Goodbye from Watching the Connectives: hello from The Digital Watcher

Rob Bratby

To all my readers, thank you and goodbye. This blog is now an ex-blog. Continue reading

Global IT tariffs eliminated? WTO wakes up?

Used under a creative commons licence granted by Alejandro Linares Garcia

Used under a creative commons licence granted by Alejandro Linares Garcia

“Mr. Praline: Look, matey, I know a dead parrot when I see one, and I’m looking at one right now.

Owner: No no he’s not dead, he’s, he’s restin’! Remarkable bird, the Norwegian Blue, idn’it, ay? Beautiful plumage!”

– Monty Python

Based on a press release from the World Trade Organisation, and tweets from its Director-General Roberto Azevedo it would appear that the WTO is about to defy persistent reports of its death and come back to life with its first agreement on tariff elimination in  eighteen years.

Covering a wide range of technology and IT products including new generation semi-conductors, GPS navigation equipment and medical equipment, including magnetic resonance imaging products and ultra-sonic scanning apparatus, the proposed agreement will lead to the elimination of import tariffs in a uniform and non-discriminatory manner – the [no WTO member is treated worse than the] ‘most-favoured nation’ principle. The WTO estimates that the value of trade covered by the prospective agreement amounts to USD 1 trillion.

In recent decades, the process required to reach agreement at the WTO has resulted in deadlock and an increased focus on regional trade negotiations such as TPP, in part because these are perceived as being easier to reach agreement by virtue of involving a smaller group of participants amongst whom a common goal can be agreed. Further, whilst students of David Ricardo still extol the virtues of free-trade, in recent years the WTO has come under both attack from populist anti-globalisation movements and domestic anti-trade liberalisation political pressure in many countries against trade liberalisation.

Against this backdrop, why does it now seem likely that the WTO will reach an agreement including the world’s largest trading blocs (US, China and EU) as well as much of SE Asia?The simple answer to this question is that everyone has something to gain. The reason for this is the global spread of technology – almost every country has technology exporters of some sort (bearing in mind that many manufacturing facilities for MNCs are in low wage economies) and/or see clear benefits in importing technology.

It is welcome to see that the global community still sees the benefit of global trade agreements – the next big question is whether this will lead to a wider reinvigoration of the WTO as means of advancing trade negotiations, as opposed to regional negotiations like the TPP?

 

 

 

 

 

MAS Embraces Cloud: A Silver Lining

There should be relief at the moment felt by financial institutions and cloud service providers alike, following the release of the MAS’s consultation on the proposed new outsourcing notice and updated guidelines as mentioned in Rob’s previous post.

The MAS doesn’t use the word “cloud” expressly in its consultation.  However, the MAS has made important changes to the outsourcing guidelines.  The changes are relevant to cloud services and, most importantly, there are positive references to cloud services.  Cloud is OK provided you follow MAS’s rules.

