On Tuesday 28 January 2014, the court in the case of Bedding Holding Limited v. INEC & 5 others found INEC guilty of infringing the patent rights to a process belonging to Bedding Holding Limited (BHL). The patent in question relates to the process and application of Direct Data Capture (DDC) machines for the compilation and collection of various biometric information and is covered by a patent granted under the Patent and Designs Act.
The background facts to this case are very simple and straightforward. BHL sued INEC (and the other parties) for infringing its patented process by awarding the contract for the importation of these DDC machines. The court found in favour of BHL. The court in arriving at its decision held that that having gone through the totality of evidence adduced before it by both BHL and INEC, it was satisfied that INEC, violated a subsisting patent right over the process, application and use of DDC machines for voters’ registration. Consequently, the court ordered INEC, and the other defendants to pay BHL the sum of N17.25 billion as compensation for infringing on its valid and subsisting patent rights
In Nigeria, the principal law relating to the grant of patents is the Patents and Designs Act (the Act). For an invention (or as in this case a process) to be protected by patent (or capable of patentability) under the Act, it must be (1) new, (2) result from an inventive activity and (3) capable of industrial application (or if it constitutes an improvement upon a patented invention and also is new, results from inventive activity and is capable of industrial application). In relation to patentability; the Act further provides that an invention is new if it does not form part of the “state of the art”; an invention results from inventive activity if it does not obviously follow from the “state of the art”, either as to the method, the application, the combination of methods, or the product which it concerns, or as to the industrial result it produces; and an invention is capable of industrial application if it can be manufactured or used in any kind of industry, including agriculture. The Act defines “state of the art” to mean everything concerning that art or field of knowledge which has been made available to the public anywhere and at any time whatever (by means of a written or oral description, by use or in any other way) before the date of the filing of the patent application relating to the invention.
In plain English, an invention will be patented if it is new and has never been done before in a way that was available to the public. An invention involves an inventive activity if it reflects some amount of inventive ingenuity; in other words, it must not be obvious to a professional skilled in the technology of the invention. An invention is capable of industrial application if it can be manufactured or used in any kind of industry, including agriculture. All these requirements are cumulative requirements that must be satisfied before the invention will be patented. In the case where a patent has already been granted for the invention, the patent can be cancelled if it is established before the court that any of these requirements has not been met. Thus the relevant questions in this particular case is whether the process in question been done before as at the time the patent was applied for, does the process involve an inventive activity and is the process capable of industrial application. The Judge in finding INEC and the other defendants guilty of infringing the patent right to the process appears to have concluded that the process in fact meets all the requirements for patentability under the Act.
As I have not read the Judge’s decision in this case, it would be absurd for me to comment on the basis of the Judge’s conclusion. However, I am left to wonder and ask, did the Judge give a reasoned explanation of how the patented process satisfied each of the cumulative requirement of patentability, did the Judge give a broad definition of “anywhere” as used in the meaning of “state of the art” as not limiting to only Nigeria, was it established to the satisfaction of the Judge that the infringing DDC machines can be obtained directly by means of the patented process, and did the Judge interpret the claims contained in the patented process in relation to the alleged acts of infringement.
If any of these question is answered in the negative, then one needs to be concerned for the grave implications this judgment portends for Nigeria’s tech ecosystem as it will give rise to (a new category of ) patent trolls (Wikipedia defines a patent troll, also called a patent assertion entity (PAE), as a person or company who enforces patent rights against accused infringers in an attempt to collect licensing fees, but does not manufacture products or supply services based upon the patents in question, thus engaging in economic rent-seeking) who will be tempted to reap where they did not sow.
The effect of this Judgement on Nigeria’s tech ecosystem would be to create a powerful incentive that empowers patent trolls to apply to patent just about anything patentable under the sun. This is especially so because the Act does not require patent examiners to examine a patent application as to whether it is in fact patentable, thus giving patent trolls the ability to “game” the patent system in Nigeria. For instance, nothing in the Act prevents patent trolls from patenting technologies (note not “inventions” which indicates that the patent applicant is in fact the inventor) such as for streaming music, injecting video adds into a live stream, auto-station tuning, conducting anonymous mobile payment, for controlling Unmanned Aerial Vehicles (that is if the patent troll is very ambitious and is willing to go up against the Nigerian Air Force), for preventing the excessive consumption of bandwidth and many others in order to extort huge licensing fees from legitimate users of these technologies in Nigeria. After all, the Act presumes that the first to file a patent is the rightful person to claim to enforce such patent.
Such a scenario occurring in Nigeria will ultimately retard innovation and, disrupt the ecosystem in all its ramifications and I am constrained to ask again if this is what the Act could have intended. One is left to wonder whether the Judgement of this court requires further scrutiny by a higher court or it is the Act that is in need of urgent reform (or both), but the fact remains that I am afraid for Nigeria’s tech ecosystem, very very afraid.
Friday, February 14, 2014
Monday, December 2, 2013
COMMENT BY CHUKWUYERE E. IZUOGU TO THE NIGERIAN COMMUNICATIONS COMMISSION ON THE OPEN ACCESS MODEL FOR NEXT GENERATION OPTIC FIBRE BROADBAND NETWORK
1. Introduction
1.1 Commenter welcomes the consultation launched by the Nigerian Communications Commission (the Commission) concerning the Open Access Model For Next Generation Optic Fibre Broadband Network (the Industry Consultation Paper). This matter is no doubt of great importance to Nigeria’s economic growth. Consistent with the mandate of Mr. President as set out in the Nigerian National Broadband Plan 2013 – 2018 “Internet and Broadband have been globally acknowledged as the foundation for transformation to a knowledge-based economy. It is also widely acknowledged that broadband infrastructure is an enabler for economic and social growth in the digital economy. Broadband has the potential of enabling entire new industries and introducing significant efficiencies into education delivery, health care provision, energy management, ensuring public safety, government/citizen interaction, and the overall organization and dissemination of knowledge.”
1.2 Comment is in regard to the need for “a robust telecommunication regulatory regime encouraging non-discriminatory and price competitive open access to support nationwide fibre deployment and provision of transmission and fibre services” as set out under Paragraph 3 of the Industry Consultation Paper. The main thrust of Commenter’s argument is the non-discrimination obligation that will be imposed on Infrastructure Companies (InfraCos) and other operators in the Broadband market.
2. Comment
2.1 The question of non-discrimination in granting network access is a key Broadband policy issue today. Commenter strongly believes that the central mandate for the emerging field of network infrastructure policy for National Governments should be the one eloquently articulated by the Commission in the Industry Consultation Paper: Non-discriminatory and open access.
2.2 Commenter believes that the general obligation of non-discrimination is a very important regulatory tool to ensure a level playing field amongst all InfraCos and operators in the market for Broadband services and that the Commission should impose it.
2.3 Commenter suggests that in setting out the specific regulatory guidelines for the management of InfraCos, the Commission should define what constitutes “discrimination” or “discrimination between access seekers” for the purpose of imposing the non-discrimination obligation on InfraCos and other Broadband market operators.
2.4 Commenter wishes the Commission to note that Section 97 Nigerian Communications Act 2003 (the Act) requires that all interconnection and/or access agreement between Communications licensees must comply with the principles of neutrality, transparency, non-discrimination, fair competition, universal coverage, access to information, equality of access and equal terms and conditions [emphasis on non-discrimination].Pursuant to Section 8 b of the Competition Practice Regulations 2007 (the Regulations), discriminating in the provision of interconnection or other communications services or facilities to competing Licensees, except under circumstances that are objectively justified is a conduct deemed to result in a substantial lessening of competition. Commenter notes that neither the Act nor the Regulations in their present form, have provided any clear guidance on what exactly constitutes “non-discrimination”.
2.5 In the case of wholesale Broadband access, which must be provided on a non-discriminatory basis whilst still, ensuring that the quality of service provided to Retail Service Providers (RSPs) is the same as that of the owner and operator of the Broadband network, Commenter is of the view that all competitors should have access to the infrastructure under fair and transparent conditions and any practice resulting in a competitive disadvantage to any operator should be prohibited by the regulatory guideline (to be issued by the Commission). To this end, Commenter sees the need for a clear and specific guideline on the non-discrimination obligation as necessary to ensure consistency in the deployment of Broadband infrastructure.
2.6 Discrimination in Commenter’s view may also relate to elements such as tariffs, restrictions or delays in making network connections, the provision of maintenance or repair services or information about network programming and interoperability, and routing. In respect of the technical configuration of access, Commenter believes that discrimination may arise in relation to; (i) the degree of technical sophistication of the access (i.e. restrictions on the type or level in the network hierarchy of exchange involved in the access or the technical capabilities of this exchange); (ii) the number and/or location of the connection points (i.e. the requirement to collect and distribute traffic for particular areas at the switch which directly serves the area rather than at a higher level of the network hierarchy may have a significant impact on the cost of the company seeking access); and/or equal access. As opined by several academic commentators, discrimination in the conditions of network access will restrict competition on the downstream market on which the access seeker is operating or planning to operate.
2.7 In defining what constitutes “discrimination”, Commenter notes that the Australian Competition and Consumer Commission (ACCC) has adopted a two part test to wit; (i) whether access seekers belonging to the same class have been given an equal opportunity to obtain the same term or condition, or receive the same treatment; and (ii) whether any differences in opportunity between access seekers belonging to the same class are consistent with statutory objectives, thus the ACCC will deem a difference in the terms, conditions or manner of treatment between access seekers as discriminatory unless it passes this test.
2.8 In the US, Commenter also notes that the Federal Communications Commission (FCC) has held in its “Implementation of the Local Competition Provisions in the Telecommunications Act of 1996 Proceeding” that the term “non discriminatory” in relation to the statutory obligation to interconnect (in Section 251 of the US Telecommunications Act 1996) applies to the terms and conditions an incumbent Local Exchange Carrier (LEC) imposes on third parties as well as on itself, the FCC further held: “that the equal in quality standard of section 251(c)(2)(C) requires an incumbent LEC to provide interconnection between its network and that of a requesting carrier at a level of quality that is at least indistinguishable from that which the incumbent provides itself, a subsidiary, an affiliate, or any other party”.
2.9 With respect to non-discriminatory access to unbundled network elements, FCC held that it means at least two things: “first, the quality of an unbundled network element that an incumbent LEC provides, as well as the access provided to that element, must be equal between all carriers requesting access to that element; second, where technically feasible, the access and unbundled network element provided by an incumbent LEC must be at least equal-in-quality to that which the incumbent LEC provides to itself”
2.10 In reaching this conclusion, the FCC rightly noted that an incumbent LEC could potentially act in a non-discriminatory manner in providing access or elements to all requesting carriers, while providing preferential access or elements to itself.
2.11 Also in the European Union (EU), Commenter notes that the Access Directive provides that: “Obligations of non-discrimination shall ensure, in particular, that the operator applies equivalent conditions in equivalent circumstances to other undertakings providing equivalent services, and provides services and information to others under the same conditions and of the same quality as it provides for its own services, or those of it subsidiaries or partners”.
2.10 Accordingly, the central theme in these policy/legal documents suggests that discrimination consists of not only treating like cases alike but also of treating different cases in the same way.
3 Conclusion
3.1 Commenter notes that discriminating in providing access to competing operators in certain circumstance can be a conduct deemed capable of a substantial lessening of competition under Section 8 (b) of the Regulations.
3.2 The European Commission in its public consultation on the application of non-discriminatory obligation notes that traditional investigation into discriminatory conduct of operators primarily focuses on price discrimination while non-price discriminatory conduct are often overlooked and can be equally, if not even more severe. OFCOM the UK communications regulator is of the view that it is unlikely that such non-price discriminatory conduct will be objectively justified by lack of capability to harm to competition. In this regard, Commenter suggests that in issuing guidelines on the non-discrimination obligation, the Commission should kindly note that non-discrimination would include both price discrimination and non-price discriminatory conduct.
3.3 Lastly, the Commission should also note that the obligation not to discriminate in providing access to network infrastructure seeks to ensure that undertakings with significant market power, in particular where they are vertically integrated, do not discriminate against their competitors in favour of their own downstream businesses, thus preventing, restricting or distorting competition.
Submitted by:
Chukwuyere E. Izuogu, LL.M (Hannover), A.CIArb, AMBCS
Streamsowers & Köhn
Flat CT 3 Stallion Estate Lobito Crescent
Wuse II
Abuja-FCT
chukwuyere@sskohn.com
chukwuyere.izuogu@yahoo.com
Thursday, February 14, 2013
A REVIEW OF THE TELEPHONE CONSUMER PROTECTION BILL 2013 HB. 427
In this article, I review the Telephone Consumer Protection Bill 2013 HB. 427 (the “Bill” or “TCPB”) and make some recommendations for the benefit of the House Committee on Communications (the “Committee”) currently tasked with producing an advisory report on the Bill.
OVERVIEW OF THE BILL
The Bill was introduced into the House of Representatives by Hon. Abiodun Abudu-Balogun (Ijebu North, Ijebu East and Ogun Waterside Federal Constituency) on 16th January 2013 when it was read for the first time. The Bill went through second reading on 12th February 2013 and was subsequently referred to the Committee for further legislative work. The long title of the Bill is “A Bill For An Act To Protect Telephone Consumers From The Activities Of Telemarketers And To Provide For Adequate Sanctions Against The Business Of Telemarketing in Nigeria And For Other Purposes Connected Therewith.” The Bill contains thirteen (13) sections and an explanatory note.
