside Sweden and even more importantly, the post-verdict rhetoric of the Pirate Bay Four has given the Swedish courts notice that they will not relent even in the face of a hefty fine and a term of imprisonment.

(Verbatim trial information courtesy of http://tpbeng.blogspot.com/).

TEN REASONS TO SPARE A POSITIVE THOUGHT FOR THE KENYA COMMUNICATIONS (AMENDMENT) ACT, 2008

By Michael M. Murungi

March 15, 2009
Nairobi-Kenya

In Kenya’s recent legislative history, fewer pieces of legislation have enjoyed as much bad press as the Kenya Communications (Amendment) Bill (now Act) 2008 (The KCAA). Admittedly, when a colleague in the industry recently asked me to articulate the positive aspects of the Act, I was embarrassingly surprised that I did not already have something I could e-mail him right away. A lot of the material that was out there seemed to harp on one perceived shortcoming in the Act or the other. In order to atone for my somewhat unbalanced analysis of the Act (but without recanting my previous opinions about its shortcomings), I took the time to prepare this feature-length commercial about its positive virtues.

The Act was signed into law on January 2, 2009.

The Act consolidates the shift in regulatory paradigm from infrastructure to content
One of the objectives of the Kenya Communications Act of 1998 as originally enacted was to establish the Communications Commission of Kenya (CCK) which would “licence and regulate telecommunication, radio-communication and postal services…”. With the technological merger of the industries of computing, broadcasting and telecommunications, it became apparent that this definition of CCK’s mandate would run into redundancy. The future of the merged industry and indeed the future of regulatory approaches lay in content, regardless of the infrastructure by which it was delivered. Regulatory pundits began to talk less about regulating infrastructure and more about regulating the delivery of content. With this shift, the need for a more content-oriented and technologically neutral definition of the role of regulators emerged. Kenya’s appreciation of this shift is manifested in the wording of the new mandate of CCK introduced by the KCAA:
“to facilitate the development of the information and communications sector (including broadcasting, multimedia, telecommunications and postal services) and electronic commerce”.

and in the adoption by CCK of a new-generation licence regime – the Unified Licence Framework. Perhaps even more apt is the renaming of the Act from “The Kenya Communications Act, 1998” to “The Kenya Information and Communications Act, 1998”.

The Act is the first legislative intervention expressly recognizing and facilitating the development of e-commerce
Before the KCAA, the term “electronic commerce” (e-commerce) may very likely not have been part of Kenya’s legislative vocabulary. Now it is featured in the Act’s preamble as one of the objectives of the Act – probably the grandest debut to which any legislative term can possibly aspire. Albeit many years after e-commerce emerged as the compelling business model of the information age, it has now achieved more than just a tacit legislative acknowledgment - E-commerce is now legally elite and its development and facilitation is an underlying objective of the ICT industry’s framework legislation.

The Act applies (in large part) the UNCITRAL Model Law on Electronic Commerce, 1996
On 16th December, 1996, the United Nations General Assembly recommended that all states give favourable consideration to the model law on e-commerce developed and adopted by its Commission on International Trade Law (UNCITRAL). The model law is an internationally endorsed template for the drafting and enactment of e-commerce legislation. It provides the draftsperson with the semantic tools necessary to purge from legislative text the uncertainties surrounding the use of electronic data interchange (EDI) and other computer-based alternatives to paper-based means of communicating and storing information which are the hallmarks of e-commerce. The KCAA incorporates some of the provisions of the Model Law, albeit with varying fidelity to its wording and underlying objectives.

It introduces a regulatory framework for broadcasting services
Previously, broadcasting services were not legally within the regulatory ambit of the Communications Commission of Kenya. The broadcasting spectrum and the issuing of broadcasting licences was managed by the Ministry for the time being in charge of communications. Through amendments introduced by the KCAA, the CCK now has the mandate to
- licence and regulate broadcasting services;
- allocate frequencies;
- promote the development of local content;
- to set standards for the manner, time and type of progammes to be broadcast;
- set up mechanisms for handling complaints by the public against broadcasters.

Even though the most visible forms of opposition to the KCAA related to a portion of its provisions on broadcasting, quite fairly, there is something to be said about the need for broadcasters to submit to a well-structured regulatory oversight.

