Research Trends and Conclusions: Internet e-Commerce & Data Protection 2010
Emma Notfors -
“There is not a company on the planet that does not need to know what internet lawyers can tell them.” The business world has grown comfortable with the online dimension, and these days one would be hard pressed to find an established market presence or start-up without some sort of online presence.
Taking advantage of the most recent trend online is often seen as a way to increase competitiveness – witness the way businesses and retailers have begun using Facebook pages, Twitter accounts and viral marketing, and past trends such as MySpace and bebo. Companies recognise the need to appeal to digital immigrants or, perhaps to a greater extent, digital natives – those consumers who have grown up in the constant presence of the internet.
As the online world has expanded to become an important part of lives across the globe, its boundaries have blurred and this has created several challenges to those wishing to do business in this sector. For high-profile examples, one might look to the Stuxnet worm directed at Iranian nuclear facilities, the use of national firewalls by countries such as China, Iran, Vietnam, Cuba and Saudia Arabia or the bill passed by a US senate committee that has the potential to grant the US president the power to turn off parts of the internet in the event of cyber attack.
Equally, location-specific advertising on smartphones, social e-commerce (where consumers exchange information about purchases and products) and the development of so-called smart-grids (electricity infrastructure that uses digital technology to optimise distribution and efficiency) show the keenness of businesses to use these technologies to their advantage. Because of this pervasiveness, there are broad trends toward both super-specialisation and convergence within this practice area. Even though this is not an area that necessarily generates high fees for law firms, full-service firms are offering internet, technology, and data law services as part of an effort to be a ‘one-stop-shop’ and there is a question of whether these internet lawyers will eventually be absorbed into other business law areas.
Data
Most companies are in possession of vast amounts of data about employees, consumers and their own products and activities. To protect these interests and their reputation, as well as to comply with regulations, business entities must do all they can to prevent breaches. These can come in many forms – databases being sold or hacked into, carelessness on the part of employees with access to sensitive data or the misuse of data intended for other purposes. All of these can result in high-profile negative press coverage or in punishments by regulators, and as companies handle more and more data (the inevitable result of the production of online content and activities by individuals, which are stored in perpetuity) the rate of incidence of breaches looks set to continue to grow. Ruth Boardman at Bird & Bird LLP underlines the importance of developing an instant response plan so that companies are prepared for any contingency. This generally means notifying affected individuals and regulators within a certain amount of time which can, particularly in the United States, be a period of only a few days. While the regulations regarding this vary between the US and Europe (in the US, most states have formalised requirements to notify individuals and the regulations in Europe are catching up), clearly having an instant response plan can make all the difference in situations like these. This is where effective legal counsel proves its worth by setting up proactive solutions to problems that the client has yet to encounter.
Keeping Up with Progress
Perhaps the most challenging aspect of working in internet, technology or IT law is keeping up with the development of new technology and regulations. Many clients in these industry sectors have a particular business culture and way of working that emphasises innovation and their lawyers have a need to keep up with and understand this. Calum Murray, at Kemp Little LLP in London, recognises this as a key part of the success of any legal practice in this sector. “You need to have industry knowledge and to understand the dynamics of the client’s market. If you don’t, you won’t even get a seat at the table. Our business has been established and grown in parallel with the businesses of our technology clients – we see these companies up-close and try to learn from them and this is something that they appreciate.” It is this level of specialised knowledge that marks out leading lawyers in this practice area and those of our interviewees who had expertise in software, programming or coding were understandably keen to emphasise the fact. Having first-hand experience and understanding of the working habits of those working in the internet and technology sphere makes it easier to appreciate the objectives and priorities of these clients and thereby to provide better advice and legal service.
Staying abreast of technological developments is not only important within the context of the relationship with the client who has developed it – doing this can also have a beneficial effect on the quality of legal service provided to other clients. As new technologies are developed and launched, the dissemination of knowledge about them spreads. When Company B decides to launch a product using technology similar to that developed by Company A or to adopt such a product as a customer, those able to give the best legal advice would naturally be the lawyers who advised Company A. Murray describes this as a ripple effect, in that “keeping as close as possible to the source of the ripple is critical as the knowledge gained from clients within the internet and technology sectors is then sought out by other clients, particularly those adopting those technologies into their businesses - so the ripple spreads”.