  1. An OK for SaaS, PaaS and IaaS. In Annex 1 of the proposed updated guidelines, the MAS expressly lists “SaaS, PaaS and IaaS” as kinds of services that, when performed by a third party, would be regarded as outsourcing arrangements (and therefore subject to the MAS’s notice and guidelines on outsourcing).  Therefore, the MAS is saying that cloud is a type of service that falls within outsourcing.  The implication must be that financial institutions can use cloud services as long as the cloud services they adopt comply with the notice and guidelines on outsourcing.
  1. An OK to multi-tenancy arrangements.  In sections 5.6.2 and 5.7.2 of the updated guidelines, the MAS makes express reference to “multi-tenancy arrangements”.  In a footnote the MAS explains that “Multi-tenancy generally refers to a mode of operation adopted by service providers where a single computing infrastructure (e.g. servers, databases etc.) is used to serve multiple customers (tenants).”  The MAS goes on to say that if a financial institution is using a multi-tenancy arrangement then it should pay particular attention to the ability of the arrangement to isolate and clearly identify the financial institution’s documents, data, information etc.  Again, therefore, the implication must be that financial institutions can use cloud services as long as the cloud services they adopt comply with the notice and guidelines on outsourcing.  In sections 5.6.2 and 5.7.2, the MAS has picked out certain areas where the financial institutions should pay particular attention if they are using cloud services.  So this isn’t a “no” to cloud services but rather a “yes, but be careful”.
  1. An OK to transfers of customer information.  The definition of a “material outsourcing arrangement” in the updated guidelines now expressly includes an arrangement “which involves customer information”.  Most cloud services will involve customer information.  The implication is that financial institutions can enter into outsourcing transactions that involve customer information and, therefore, can use cloud services, as long as the cloud services they adopt comply with the notice and guidelines on outsourcing.  This means that the MAS will consider most cloud services as a “material outsourcing arrangement” and so the additional requirements will apply to cloud services (e.g. notification to the MAS, prior to committing to the cloud services).
  1. An OK to outsourcing outside of Singapore.  In section 5.10 of the updated guidelines the MAS deals with outsourcing outside of Singapore.  This section has not really changed but it is noteworthy that the MAS recognises that “the engagement of a service provider in a foreign country… exposes an institution to country risk”.  The MAS does not say that a financial institution cannot outsource outside of Singapore. The MAS points out that an outsourcing outside of Singapore carries additional risks that the financial institution must address.  Many cloud services will (to varying extents) be provided from locations outside of Singapore.  The implication is that a financial institution can carry out outsourcing outside Singapore, and therefore can use cloud services that are provided from locations outside of Singapore, as long as the cloud services they adopt comply with the notice and guidelines on outsourcing.  This means that financial institutions must address the additional “country risks”.

In summary, these are positive steps for customers and service providers of cloud services.  As the proposed new guidelines currently stand, the MAS has decided not to call out cloud services in much detail.  Instead the MAS seems to be moving towards accepting cloud services as just another service delivery model, rather than as something that needs additional regulation or treatment.  This is good news.

Apart from cloud, the new notice and update guidelines should be welcomed.  There are some points that the MAS should be asked to clarify and now’s the time to do that – more on these points in our next blog.  However, overall, these proposals are good for cloud and good for the financial services industry in Singapore.

Why bring your own device (BYOD) is not just an IT issue

I was fortunate this week to be both a speaker and a panellist at Questex Asia’s ‘BYOD and Mobile Security conference held in Singapore. It turned out I was the only lawyer in a room of 200 plus IT people, which was an interesting experience. Having made my presentation (Olswang_Asia_BYOD_presentation) my conversations with delegates brought home to me how hard it can be to effect change within an organisation.

Whilst speakers had run through the organisational benefits from BYOD, and it is clear from my experience that generation X and generation Z are increasingly demanding the ability to bring their smartphones and tablets to work, as any change requires the buy-in and collaboration between at least IT, legal HR and senior management many organisations were struggling to actually change in a structures where any stakeholder saying ‘no’ could stop implementation.

My message that the legal issues (whilst important and needing to be dealt with) shouldn’t stop BYOD deployment seemed to give comfort to some of the delegates I spoke to.

As is always the case with these things, two days after I had delivered the talk the UK Information Commissioner published their guidelines on BYOD. I was heartened to read that the guidance covers pretty the same ground as my talk, albeit (not unsurprisingly for regulatory guidance) with a somewhat more negative view.

How serious is India about foreign investment as an engine for growth?

I will be spending next week in Mumbai and Delhi (with @singarbitration), and in preparation have been contemplating the impact of the recent budget proposals on foreign investment, and in turn the implications for the Indian economy.

Before going on any trip, I like to remind myself of some basic economic facts, so my trusty EIU ‘World in 2012’ guide tells me that India has:

  • GDP of $5,083 bn (PPP)
  • a population of 1,220 m
  • a per capital GDP of $4,170 (PPP)
  • GDP growth 7.8%
  • inflation 7.7%

Whilst these statistics are impressive, India’s growth rate has persistently been a couple of percentage points lower than that of China. The reasons for this are many, but commentators seem to agree that one factor is the barriers or impediments to foreign investment in many sectors of the Indian economy, which may help to stimulate competition and growth.