The Act eliminates legal uncertainties surrounding the use of electronic documents in electronic transactions
Hitherto, our common legal understanding of a document, its original and a signature was heavily biased by our experiences with paper-based means of communication. This bias was reinforced by the state of the existing legislative terminology which though not necessarily outlawing the application of electronic tools in formal or business communications, did not expressly endorse them altogether. Even with the growth of e-commerce, there was a lingering uncertainty in the reasonably prudent person’s mind whether, for instance, click-wrapped contracts and documents signed using digital signatures rather than by hand were legally enforceable. The KCAA has eliminated that uncertainty by giving formal legal recognition to:
- Electronic documents (with the exception of wills, negotiable instruments and documents of title);
- electronic means of entering into and terminating contracts; and
- electronic signatures.

It gave formal legal recognition to e-government
The KCAA endorses the provision of government services using electronic means particularly in the issuing of licences, the payment of money and the receiving of forms and applications from members of the public. The Act appears to appreciate the role of the government’s administrative agencies (the bureaucracy) in the advancement of commerce by eliminating from e-government the same legal uncertainties that surround the use of electronic records in e-commerce. This equal-opportunity treatment of e-commerce and e-government means that the projected exponential growth of one is legally and technologically interfaced with the growth in the other and that each complements the other’s contribution to economic advancement. If Kenya’s Parliament has overrated the government’s ability or willingness to deploy its information and services electronically, then the Act has at least laid the foundation upon which the case for legally obligating the government to do so may be predicated.

Legal recognition of electronic signatures and electronic evidence
The KCAA debunks the popular perception of electronic records as second-class evidence. It takes affirmative action in favour of such evidence by providing that electronic records and electronic signature certificates are to be presumed to be secure and correct unless the contrary is proved. This effectively places the burden of proof on the party challenging the production of such evidence. Likewise, a court may presume that an electronic message received by the addressee corresponds with the message fed into the computer by the sender. (Either out of inadvertence or for emphasis, the Act’s provisions on the conditions to be satisfied in the admission of electronic records into evidence are repetitive of an amendment previously introduced to the Evidence Act by the Finance Act of 1999).

The Act creates new computer offences and prescribes punishments for them
The KCAA creates over a dozen computer offences and prescribes various punishments for them. The offences include:
- Unauthorized access to computer data;
- Access to a computer system with the intention of committing an offence;
- Unauthorized access to and interception of computer service;
- Unauthorized modification of computer material;
- Damaging a computer system;
- Denying access to a computer system;
- Unauthorized disclosure of access codes or passwords to a computer system for an unlawful purpose;
- Unlawful possession of devices designed to commit computer offences;
- Electronic fraud;
- Unlawful concealment or destruction of computer source code;
- Publishing obscene information in electronic form;
- Availing an electronic signature certificate for a fraudulent purpose;
- Unauthorized access to a protected computer system;
- Unlawfully changing mobile phone equipment identity or interfering with the operation of such equipment;

The Act makes more elaborate provisions on fair competition and equal treatment
Originally, the subject of fair competition in the ICT industry enjoyed only a passing mention in the Act. Section 23(2)(b) required the CCK to “maintain and promote effective competition between persons engaged in commercial activities connected with telecommunications services…”. Though the Restrictive Trade Practices and Monopolies Act (Chapter 504 of the Laws of Kenya) is an all-encompassing piece of legislation on competition law across all industries, many doubted (and industry practice later vindicated them) that CCK, as the designated sector-specific regulator, would cede its fair competition mandate to the Prices and Monopolies Commissioner. The KCAA introduces elaborate provisions on fair competition. Beyond mandating the CCK to ensure fair competition, it defines and prohibits various forms of anti-competitive conduct and prescribes criteria for identifying breaches of fair competition and a procedure for investigating and remedying them.

Establishes a Universal Service Fund
The KCAA establishes a Universal Service Fund to be administered by the CCK. The purpose of the fund is to ‘support widespread access to, support capacity building and promote innovation in information and communications technology services’. Though the revenue for the fund will largely come from levies imposed on operators, the industry will indirectly benefit from it by the opening up of areas that investors would otherwise have foregone because they would not yield sufficient returns on investments.

ELECTRONIC CASH: TIME FOR A PARADIGM SHIFT IN E-COMMERCE LEGISLATION

A Presentation at the Banking & Payment Technologies Conference, East Africa, 17-19 February, Kenyatta International Conference Centre, Nairobi - Kenya

By Michael Murungi

The Three Paradigms of Electronic Cash:
(Scanned?) Bank Notes, Credit Cards and the The E-token (Digital coins).

