Predictions 2016: Graham Hann

December 14, 2015

{i}Data security will be the biggest issue in tech{/i}

The importance of data security is not news and last year we at Taylor Wessing predicted that companies would start to differentiate their offerings based on their treatment of customer data. However:
• recent high profile data losses, and in particular those caused by cybercrime, such as in the cases of TalkTalk and Ashley Madison, and not to mention alleged government backed activities, have brought the issue into even sharper focus;
• as systems become more open due to increased adoption of cloud models, and as more devices interact with platforms via the Internet of Things, security risks continue to rise;
• Gartner predicts that by 2018, 20% of smart buildings will have suffered from digital vandalism as a result of inadequate perimeter security, with exploits ranging from defacing digital signage to plunging whole buildings into prolonged darkness;
• targeted attacks on computer Industrial Control Systems (ICS) are a serious threat to a nation’s critical infrastructure, and cyber defence will increasingly be an issue of national security; and
• the long awaited introduction of the General Data Protection Regulation will see fines brought in of up to 2% of annual global turnover.

Cyber insurance will play an ever more central role in businesses’ risk mitigation, and I predict the cyber insurance market will become a great deal more crowded during 2016, with policies that will offer not just compensation, but also coverage for legal implications as well as access to specialist PR providers.

Juniper Research expects that the business and consumer need for security will fuel the development of software security that relies on monitoring network activity for anomalies, rather than the traditional methods of detecting malicious code.

Many businesses will prepare for a data breach on the assumption that it will happen one day, in some ways reminding us of the months leading up to the ‘Millenium Bug’ when we were all paranoid about the effects of a failure to be EMU compliant. Planes didn’t fall out of the sky at midnight on January 1 2000 as was predicted by some then, but it’s easy to forget that that was largely due to the enormous amount of work and pre-planning undertaken in the last few years of the 1990s. We believe the investment likely to be made into data security measures in 2016 will make the investment in those years look like a drop in the ocean.

{i}Blockchain will emerge from Bitcoin’s shadow{/i}

Many commentators and investors have speculated on the value and future of Bitcoin. Less attention has been focused on the technology that underpins it, the Blockchain. Somewhat ironically given some of the more negative associations linked with Bitcoin, the Blockchain may, in fact, provide a mechanism to verify transactions, ownership and to avoid fraud which is more reliable and less open to abuse than many of the systems widely used in business today.

The Blockchain is essentially a (virtually) tamper-proof data structure, providing a shared public ledger that verifies all Bitcoin transactions. Any transaction, such as where person A transfers a Bitcoin (or part of one) to person B, is ‘confirmed’ by a number of computers (each operated by bitcoin miners) and then embedded as a ‘block’ in the Blockchain, all using encryption technology. A key component of the Blockchain is the distributed way in which new blocks are added to the ledger, without any central record keeper as with banks or e-wallets. It is essentially a shared consensus system, and usually requires several independent confirmations for the transaction to go through.

While it is theoretically possible to compromise or hijack the network behind the Blockchain, the sheer size of this network and resources needed to pull off such an attack make it practically infeasible, and, in addition, its effect would be limited (except for the impact on users’ confidence). The absence of a centrally controlling platform or authority makes the network much more difficult to abuse, hack or even hijack.

For these reasons it is easy to see why the use of Blockchain-like systems is starting to appeal in other fields such as: recording property ownership; tracking goods through the supply chain; eradicating the need for a bill of lading; evidencing the entering into of contracts; verifying identity online; evidencing electronic trades such as swaps or other derivatives; and recording votes within organisations (or even in elections). Business and government confidence is growing:
• The Bank of England, in its 2015 research paper ‘One Bank Research Agenda’, stated ‘The emergence of private digital currencies (such as Bitcoin) has shown that it is possible to transfer value securely without a trusted third party. While existing private digital currencies have economic flaws which make them volatile, the distributed ledger technology that their payment systems rely on may have considerable promise. This raises the question of whether central banks should themselves make use of such technology to issue digital currencies.’
• In May this year Nasdaq announced that it will use the Blockchain technology for the trading of shares in private companies, a project launched in Nasdaq Private Market. According to its website, ‘Nasdaq is one of the first multinational financial services companies to explore ways to leverage the blockchain in a non-currency manner. The company’s first application will provide a fully-electronic, distributed ledger-style solution for accurate record-keeping’.
• There is also a blockchain-based mobile phone operating system being developed – Trustonic – to challenge the market share of Android and IOS.