In its explanatory note, the Bill seeks to enact a law to protect telephone consumers from unsolicited advertisement by telemarketers in Nigeria. Accordingly, the Bill imposes restrictions on unsolicited advertisements and on the use of artificial or prerecorded voice, and online telemarketing. Specifically, the Bill prohibits; the posting of any unsolicited advertisement to a called party; and artificial or prerecorded voice calls to residential telephone lines, unless the call is made with the prior express consent of the called party. The Bill also prohibits calls made without prior express consent to a residential telephone line using an artificial or prerecorded voice to deliver a text message.
Under the Bill, unsolicited advertisement by telephone is prohibited between 9.00 pm and 8.00 am. Telemarketers are however exempted where the calls do not include a solicitation to purchase goods or services or where the consumer has provided prior express consent. Online telemarketing is also prohibited under the Bill except with the prior express consent of or application of a subscriber. Telemarketing organisations are subject under the Bill to certain identification requirements. Consumers who register their residential telephone line(s) in a “DO-NOT-call Register list”, after the expiration of thirty (30) days after the last call or solicitation may not be solicited without their prior express consent.
In accordance with the provisions of the Bill, the Nigerian Communications Commission (the “Commission” or “NCC”) is the sole administrator of the provisions of the Bill. The Commission is also required by the Bill to issue regulations to service providers on the operations of telemarketing business in Nigeria. The Bill provides consumers with the right to sue for damages for a violation of the provisions of the Bill at the Federal High Court or a High Court of a State. Finally any telephone service provider that calls or sends a text message in violation of the Bill is guilty of an offence and liable to a fine of N5,000,000.00 (Five Million Naira).
KEY ISSUES AND ANALYSIS
General Prohibitions
The Bill prohibits the posting of any unsolicited advertisement to any called party (Section 1). “Unsolicited Advertisement” is defined in Section 12 of the Bill to mean “any material advertising the commercial availability or quality of any property, goods or services which is transmitted to any person without that persons comment or permission”. The Bill also prohibits calls made without prior express consent to a residential telephone line using an artificial or prerecorded voice to deliver a text message (Section 2). The Bill, however exempts calls which are non-solicitation calls unless the consumer has provided prior express consent (Section 3).
Telemarketing to Mobile Telephone Lines
The Bill prohibits the posting of unsolicited advertisement to any called party (Section 1). Consistent with the literary interpretation of statutes, “any called party” will be interpreted to include owners of mobile telephone lines for the purpose of prohibition under Section 1.
In the same vein, the Bill specifically prohibits telephone calls using an artificial or prerecorded voice message to any telephone number assigned to residence, except with the prior express consent of the called party (Section 2) and also states that the use of artificial or prerecorded voice or text messages to residential telephone subscribers must comply with time of day restrictions (Supra). However the Bill does not indicate whether mobile telephone subscribers or a subset thereof are “residential telephone subscribers” for purposes of these restrictions.
Calling Hours
Under the Bill, no telephone solicitation using an artificial or prerecorded voice to deliver messages or text messages calls may be made to any residential telephone line prior to 8 a.m. or after 9 p.m (Section 2). Although the term “telephone solicitation” is not defined in the Bill, there is no record from the legislative history that the Bill intended for calls to be exempted from telephone solicitation restrictions unless the residential subscriber has (a) clearly stated that the telemarketer can call, and (b) clearly expressed an understanding that the telemarketer’s subsequent call will be made for the purpose solicitation. Thus, calls made before 8 a.m or after 9 p.m will not violate Section 3 if they are made with the prior express of the resident. If a resident withdraws such consent, any further solicitation to that resident will be in violation of the provision of the Bill barring calls before 8 a.m or after 9 p.m.
Prior Express Consent
The Bill allows all forms of telemarketing contact only if the contacted party consents to such contact (Sections 2, 3 and4). Because, the term “prior express consent” is not defined in the Bill (or from the legislative history of the Bill), it remains unclear whether telemarketers and/or telephone service providers would incur liability in circumstances where they place calls to a residential telephone line belonging to a consumer who provided the number as a number at which s/he could be reached.
Exemption
Calls that do not include a solicitation to purchase goods are exempted from general prohibitions, unless the consumer has provided prior express consent. (Section 3). The Bill is unclear whether Section 3 prohibits telephone calls from a person with whom the resident already has an established business relationship (or whether such established business relationship constitutes “prior express consent”), as such calls do not adversely affect the privacy rights of the resident. A typical situation where this applies would be in instances where debt collection calls are originated by automatic dialling machines. In this regard, the Bill does not clarify whether the continued existence of an unpaid debt will create an existing business relationship exemption for debt collection calls under Section 3.
Administration of the Bill
The Nigeria Communications Commission shall administer the provisions of the Bill. (Section 7). The Commission is also authorised to issue regulations to service providers on the operations of telemarketing business in Nigeria (Section 8).
Private Right of Action
The Bill provides consumers with the right to sue for damages in a Federal High Court or the High Court of a State for any violation of the Bill (Sections 9 and 10), however it is unclear whether consumers can file class actions based on the private right of action created by the Bill.
Fine and Penalty
Section 11 provides that “Any telephone service provider that call or sent text message to any of it is subscriber shall be guilty of an offence, and liable to a fine of N5,000,000.00 (Five Million Naira) provided that the called parts proof unsolicited call or text messages for the provision of goods and services”. This provision is unclear in its meaning and needs to be redrafted to make clear its meaning.
RECOMMENDATIONS FOR THE COMMITTEE
Since the proposed law will have serious ramifications for the individual privacy rights of consumers and the freedom of expression of business entities, the Committee must carefully review the law before its passage. The Committee in providing an advisory report on the Bill must ensure that individual privacy rights of consumers and the freedom of expression of business entities are balanced in such a way that protects the privacy of individuals and permits legitimate telemarketing practices in Nigeria.
Following are some of the recommendations for consideration by the Committee;
I. The Bill should be redrafted to attain the greatest possible accuracy and clearness of meaning in some of its provisions;
II. The Bill should be revised based on the study of the experiences of other countries with similar legislations;
III. The Bill should be revised to provide clarity on whether telemarketing to a wireless mobile telephone line is prohibited under Section 2; and
IV. The Bill should be revised to clarify the circumstances by which prior express consent would be deemed to have been given.
Tuesday, August 14, 2012
CASE REVIEW: THE COMPETITION COMMISSION V. TELKOM SA LTD
On Tuesday 7th August 2012, the Competition Tribunal of South Africa (“the Tribunal”) imposed as fine the equivalent of N8 795 930 000.00 (eight billion, seven hundred and ninety five million, nine hundred and thirty thousand naira) in the amount of R449 000 000.00 (four hundred and forty nine million rand) on Telkom SA Ltd. (“Telkom”) for abusing its dominant position in the Public Switched Telecommunications Services (“PSTS”).
This matter was commenced at the Tribunal by the Competition Commission of South Africa (“the Commission”) pursuant to a complaint which had alleged that in the period of 1999 to December 2004 (“the relevant period”), Telkom had engaged in particular anti-competitive conducts which had resulted in a substantial lessening and prevention of competition in the Value Added Service Network (“VANS”) market. The infringing conduct was argued to be in violation of sections 8(b), 8(c) and 8(d)(i) of the Competition Act of the Republic of South Africa (“the Act”).
In this article, I summarise the main findings of the Tribunal and conclude by attempting to relate it with the present situation of the Communications sector in Nigeria.
Introduction and factual background
Telkom had enjoyed a monopoly over PSTS and facilities services until 2005 when the South Africa Telecommunications Act of 1996 was amended to introduce VANS as a new license category. While Telkom enjoyed exclusivity over PSTS and the provision of infrastructure, Telkom’s downstream division: Telvans faced stiff competition from several VANS operators.
The Commission had alleged that during the relevant period Telkom leveraged its upstream monopoly over PSTS services and the facilities market (on which VANS was dependent) to the benefit of only Telvans, its own downstream subsidiary in the VANS market.
Telkom’s conduct according to the Commission had resulted in a substantial lessening of competition by causing harm to both competitors and consumer’s alike and impeded competition and innovation in the dynamic VANS market.
Relevant markets
The Commission identified the following relevant national markets; (i) A market for local access and transmission fixed leased line infrastructure; (ii) A market for managed data network services including the provision of Wide Area Network (“WAN”) and Virtual Private Network (“VPN”); (iii) A market for whole sale internet connectivity; and (iv) A market for retail internet access for corporate customers.
While identified markets (iii) and (iv) specifically related to internet services which were regarded as value added services, the Tribunal proceeded to assess Telkom’s conduct in market (i) in relation to VANS providers across markets (ii), (iii) and (iv).
The anti-competitive conduct
The Commission alleged that Telkom abused its dominant position by;
I. Refusing to supply essential facilities to certain VANS providers unless they acceded to certain contractual conditions. To achieve this purpose Telkom redefined section 40(2) of the Telecommunications Act.
Failure to agree to these conditions would be met by freezing (refusal to provide additional links to meet the expansion needs) the network of the relevant VANS provider, which Telkom did in fact freeze networks of various VANS providers on numerous occasions. This conduct was in breach of sections 8(b) and 8(c) of the Act.
II. Refusing to lease the access facilities to VANS providers directly and insisting that VANS providers act as agents to their customers in leasing access facilities from it. To achieve this aim, VANS provider were required to enter agency agreements with their own customers in order to obtain and manage facilities from Telkom.
This administrative burden was not required from the customers of Televans. This conduct was alleged to be in contravention of sections 8(c) and 8(d)(i) of the Act.
III. Refusing to supply Satellite Data Network (“SDN”) with a high capacity link in contravention of sections 8(b) and 8(c).
IV. The Commission also alleged that Telkom’s conduct in the pricing of access facilities or circuits, contravened sections 8(a) and 9(1) of the Act.
The Decision
After dispensing with challenges brought on procedural grounds, the Tribunal proceeded to resolve the issues by first addressing the major defence canvassed by Telkom in order to justify its conducts.
Telkom in its argument had contended that VANS providers were restricted by the Telecommunications Act from sub-letting or ceding control over the facilities obtained from Telkom and its insistence on the agency agreements were simply an attempt to comply with this restriction. Furthermore Telkom had argued (by redefining section 40(2) of the Telecommunications Act) that VANs providers who were also provider of VPN services were not authorised by their licenses to do as VPN constituted PSTS which only Telkom was authorised to provide.
In relation to conduct III, Telkom argued that it enjoyed exclusivity over international gateways and that AT & T’s request for a larger capacity link would in essence bypass Telkom’s network and undermine its exclusivity.
The Tribunal in addressing the first issue referred to the case of Telkom v Internet Solutions where the Independent Communications Authority of South Africa (“ICASA”) the regulator for the South African communications sector held that Internet Solutions was providing a legitimate VANS. The Tribunal also referred to Telkom SA Ltd. V AT & T Global where ICASA had held that a VPN is not a PTN but a managed data network service (“MDNS”) which falls into the definition of VANS in section 40(2) of the Telecommunications Act. ICASA also found that AT & T was not providing PSTS nor was it subletting facilities leased from Telkom.
The Tribunal concluded that since these rulings are yet to be overturned, it stands.
Non-pricing conducts
Section 8(b)
This section provides that it is prohibited for a dominant firm to refuse to give a competitor access to an essential facility when it is not economically feasibible to do so. The main thrust of Telkom’s defence on this claim was that VANS were acting illegally by carrying on a service not authorised by law. (Recall earlier rulings by ICASA).
The Tribunal held further that even for the sake of argument that the illegality question was yet to be decided, Telkom itself had relied on it inconsistently and selectively – by electing to freeze rather than disconnect the network of offending VANS, freezing some and not others- thereby demonstrating that its refusal to supply was not a matter of law but rather a matter of commercial strategy.
The Tribunal further held that the requirement by Telkom that its competitors accede to conditions of supply that were not contained in legislation or regulation and which adversely impacted on their businesses did amount to a constructive refusal to supply.
The Tribunal finally concluded that Telkom had in fact breached section 8(b) of the Act.
Section 8(d)(i)
This section provides that it is prohibited for a dominant firm to require or induce a supplier or customer to not deal with a competitor unless that firm can show technological, efficiency or other pro-competitive gains which outweigh the anticompetitive effect. The conduct complained of here was that Telkom insisted that leased lines be registered in the names of the customers of the VANS providers and could only be obtained from Telkom through an agency agreement.
Telkom failed to raise any technological, efficiency or pro-competitive gains to satisfy the exemption requirement under this section. The main plank of its defence was that VANS providers were acting illegally and infringing on Telkom’s exclusivity. According to the Tribunal this issue had already been decided against Telkom (Recall earlier rulings by ICASA) and even Telkom’s own regulatory department noted that the alleged illegality claim could be challenged on the basis of its legality.
On this claim, the Tribunal also held Telkom to have infringed section 8(d)(i) of the Act.