On January 2, 2009, President Mwai Kibaki signed into law the Kenya Communications (Amendment) Act, 2008. This law was the country’s boldest legislative intervention in the ICT industry in over a decade and it represents Kenya’s attempt to adopt the United Nation’s Model Law on Electronic Commerce, 1996. The highlights of the new law are:

- One of its objectives is to promote e-government and e-commerce by increasing public confidence in electronic transactions;
- It gave legal recognition to the use of electronic records and electronic (digital) signatures;
- It created new offences with respect to electronic records and transactions and the use of computing and telecommunications equipment (cyber-crimes);
- It sought to remove perceived legal uncertainties about the admissibility of electronic records as evidence in court proceedings.

Provisions on electronic documents not to apply to Negotiable Instruments
Curiously, clause 31 of the Act provides that its provisions regarding the legal recognition of electronic documents and electronic transactions are not to apply to three classes of documents or transactions:
(i) the creation or execution of a will;
(ii) negotiable instruments; and
(iii) documents of title.

The exemption means that the old rules requiring writing or signatures shall continue to apply to these documents so that they may not legally exist except in paper form and that they may not be signed otherwise than by hand (they may not be legally signed using digital signatures).

This paper is limited to the discussion of the propriety of the exclusion of Negotiable Instruments from the law. Negotiable Instruments may be defined as instruments in writing creating the unconditional right to the payment of a fixed amount of money. Common examples are promissory notes, cheques, bank notes.

In the Memorandum of Objects and Reasons traditionally annexed to any Bill presented to Parliament by its sponsor, the Ministry of Information and Communications did not explain the rationale for the exclusion of the documents listed in clause 31. I will attempt a creative use of the speculative space afforded by the Ministry’s failure to offer the explanation.

Technologically compromised

Looking at them carefully, the exempted documents bear a common legal characteristic – they are documents of a nature which have to be retained in their original format in order for them to be valid. The possessor of a vehicle log book or a land title deed (documents of title) will be the owner of the vehicle or land described on it or a person who came to be in possession of the document by virtue of him having a acquired a legal interest/right in the property– for instance, a bank/lender to which the property has been offered as a collateral or security for a loan issued to the registered owner. There is no dissociating the value the documents represent and the paper on which they are constituted. Therefore, the mechanism used to transfer the value is the physical transfer and delivery of the paper itself.

Electronic methods of creating and deploying information strain our traditional understanding of the term “original”. With electronic documents,
- Access is by copying: one makes a copy of it merely by accessing it (e.g. a copy made when a document is accessed through the internet and stored in the user’s computer’s cache memory).
- Simultaneous access: because of the ubiquity of the computer-based networks such as the Internet, it may be available to more than one person at the same time;
- A copy is as good as the original: There is no diminution in the quality of the document even with the making of numerous multiple copies.

If the validity of certain documents depended on the retention of their original, how then could such retention be guaranteed with respect to electronic documents which in their nature are non-material, volatile and susceptible to mass replication and distribution at a speed and quality not previously anticipated? Perhaps this dilemma was too much for Kenya’s Parliament to contemplate. Like the parliaments of Canada, Singapore and Hong Kong before it, Kenya’s Parliament decided that wills, negotiable instruments and documents of title were to be exempted from the new law.

In considering its Electronic Transactions Bill, Hong Kong floundered in its attempt to justify the exemption of these classes of documents and transactions from its application: “..the Bill should not go as far as to require acceptance of electronic documents and digital signatures in all types of transactions before the community at large is ready for such a change”. The justification proffered for the exemption of negotiable instruments sounded even more ludicrous: “As for bills of exchange (e.g. cheques), it is conventionally exchanged by hand and there is little demand for it to be exchanged by electronic means”.
(See the Report of the Hong Kong Legislative Council at www.legco.gov.hk/yr98-99/english/bc/bc19/papers/b194111c.pdf, pg. 1)

Paperless cheques and electronic cash – don’t show me the money
The exclusion of wills and documents of title may be reserved for a later discussion (or altogether conceded by the e-commerce fraternity until such time that Parliament updates its wisdom with the latest release). It is the exclusion of negotiable instruments that should not be countenanced, especially because of one self evident contradiction – the exclusion stands against one of the declared objectives of the legislation: the promotion of electronic commerce.

