Summary

The Internet will provide the basis for the growth in electronic commerce expected over the next five years. In turn, this is seen as being essential for the future wellbeing of the New Zealand economy. Over the past five years, Internet services have become essential business tools.

In electronic commerce, as with other areas of the economy, the Government is concerned to ensure that there is an open, competitive market, that there is protection of consumer and intellectual property rights, privacy and security. In line with the Government’s general commercial sector policy, the role of government should be to create a stable and certain environment in which commercial activity can take place. This environment is characterised by broad regulatory rules for economic activity, which facilitate the constructive participation of private interests, rather than narrowly focused or command and control regulation.

In general, barriers to entry to the Internet are low in New Zealand and there is significant competition in most areas of activity. Take up of the Internet and its associated technologies has been very rapid in New Zealand, which has consistently over the past five years been one of the highest users of the Internet by international comparisons.

The Internet Society of New Zealand (ISOCNZ) has responsibility for administration of the Internet in New Zealand including management of the .nz domain and responsibility for registration of domain names in New Zealand. For historical and practical reasons, ISOCNZ exercises a monopoly control over the registry. Nevertheless, because of the existence of generic domains which are open to registration of domain names by New Zealanders, there is in this respect, a form of competition. It appears that the domain name system in New Zealand is competitive, well organised, properly administered, professionally serviced, and offers a high quality of service at a reasonable cost.

There are no indications that there is a need for the Government to introduce sector specific regulation or control mechanisms in relation to the Internet.

As far as possible, New Zealand law is technology neutral and is thought to apply to most if not all areas of electronic commerce, including the Internet. Nevertheless, the Government is considering if legislative measures need to be taken to provide certainty and clarity in order to encourage electronic commerce to develop. Where possible, the Government would prefer to see internationally contentious issues, such as intellectual property concerns in relation to domain names, resolved in appropriate treaty fora rather than on an ad hoc industry basis. In line with its policy of encouraging industry self-management, the Government is keen to see the adoption of an Internet service provider code of practice.

General Government Policy for the Commercial Sector

The role of government should be to create a stable and certain environment in which commercial activity can take place. In this environment industries are treated equally and the Government's role is directed towards allowing fair competition and markets to develop, while ensuring consumers are protected. This environment is characterised by broad regulatory rules for economic activity, which facilitate the constructive participation of private interests, rather than narrowly focused or command and control regulation.

The Government is concerned to ensure that there is an open, competitive market, that there is protection of consumer and intellectual property rights, privacy and security. This environment is established through commercial legislation and regulation which includes the Commerce Act, the Fair Trading Act, the Consumer Guarantees Act, etc.

The Government would intervene only where there are clear signs of market failure and when such intervention would be beneficial and effective.

Consistent with this, the Government’s general policies for the development of electronic commerce may be summarised as:

• The private sector should lead the development of electronic commerce;

• The expansion of electronic commerce should be market and technology driven;

• The Government supports and maintains a competitive, predictable, minimalist, consistent and technology-neutral legal and regulatory environment for electronic commerce;

• There is an international dimension to many electronic commerce issues such as jurisdiction and intellectual property rights which need to be subject to international agreements.

The Government supports New Zealand involvement in international forums where issues relating to global electronic commerce are discussed, such as the OECD, APEC and the WTO.

For example, the Government has endorsed the OECD taxation framework for the digital market place which includes as a key statement that taxation in relation to electronic commerce “should be guided by the same taxation principles that guide governments in relation to conventional commerce.”

The role of government is increasingly focused on setting higher level or more general rules, and monitoring compliance. The Government expects that competition for business in such an environment will lead towards greater industry self-regulation as a competitive asset, especially in a global electronic market where reputation and trust are critical to success.

The Government has a monitoring role to ensure that the market is operating effectively. For example, the Ministry of Commerce is responsible for ensuring that legislation in areas such as commerce, consumer protection and intellectual property protection is adequate. The Commerce Commission provides an avenue for ensuring that competition policies are effective.

Importance of the Internet for Economic Growth

The Internet is seen as the basis for the growth in electronic commerce expected over the next five years; which is in turn seen as being essential for the future wellbeing of the New Zealand economy.

The democratic nature of the Internet has allowed individuals, small to medium businesses and large corporations alike to easily participate in electronic commerce. Since 1994, when the commercial potential of the Internet became apparent, New Zealand has consistently been one of the ‘top ten’ countries on a comparative population basis by every measure of Internet uptake and use. Currently, 560,000 New Zealanders regularly access the Internet and this number is increasing rapidly.

This means that the number of individuals and businesses with Internet access has reached a critical mass. Just as with fax machines in the late 1980s, in the late 1990s an email address has become an essential business tool and, increasingly, an important means of personal communication. The World Wide Web is a key information resource for many New Zealanders and is being used as a marketing tool to disseminate product information, deliver after sale support services, or as a vehicle for direct selling.

Because of New Zealand's geographical isolation the benefits of Internet access to international sources of information, educational material and electronic markets are particularly significant. By minimising the barriers of time and distance, the Internet presents great opportunities for the New Zealand economy as we move toward products that are typical of a 'knowledge' economy including financial and other services, software, travel, entertainment and high value niche market goods.

Historic Development of the Internet in New Zealand

The Internet was introduced to New Zealand through the research and academic community. Popular and business access arose initially through informal contracts between mainly academic institutions and private sector groups, local and central government agencies and the like. Until 1995, the Internet in New Zealand was administered by an incorporated society with a closed membership drawn from the universities, research institutes and other government agencies. This responsibility was passed to the Internet Society of New Zealand (ISOCNZ) in recognition of the growing commercial importance of the Internet.