Pricing conducts
Sections 8(a) Excessive pricing
Section 8(a) provides that it is prohibited for a dominant firm to charge an excessive price to the detriment of consumers. To sustain a section 8(a) infringement, the Tribunal relied on Mittal Steel v Harmony which held that “the economic value of the good or service” must be established.
However the Tribunal was unable to make a finding of this conduct as the Commission had failed to establish the economic value of the good or services in its pleadings.
Section 9(1) Price discrimination
This section provides that:
An action by a dominant firm, as the seller of goods or services is prohibited price discrimination, if-
a) It is likely to have the effect of substantially preventing or lessening competition;
b) It relates to the sale, in equivalent transactions, of goods or services of like grade and quality to different purchasers; and
c) it involves discriminating between those purchasers in terms of –
i. the price charged for the goods or services;
ii. any discount, allowance, rebate or credit given or allowed in relation to the supply of goods and services;
iii. the provision of services in respect of the goods or services; or
iv. payment for services provided in respect of goods or services.
To this, Telkom contended that it was not offering “equivalent service” in relation to its own valued added services and that offered by other VANS providers and that its sales of access line to its own customers was bundled with other services and therefore could not be compared on the basis of equivalence.
The Tribunal proceeded to compare the equivalence of bundled services to which Telkom failed to provide cost information which was necessary to perform a cost price analysis. The Tribunal finally concluded that Telkom’s bundling claim was not a credible one and proceeded to establish the requirement of “equivalent transactions” (for the purpose of price discrimination) by making a finding on the type of harm caused.
However due to the inability of the Commission’s pleading to make a clear showing of whether the alleged price discriminatory conduct caused harm to the consumers or the VANS operators, the Tribunal was unable to find a contravention of section 9(1).
In all, the Tribunal came to a conclusion that Telkom had contravened sections 8(b) and 8(d)(i) of the Competition Act, for which it was fined R449 000 000.00 (four hundred and forty nine million rand).
The situation in Nigeria’s communications sector
Abuse of a dominant position in Nigeria’s communications sector is primarily governed by section 92(4) of the Nigerian Communications Act (“NCA”) and Part V of the Competition Practice Regulations 2007 (“CPR”). To prove an abuse of a dominant position by a communications licensee, it will be necessary to first determine whether the licensee in question occupies a dominant position in the relevant market.
In March 2010, the Nigerian Communications Commission (“NCC”) exercised its power under section 92 (1) NCA for the purpose of determining whether a licensee holds a dominant position in 2 markets namely; the Mobile Telephone Services market; and the International Internet Connectivity (“ICC”) market (including related international leased data line connectivity markets).
NCC concluded its investigation by stating that no licensee held a position of market dominance in the Mobile Telephone Services market (collectively or individually). With respect to the market for ICC, NCC concluded that NITEL, the pre-liberalization dominant operator no longer held a dominant position, however NCC also noted that work in dominance investigation would significantly improve if the industry had access to more accurate, detailed and timely data on the workings of the relevant markets.
It is however noted that since the commencement of the NCA, there is yet to be decision by either NCC or a court of competent jurisdiction on an allegation of anti-competitive conduct engaged by a dominant licensee. The absence of such decision does not necessarily imply that competition in the communications sector has achieved maturity, neither does it imply the absence of an anti-competitive conduct.
As NCC rightly responded to complaints raised by stakeholders during its dominance investigations, where market forces fail to quickly resolve anti-competitive conduct(s) of a dominant licensee, timely, direct and targeted remedies are available under the telecommunications framework which can in most cases be implemented without a finding of dominance.
This matter was commenced at the Tribunal by the Competition Commission of South Africa (“the Commission”) pursuant to a complaint which had alleged that in the period of 1999 to December 2004 (“the relevant period”), Telkom had engaged in particular anti-competitive conducts which had resulted in a substantial lessening and prevention of competition in the Value Added Service Network (“VANS”) market. The infringing conduct was argued to be in violation of sections 8(b), 8(c) and 8(d)(i) of the Competition Act of the Republic of South Africa (“the Act”).
In this article, I summarise the main findings of the Tribunal and conclude by attempting to relate it with the present situation of the Communications sector in Nigeria.
Introduction and factual background
Telkom had enjoyed a monopoly over PSTS and facilities services until 2005 when the South Africa Telecommunications Act of 1996 was amended to introduce VANS as a new license category. While Telkom enjoyed exclusivity over PSTS and the provision of infrastructure, Telkom’s downstream division: Telvans faced stiff competition from several VANS operators.
The Commission had alleged that during the relevant period Telkom leveraged its upstream monopoly over PSTS services and the facilities market (on which VANS was dependent) to the benefit of only Telvans, its own downstream subsidiary in the VANS market.
Telkom’s conduct according to the Commission had resulted in a substantial lessening of competition by causing harm to both competitors and consumer’s alike and impeded competition and innovation in the dynamic VANS market.
Relevant markets
The Commission identified the following relevant national markets; (i) A market for local access and transmission fixed leased line infrastructure; (ii) A market for managed data network services including the provision of Wide Area Network (“WAN”) and Virtual Private Network (“VPN”); (iii) A market for whole sale internet connectivity; and (iv) A market for retail internet access for corporate customers.
While identified markets (iii) and (iv) specifically related to internet services which were regarded as value added services, the Tribunal proceeded to assess Telkom’s conduct in market (i) in relation to VANS providers across markets (ii), (iii) and (iv).
The anti-competitive conduct
The Commission alleged that Telkom abused its dominant position by;
I. Refusing to supply essential facilities to certain VANS providers unless they acceded to certain contractual conditions. To achieve this purpose Telkom redefined section 40(2) of the Telecommunications Act.
Failure to agree to these conditions would be met by freezing (refusal to provide additional links to meet the expansion needs) the network of the relevant VANS provider, which Telkom did in fact freeze networks of various VANS providers on numerous occasions. This conduct was in breach of sections 8(b) and 8(c) of the Act.
II. Refusing to lease the access facilities to VANS providers directly and insisting that VANS providers act as agents to their customers in leasing access facilities from it. To achieve this aim, VANS provider were required to enter agency agreements with their own customers in order to obtain and manage facilities from Telkom.
This administrative burden was not required from the customers of Televans. This conduct was alleged to be in contravention of sections 8(c) and 8(d)(i) of the Act.
III. Refusing to supply Satellite Data Network (“SDN”) with a high capacity link in contravention of sections 8(b) and 8(c).
IV. The Commission also alleged that Telkom’s conduct in the pricing of access facilities or circuits, contravened sections 8(a) and 9(1) of the Act.
The Decision
After dispensing with challenges brought on procedural grounds, the Tribunal proceeded to resolve the issues by first addressing the major defence canvassed by Telkom in order to justify its conducts.
Telkom in its argument had contended that VANS providers were restricted by the Telecommunications Act from sub-letting or ceding control over the facilities obtained from Telkom and its insistence on the agency agreements were simply an attempt to comply with this restriction. Furthermore Telkom had argued (by redefining section 40(2) of the Telecommunications Act) that VANs providers who were also provider of VPN services were not authorised by their licenses to do as VPN constituted PSTS which only Telkom was authorised to provide.
In relation to conduct III, Telkom argued that it enjoyed exclusivity over international gateways and that AT & T’s request for a larger capacity link would in essence bypass Telkom’s network and undermine its exclusivity.
The Tribunal in addressing the first issue referred to the case of Telkom v Internet Solutions where the Independent Communications Authority of South Africa (“ICASA”) the regulator for the South African communications sector held that Internet Solutions was providing a legitimate VANS. The Tribunal also referred to Telkom SA Ltd. V AT & T Global where ICASA had held that a VPN is not a PTN but a managed data network service (“MDNS”) which falls into the definition of VANS in section 40(2) of the Telecommunications Act. ICASA also found that AT & T was not providing PSTS nor was it subletting facilities leased from Telkom.
The Tribunal concluded that since these rulings are yet to be overturned, it stands.
Non-pricing conducts
Section 8(b)
This section provides that it is prohibited for a dominant firm to refuse to give a competitor access to an essential facility when it is not economically feasibible to do so. The main thrust of Telkom’s defence on this claim was that VANS were acting illegally by carrying on a service not authorised by law. (Recall earlier rulings by ICASA).
The Tribunal held further that even for the sake of argument that the illegality question was yet to be decided, Telkom itself had relied on it inconsistently and selectively – by electing to freeze rather than disconnect the network of offending VANS, freezing some and not others- thereby demonstrating that its refusal to supply was not a matter of law but rather a matter of commercial strategy.
The Tribunal further held that the requirement by Telkom that its competitors accede to conditions of supply that were not contained in legislation or regulation and which adversely impacted on their businesses did amount to a constructive refusal to supply.
The Tribunal finally concluded that Telkom had in fact breached section 8(b) of the Act.
Section 8(d)(i)
This section provides that it is prohibited for a dominant firm to require or induce a supplier or customer to not deal with a competitor unless that firm can show technological, efficiency or other pro-competitive gains which outweigh the anticompetitive effect. The conduct complained of here was that Telkom insisted that leased lines be registered in the names of the customers of the VANS providers and could only be obtained from Telkom through an agency agreement.
Telkom failed to raise any technological, efficiency or pro-competitive gains to satisfy the exemption requirement under this section. The main plank of its defence was that VANS providers were acting illegally and infringing on Telkom’s exclusivity. According to the Tribunal this issue had already been decided against Telkom (Recall earlier rulings by ICASA) and even Telkom’s own regulatory department noted that the alleged illegality claim could be challenged on the basis of its legality.
On this claim, the Tribunal also held Telkom to have infringed section 8(d)(i) of the Act.
Pricing conducts
Sections 8(a) Excessive pricing
Section 8(a) provides that it is prohibited for a dominant firm to charge an excessive price to the detriment of consumers. To sustain a section 8(a) infringement, the Tribunal relied on Mittal Steel v Harmony which held that “the economic value of the good or service” must be established.
However the Tribunal was unable to make a finding of this conduct as the Commission had failed to establish the economic value of the good or services in its pleadings.
Section 9(1) Price discrimination
This section provides that:
An action by a dominant firm, as the seller of goods or services is prohibited price discrimination, if-
a) It is likely to have the effect of substantially preventing or lessening competition;
b) It relates to the sale, in equivalent transactions, of goods or services of like grade and quality to different purchasers; and
c) it involves discriminating between those purchasers in terms of –
i. the price charged for the goods or services;
ii. any discount, allowance, rebate or credit given or allowed in relation to the supply of goods and services;
iii. the provision of services in respect of the goods or services; or
iv. payment for services provided in respect of goods or services.
To this, Telkom contended that it was not offering “equivalent service” in relation to its own valued added services and that offered by other VANS providers and that its sales of access line to its own customers was bundled with other services and therefore could not be compared on the basis of equivalence.
The Tribunal proceeded to compare the equivalence of bundled services to which Telkom failed to provide cost information which was necessary to perform a cost price analysis. The Tribunal finally concluded that Telkom’s bundling claim was not a credible one and proceeded to establish the requirement of “equivalent transactions” (for the purpose of price discrimination) by making a finding on the type of harm caused.
However due to the inability of the Commission’s pleading to make a clear showing of whether the alleged price discriminatory conduct caused harm to the consumers or the VANS operators, the Tribunal was unable to find a contravention of section 9(1).
In all, the Tribunal came to a conclusion that Telkom had contravened sections 8(b) and 8(d)(i) of the Competition Act, for which it was fined R449 000 000.00 (four hundred and forty nine million rand).
The situation in Nigeria’s communications sector
Abuse of a dominant position in Nigeria’s communications sector is primarily governed by section 92(4) of the Nigerian Communications Act (“NCA”) and Part V of the Competition Practice Regulations 2007 (“CPR”). To prove an abuse of a dominant position by a communications licensee, it will be necessary to first determine whether the licensee in question occupies a dominant position in the relevant market.
In March 2010, the Nigerian Communications Commission (“NCC”) exercised its power under section 92 (1) NCA for the purpose of determining whether a licensee holds a dominant position in 2 markets namely; the Mobile Telephone Services market; and the International Internet Connectivity (“ICC”) market (including related international leased data line connectivity markets).
NCC concluded its investigation by stating that no licensee held a position of market dominance in the Mobile Telephone Services market (collectively or individually). With respect to the market for ICC, NCC concluded that NITEL, the pre-liberalization dominant operator no longer held a dominant position, however NCC also noted that work in dominance investigation would significantly improve if the industry had access to more accurate, detailed and timely data on the workings of the relevant markets.
It is however noted that since the commencement of the NCA, there is yet to be decision by either NCC or a court of competent jurisdiction on an allegation of anti-competitive conduct engaged by a dominant licensee. The absence of such decision does not necessarily imply that competition in the communications sector has achieved maturity, neither does it imply the absence of an anti-competitive conduct.
As NCC rightly responded to complaints raised by stakeholders during its dominance investigations, where market forces fail to quickly resolve anti-competitive conduct(s) of a dominant licensee, timely, direct and targeted remedies are available under the telecommunications framework which can in most cases be implemented without a finding of dominance.