What is electronic cash? One author has defined it as:
“Monetary value charged and stored on an electronic support, in the form of a smart card or incorporated into the memory of a computer” (Batalla 2001, p. 81).

The European Union Directive on Electronic Money 2000/46/EU: Article 1 (3)(b) gives a definition that is a technologically elite version of the traditional notion of a legal tender. According to it, electronic cash is:
“Monetary value as represented by a claim on the issuer which is:
(i) stored on an electronic device;
(ii) issued on receipt of funds of an amount not less in value than the monetary value issued;
(iii) accepted as a means of payment by undertakings other than the issuer”.


The three paradigms of electronic cash
(i) Paradigm One: Scanned bank notes?
In conventional knowledge, an “electronic” thing is the computer version/digitized equivalent of a thing that was not previously available for viewing or transferring through computer–based communications. At the dawn of electronic publishing, perhaps the level of sophistication of the tools applied at that time was such that the term “electronic book” (e-book) was understood to mean no more than the scanned pages of a literary masterpiece. A crude and unsophisticated way of sending electronic mail would be to write a letter on a piece of paper, run the handwritten letter through a document scanner, store the scanned image as a file on electronic media and then transfer the file to the computer system of the intended recipient who will then proceed to open and read it. Using the same wisdom, can one pay his debt of one hundred Kenyan shillings by emailing the creditor a scanned image of a Central Bank of Kenya-issue 100 shilling note?

The answer to this question exposes a serious flaw in this paradigm, at least as far as its application to electronic cash is concerned. With a letter, there is no value attached to the delivery of the actual physical paper on which it is written. As a matter of fact, once the handwritten letter has been scanned, the usual thing would be roll it into a rough ball and loop it into the waste basket. But the same cannot be said of the bank note. By a legal fiction that emerged among 14th century European merchants, the value of the note is bound up with the paper on which it is printed, in the sense that the note has to be physically delivered to the creditor.

“Fourteenth-century merchants developed the use of the draft, or bill of exchange, as a

means to conduct their transactions while avoiding the risk associated with the transport

of large sums of money. A merchant in Italy desiring to place funds into the hands of

someone in London could accomplish the objective by means of a draft. Having made prior

arrangements with a party in London, the Italian merchant would issue a written order to

that party to pay the person designated in the draft to receive payment. The party in

London upon whom the order was drawn would make the payment when the designated

person presented the paper. The party in London might have agreed to make the payment

because doing so discharged a debt that the party owed to the Italian merchant for goods

sold or for money lent. Alternatively, the party in London might have agreed because the

Italian merchant also agreed to honor the party’s drafts drawn on him”. Excerpted from:

Lawrence. Willliam, H. (2002) “Understanding Negotiable Instruments and Payment

Systems” Mathew Bender & C0

Sending the scanned image of the bank note will not transfer the value because the original note has been retained by the sender. (If the physical note was destroyed immediately after its scanned image was sent, perhaps the creditor’s only predicament would be to provide the evidence of its destruction to the Central Bank along with a request for the issue of a new identical note to him).

This may well have been the paradigm of electronic cash that Kenya’s parliament contemplated when it excluded the use of electronic negotiable instruments. Parliament may have been right only if this was the only paradigm of electronic cash.

(ii) Paradigm Two: credit cards (stored value transfer systems)
Current understanding of electronic books or electronic mail is more advanced than that in Paradigm One. In their advanced form, electronic books are now the representations of the words and images from a book mounted on highly interactive and reader–interfaced software such as PDF or Amazon.com’s software for its e-book reader, the Kindle. Electronic mail, on the other hand, involves the use of an email program that provides a template for entering the electronic address of the recipient, the subject line and the words that comprise the body of the letter. The sender is not only relieved of the labor of scanning but he is also able to manipulate the individual letters and words in his message much more easily than paper and ink would allow him.

An advanced form of electronic cash is the credit card and other systems of transferring stored money value. The credit card is so far the market’s most ingenious attempt to dispense with the use of (though not to completely eliminate the necessity for) bank notes and to liberate the value represented by the note from the paper medium on which it is carried. Banks and credit card companies reasoned that if they could have the physical custody of the original bank notes on behalf of their clients, they could issue the client with an authority to incur debts in the course of their business on the faith of the bank’s promise to honor the claim of the creditors out of the cash reserve it held for its client. The credit card is the medium on which the bank’s promise to honour the debts incurred by its client is carried.