Regardless of sector, one key requirement of foreign investors in India is certainty over the rules for investment, and in that context recent attempts by India to levy retrospective tax charges are very (to put it mildly) unhelpful. I’ve blogged before on the Vodafone tax case, but since the helpful supreme court judgment rather unhelpfully the budget proposals published in March 2012 contains proposals that would change significant parts of Indian tax legislation with retrospective effect (back to 1962 in some cases) and reverse decided case law on many provisions.

There are 24 retroactive provisions in the bill designed, in the words of Revenue Secretary R S Gujral, to protect the government of India from returning taxes previously collected which it would otherwise be required to do to comply with Court decisions (in itself an extraordinary statement of disrespect for the Supreme Court of India and its position under the Indian Constitution).

Although presented as mere clarifications, the changes are clearly substantive changes in law and made as a direct reaction and in contradiction to various rulings and judgments of the courts in India. Specifically the changes are reinforced by a provision (s113) which grants the tax department wide ranging powers to demand, and collect and seize tax from taxpayers notwithstanding contrary judicial decisions. The changes go to the very heart of the constitution of India, the rule of law in India, and are likely to impact many Indian as well as international investors and businesses.

Specific international M&A aspects

The most prominent of the judgments proposed to be reversed is the January 2012 Supreme Court ruling relating to the 2007 Vodafone transaction, where it was held that an overseas share transfer cannot be taxed in India even if there is a consequent change in control of a lower tier company in India. The budget now seeks not only to overturn this ruling, which had been hailed both internationally and in India as a sign of the rule of law in India and a positive sign for investor certainty, but also to do so with retrospective effect. Numerous other companies would be affected, including AT&T, General Electric, Fosters, Sanofi-Aventis, Kraft-Cadbury, Cairns, Unilever, Accenture, Mcleod Russel and E-Trade as well as a reported 400 other transactions being investigated by the Indian tax office. As the legislation is retrospective to 1962 there may well be other transactions that can be targeted by the tax authorities which were completed decades ago.

In many of the cases, the targeted companies are purchasers who made no gain, but are being pursued for the tax on a gain realised by sellers. Doing this retrospectively is extraordinary; it is impossible to withhold retrospectively once the purchase price is paid.

Other aspects

In addition, other provisions included in the budget would expand the definition of ‘royalty’ retrospectively to 1 June 1976 aiming to nullify a number of recent rulings and court decisions, including cases involving Asia Satellite Telecommunications, Ericsson AB, Factset Research Systems, Infosys Technologies, Intelsat, ISRO Satellite Centre, Lucent Technologies, Motorola, TV Today Network, and Velankani Mauritius

Impact on Investors in India

The extreme nature of the retrospective changes is a significant departure from international norms and raises major concerns among investors and multinational companies in respect of their investments into India. It undermines public confidence in the judiciary and respect for the rule of law which is one of the fundamental principles of a democratic society. It further creates uncertainty on laws and unpredictability of the cost of doing business in India, and a perception that the revenue authority can act completely unchecked by the judiciary in India. If these proposals are enacted India would distance itself from other countries which are encouraging and bringing favourable reforms to encourage foreign direct investments.

The Watcher needs to make it clear that he has investors in India as clients, and this post should be read in that light.

Continued growth in Asian technology, media and telecoms sectors in 2012 despite Eurozone troubles

With the launch party of Olswang Asia happening tonight, I have been musing on the economic outlook for Asia in 2012 and beyond. At a very micro-level I have been very pleasantly surprised by the (extraordinarily high) level of interest in our launch and it looks like the party tonight will be standing room only. I wondered if my personal experience was indicative of the wider economy so have been reviewing a number of commentaries on growth prospects for the region.