Tuesday, June 19, 2012
IN THE MATTER OF A BILL FOR AN ACT TO AMEND THE COPYRIGHT ACT CAP C28 LAWS OF THE FEDERATION OF NIGERIA 2004 TO PROVIDE FOR BETTER PROTECTION OF COPYRIGHT IN THE DIGITAL ENVIRONMENT
1. Executive Summary
1.1 According to Harvard Law Professor, Lawrence Lessig “The fear is that cyberspace will become a place where copyright can be defeated.” Copyright and related rights embrace a wide spectrum of human endeavour and activity. Most of the creative content that underlies that functionality of the internet is subject to Copyright. Under the Copyright Act C28 Laws of the Federation of Nigeria 2004, Copyright protection extends to all literary works, musical works, artistic works, cinematograph films, sound recordings and broadcast. This protection includes diverse forms of human creativity, such as writings, both fiction and non-fiction, including scientific and technical texts and computer programs; musical recordings; audiovisual works; works of fine art, including drawings and paintings; and photographs.
1.2 Digital technology provides an effective means for the transmission and (re)use of these works subject to Copyright protection in a packet-switched network. These digital technologies also provide an avenue of the Copyright infringement of these works. Given the capabilities and characteristics of digital network technologies and the rate at which the internet is fast becoming an ubiquitous phenomenon, it is essential that statutory provisions are enacted to accommodate recent changes in these technological development in order to ensure that digital technology does not undermine the basic principle underlying the protection of Copyright and related rights.
1.3 The internet on its own has become one of the biggest threat to the creation of Copyright content because of its vast potential to make unlimited number of copies, almost instantaneously, without degrading the quality and transmitting these works to locations around the world in a matter of minutes. This disruption of technology has altered traditional markets selling everything virtually Copyrightable. In the music industry, for example, the emergence of “killer apps” such as peer-to-peer technologies (for file sharing) has unfortunately enabled the exploitation of music recordings on a monumental scale absent the required authorization of the rights holders. This exploitation has further been exacerbated by the simultaneous broad commercialization of CD burners and portable MP3 players, adapted to the most commonly used file format.
1.4 Unfortunately, these challenges are currently facing the Copyright industry at a time when the share of Copyright in the Nigerian economy is reaching unprecedented levels. In 2010, UNESCO declared that Nollywood, Nigeria’s homegrown movie industry has the largest production of films in the world, with the UNDP/UNCTAD 2010 Report valuing the industry at N522 billion (USD2.75bn). This significance has further reinforced the necessity for Copyright industries to seek out technical and legislative solutions to protect Copyright from digital piracy.
1.5 It is therefore critical to amend existing frameworks to respond to the challenges posed by new digital technologies in the appropriate manner, and to do so quickly and responsibly, because these technologies and markets is an evolution in continuous progress. This will ensure the continued furtherance of the fundamental guiding principles of Copyright and related rights, which remain constant whatever may be the state of technological development: giving incentives to creators to continue to create and disseminate new creative works; recognizing the importance of their contributions, by giving them reasonable control over the exploitation of these works and allowing them to profit from them; providing the appropriate balance for the public interest, particularly education, research and access to information; and thereby ultimately benefiting the Nigerian economy as a whole, by promoting the development of culture, science, and innovation.
1.6 Recently, the Nigerian Copyright Commission (“the Commission”) made available to the public, the proposed draft bill for an Act to amend the Copyright Act CAP C28 Laws of the Federation of Nigeria 2004 to provide for better protection of Copyright in the digital environment, the Commission also invited comments from the public in respect of the proposal.
1.7 The respondent is currently the Secretary of the ICT Committee of the Section of Business Law (SBL) of the Nigerian Bar Association and a Solicitor in the Information Technology and Telecommunications Practice of Streamsowers & Köhn. In his current capacity he regularly advises an international Mobile Network Operator and other communications’ market operator on matters of regulatory compliance. The respondent has also developed substantial expertise in all areas of information technology & telecommunications law such as intellectual property on the internet, privacy & data protection, cyber crime & cyber security, competition & consumer protection in telecommunications market and domain name dispute resolution amongst many others.
1.8 Respondent comments frequently on IT/Telecoms regulatory matters in the “matters e-Rising” and business law column of the Nation Newspaper Thursday’s edition and Business day Thursdays editions respectively. Respondent is a member of the Nigerian Bar Association, Chartered Institute of Arbitrators (CIArb) UK and BCS (The Chartered Institute for IT) and an alumnus of the WIPO Worldwide Academy in Geneva.
1.9 Respondent’s memorandum is in respect of only; Section 18A-Takedown of Infringing content and Section 18B- Graduated procedure for suspension of accounts of repeated infringers of the proposed Bill
1.10 The summary of Respondent’s conclusions are that; the Bill should provide safe harbor provisions, expand the definition of Internet service providers to include Online service providers and that graduated responses may likely be challenged on the basis of its legitimacy and should as a matter of serious concern provide stricter controls for due process.
2. Section 18A- Takedown of Infringing content
2.1 This section provides;
1) An internet service provider shall, take down or disable access to infringing content or links to such content, hosted on its systems or networks, promptly upon receiving notice of infringement from an owner of copyright or otherwise becoming aware of the infringing activity or of facts or circumstances from which infringing activity is apparent; and
a) Notify the owner of copyright promptly that the content or link has been removed or access to it has been disabled;
b) In the case of removal of content without prior notice to the owner of copyright, the Internet service provider shall attempt, with reasonable effort, to locate the relevant owner of copyright and notify him of the removal of the content or link
2) The Internet service provider may resume access to or restore removed content or a link, if he receives a written counter notice from the subscriber which he has forwarded to the owner of copyright immediately upon receipt; and did not receive, within 10 days, a notice from the owner of copyright, indicating that no authorization has been granted for the subscriber to make the content available.
3) The Internet service provider shall not be liable to any person for an claim based on the service provider’s good faith disabling of access to, or removal of, link or content claimed in a qualifying notice to be infringing or based on facts or circumstances from which infringing activity is apparent, regardless of whether the content or activity is ultimately determined to be infringing.
4) A notice required under this section to be given shall contain such information and particulars as the Commission may prescribe by regulations.
5) For the purpose of this section, the term “Internet service provider” shall mean an entity offering the transmission, routing, or providing of connections for digital online communications, between or among points specified by a user, of a material of the user’s choosing, without modification to the content of the material as sent or received.
2.2 This section seeks to enact the general duty of an internet service provider (ISP) to take down a content alleged to be infringing a Copyright. The notice and takedown procedures regulate an ISP’s obligation to react appropriately when informed about irregularities on websites made available through them. Typically under such procedures, a complaint by notice informs an ISP that it is granting access to an illegal content (notice) and requests that the content in question be removed (takedown). These procedures establish a “red-flag” test whether ISPs have knowledge of subscribers’ illegal activity and thus are subject to secondary liability for Copyright infringement. The standard to which they are held is “becoming aware of the infringing activity or of facts or circumstances from which infringing activity is apparent.” Once the ISP receives proper notification of the infringement, the “red-flag” test is presumed to have been satisfied.
2.3 Also by this provision, an ISP will not be held liable to its subscribers because of the removal or access-blocking when it is done in good faith because it has received a proper notice or knows on its own that the material is infringing. Note that the liability provided by this section covers only the taking down or disabling access to infringing content or links to such content. It does not sanction the large scale removal of a subscriber’s material, particularly material that does not infringe, unless that is necessary to disable access to, or remove, the allegedly-infringing material. For an ISP to benefit from that provision, the ISP must take reasonable steps (not extraordinary effort) to notify the subscriber of any takedown, and if the subscriber contests the takedown, must restore the material within 10 days if notice that the subscriber was authorized to make the content available is received from the copyright holder.
2.4 Nevertheless, both copyright holders and ISPs may have incentives to use the system; for copyright holders, notice and takedown provides a faster and cheaper solution to enforcing their rights outside the court room arena, while from the ISPs’ perspective, a prompt response to the notification reduces liability for infringement. Notice and takedown procedure is not mandatory and litigating claims of Copyright infringement in the court will always be the best option.
2.5 The need for safe harbor provisions
As earlier stated, the notice and takedown procedure provides a “red-flag” test whether ISPs have knowledge of users’ illegal activity, hence it is possible for claims of vicarious or secondary liability for Copyright infringement to be instituted against ISP who have failed or refused to take down a content alleged to be infringing. The possibility of such an occurrence makes it necessary for the Bill to provide safe harbor provisions. Safe habor provisions usually exist in copyright statutes for ISPs to limit their exposure to secondary liability for copyright infringement when they are involved in the following categories of conduct;
2.5.1 Mere conduit:
A provision limiting the liability of ISPs for Copyright infringement when they act as mere conduits will be engaged only where the ISP does not initiate the transmission, does not select the recipients of the information and does not modify the content of the information.
2.5.2 Caching:
This provision is engaged in the case of temporary storage of information performed by ISPs for the purpose of efficiently transmitting the information to other recipients of the services. In such cases liability will not exist for ISPs on the condition that they do not modify the content, the ISP complies with the condition of access to the information, the ISP complies with the rules regarding the updating the information, specified in a manner acceptable to industry standards and acts expeditiously to remove content alleged to be infringing. This provision may also provide for the possibility of a court or administrative authority to require ISPs to terminate or act proactively to prevent infringements.
2.5.3 Hosting:
An ISP that stores information at the request of its users will escape liability provided that, the provider does not have actual knowledge of illegal activity and the recipient of the service is not acting under the control of the ISP. Once an ISP becomes aware of any facts or circumstance indicating an illegal activity, the ISP must act expeditiously to remove or disable access to the information. This provision may also provide the possibility of a court or administrative authority to require ISPs to terminate or prevent an infringement by establishing procedures for the removal of content.
2.5.4 Case laws on this type of copyright liability usually suggest some form of notice based standard. As earlier stated, the standard here is “becoming aware of the infringing activity or of facts or circumstances from which infringing activity is apparent.”
2.6 The Bill defines “Internet service provider” too narrowly
Much of the legal literature on this subject have tended to draw a distinction between ISPs providing access to the internet (which the Bill contemplates) and Online service provider (OSPs) which also include ISPs, email service providers, social network service providers (facebook, You Tube, etc), various online forums and bulletin boards and even “good old” Google and Wikipedia. The implication of this definition is that only traditional ISPs granting access to the internet would come within the meaning of “Internet service provider” under the Bill while other OSPs capable of making Copyright content available online, would escape responsibility under the Bill.
3. Section 18B- Graduated procedure for suspension of accounts of repeated infringers.
3.1 This section provides:
1) An Internet service provider shall adopt and reasonably implement a policy that provides for termination, in appropriate circumstances, of the account with that Internet service provider of a repeat infringer.
2) In subsection (1), repeat infringer means a person who repeatedly infringes the copyright in a work by using 1 or more of the Internet services of the Internet service provider to do a restricted act without the consent of the owner of copyright.
3) A policy of termination referred to in subsection 1 shall require the Internet service provider, upon receiving a notification from an owner of copyright or his authorized agent that a particular account has been used for repeated infringement, to:
a) promptly send a warning to the subscriber whose IP address has been identified, explaining that this conduct is an infringement of copyright and a breach of the terms of the policy and informing the subscriber of the potential consequences;
b) after the first such notification, promptly send a second warning to the subscriber clearly stating that another notification will lead to suspension of the account and requiring the subscriber to confirm receipt of the second warning; and
c) after the third such notification relating to the same account, if no challenge is pending pursuant to subsection (4) below, promptly suspend the account for a period of at least one month.
4) A subscriber receiving a warning shall have the ability to bring a challenge to the notice on the grounds of mistake or misidentification as follows:
a) Within 10 days from the date of the warning from the Internet service provider, the subscriber shall send a signed counter-notice to the Internet service provider, providing full contact details and the factual basis of his or his belief that his or her account has been misidentified as being used for copyright infringement, or that the use of the copyright content was not infringing.
b) If the basis for the challenge cannot be resolved by the Internet service provider within 5 days in the case of a challenge regarding an alleged account misidentification, or by the Internet service provider and the owner of copyright within 10 days in the case of a challenge regarding alleged lawful use of the copyright content, the counter-notice shall be referred to the Commission who may appoint an independent adjudicator to determine the validity of the challenge.
c) Any warning successfully challenged by the user shall not count towards the suspension process set out in subsection (3) and any contact details of the subscriber in relation to this warning will not be retained or used for any purpose by the owner of copyright.
5) The Internet service provider shall retain for a period of at least 6 months data sufficient to enable it to comply with the provisions of this section, including data indicating which subscriber account is using which Internet Protocol (IP) address at a given time.
6) If the Internet service provider fails to comply with subsection (2) of this section, the complaining owner of copyright shall be entitled to a court order requiring the Internet service provider to promptly comply with that subsection; and the court may, in making the order, make such consequential orders as it may deem fit in the circumstances.
7) An Internet service provider acting in good faith in suspending the account of a subscriber, relying on the information contained in a notification referred to in subsection (3) of this section, shall not be liable to any person for any claim based solely on that suspension.
3.2 This section seeks to enact the general duty of ISPs to adopt and implement a graduated response scheme. A graduated response scheme popularly referred to as the “three strikes Internet disconnection policy” or simply “three strikes” allows copyright holders to monitor internet subscribers and identify alleged copyright infringers. After contacting the ISPs of the alleged infringer, the ISP would then warn the subscriber (identified as the infringer); the alleged infringing subscriber would eventually be disconnected from accessing the internet after receiving three repeated warnings from the ISP.