Internationally, delegation of the administration of ccTLDs¹ in the early days of Internet commercialisation (from 1989 onwards) was somewhat haphazard and informal. Some delegations were to persons not representative of any responsible organisation and in some cases was to individuals not resident in the country concerned. In New Zealand’s case the initial delegation was to a staff member at the University of Waikato who in 1996 passed it on to ISOCNZ with the full support of IANA². ISOCNZ set up a fully owned commercial company to carry out the work of administering the .nz domain and to operate a domain name registry, trading as Domainz.

There are now over 30,000 registrations in the .nz domain. According to OECD figures about 6% of New Zealand held domain names are in the gTLDs³ (around 2000).

Policies for Administration of the .NZ Domain

Operation of the registry involves the registration and operation of all second level domains (.co.nz, .ac.nz, .gen.nz, .org.nz, .govt.nz, .cri.nz, .mil.nz, .iwi.nz, .net.nz, .school.nz). Registration of names in some of these is restricted and subject to moderation (.iwi.nz, .cri.nz, .govt.nz, .mil.nz) but most are open to anyone.

Policies for the operation of the registration service have been established by ISOCNZ under the general delegation from IANA. In general they are similar to the principles of operation of the New Zealand Companies Registry where responsibility of the registry is limited to ensuring that names are unique. It is the responsibility of the applicant for a particular name to have ensured themselves that they have the right to the use of the name and that it does not infringe trademark or other intellectual property rights of a third party. Registration is carried out on a "first come, first served" basis. Conflict between an applicant and an existing name holder is for the two parties to resolve. To the extent that this may infringe intellectual property rights, such resolution may ultimately be through the New Zealand courts.

There are essentially no restrictions on what names may be registered in the unmoderated second level domains, although Domainz reserves the right to refuse a name if it is considered offensive. For example, a commercial organisation may register in .org.nz or .gen.nz even though these are intended for the use of non-profit organisations and individuals respectively. There is no restriction of the use of the .nz space to New Zealand residents whether individuals or corporate entities. It is estimated that there are about 2000 registrations in .nz from off-shore.

An annual charge is made for the use of a domain name. ISOCNZ maintains that listing is akin to a "licence" to connect, not a property right. In particular, ISOCNZ states that delegation confers no rights to trade in names and neither ISOCNZ nor Domainz themselves trade names.

To date, there have been two allegations of "cyber squatting"⁴ in New Zealand that have reached the Courts. In both cases the Courts had no difficulty in applying existing rules of law to the facts. In dealing with such cases, ISOCNZ policy is to indicate to the parties that it regards itself as playing no part in their dispute and will abide the decision of the Court. This position has been recognised and supported by judicial comment in the New Zealand High Court.

Issues for the New Zealand Government

The Internet is subject to standard commercial legislation and regulation. The Government wishes to ensure that its policies are effective with respect to the Internet as in all other economic activities. Therefore, the Government is concerned to see that the Internet in New Zealand is soundly based and organised and that it is not capturable by any single person, group or interest but remains open, accessible and cost effective for everyone.

The Government is keen for the Internet industry to take responsibility for issues such as consumer protection and protection of vulnerable groups, within the overarching legal framework provided by consumer protection, business, censorship and other relevant legislation.

Competition

In general, barriers to entry to the Internet are low in New Zealand and there is significant competition in all areas of activity, except with the administration of the .nz domain, where ISOCNZ exercises a monopoly control over the registry. ISOCNZ has an open membership and is properly constituted under New Zealand law as a non-profit incorporated society.

In 1997, the Commerce Commission investigated the operation of the .nz domain in order to determine whether ISOCNZ was substantially lessening competition, was abusing a dominant market position or had acquired the assets of a business leading to a dominant market position, The Commission found that ISOCNZ did not appear to have breached the Commerce Act in any of these respects.

New Zealanders are free to register their domain names “off shore” in any open ccTLD or gTLD so that competition also exists in this regard.

There is no present need for the Government to intervene since it appears that the domain name system in New Zealand is competitive, well organised, properly administered, professionally serviced, and offers a high quality of service at an internationally competitive price.

Intellectual Property and Trademark Issues

The Government is concerned both within New Zealand and internationally to ensure that intellectual property and privacy rights are respected. New Zealand copyright law, although being as far as possible technology neutral, does take account of digital and multimedia material and is applicable to Internet content and use.

New Zealand supports the international intellectual property treaty organisations, including WIPO, and would prefer to see resolution of outstanding IP issues (such as famous names) resolved in those treaty fora rather than on an ad hoc industry basis.

Pornography and Objectionable Content

New Zealand legislation does not distinguish between different types of storage or communications media and is fully applicable to any material stored on computers or in magnetic or optical forms. There have been a number of successful prosecutions in the New Zealand courts resulting from attempts to distribute offensive material copied over the Internet.

The Government, in line with its policy of encouraging industry self-regulation, is keen to see the adoption of an Internet service provider code of practice which includes reasonable measures aimed at the protection of children and other vulnerable groups from objectionable content such as pornography and racist or hate material.

Conflict of Laws and Jurisdictional Issues

The Government recognises that in order for electronic commerce to develop, there is a need to provide clarity and certainty in the law. The New Zealand Law Commission is currently assessing existing New Zealand legislation in the light of the UNCITRAL model law for electronic commerce and continuing work in areas such as support for digital signatures.

The present view is that New Zealand domestic law is generally consistent with UNCITRAL principles. In some circumstances, legislative amendment may be considered to clarify that the law applies to electronic commerce in order to provide certainty to users. It is anticipated that some further work will be necessary on international issues. The New Zealand Government is supportive of moves to achieve this through international bodies such as the United Nations, the OECD, and APEC.