In particular,  I looked at reports from the Economist and Insight Bureau. Both commentators agreed that the outlook for Europe varied from bad to very bad, whilst the outlook for America was mildly positive.  Whilst China’s growth rate is expected to drop into single digits, caused by a slowdown in its export markets, the consensus view is that the Indian economy remains driven by domestic demand. Whilst India’s reliance on domestic demand has resulted in lower growth than China, it also means that India is less exposed to the Euro zone slowdown than China.

So aside from India and China, what are the prospects in ASEAN? Its is sometimes easy to forget that Indonesia has an economy five times the size of Greece (to pick a random comparator). Whilst it is still less than a third of the size of the German economy, it is expected to sustainably grow at around 5-6% a year for the forseeable future, whilst Germany will be lucky to not contract. Meanwhile, its ASEAN neighbours such as Malaysia, the Philippines, Thailand, Vietnam, as well as South Korea, continue to grow strongly.

So, the upshot of my limited research is that my personal experience seems to be in line with the market (much as I’d like to convince myself that we are bucking the trend). However, I think there are others factors at play that mean that the technology, media and telecoms markets across Asia are in fact growing more rapidly than the region generally.

First, the rise of average income levels resulting from GDP growth means that the middle class (for these purposes defined as those on an above subsistence wage) is doubling every few years. Members of that rapidly growing middle class all have mobile telephones, watch TV, own computers and go to the movies. 

Second, as consumers become more assertive and the market size increases they are increasingly wanting local content, services and applications. Markets with revenue growth and consumer demand are increasingly resulting in local suppliers competing, complementing or co-operating with the more established global players.

New EU Data Protection Proposals: what you need to know

Today’s blog post is courtesy of my friends and colleagues Clive Gringras and Claire Walker who have published a helpful guide to the new European Data Protection proposals.

“Today, 25 January 2012, the European Commission unveiled its proposals for far reaching changes to EU privacy legislation.

We foresee the Regulation being in force by 2015. Every aspect of an organisation’s compliance obligations will increase – and there will be fines of up to 2% of global turnover for breach. We highlight the top three immediate action points to consider. We also provide seven further action points to address in the months ahead.

Three immediate impacts

  • Non EU businesses need to select an EU Member State Scenario: a large Asian company holds personal data on Asian servers about its many EU customers. It has purposely not established a presence in the EU but will now need to decide which of the EU Member States in which it has customers to appoint its DP representative. It will need to balance the attractiveness of the enforcement approach in that state with other factors.
  • Systems design Scenario: the architecture for a new IT system is under discussion between the CTO and CEO of a large EU business. To future-proof the system, the CTO must take into account the Regulation’s changes such as allowing consumer data to be permanently deleted (R2BF) and should ensure that all processing operations involving personal data are adequately documented.
  • Outsourcing agreements Scenario: a five-year outsourcing contract involving data processing is under negotiation. The deal will be signed this year, well before the impact day of the Regulation, which will be some time in 2015. Because the processing will continue after impact day, the parties today need to anticipate in the agreement that their data protection obligations will change.

Please see here for our initial analysis of 10 potential practical impacts.”

PS – thanks for the feedback from some of my blog readers who travelled from  Paddington station today. You know who you are!

What will the Trans-Pacific Partnership mean for the technology, media and telecoms industries?

Apologies to readers for the long hiatus between recent blog posts. With hindsight (and English understatement), I may have rather underestimated the time that would be taken up in relocating personally from London to Singapore to set up our office there. It is not without irony that I find the time to write this by being ‘snowed in’ in the European Alps.

It is traditional at this time of year to look back at the events of the year just gone and to look forward to the new new year. For the press in general, there seems to be a broad consensus that 2011 was the year when social media came of age playing a very large part in the changes described as the ‘Arab Spring’ whilst the sad demise of Steve Jobs means that the world has lost a innovator who I suspect that history will compare with Watt, Edison and Ford.