3.2 In practice, the three strikes would require copyright holders to monitor network traffic and data content of internet subscribers using deep packet inspection tools in order to identify possible cases of copyright infringement, for example, via the surveillance of forums, blogs or by posing as file sharers in peer-to-peer (p2p) environment to identify file sharers who allegedly exchange copyright material. After identifying subscribers alleged to be engaged in copyright violation by collecting their Internet Protocol addresses (IP addresses), copyright holders would send the IP addresses of the subscriber to the relevant ISP who would warn the subscriber to whose account the IP addressed has been traced to, about his/her potential engagement in copyright infringement. Being warned by the ISP a certain number of times would automatically result in the ISP's termination or suspension of the subscriber’s Internet connection.
3.3 The graduated scheme under this section raises the fundamental questions of legitimacy; Is the termination of internet account reasonably proportionate to the offence of Copyright infringement?
3.3.1 Proportionality of the graduated response scheme
One of the core principles of proportionality in Nigerian criminal jurisprudence is that the “punishment should fit the crime.” Nigeria unlike other legal systems does not provide punitive damages but however under the present Copyright Act, damage can either be compensatory or restitutive. The proportionality of been disconnected from accessing the internet is underscored by the fact there seems to be uniformity in agreement that the internet is important in our daily lives. In this age of information explosion, it is not surprising to hear claims that accessing the internet should be a fundamental right. In the celebrated Australian case of Roadshow Films Pty v iiNet Limited, Cowdroy J rightly observed; “one does not need to consider access to the internet to be a human right to appreciate its central role in almost all aspects of modern life.”
3.3.2 Disconnection from the internet on the basis of Copyright infringement is very problematic in that it will in most cases affect all members of a house hold or the entire staff of the corporate entity, not just the subscriber named in internet service contract. To fully comprehend the enormity presented by this question, we must first understand the basic working of the internet and how IP addresses are assigned.
3.3.3 The internet and assignment of IP address
Computers connected to the internet communicate with each other by means of a common language, or protocol, called the Internet Protocol (“IP”). Data sent by means of the IP is broken up into small “packets”. Computers sending and receiving data are allocated IP addresses, which enable packets to be exchanged (in much the same way that postal addresses enable mail to be exchanged). Such IP addresses are sold in blocks to ISPs, and ISPs allocate IP addresses to their subscribers. The identity of the ISP to whom a particular block of IP addresses has been sold is publicly available information. Where a subscriber’s computer is directly connected to the internet (through a modem), the ISP will assign a public IP address to that computer. However, many computers are not directly connected to the internet, but are instead connected to a “router” – a device which can “route” data between a private network of computers. Where a subscriber’s computer is connected to a router, the router will be directly connected to the internet (through a modem), and the ISP will assign a public IP address to the router. Where multiple computers are connected to a router, all of those computers will be able to access the internet – but only the public IP address assigned to the router will be visible to other computers on the internet. As such, a public IP address does not necessarily correspond to a specific person or computer (Problem 1). ISPs usually allocate “dynamic” IP addresses to all of its residential or non-corporate subscribers – this means that the IP address by which a subscriber’s computer or router connects to the internet will change over time. Systems are normally instituted by ISPs enable it to identify the subscriber account to which a particular IP address has been allocated at a particular time, but not necessarily the specific person or computer using that IP address which may be several (Problem 2).
3.3.4 The problems highlighted is relevant to the extent that an allegation that an IP address was used for committing Copyright infringement is not always indicative that the person traced to the IP address was the person engaged in the Copyright infringement at the relevant time. Even though the Bill provides in this section that the subscriber identified by the IP address can challenge the disconnection on the basis of mistake and or misidentification, but the onus of proof has now unfortunately shifted from the Copyright holder to the subscriber. Since most households or corporate subscribers do not keep logs of all internet access by people on the internal network, it is unclear how the subscriber could reasonably be expected to prove that s/he was not responsible for an infringement that apparently came from her/his IP address. It is also worth mentioning that the Bill does not address how internet access is to be denied to a particular member of a corporate entity or household.
3.3.5 The monitoring of network traffic and data content is likely to trigger many cases of false positives. Copyright infringement is not a straight ‘yes’ or ‘no’ question. Often courts will be called in to examine a very significant quantity of technical and legal detail over dozens of pages in order to determine whether there is an infringement and the fact that the independent adjudicator may not be legally trained and is not bound by the rules of evidence is likely to have a strong chilling effect on socially beneficial but unlicensed uses. These types of uses covered by the statutory defence of fair dealing, will require the user of Copyright materials to make a judgement about whether their otherwise infringing conduct is permissible under the law.
3.3.5 The EU Telecoms Reform Package expressly requires that any graduated response measure “may only be imposed if they are appropriate, proportionate and necessary within a democratic society.” This requirement of proportionality seeks to ensure that a graduated response scheme is, on the whole reasonably justified method of addressing Copyright infringement.
3.3.6 The severity of disconnection in each particular case should be guided by a consideration of the extent or serious nature of the infringement. Piracy the large scale infringement of Copyright for commercial gain is the clearest case. This type of infringement is already criminalized and subject to penalties under the present Copyright Act. Graduated response scheme under the Bill seems to be targeted at individual infringement that is not intended for commercial gain, at users who download infringing copies of copyright works for personal use. In my view, the severe penalty for termination is hard to justify under this circumstance. The problem is further highlighted due to the fact that there is little empirical evidence to suggest that graduated response scheme is likely to reduce Copyright infringement online.
3.3.7 As a matter of serious concern and to safeguard the rights of internet users, the Bill must; provide that the independent adjudicator must as a minimum understand the nature and the extent of the right granted under the present Copyright Act, and must provide a right to appeal the decision of the independent adjudicator (appointed by the Commission) to the Federal High Court.
4. Conclusion
4.1 The summary of my conclusions are that; the Bill should provide safe harbour provisions, expand the definition of Internet service providers to include Online service providers and that graduated responses may likely be challenged on the basis of its legitimacy and should as a matter of serious concern provide stricter controls for due process.
4.2 It is now twenty nine (29) years since the internet launched operationally, twenty four (24) years since the present Nigerian Copyright Act was enacted and fifteen (15) years since the internet access service was commercialized in Nigeria. The draft bill for an Act to amend the Copyright Act CAP C28 Laws of the Federation of Nigeria 2004 to provide for better protection of Copyright in the digital environment has long been overdue and if enacted will be a wonderful milestone achieved by the Commission.
1.1 According to Harvard Law Professor, Lawrence Lessig “The fear is that cyberspace will become a place where copyright can be defeated.” Copyright and related rights embrace a wide spectrum of human endeavour and activity. Most of the creative content that underlies that functionality of the internet is subject to Copyright. Under the Copyright Act C28 Laws of the Federation of Nigeria 2004, Copyright protection extends to all literary works, musical works, artistic works, cinematograph films, sound recordings and broadcast. This protection includes diverse forms of human creativity, such as writings, both fiction and non-fiction, including scientific and technical texts and computer programs; musical recordings; audiovisual works; works of fine art, including drawings and paintings; and photographs.
1.2 Digital technology provides an effective means for the transmission and (re)use of these works subject to Copyright protection in a packet-switched network. These digital technologies also provide an avenue of the Copyright infringement of these works. Given the capabilities and characteristics of digital network technologies and the rate at which the internet is fast becoming an ubiquitous phenomenon, it is essential that statutory provisions are enacted to accommodate recent changes in these technological development in order to ensure that digital technology does not undermine the basic principle underlying the protection of Copyright and related rights.
1.3 The internet on its own has become one of the biggest threat to the creation of Copyright content because of its vast potential to make unlimited number of copies, almost instantaneously, without degrading the quality and transmitting these works to locations around the world in a matter of minutes. This disruption of technology has altered traditional markets selling everything virtually Copyrightable. In the music industry, for example, the emergence of “killer apps” such as peer-to-peer technologies (for file sharing) has unfortunately enabled the exploitation of music recordings on a monumental scale absent the required authorization of the rights holders. This exploitation has further been exacerbated by the simultaneous broad commercialization of CD burners and portable MP3 players, adapted to the most commonly used file format.
1.4 Unfortunately, these challenges are currently facing the Copyright industry at a time when the share of Copyright in the Nigerian economy is reaching unprecedented levels. In 2010, UNESCO declared that Nollywood, Nigeria’s homegrown movie industry has the largest production of films in the world, with the UNDP/UNCTAD 2010 Report valuing the industry at N522 billion (USD2.75bn). This significance has further reinforced the necessity for Copyright industries to seek out technical and legislative solutions to protect Copyright from digital piracy.
1.5 It is therefore critical to amend existing frameworks to respond to the challenges posed by new digital technologies in the appropriate manner, and to do so quickly and responsibly, because these technologies and markets is an evolution in continuous progress. This will ensure the continued furtherance of the fundamental guiding principles of Copyright and related rights, which remain constant whatever may be the state of technological development: giving incentives to creators to continue to create and disseminate new creative works; recognizing the importance of their contributions, by giving them reasonable control over the exploitation of these works and allowing them to profit from them; providing the appropriate balance for the public interest, particularly education, research and access to information; and thereby ultimately benefiting the Nigerian economy as a whole, by promoting the development of culture, science, and innovation.
1.6 Recently, the Nigerian Copyright Commission (“the Commission”) made available to the public, the proposed draft bill for an Act to amend the Copyright Act CAP C28 Laws of the Federation of Nigeria 2004 to provide for better protection of Copyright in the digital environment, the Commission also invited comments from the public in respect of the proposal.
1.7 The respondent is currently the Secretary of the ICT Committee of the Section of Business Law (SBL) of the Nigerian Bar Association and a Solicitor in the Information Technology and Telecommunications Practice of Streamsowers & Köhn. In his current capacity he regularly advises an international Mobile Network Operator and other communications’ market operator on matters of regulatory compliance. The respondent has also developed substantial expertise in all areas of information technology & telecommunications law such as intellectual property on the internet, privacy & data protection, cyber crime & cyber security, competition & consumer protection in telecommunications market and domain name dispute resolution amongst many others.
1.8 Respondent comments frequently on IT/Telecoms regulatory matters in the “matters e-Rising” and business law column of the Nation Newspaper Thursday’s edition and Business day Thursdays editions respectively. Respondent is a member of the Nigerian Bar Association, Chartered Institute of Arbitrators (CIArb) UK and BCS (The Chartered Institute for IT) and an alumnus of the WIPO Worldwide Academy in Geneva.
1.9 Respondent’s memorandum is in respect of only; Section 18A-Takedown of Infringing content and Section 18B- Graduated procedure for suspension of accounts of repeated infringers of the proposed Bill
1.10 The summary of Respondent’s conclusions are that; the Bill should provide safe harbor provisions, expand the definition of Internet service providers to include Online service providers and that graduated responses may likely be challenged on the basis of its legitimacy and should as a matter of serious concern provide stricter controls for due process.
2. Section 18A- Takedown of Infringing content
2.1 This section provides;
1) An internet service provider shall, take down or disable access to infringing content or links to such content, hosted on its systems or networks, promptly upon receiving notice of infringement from an owner of copyright or otherwise becoming aware of the infringing activity or of facts or circumstances from which infringing activity is apparent; and
a) Notify the owner of copyright promptly that the content or link has been removed or access to it has been disabled;
b) In the case of removal of content without prior notice to the owner of copyright, the Internet service provider shall attempt, with reasonable effort, to locate the relevant owner of copyright and notify him of the removal of the content or link
2) The Internet service provider may resume access to or restore removed content or a link, if he receives a written counter notice from the subscriber which he has forwarded to the owner of copyright immediately upon receipt; and did not receive, within 10 days, a notice from the owner of copyright, indicating that no authorization has been granted for the subscriber to make the content available.
3) The Internet service provider shall not be liable to any person for an claim based on the service provider’s good faith disabling of access to, or removal of, link or content claimed in a qualifying notice to be infringing or based on facts or circumstances from which infringing activity is apparent, regardless of whether the content or activity is ultimately determined to be infringing.
4) A notice required under this section to be given shall contain such information and particulars as the Commission may prescribe by regulations.
5) For the purpose of this section, the term “Internet service provider” shall mean an entity offering the transmission, routing, or providing of connections for digital online communications, between or among points specified by a user, of a material of the user’s choosing, without modification to the content of the material as sent or received.
2.2 This section seeks to enact the general duty of an internet service provider (ISP) to take down a content alleged to be infringing a Copyright. The notice and takedown procedures regulate an ISP’s obligation to react appropriately when informed about irregularities on websites made available through them. Typically under such procedures, a complaint by notice informs an ISP that it is granting access to an illegal content (notice) and requests that the content in question be removed (takedown). These procedures establish a “red-flag” test whether ISPs have knowledge of subscribers’ illegal activity and thus are subject to secondary liability for Copyright infringement. The standard to which they are held is “becoming aware of the infringing activity or of facts or circumstances from which infringing activity is apparent.” Once the ISP receives proper notification of the infringement, the “red-flag” test is presumed to have been satisfied.