But even as utopian as this paradigm may appear in comparison to Paradigm One, it still has one shortcoming. It has not completely eliminated the need for the retention of the original bank note.

(iii) Paradigm Three: Electronic coins/digital cash
The third and final way of looking at electronic cash is based on the possibility of eliminating the physical bank note and replacing it with a digital alternative that meets the shortcomings of the Paradigm One (the scanned bank note) in the following ways:
- National currency issuers (Central Banks, the Federal Reserve, etc) issuing currency not in

paper form but in the form of electronic currency;
- The use of a technological platform that offers electronic currency bearing the same

guarantees as the bank note – unique and serially numbered; capable of transfer without

retention; tamper proof and capable of detecting alteration, replication or copying; and

widely accepted as legal tender.

With advances in financial cryptography, humankind has already made a mental/paradigm shift into a frame of reference that is willing to admit that such a technological platform is possible. Indeed, when the idea of electronic money was first presented, most products were based on the idea of digital coins stored offline on smart cards or on user’s hard disks. But as one scholar reports, “Despite the technological hype, consumers were apathetic, merchants were unimpressed, and most schemes disappeared as quickly as they had surfaced. Still, a number of risks were identified, and possible legal regulation based on ‘digital coin’ metaphors and smart card technology was debated”. (see Kohlbach, Manfred 'Making Sense of Electronic Money', 2004 (1) The Journal of Information, Law and Technology (JILT). http://elj.warwick.ac.uk/jilt/04-1/kohlbach.html).

It will be an embarrassing indictment of the digital age if its repertoire of technological innovations did not include a secure and widely accepted digital equivalent of the bank note and if paper money forever remained the currency of electronic commerce.

Paradigm blindness
One would understand a government’s reluctance to embrace digital currency as it is presented in Paradigm Three. It is not possible to go into the subject without finding oneself entangled with two areas of knowledge that do not lend themselves to easy understanding: the fiction of a legal tender as a means of transferring value and financial cryptography. E-commerce laws that rule out the legal recognition of electronic negotiable instruments may be due to a shortness of legislative courage or paradigm blindness – lawmakers so steeped in their impressions of Paradigm One that they fail to contemplate the possibility of Paradigm Three.

The dangers of the legislative approach taken by Canada, Singapore, Hong Kong and Kenya are threefold:

a. It appears to outlaw pre-existing industry practices based on stored value transfer

systems (Paradigm Two) such as funds transfer by mobile phone (e.g. M-PESA in

Kenya);

b. It forecloses on possible future developments in electronic cash by denying industry the

creative space to evolve electronic currency into Paradigm Three (already, some

countries are working on paperless cheque clearance systems);

c. It ignores the guidelines to the enactment of e-commerce legislation promulgated by the

United Nations Commission on International Trade Law (UNCITRAL) in its Model Law

on Electronic Commerce (1996).

Article 8, which the Model Law admits is pertinent to documents of title and negotiable

instruments, in which the notion of uniqueness of an original is particularly relevant,

provides: “ (1) Where the law requires information to be presented or retained in its original

form, that requirement is met by a data message if: (a) there exists a reliable assurance as

to the integrity of the information from the time when it was first generated in its final form,

as a data message or otherwise; and (b) where it is required that information be presented,

that information is capable of being displayed to the person to whom it is to be presented.

(2) Paragraph (1) applies whether the requirement therein is in the form of an obligation or

whether the law simply provides consequences for the information not being presented or

retained in its original form. (3) For the purposes of subparagraph (a) of paragraph (1): (a)

the criteria for assessing integrity shall be whether the information has remained complete

and unaltered, apart from the addition of any endorsement and any change which arises in

the normal course of communication, storage and display; and (b) the standard of

reliability required shall be assessed in the light of the purpose for which the information

was generated and in the light of all the relevant circumstances”.

Conclusion
Though the Model Law on Electronic Commerce does not discourage nations from refusing to give legal recognition to such documents and transactions as they might consider necessary, it encourages nations to use the “functional equivalent approach”. This approach is based on an analysis of the purposes and functions of the traditional paper-based requirement with a view to determining how those purposes or functions could be fulfilled through electronic-commerce techniques. The blanket exclusion of negotiable instruments from e-commerce laws by these nations is a reflection that they did not competently answer the question: What is the functional digital equivalent of negotiable instruments?. Even sadder is the possiblity that they may not have posed this question to themselves at all.