Looking ahead, whilst there are lots of topics that I could consider, the rest of this post will consider the implications of the Trans-Pacific Partnership (or TPP) on the technology, telecoms and media industries. The TPP currently includes America, Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam whilst Canada, Japan and Mexico have expressed an interest in joining. At their latest summit in November 2011, the leaders of the current 9 TPP members published the following statement:

“We, the Leaders of Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, United States, and Vietnam, are pleased to announce today the broad outlines of a Trans-Pacific Partnership (TPP) agreement among our nine countries. We are delighted to have achieved this milestone in our common vision to establish a comprehensive, next-generation regional agreement that liberalizes trade and investment and addresses new and traditional trade issues and 21st-century challenges. We are confident that this agreement will be a model for ambition for other free trade agreements in the future, forging close linkages among our economies, enhancing our competitiveness, benefitting our consumers and supporting the creation and retention of jobs, higher living standards, and the reduction of poverty in our countries.

Building on this achievement and on the successful work done so far, we have committed here in Honolulu to dedicate the resources necessary to conclude this landmark agreement as rapidly as possible. At the same time, we recognize that there are sensitive issues that vary for each country yet to be negotiated, and have agreed that together, we must find appropriate ways to address those issues in the context of a comprehensive and balanced package, taking into account the diversity of our levels of development. Therefore, we have instructed our negotiating teams to meet in early December of this year to continue their work and furthermore to schedule additional negotiating rounds for 2012.

We are gratified by the progress that we are now able to announce toward our ultimate goal of forging a pathway that will lead to free trade across the Pacific. We share a strong interest in expanding our current partnership of nine geographically and developmentally diverse countries to others across the region. As we move toward conclusion of an agreement, we have directed our negotiating teams to continue talks with other trans-Pacific partners that have expressed interest in joining the TPP in order to facilitate their future participation.”

In its commentary, the Economist noted that the TPP plus the interested three constitute over 40% of the world’s GDP – more than the EU. However, there remain serious obstacles to Japan’s accession and the TPP discussions notably omit China, India, Indonesia and Brazil. It is also unclear whether regional trade arrangements complement or hinder the work of the WTO as countries prefer to deepen trade within the content of regional agreements in preference to opening markets more generally. Commentators have also commented unfavourably on the implicit export of a US-centric model of intellectual property law, and it appears that there is significant resistance to to TPP in a number of countries including US, Malaysia and Japan.

So, what might come out of the current negotiations? A background paper was published to the negotiations which summarised the agreement in more detail. Some of the sections that caught my eye were:

  • Investment. The investment text will provide substantive legal protections for investors and investments of each TPP country in the other TPP countries, including ongoing negotiations on provisions to ensure non-discrimination, a minimum standard of treatment, rules on expropriation, and prohibitions on specified performance requirements that distort trade and investment. The investment text will include provisions for expeditious, fair, and transparent investor-State dispute settlement subject to appropriate safeguards, with discussions continuing on scope and coverage. The investment text will protect the rights of the TPP countries to regulate in the public interest.
  • Technical Barriers to Trade (TBT). The TBT text will reinforce and build upon existing rights and obligations under the World Trade Organization Agreement on Technical Barriers, which will facilitate trade among the TPP countries and help our regulators protect health, safety, and the environment and achieve other legitimate policy objectives. The text will include commitments on compliance periods, conformity assessment procedures, international standards, institutional mechanisms, and transparency. The TPP countries also are discussing disciplines on conformity assessment procedures, regulatory cooperation, trade facilitation, transparency, and other issues, as well as proposals that have been tabled covering specific sectors.
  • Cross-Border Services. TPP countries have agreed on most of the core elements of the cross-border services text. This consensus provides the basis for securing fair, open, and transparent markets for services trade, including services supplied electronically and by small- and medium-sized enterprises, while preserving the right of governments to regulate in the public interest.
  • E-Commerce. The e-commerce text will enhance the viability of the digital economy by ensuring that impediments to both consumer and businesses embracing this medium of trade are addressed. Negotiators have made encouraging progress, including on provisions addressing customs duties in the digital environment, authentication of electronic transactions, and consumer protection. Additional proposals on information flows and treatment of digital products are under discussion.
  • Intellectual Property. TPP countries have agreed to reinforce and develop existing World Trade OrganizationAgreement on Trade-Related Aspects of Intellectual Property (TRIPS) rights and obligations to ensure an effective and balanced approach to intellectual property rights among the TPP countries. Proposals are under discussion on many forms of intellectual property, including trademarks, geographical indications, copyright and related rights, patents, trade secrets, data required for the approval of certain regulated products, as well as intellectual property enforcement and genetic resources and traditional knowledge. TPP countries have agreed to reflect in the text a shared commitment to the Doha Declaration on TRIPS and Public Health.
  • Telecommunications. The telecommunications text will promote competitive access for telecommunications providers in TPP markets, which will benefit consumers and help businesses in TPP markets become more competitive. In addition to broad agreement on the need for reasonable network access for suppliers through interconnection and access to physical facilities, TPP countries are close to consensus on a broad range of provisions enhancing the transparency of the regulatory process, and ensuring rights of appeal of decisions. Additional proposals have been put forward on choice of technology and addressing the high cost of international mobile roaming.