2.3 Also by this provision, an ISP will not be held liable to its subscribers because of the removal or access-blocking when it is done in good faith because it has received a proper notice or knows on its own that the material is infringing. Note that the liability provided by this section covers only the taking down or disabling access to infringing content or links to such content. It does not sanction the large scale removal of a subscriber’s material, particularly material that does not infringe, unless that is necessary to disable access to, or remove, the allegedly-infringing material. For an ISP to benefit from that provision, the ISP must take reasonable steps (not extraordinary effort) to notify the subscriber of any takedown, and if the subscriber contests the takedown, must restore the material within 10 days if notice that the subscriber was authorized to make the content available is received from the copyright holder.
2.4 Nevertheless, both copyright holders and ISPs may have incentives to use the system; for copyright holders, notice and takedown provides a faster and cheaper solution to enforcing their rights outside the court room arena, while from the ISPs’ perspective, a prompt response to the notification reduces liability for infringement. Notice and takedown procedure is not mandatory and litigating claims of Copyright infringement in the court will always be the best option.
2.5 The need for safe harbor provisions
As earlier stated, the notice and takedown procedure provides a “red-flag” test whether ISPs have knowledge of users’ illegal activity, hence it is possible for claims of vicarious or secondary liability for Copyright infringement to be instituted against ISP who have failed or refused to take down a content alleged to be infringing. The possibility of such an occurrence makes it necessary for the Bill to provide safe harbor provisions. Safe habor provisions usually exist in copyright statutes for ISPs to limit their exposure to secondary liability for copyright infringement when they are involved in the following categories of conduct;
2.5.1 Mere conduit:
A provision limiting the liability of ISPs for Copyright infringement when they act as mere conduits will be engaged only where the ISP does not initiate the transmission, does not select the recipients of the information and does not modify the content of the information.
2.5.2 Caching:
This provision is engaged in the case of temporary storage of information performed by ISPs for the purpose of efficiently transmitting the information to other recipients of the services. In such cases liability will not exist for ISPs on the condition that they do not modify the content, the ISP complies with the condition of access to the information, the ISP complies with the rules regarding the updating the information, specified in a manner acceptable to industry standards and acts expeditiously to remove content alleged to be infringing. This provision may also provide for the possibility of a court or administrative authority to require ISPs to terminate or act proactively to prevent infringements.
2.5.3 Hosting:
An ISP that stores information at the request of its users will escape liability provided that, the provider does not have actual knowledge of illegal activity and the recipient of the service is not acting under the control of the ISP. Once an ISP becomes aware of any facts or circumstance indicating an illegal activity, the ISP must act expeditiously to remove or disable access to the information. This provision may also provide the possibility of a court or administrative authority to require ISPs to terminate or prevent an infringement by establishing procedures for the removal of content.
2.5.4 Case laws on this type of copyright liability usually suggest some form of notice based standard. As earlier stated, the standard here is “becoming aware of the infringing activity or of facts or circumstances from which infringing activity is apparent.”
2.6 The Bill defines “Internet service provider” too narrowly
Much of the legal literature on this subject have tended to draw a distinction between ISPs providing access to the internet (which the Bill contemplates) and Online service provider (OSPs) which also include ISPs, email service providers, social network service providers (facebook, You Tube, etc), various online forums and bulletin boards and even “good old” Google and Wikipedia. The implication of this definition is that only traditional ISPs granting access to the internet would come within the meaning of “Internet service provider” under the Bill while other OSPs capable of making Copyright content available online, would escape responsibility under the Bill.
3. Section 18B- Graduated procedure for suspension of accounts of repeated infringers.
3.1 This section provides:
1) An Internet service provider shall adopt and reasonably implement a policy that provides for termination, in appropriate circumstances, of the account with that Internet service provider of a repeat infringer.
2) In subsection (1), repeat infringer means a person who repeatedly infringes the copyright in a work by using 1 or more of the Internet services of the Internet service provider to do a restricted act without the consent of the owner of copyright.
3) A policy of termination referred to in subsection 1 shall require the Internet service provider, upon receiving a notification from an owner of copyright or his authorized agent that a particular account has been used for repeated infringement, to:
a) promptly send a warning to the subscriber whose IP address has been identified, explaining that this conduct is an infringement of copyright and a breach of the terms of the policy and informing the subscriber of the potential consequences;
b) after the first such notification, promptly send a second warning to the subscriber clearly stating that another notification will lead to suspension of the account and requiring the subscriber to confirm receipt of the second warning; and
c) after the third such notification relating to the same account, if no challenge is pending pursuant to subsection (4) below, promptly suspend the account for a period of at least one month.
4) A subscriber receiving a warning shall have the ability to bring a challenge to the notice on the grounds of mistake or misidentification as follows:
a) Within 10 days from the date of the warning from the Internet service provider, the subscriber shall send a signed counter-notice to the Internet service provider, providing full contact details and the factual basis of his or his belief that his or her account has been misidentified as being used for copyright infringement, or that the use of the copyright content was not infringing.
b) If the basis for the challenge cannot be resolved by the Internet service provider within 5 days in the case of a challenge regarding an alleged account misidentification, or by the Internet service provider and the owner of copyright within 10 days in the case of a challenge regarding alleged lawful use of the copyright content, the counter-notice shall be referred to the Commission who may appoint an independent adjudicator to determine the validity of the challenge.
c) Any warning successfully challenged by the user shall not count towards the suspension process set out in subsection (3) and any contact details of the subscriber in relation to this warning will not be retained or used for any purpose by the owner of copyright.
5) The Internet service provider shall retain for a period of at least 6 months data sufficient to enable it to comply with the provisions of this section, including data indicating which subscriber account is using which Internet Protocol (IP) address at a given time.
6) If the Internet service provider fails to comply with subsection (2) of this section, the complaining owner of copyright shall be entitled to a court order requiring the Internet service provider to promptly comply with that subsection; and the court may, in making the order, make such consequential orders as it may deem fit in the circumstances.
7) An Internet service provider acting in good faith in suspending the account of a subscriber, relying on the information contained in a notification referred to in subsection (3) of this section, shall not be liable to any person for any claim based solely on that suspension.
3.2 This section seeks to enact the general duty of ISPs to adopt and implement a graduated response scheme. A graduated response scheme popularly referred to as the “three strikes Internet disconnection policy” or simply “three strikes” allows copyright holders to monitor internet subscribers and identify alleged copyright infringers. After contacting the ISPs of the alleged infringer, the ISP would then warn the subscriber (identified as the infringer); the alleged infringing subscriber would eventually be disconnected from accessing the internet after receiving three repeated warnings from the ISP.
3.2 In practice, the three strikes would require copyright holders to monitor network traffic and data content of internet subscribers using deep packet inspection tools in order to identify possible cases of copyright infringement, for example, via the surveillance of forums, blogs or by posing as file sharers in peer-to-peer (p2p) environment to identify file sharers who allegedly exchange copyright material. After identifying subscribers alleged to be engaged in copyright violation by collecting their Internet Protocol addresses (IP addresses), copyright holders would send the IP addresses of the subscriber to the relevant ISP who would warn the subscriber to whose account the IP addressed has been traced to, about his/her potential engagement in copyright infringement. Being warned by the ISP a certain number of times would automatically result in the ISP's termination or suspension of the subscriber’s Internet connection.
3.3 The graduated scheme under this section raises the fundamental questions of legitimacy; Is the termination of internet account reasonably proportionate to the offence of Copyright infringement?
3.3.1 Proportionality of the graduated response scheme
One of the core principles of proportionality in Nigerian criminal jurisprudence is that the “punishment should fit the crime.” Nigeria unlike other legal systems does not provide punitive damages but however under the present Copyright Act, damage can either be compensatory or restitutive. The proportionality of been disconnected from accessing the internet is underscored by the fact there seems to be uniformity in agreement that the internet is important in our daily lives. In this age of information explosion, it is not surprising to hear claims that accessing the internet should be a fundamental right. In the celebrated Australian case of Roadshow Films Pty v iiNet Limited, Cowdroy J rightly observed; “one does not need to consider access to the internet to be a human right to appreciate its central role in almost all aspects of modern life.”
3.3.2 Disconnection from the internet on the basis of Copyright infringement is very problematic in that it will in most cases affect all members of a house hold or the entire staff of the corporate entity, not just the subscriber named in internet service contract. To fully comprehend the enormity presented by this question, we must first understand the basic working of the internet and how IP addresses are assigned.
3.3.3 The internet and assignment of IP address
Computers connected to the internet communicate with each other by means of a common language, or protocol, called the Internet Protocol (“IP”). Data sent by means of the IP is broken up into small “packets”. Computers sending and receiving data are allocated IP addresses, which enable packets to be exchanged (in much the same way that postal addresses enable mail to be exchanged). Such IP addresses are sold in blocks to ISPs, and ISPs allocate IP addresses to their subscribers. The identity of the ISP to whom a particular block of IP addresses has been sold is publicly available information. Where a subscriber’s computer is directly connected to the internet (through a modem), the ISP will assign a public IP address to that computer. However, many computers are not directly connected to the internet, but are instead connected to a “router” – a device which can “route” data between a private network of computers. Where a subscriber’s computer is connected to a router, the router will be directly connected to the internet (through a modem), and the ISP will assign a public IP address to the router. Where multiple computers are connected to a router, all of those computers will be able to access the internet – but only the public IP address assigned to the router will be visible to other computers on the internet. As such, a public IP address does not necessarily correspond to a specific person or computer (Problem 1). ISPs usually allocate “dynamic” IP addresses to all of its residential or non-corporate subscribers – this means that the IP address by which a subscriber’s computer or router connects to the internet will change over time. Systems are normally instituted by ISPs enable it to identify the subscriber account to which a particular IP address has been allocated at a particular time, but not necessarily the specific person or computer using that IP address which may be several (Problem 2).
3.3.4 The problems highlighted is relevant to the extent that an allegation that an IP address was used for committing Copyright infringement is not always indicative that the person traced to the IP address was the person engaged in the Copyright infringement at the relevant time. Even though the Bill provides in this section that the subscriber identified by the IP address can challenge the disconnection on the basis of mistake and or misidentification, but the onus of proof has now unfortunately shifted from the Copyright holder to the subscriber. Since most households or corporate subscribers do not keep logs of all internet access by people on the internal network, it is unclear how the subscriber could reasonably be expected to prove that s/he was not responsible for an infringement that apparently came from her/his IP address. It is also worth mentioning that the Bill does not address how internet access is to be denied to a particular member of a corporate entity or household.
3.3.5 The monitoring of network traffic and data content is likely to trigger many cases of false positives. Copyright infringement is not a straight ‘yes’ or ‘no’ question. Often courts will be called in to examine a very significant quantity of technical and legal detail over dozens of pages in order to determine whether there is an infringement and the fact that the independent adjudicator may not be legally trained and is not bound by the rules of evidence is likely to have a strong chilling effect on socially beneficial but unlicensed uses. These types of uses covered by the statutory defence of fair dealing, will require the user of Copyright materials to make a judgement about whether their otherwise infringing conduct is permissible under the law.
3.3.5 The EU Telecoms Reform Package expressly requires that any graduated response measure “may only be imposed if they are appropriate, proportionate and necessary within a democratic society.” This requirement of proportionality seeks to ensure that a graduated response scheme is, on the whole reasonably justified method of addressing Copyright infringement.
3.3.6 The severity of disconnection in each particular case should be guided by a consideration of the extent or serious nature of the infringement. Piracy the large scale infringement of Copyright for commercial gain is the clearest case. This type of infringement is already criminalized and subject to penalties under the present Copyright Act. Graduated response scheme under the Bill seems to be targeted at individual infringement that is not intended for commercial gain, at users who download infringing copies of copyright works for personal use. In my view, the severe penalty for termination is hard to justify under this circumstance. The problem is further highlighted due to the fact that there is little empirical evidence to suggest that graduated response scheme is likely to reduce Copyright infringement online.
3.3.7 As a matter of serious concern and to safeguard the rights of internet users, the Bill must; provide that the independent adjudicator must as a minimum understand the nature and the extent of the right granted under the present Copyright Act, and must provide a right to appeal the decision of the independent adjudicator (appointed by the Commission) to the Federal High Court.
4. Conclusion
4.1 The summary of my conclusions are that; the Bill should provide safe harbour provisions, expand the definition of Internet service providers to include Online service providers and that graduated responses may likely be challenged on the basis of its legitimacy and should as a matter of serious concern provide stricter controls for due process.
4.2 It is now twenty nine (29) years since the internet launched operationally, twenty four (24) years since the present Nigerian Copyright Act was enacted and fifteen (15) years since the internet access service was commercialized in Nigeria. The draft bill for an Act to amend the Copyright Act CAP C28 Laws of the Federation of Nigeria 2004 to provide for better protection of Copyright in the digital environment has long been overdue and if enacted will be a wonderful milestone achieved by the Commission.
Tuesday, May 8, 2012
Tying: Are Mobile Network Operators really committing a competition offence?