One of our sources in New York uses the example of data mining. “A lot of our work is with financial institutions, who are the leading users of data mining technology. This gave us a head start when a social networking site was trying to set up privacy policies that would enable data mining without violating the privacy of its users.” While social media is being explored as a new channel for e-commerce, it presents an interesting conundrum in terms of its potential as a forum for marketing and commercial activity (over half of Global Fortune 100 companies maintain Twitter feeds, Facebook pages and YouTube channels) which is tempered by the need to maintain the privacy of consumers and even the rights of employees whose out-of-hours activities might harm companies’ reputations. This is an apt example of the need for lawyers in this practice area to have both niche expertise as well as broad knowledge as advice could comprise issues as disparate as labour regulations, data protection and privacy, freedom of expression and protecting intellectual property.
Hub Versus Spoke
Being able to present a client with seamless legal service can present a challenge in a practice area where the forum of commercial activity transcends national boundaries. Clients often ask their preferred outside counsel to appoint foreign counsel and this means being able to coordinate the work internationally and between firms, while at the same time providing a consistent quality of advice across jurisdictions. Clive Gringras at Olswang LLP in London says that “this is a never-ending problem with internet and e-commerce law. You need to know the international laws and conflicts and overlaps between them in order to know how to advise clients. We are usually the ‘hub’ and are used to dealing with and appointing the ‘spokes.’ In some situations, you have to advise on the lowest regulatory common denominator. So outside our own foreign offices where we have built our own expertise, I am looking for foreign counsel to have a sense of danger about areas that they don’t have experience of”. Obviously, legislation will vary from jurisdiction to jurisdiction, as will the extent of local counsels’ practical experience of internet, data and IT legal issues, and this may mean that the lead counsel on a particular matter may have to put in a great deal of work to coordinate and consolidate work and advice. In the words of Mark Watts at Bristows LLP in London, “the easy bit is knowing that you have the best quality people. The challenge is making sure that the client experience is of dealing with one firm”.
Fees & Client Relationships
Clients are looking for a strong relationship with reliable counsel that can support them through whatever challenges they may face – whether this is implementing new technologies and platforms or dealing with crises such as privacy breaches, data leaks, piracy or hackers. However, they are not willing to obtain these services at any price – budget cuts have definitely affected the legal services industry. The practice of allowing prospective counsel to bid for each project, previously much in favour according to several sources, has started being seen as inefficient. Now clients are pushing toward having a relationship over the course of a substantial period of time and a commitment over several projects.
Some of our interviewees argued that this tends to favour full-service firms that can offer a range of connections between practice areas and offices and be closer to a one-stop shop, where internet or technology-related advice is just one of the services provided to the client. Having said that, other individuals pointed out that this practice area is typically not as high-billing an area as merger and acquisition, for example, and so remains relatively niche. One solution, mentioned by Alexander Brown at Simmons & Simmons LLP in London, is the use of a fixed retainer fee model (among a range of pricing models including billable hours and capped fees). Clients’ needs fluctuate over time and so, provided that the retainer is reasonable, costs and fees balance each other out in the long run – this is clearly a model suited to long-term client relationships.
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Although clients may be pushing for lower fees, today’s corporations have a permanent need for internet, e-commerce and data lawyers, which has made the practice area relatively impervious to the recession. To protect against data breaches or cyber security issues, clients can make use of their legal counsel’s previous experience and knowledge of regulations to establish an effective response plan and minimise the damage in the event of any breach. Those lawyers who work on the cutting edge of technological developments and online innovation help guide their clients through the legal issues inherent in implementing new developments in this area. In this sense, lawyers who specialise in being in the ‘front of the ripple’ also serve as a conduit for the dissemination of legal and technological knowledge to clients and in house counsel. Given the international variability of law affecting this practice area, legal counsel are often weighted with the responsibility of coordinating a collective effort to produce useful advice, all of which should be of the same high standard. This ability, combined with a range of other skills, mark out the market leading practitioners in the sector.