Whilst the barriers to implementation of the TPP (noted above) and the details, particularly around the detail of the IP arrangements (e.g. copyright term and software patentability (or not)), mean that negotiating and implementing the TPP is by no means a foregone conclusion the increased ability for companies in the TMT sector to directly invest in markets that are increasingly liberalised to offer cross-border services whilst having adequate protection of their intellectual property will be positive for companies in those sectors.

Patent power (part 2) – Google buys Motorola Mobility

Today’s big news is Google’s acquisition of Motorola Mobility. What is fascinating is the logic for the deal. This is not a deal driven by customers or operating synergies – it is all about Motorola’s patents.

The give-away is the final paragraph of Google’s announcement:

“We recently explained how companies including Microsoft and Apple are banding together in anti-competitive patent attacks on Android. The U.S. Department of Justice had to intervene in the results of one recent patent auction to “protect competition and innovation in the open source software community” and it is currently looking into the results of the Nortel auction. Our acquisition of Motorola will increase competition by strengthening Google’s patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies.” – Google

Having failed to acquire Nortel’s patents, this move is all about positioning Google for a series of multi-jurisdictional patent claims and counter-claims coupled with positioning for cross-licensing deals.

It remains to be seen what impact this will have on other parts of the mobile eco-system, but it may heralds the start of the more aggressive use of patents by technology companies – by way of example see Apple’s recent successful blocking of the launch of the Samsung Galaxy Tab in Europe as a result of a German court injunction.

RIM and Google compete to acquire Nortel’s patents

Readers with long memories will remember Nortel’s glory days of the 1990s, when it expanded rapidly by supplying equipment on the back of significant investment in competitive telecoms networks unleashed by the first wave of telecoms market liberalisation. It was badly hit by the dot.com crash, but managed to struggle through the noughties before filing for creditor protection in January 2009. Whilst the global financial crisis may have been the proximate cause of its filing, for Nortel the crisis had started much earlier.

Whilst Nortel’s glory days are in the past, there remains enduring value in its patents. The reason is the commercial power of patents: a patent grants the holder the right to exclude all others from using the patented invention, giving them a exclusive monopoly for the life-time of the patent (typically 20 years). This monopoly can be exploited in a number of ways: worked by the patent holder, enforced to keep others off the market, exclusively licensed, non-exclusively licensed or cross-licensed with others to get access to their technologies.

The last strategy (that of cross-licensing) in the perhaps the most interesting as patents are increasingly being used as strategic weapons by the largest global players – often the response to a patent action will not merely be defence of the action, but the launch of other actions relation to other patents or in other territories as a prelude to settlement and cross-licensing deals.

It’s this strategic power that explains Google’s $900m initial bid and unconfirmed reports yesterday that RIM has also entered the bidding for Nortel’s remaining 6,000 patents.

Meanwhile, in order to try to encourage patents to be held in the UK, the recent budget announced that the UK would continue to press ahead with implementing its ‘patent box’ tax incentive scheme.