Tying (or bundling) of telecommunications services is a feature desired by many telecommunications users. In Nigeria for instance, a telecommunications user may decide to purchase a black berry device bundled with a SIM card for mobile telecommunications service and data plan even though these services are distinct products. A typical tying arrangement occurs where a service provider sells one product or service over which it has market power (the “tying product”) on the condition that the purchaser purchase a second product or service (the “tied product”). A tying arrangement is expressly prohibited under the Nigerian Communications Act 2003 (NCA).
In this article, I examine whether particular practices of mobile network operators (MNOs) constitutes tying arrangement under the NCA.
Tying arrangement allows a service provider with market power in the tying product to obtain a competitive advantage in the market for the tied product. Tying will usually work where the demand for the two products (or services) are complimentary, such that end-users use them together (as in the example above) and not where the demands of the two products are independent such that the end user is unlikely to consume them together. Traditional tying arrangements require; (a) two separate product/service markets (See Eastman Kodak Co. v. Image Technical Services, 504 U.S. 451 (1992)); (b) the defendant’s sufficient market power over the tying product; (c) unlawful forcing; and (d) a not insubstantial amount of commerce in the tied product affected by the tie.
In vertically integrated markets such as the Nigerian Telecommunications market, tying can reduce competitors’ sales by capturing customers who would otherwise have purchased product A rather than products A and B together, thereby reducing the portion of the market for the tied product the service provider must compete for. If there are fixed costs in the production of the tied product, then the service provider may be able to reduce its competitors’ sales to the point where remaining in the market (or entering the market) is no longer viable. If the service provider succeeds in this form of elimination then it is said to have successfully “leveraged” its dominant position in the market for the tying product into the market for the tied product.
Tying in Nigeria’s Telecommunications market
Several MNOs operating in Nigeria are involved in one form of tying arrangement or another. For example, several MNOs tie the sale of tablet computers to core telecommunications services, one in particular ties its telecommunications service to an android running handset (named after a weird dressing American pop star) locked to its mobile network. In the case of another which ties the Huawei S7 tablet to its telecommunications services, its website says that the offer is open to only users purchasing SIM card or already having SIM card for use on its network. This implies that users will be locked-in the telecommunications service of this particular MNO for as long as they use its SIM card to make calls with the device.
Applicable legal standard for tying in Nigeria’s telecommunications market
Tying is expressly prohibited under § 91 (4) of the NCA. As a general rule this section provides that:
A licensee shall not, at any time or in any circumstance, make it a condition for the provision or supply of a product or service in a communications market that the person acquiring such product or service in the communications market is also required or not to acquire any other product or service either from itself or from another person.
A licensee as defined under § 157 of the NCA means a person who either holds an individual licence or undertakes activities which are subject to a class licence granted under this Act. No doubt MNOs hold individual licenses.
Section 12 (2) of the Competitions Practice Regulations 2007 (CPR) further provides that all tying arrangements are prohibited without the requirement of assessing their practical effects. Pursuant to this provision, all tying arrangements are outrightly illegal and should be condemned without elaborate investigation into its anti-competitive effect. This is a departure from traditional analysis of competition offences which requires the determination of the relevant market and the assessment of the competitive (or efficiency) effect of the offending practice consistent with sections 6 and 15 of the CPR where; (a) the definition of the relevant market or markets in accordance with the methodology under Part IV (of the CPR); (b) impact of the conduct on existing competitors in the identified markets; (c) impact of the conduct on market entry; (d) impact of the conduct on consumers; and (e) degree of interference with competition that injures competitors or consumers are taken into consideration.
As Part IV of the CPR mentions only § 92 (1), (2) and (3) of the NCA (in the same way § 12 (2) of the CPR mentions only § 91 (3) and (4) of the NCA), it is assumed that Part IV contemplates its application to only these provisions (as would § 12 (2) of the CPR). This interpretation is consistent with the Expressio unius est exclusio alterius (the express mention of one thing excludes all others) rule of statutory interpretation.
It is worth mentioning that the standard applied under § 12 (2) is similar to the per se standard applied in competition cases in the United States (US). Under the per se standard, certain arrangements are prohibited outright, such that no evidence of actual anti-competitive effects is required for the finding of illegality. The US Supreme Court in determining whether the appellant’s tying practice constituted unreasonable restraint of trade in Northern Pacific R. Co. v. United States-356 US (1958) held that “there are certain agreements or practices which, because of their pernicious effect on competition and lack of any redeeming virtue, are conclusively presumed to be unreasonable, and therefore illegal, without elaborate inquiry as to the precise harm they have caused or the business excuse for their use.” The per se rule applies to an arrangement or practice that “facially appears to be one that would always or almost always tend to restrict competition and decrease output, and in what portion of the market, or instead one designed to increase economic efficiency and render markets more, rather than less, competitive.” (See Broadcast Music, Inc. v. CBS, Inc, 441 U.S 1, 19-20 (1979)).
Tying arrangements are analysed under the per se standard in U.S. The per se standard is appropriate only if courts, having had sufficient experience with a practice, can determine with confidence that the practice is anticompetitive in almost all circumstances when applying the rule of reason. (See Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 127 S. Ct. 2705, 2713 (2007)).
It is also worth mentioning that it is unknown whether the Nigerian Communications Commission (NCC) has authorized MNOs to engage in these tying practices in accordance § 93 (1) of the NCA which provides:
(1) A licensee may apply to the Commission prior to engaging into any conduct which may be construed to have the purpose or effect of substantially lessening competition in any aspect of the Nigerian communications industry, for authorisation for the conduct.
Even if NCC authorised the tying practices of MNOs, such authorisation must be in the national interest (See § 93 (2) of the NCA). In my view, for a tying arrangement to meet the threshold of national interest, it must also be pro-competitive.
Conclusion
However I also note that traditional cases of tying from the U.S seems to indicate that a tying arrangement will usually be condemned under the per se standard if the plaintiff can show both market power in the tying product and a “not insubstantial” amount of commerce affected in the tied product market (See Times-Picayune Pub. Co. v. United States, 345 U.S. 594, 73 S.Ct. 872 (1953)), but this does not seem to be the case in Nigeria’s telecommunications market where the relevant statutes does not require the consideration of elaborate arguments favouring pro-competitiveness and expressly condemns this practice without taking these arguments into account.
Tying is as anti-competitive as it is pro-competitive. Tying can harm consumers in circumstances where a service provider with monopoly power in one market acquires another monopoly power in a secondary market or continues to perpetuate its monopoly in the market for the tying product; and is pro-competitive especially in cases where technological tying results in innovations, even if the innovative products makes the complementary products of competitors incompatible.
As case law in this area of practice is still developing in Nigeria, it would be interesting to see how this debate finally concludes.
In this article, I examine whether particular practices of mobile network operators (MNOs) constitutes tying arrangement under the NCA.
Tying arrangement allows a service provider with market power in the tying product to obtain a competitive advantage in the market for the tied product. Tying will usually work where the demand for the two products (or services) are complimentary, such that end-users use them together (as in the example above) and not where the demands of the two products are independent such that the end user is unlikely to consume them together. Traditional tying arrangements require; (a) two separate product/service markets (See Eastman Kodak Co. v. Image Technical Services, 504 U.S. 451 (1992)); (b) the defendant’s sufficient market power over the tying product; (c) unlawful forcing; and (d) a not insubstantial amount of commerce in the tied product affected by the tie.
In vertically integrated markets such as the Nigerian Telecommunications market, tying can reduce competitors’ sales by capturing customers who would otherwise have purchased product A rather than products A and B together, thereby reducing the portion of the market for the tied product the service provider must compete for. If there are fixed costs in the production of the tied product, then the service provider may be able to reduce its competitors’ sales to the point where remaining in the market (or entering the market) is no longer viable. If the service provider succeeds in this form of elimination then it is said to have successfully “leveraged” its dominant position in the market for the tying product into the market for the tied product.
Tying in Nigeria’s Telecommunications market
Several MNOs operating in Nigeria are involved in one form of tying arrangement or another. For example, several MNOs tie the sale of tablet computers to core telecommunications services, one in particular ties its telecommunications service to an android running handset (named after a weird dressing American pop star) locked to its mobile network. In the case of another which ties the Huawei S7 tablet to its telecommunications services, its website says that the offer is open to only users purchasing SIM card or already having SIM card for use on its network. This implies that users will be locked-in the telecommunications service of this particular MNO for as long as they use its SIM card to make calls with the device.
Applicable legal standard for tying in Nigeria’s telecommunications market
Tying is expressly prohibited under § 91 (4) of the NCA. As a general rule this section provides that:
A licensee shall not, at any time or in any circumstance, make it a condition for the provision or supply of a product or service in a communications market that the person acquiring such product or service in the communications market is also required or not to acquire any other product or service either from itself or from another person.
A licensee as defined under § 157 of the NCA means a person who either holds an individual licence or undertakes activities which are subject to a class licence granted under this Act. No doubt MNOs hold individual licenses.
Section 12 (2) of the Competitions Practice Regulations 2007 (CPR) further provides that all tying arrangements are prohibited without the requirement of assessing their practical effects. Pursuant to this provision, all tying arrangements are outrightly illegal and should be condemned without elaborate investigation into its anti-competitive effect. This is a departure from traditional analysis of competition offences which requires the determination of the relevant market and the assessment of the competitive (or efficiency) effect of the offending practice consistent with sections 6 and 15 of the CPR where; (a) the definition of the relevant market or markets in accordance with the methodology under Part IV (of the CPR); (b) impact of the conduct on existing competitors in the identified markets; (c) impact of the conduct on market entry; (d) impact of the conduct on consumers; and (e) degree of interference with competition that injures competitors or consumers are taken into consideration.
As Part IV of the CPR mentions only § 92 (1), (2) and (3) of the NCA (in the same way § 12 (2) of the CPR mentions only § 91 (3) and (4) of the NCA), it is assumed that Part IV contemplates its application to only these provisions (as would § 12 (2) of the CPR). This interpretation is consistent with the Expressio unius est exclusio alterius (the express mention of one thing excludes all others) rule of statutory interpretation.
It is worth mentioning that the standard applied under § 12 (2) is similar to the per se standard applied in competition cases in the United States (US). Under the per se standard, certain arrangements are prohibited outright, such that no evidence of actual anti-competitive effects is required for the finding of illegality. The US Supreme Court in determining whether the appellant’s tying practice constituted unreasonable restraint of trade in Northern Pacific R. Co. v. United States-356 US (1958) held that “there are certain agreements or practices which, because of their pernicious effect on competition and lack of any redeeming virtue, are conclusively presumed to be unreasonable, and therefore illegal, without elaborate inquiry as to the precise harm they have caused or the business excuse for their use.” The per se rule applies to an arrangement or practice that “facially appears to be one that would always or almost always tend to restrict competition and decrease output, and in what portion of the market, or instead one designed to increase economic efficiency and render markets more, rather than less, competitive.” (See Broadcast Music, Inc. v. CBS, Inc, 441 U.S 1, 19-20 (1979)).
Tying arrangements are analysed under the per se standard in U.S. The per se standard is appropriate only if courts, having had sufficient experience with a practice, can determine with confidence that the practice is anticompetitive in almost all circumstances when applying the rule of reason. (See Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 127 S. Ct. 2705, 2713 (2007)).
It is also worth mentioning that it is unknown whether the Nigerian Communications Commission (NCC) has authorized MNOs to engage in these tying practices in accordance § 93 (1) of the NCA which provides:
(1) A licensee may apply to the Commission prior to engaging into any conduct which may be construed to have the purpose or effect of substantially lessening competition in any aspect of the Nigerian communications industry, for authorisation for the conduct.
Even if NCC authorised the tying practices of MNOs, such authorisation must be in the national interest (See § 93 (2) of the NCA). In my view, for a tying arrangement to meet the threshold of national interest, it must also be pro-competitive.
Conclusion
However I also note that traditional cases of tying from the U.S seems to indicate that a tying arrangement will usually be condemned under the per se standard if the plaintiff can show both market power in the tying product and a “not insubstantial” amount of commerce affected in the tied product market (See Times-Picayune Pub. Co. v. United States, 345 U.S. 594, 73 S.Ct. 872 (1953)), but this does not seem to be the case in Nigeria’s telecommunications market where the relevant statutes does not require the consideration of elaborate arguments favouring pro-competitiveness and expressly condemns this practice without taking these arguments into account.
Tying is as anti-competitive as it is pro-competitive. Tying can harm consumers in circumstances where a service provider with monopoly power in one market acquires another monopoly power in a secondary market or continues to perpetuate its monopoly in the market for the tying product; and is pro-competitive especially in cases where technological tying results in innovations, even if the innovative products makes the complementary products of competitors incompatible.
As case law in this area of practice is still developing in Nigeria, it would be interesting to see how this debate finally concludes.
Thursday, April 12, 2012
Antitrust Concerns of Subscriber Win-back Strategies in Mobile Number Portability
With the 2011 appointment of the consortium of US-based Telcordia Technologies, Saab Grintek and Interconnect Clearinghouse Nigeria (ICN) by the Nigerian Communications Commission (NCC) as the Mobile Number Portability Service Provider, it is expected that mobile number portability (MNP) will go live on the networks of all mobile network operators (MNO) sometime in the middle of 2012. This is coming against the background of the MNP Business Rules & Port Order Processes recently published by NCC on the 10th April 2012.
