MARITIME INSPIRATION FOR TECHNOLOGICAL PROBLEMS

FOR its daily practitioners, maritime law and arbitration is a specialised field grounded by centuries-old concepts and the measured evolution of a mature industry. So consider, then, the dilemma of entrepreneurs who must calibrate the risk-to-reward ratio of decisions in a business environment which has no such history or tradition. What legal touchstone can they use?

In December 1989, I withdrew from my partnership with US law firm Hill, Betts & Nash and headed west to the sprawling industrial suburbs south of San Francisco known as Silicon Valley. The catalyst for this migration was a freak of nature, the Loma Prieta earthquake of October 89. Stranded by its devastation while visiting a client, I spent the evening mesmerised by the fantastic predictions of some local scientific seers. We retreated to one of their apartments where, amid the wreckage of personal belongings strewn around every room, a vision of electronic commerce over an obscure public network - known as the Internet - was revealed. And I simply could not resist the magnetic attraction of this recruiting technique to join the start-up company as its general counsel.

Dispute resolution

The first task for the fledgling venture was to create a licensing model for promoting the dissemination of a unique technology. Standard agreements were required as part of the licensing package, including mechanisms for resolving disputes. The vague process articulated by standard industry arbitration agreements was viewed with mistrust. How to forge an agreement which, while not promising a fair result, would at least provide a process measurably better than a random event? In the end, the solution included the following key points:

"All disputes, controversies or differences between the licensor or licensee arising out of or related in any way whatsoever to this agreement shall be submitted to arbitration. Each party shall be entitled to appoint one arbitrator, who shall not be an affiliate, officer, director, employee, agent, vendor or contractor of that party. The appointed arbitrators shall then appoint a neutral arbitrator who shall serve as chairman... All arbitrators so appointed shall be experienced in the business of licensing intellectual property rights, and the chairman shall be an attorney practising litigation in said field...

"The arbitrators are authorised to award any remedy, legal or equitable, as well as any interim relief as they deem appropriate in their discretion..." The key contribution from maritime practice was specifying the arbitrator's qualifications, with emphasis on adequate experience in the relevant commercial field (licensing intellectual property). Compare this with the 1981 NYPE Form.

The "any remedy" clause, drawn in concept from the STB form, also resolved the knotty issue of disputes requiring equitable relief as well as damages.

This transplant from the maritime arbitration experience proved surprisingly successful in taking root. Today, licensees of this technology include many industry standard-setters.

Standard of care - new technologies

The enabling technology for legally binding electronic transactions consummated over public networks lies in a branch of mathematics as old as the maritime law itself - the art of cryptography - and a stunning breakthrough in number theory at Stanford University during 1976-77. This invention solved two problems whose interrelationship would have profound political and economic implications for the future.

The first problem is creating an irrefutable proof of electronic identity, a so-called digital signature, which binds an individual to a transaction such that its authenticity - and hence its legal effect - cannot be repudiated. The Stanford invention solves the problem, and in time this conception of trusted digital signatures will be its greatest contribution to commerce.

However, the invention which yields verifiable digital signatures is inextricably linked to its other, more controversial achievement, that of facilitating encrypted communications.

There is a burgeoning need to preserve communications secrecy, at least against unauthorised parties operating outside the law. Although revelations about the penetration of corporate, government and even military communications networks are commonplace, the magnitude of the hazard is only dimly appreciated.

At what point does a relevant duty of care, in the face of a known risk, demand the adoption of a technical solution still in its infancy?

The authority most frequently cited by legal commentators on this issue is an admiralty case of cargo loss and limitation of liability, The T J Hooper (60 F 2d 737 Second Circuit 1932).

In that case, a tug petitioned for limitation of liability against damages for loss of cargo in a 1929 storm off the Delaware coast. Although sufficient storm warnings had been broadcast, the T J Hooper was not yet equipped with adequate radio equipment to receive this information. In finding the tug unseaworthy, Judge Learned Hand speaks across the decades with the following observations:

"An adequate receiving set suitable for a coastwise tug can now be got at small cost and is reasonably reliable if kept up; obviously it is a source of great protection to tows ... They can have at hand protection against dangers of which they can learn in no other way; a whole calling may have unduly lagged in the adoption of new and available devices. Certainly in such a case we need not pause; when some have thought a device necessary, at least we may say that they were right, and the others too slack ...."

Today, history is resurrected in the case of the T J Hooper for the proposition that, when an emerging technology provides a unique protection against unpredictable dangers, at a reasonable cost, the enterprise risks liability for lagging in its adoption.

Jurisdiction over extraterritorial highways of commerce

Until December 1996, the United States tried to restrict the proliferation of all cryptographic technology by characterising it as munitions, thereby subjecting it to rigorous export control by the Department of State.

Discretion over export controls was specifically exempted from judicial scrutiny, and cryptography was jealously guarded by the code-breaking wizards of the signals intelligence community. This had traditionally been an extremely low-profile community until in late 1992 a ne'er-do-well computer programmer decided to challenge the status quo.

Borrowing the Stanford invention from its owners, this scruffy individual from Bolder Colorado concocted his own program for encrypting e-mail communications and uploaded it onto a computer connected to the Internet. This home-brewed program, named Pretty Good Privacy (PGP), spread like kudzu. Within hours, the software was whizzing around the globe, purportedly protecting the communications of Latvian freedom fighters and Columbian cocaine lords alike, and PGP-encrypted e-mail quickly became the norm among the computer cognoscenti.

An intense investigation by the US Attorney's office in San Francisco led to a grand jury impaneled to weigh the merits of a criminal prosecution. But had any laws actually been broken?

Enter the US Customs Service. As one of the oldest organisations in the federal government, customs adopted a historical view grounded in its experience of policing the nation's maritime borders. The analogy in its mind was relatively simple - since the breach of export law occurs when controlled goods are delivered to the dock and made accessible to the carrier for shipment, the delivery of software to a computer terminal within the US, accessible by foreign nationals through the Internet, is no less an "export" of controlled technology.

Unfortunately for legal scholars, this maritime analogy was never put to the test. The political controversy over government regulation of this technology, which continues to this day, and the unnerving prospect of turning this truculent, dissident programmer into a martyr for libertarian causes, resulted in the Justice Department's anti-climatic abandonment of this test case.

However, we may yet see the establishment of some sort of regulatory regime for electronic communications. Issues such as taxation, liability, and self defence require some precepts for the exercise of any sovereign's law and jurisdiction. When pressed for precedents, the deep well of maritime experience may yet be plumbed for more solutions.