Subscriber win-back strategies refer to an incumbent service provider’s scheme aimed at winning back a subscriber who intends to switch or has already switched to a competing service provider. These actions are usually carried out through targeted marketing and selective price discount. In this article, I examine the antitrust concern of these strategies in the context of the recently published Nigeria’s MNP framework.
Introduction
The Nigerian Communications Act 2003 (NCA) commenced on 8th July, 2003 repealing the Nigerian Communications Commission Act of 1992. Under § 1 (c) and (e) respectively, NCA has the stated objectives to “promote the provision of modern, universal, efficient, reliable, affordable and easily accessible communications services and the widest range thereof throughout Nigeria” and “ensure fair competition in all sectors of the Nigerian communications industry....” NCA contemplates the removal of legal and regulatory barriers to entry so as to enable free market entry, encourage technological innovation & rapid deployment of telecommunications services while ensuring that a firm’s prowess in satisfying consumer demand will determine its success or failure in the marketplace.
MNP and win-back strategies
MNP is the ability of a mobile telephone service provider to change his/her service provider while still retaining his/her mobile telephone number. The ability of subscribers to retain their telephone numbers when changing service providers will give subscribers flexibility in the quality, price, and variety of telecommunications services they can choose to purchase. Number portability promotes competition between telecommunications service providers by, among other things, allowing the consumers to respond to price and service changes without changing their telephone numbers, in other words a customer is less likely to switch carriers if he cannot retain his/her telephone number, see Cellular Telecomms. & Internet Ass’n v. FCC, 330 F.3d 502, 513 (D.C. Cir. 2003) (“CTIA”). The resulting competition will benefit all users of telecommunications services. Indeed, competition will foster lower local telephone prices and, consequently, stimulate demand for telecommunications services and increase economic growth.
Win-back strategies refer to an incumbent service provider’s strategies aimed at retaining or regaining a subscriber who intends to switch or has already switched to another competing service provider. Generally, win-back strategies will take the form of targeted marketing and selective price discounts offered to these subscribers. A standard feature of win-back strategies is that it is targeted at only a portion of competing service providers’ customers who were once customers of the incumbent service provider. Nicita (2009) argues that win-back strategies are a form of selective price discrimination towards a competitor’s customers.
A price discrimination is said to exist when two similar products having the same marginal production cost are sold at different prices (Armstrong, 2006). In the context of the MNP process, this price discrimination would usually take the form of selective price cuts where the incumbent service provider decides to charge a (lower) tariff to a group of subscribers to induce them not to switch to a competing MNO. In extreme cases, the group could actually be a single subscriber.
Antitrust concerns of win-back strategies
The primary antitrust concern presented by selective price cuts is usually foreclosure. Most antitrust authorities are uniform in the view that price discrimination can be exploited by a dominant firm with significant market power to “exclude” competitors or reduce competitors incentive to compete effectively (Armstrong, supra). While foreclosure may not necessarily be the primary motivation for engaging in the conduct (profit maximization through price discrimination usually is), however this strategy would have the resultant effect of excluding unaffiliated competitors in the relevant market.
The antitrust treatment of price discrimination in the Nigerian Telecommunications market is captured by § 8 (f) of the Competitions Practice Regulations (CPR) 2007 which provides that supplying communications services, at prices below long run average incremental costs or such other cost standard, as is adopted by the Commission is a conduct or practice deemed to result in a substantial lessening of competition. Section 8 (i) i CPR which provides; deliberately reducing the margin of profit available to a competing Licensee that requires wholesale communications services from the Licensee in question, by increasing the prices for the wholesale communications services required by that competing Licensee, or decreasing the prices of communications services in retail markets where they compete, or both would also come into play where the resultant effect of price discrimination would injure competition in the long run by marginalizing new entrants and or by raising entry barriers.
The post-Chicagoan school of economic thought argues that such selective price discrimination offered to this category of subscriber would be anti-competitive by suppressing long-term efficient entry into the relevant market (Nicita, supra). In their view, market power translates to short-term competitive advantage by the incumbent, thus whenever a new entrant or an existing competitor cannot replicate the discount policies adopted by incumbent’s foreclosure tactics which raises the rivals cost up to the point of eliminating entry or reducing the incentive to compete effectively. Such anti-competitive conduct should immediately be sanctioned by antitrust authorities (‘Nicita, supra).
In Case C-62/86, AKZO Chemie BV v. Commission, [1991] E.C.R. I-3359, [1993] 5 C.M.L.R. 215, the European Commission’s decision was largely driven by the predatory nature of AKZO’s pricing strategy, it nevertheless concluded at paragraph 72 that:
Moreover, prices below average total costs, that is to say, fixed costs plus variable costs, but above average variable costs, must be regarded as abusive if they are determined as part of a plan for eliminating a competitor. Such prices can drive from the market undertakings which are perhaps as efficient as the dominant undertaking but which, because of their smaller financial resources, are incapable of withstanding the competition waged against them
Paragraph 27 of the MNP Business Rules & Port Order Processes prohibits win-back for a period of ninety days from the date the porting was completed, however the donor (former) service provider may contact a ported subscriber for (a) recovery of outstanding debts or (b) to discuss products/services other than the ported mobile telecommunications service. However, this win-back rule is still subject to abuse as a donor service provider may offer to discount the outstanding debt due or offer another service (say internet access) at a discount to the recently switched subscriber on the condition that s/he switch back to its network. In the case of (b), this is a very likely possibility, especially if the donor service provider possesses a significant market power in that market. In my view, such market share may be leveraged upon to foreclose competition in the market for mobile telecommunications service and will present another anti-competitive practice- tying/bundling; which is also capable of substantial lessening of competition.
Conclusion
As rapid technological changes continue to shape the Nigerian Telecommunications market, the behaviour of subscribers will continue to be impacted presenting new challenges to NCC. The main focus of this challenge will be to ensure that favourable market conditions exist which thrives on technological innovations, whilst still ensuring the promotion of consumer welfare. Win-back strategies are capable of substantially lessening the competition because, “it affects the extent to which dominant firms may defend themselves against competition rather than act to consolidate or even increase their dominance in the market” (Jones and Sufrin, 2001). Even though, NCC’s restriction to subscriber win-back by service providers is limited to only ninety days, it must take cue from antitrust authorities in North American and European countries, where win-back strategies have come under serious scrutiny. NCC should toe the post-Chicagoan path by recognizing that win-back strategies under certain conditions may have the effect of substantially lessening the competition.
MNP does actually stimulate competition. If implemented properly, MNP will engender competition and lead to a lowering of switching cost, resulting in added value to the existing services already been enjoyed by the Nigerian mobile telecommunications subscribers.
Subscriber win-back strategies refer to an incumbent service provider’s scheme aimed at winning back a subscriber who intends to switch or has already switched to a competing service provider. These actions are usually carried out through targeted marketing and selective price discount. In this article, I examine the antitrust concern of these strategies in the context of the recently published Nigeria’s MNP framework.
Introduction
The Nigerian Communications Act 2003 (NCA) commenced on 8th July, 2003 repealing the Nigerian Communications Commission Act of 1992. Under § 1 (c) and (e) respectively, NCA has the stated objectives to “promote the provision of modern, universal, efficient, reliable, affordable and easily accessible communications services and the widest range thereof throughout Nigeria” and “ensure fair competition in all sectors of the Nigerian communications industry....” NCA contemplates the removal of legal and regulatory barriers to entry so as to enable free market entry, encourage technological innovation & rapid deployment of telecommunications services while ensuring that a firm’s prowess in satisfying consumer demand will determine its success or failure in the marketplace.
MNP and win-back strategies
MNP is the ability of a mobile telephone service provider to change his/her service provider while still retaining his/her mobile telephone number. The ability of subscribers to retain their telephone numbers when changing service providers will give subscribers flexibility in the quality, price, and variety of telecommunications services they can choose to purchase. Number portability promotes competition between telecommunications service providers by, among other things, allowing the consumers to respond to price and service changes without changing their telephone numbers, in other words a customer is less likely to switch carriers if he cannot retain his/her telephone number, see Cellular Telecomms. & Internet Ass’n v. FCC, 330 F.3d 502, 513 (D.C. Cir. 2003) (“CTIA”). The resulting competition will benefit all users of telecommunications services. Indeed, competition will foster lower local telephone prices and, consequently, stimulate demand for telecommunications services and increase economic growth.
Win-back strategies refer to an incumbent service provider’s strategies aimed at retaining or regaining a subscriber who intends to switch or has already switched to another competing service provider. Generally, win-back strategies will take the form of targeted marketing and selective price discounts offered to these subscribers. A standard feature of win-back strategies is that it is targeted at only a portion of competing service providers’ customers who were once customers of the incumbent service provider. Nicita (2009) argues that win-back strategies are a form of selective price discrimination towards a competitor’s customers.
A price discrimination is said to exist when two similar products having the same marginal production cost are sold at different prices (Armstrong, 2006). In the context of the MNP process, this price discrimination would usually take the form of selective price cuts where the incumbent service provider decides to charge a (lower) tariff to a group of subscribers to induce them not to switch to a competing MNO. In extreme cases, the group could actually be a single subscriber.
Antitrust concerns of win-back strategies
The primary antitrust concern presented by selective price cuts is usually foreclosure. Most antitrust authorities are uniform in the view that price discrimination can be exploited by a dominant firm with significant market power to “exclude” competitors or reduce competitors incentive to compete effectively (Armstrong, supra). While foreclosure may not necessarily be the primary motivation for engaging in the conduct (profit maximization through price discrimination usually is), however this strategy would have the resultant effect of excluding unaffiliated competitors in the relevant market.
The antitrust treatment of price discrimination in the Nigerian Telecommunications market is captured by § 8 (f) of the Competitions Practice Regulations (CPR) 2007 which provides that supplying communications services, at prices below long run average incremental costs or such other cost standard, as is adopted by the Commission is a conduct or practice deemed to result in a substantial lessening of competition. Section 8 (i) i CPR which provides; deliberately reducing the margin of profit available to a competing Licensee that requires wholesale communications services from the Licensee in question, by increasing the prices for the wholesale communications services required by that competing Licensee, or decreasing the prices of communications services in retail markets where they compete, or both would also come into play where the resultant effect of price discrimination would injure competition in the long run by marginalizing new entrants and or by raising entry barriers.
The post-Chicagoan school of economic thought argues that such selective price discrimination offered to this category of subscriber would be anti-competitive by suppressing long-term efficient entry into the relevant market (Nicita, supra). In their view, market power translates to short-term competitive advantage by the incumbent, thus whenever a new entrant or an existing competitor cannot replicate the discount policies adopted by incumbent’s foreclosure tactics which raises the rivals cost up to the point of eliminating entry or reducing the incentive to compete effectively. Such anti-competitive conduct should immediately be sanctioned by antitrust authorities (‘Nicita, supra).
In Case C-62/86, AKZO Chemie BV v. Commission, [1991] E.C.R. I-3359, [1993] 5 C.M.L.R. 215, the European Commission’s decision was largely driven by the predatory nature of AKZO’s pricing strategy, it nevertheless concluded at paragraph 72 that:
Moreover, prices below average total costs, that is to say, fixed costs plus variable costs, but above average variable costs, must be regarded as abusive if they are determined as part of a plan for eliminating a competitor. Such prices can drive from the market undertakings which are perhaps as efficient as the dominant undertaking but which, because of their smaller financial resources, are incapable of withstanding the competition waged against them
Paragraph 27 of the MNP Business Rules & Port Order Processes prohibits win-back for a period of ninety days from the date the porting was completed, however the donor (former) service provider may contact a ported subscriber for (a) recovery of outstanding debts or (b) to discuss products/services other than the ported mobile telecommunications service. However, this win-back rule is still subject to abuse as a donor service provider may offer to discount the outstanding debt due or offer another service (say internet access) at a discount to the recently switched subscriber on the condition that s/he switch back to its network. In the case of (b), this is a very likely possibility, especially if the donor service provider possesses a significant market power in that market. In my view, such market share may be leveraged upon to foreclose competition in the market for mobile telecommunications service and will present another anti-competitive practice- tying/bundling; which is also capable of substantial lessening of competition.
Conclusion
As rapid technological changes continue to shape the Nigerian Telecommunications market, the behaviour of subscribers will continue to be impacted presenting new challenges to NCC. The main focus of this challenge will be to ensure that favourable market conditions exist which thrives on technological innovations, whilst still ensuring the promotion of consumer welfare. Win-back strategies are capable of substantially lessening the competition because, “it affects the extent to which dominant firms may defend themselves against competition rather than act to consolidate or even increase their dominance in the market” (Jones and Sufrin, 2001). Even though, NCC’s restriction to subscriber win-back by service providers is limited to only ninety days, it must take cue from antitrust authorities in North American and European countries, where win-back strategies have come under serious scrutiny. NCC should toe the post-Chicagoan path by recognizing that win-back strategies under certain conditions may have the effect of substantially lessening the competition.
MNP does actually stimulate competition. If implemented properly, MNP will engender competition and lead to a lowering of switching cost, resulting in added value to the existing services already been enjoyed by the Nigerian mobile telecommunications subscribers.
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