2016 is likely to see the emergence of Blockchain-like public ledger technologies in multiple fields, providing a high degree of disintermediation. The effect on the way asset ownership, and agreements between counterparties, is recorded and evidenced, could be significant. It might even reduce the need for lawyers, but let’s not be too rash in our predictions so early in this piece.

{i}Ad blockers blocked?{/i}

In June, Apple announced that the latest version of its operating system for iPhones and iPads would enable ad blocking. Then in August, PageFair’s 2015 Ad Blocking Report found that not only has ad blocking continued its fast growth on desktop, but it has also leaped onto mobile in Asia and will soon go mobile more rapidly, not least due to Apple’s move. With ad blockers being some of the most downloaded apps on the App Store (Pagefair’s report found that 41% of Internet users between the ages of 18 and 29 block Web advertisements in their PC browsers), it’s easy to see why advertisers and publishers that rely on advertising revenue to support their sites, are investing equal computing power in measures to defeat the ad blockers. This is widely referred to as the biggest arms race on the Internet, and many platforms (such as 4OD) are now employing technology to detect ad blockers and disable content while they are in use.

Some commentators argue this could turn out to be a storm in a teacup, and point out the worries that broadcasters had when VHS was first widely used (allowing for the possibility of fast forwarding through the ad break in a recorded programme). The industry not only survived that technological breakthrough but has flourished since. Others argue that forcing ads onto users who are becoming tired of being pursued around the Internet by programmatic ad platforms makes no commercial sense and that publishers and brands need to get smarter and more subtle in how they reach their users.

There is certainly the possibility of legal action – in France a trade group for online publishers, GESTE, and the French Internet Advertising Bureau are exploring the possibility of suing Eyeo, the German start-up company behind popular app Adblock Plus, which is already being sued in Germany. Eyeo charges publishers a fee to ‘white list’ their sites and it is reported that Google and Microsoft, among others, have paid up.

Attacking disruptive models popular with consumers would seem unlikely to be a long-term solution (as the opponents of Uber are finding out, and as the film studios found out when they challenged video back in the day), and until there is a paradigm shift in the way advertisers target users, the ad blocking arms race is likely to continue unabated in 2016.

{i}Anti-social media{/i}

2015 has been another year of massive growth for social media: more than 1 billion people are now using Facebook, more than 80% of small businesses use social media for their branding and marketing efforts, and it is hard to find any global brand without a meaningful social media presence. It has been predicted that there will be more than 2 billion users of social media by 2016.

As use grows, the percentage of searches made on social media platforms will continue to outpace those made on search engines and more e-commerce features will be available. Facebook, Pinterest and Twitter have all incorporated eCommerce features in social media (such as a ‘Buy Now’ button on Twitter and Facebook), and as brands step up their focus on social media as a major sales platform, features such as these may become the norm, and a major platform may well introduce a shopping basket in the near future. As social media platforms enter the direct sale market, they will need to take account of the recent changes in consumer laws, such as around refund rights across Europe, and may find that the differences in application of those laws across the Member States, and beyond, increase the need for different models in different markets.

{i}Virtual becomes reality{/i}

Virtual reality has been a long time coming, but the last year or two has seen unprecedented investment and consolidation. Virtual reality headsets immerse users in three-dimensional worlds. Initially, the primary market is expected to be video games. The big guns are now piling in to this emerging space – Facebook’s recent purchase of Oculus (Oculus Rift), Google’s Cardboard, and forthcoming products from Sony (Morpheus), Microsoft (HoloLens), Samsung (Gear VR) and HTC (Vine) would all seem to indicate the technology is nearly consumer-ready.

According to data released from the Topology Research Institute, virtual reality device sales will hit 14 million units worldwide in 2016. Virtual reality movies, which will pull viewers into the environment of a film, will eventually make their presence felt.

Juniper Research has stated in a recent report that ‘the recent attention to and investment into virtual reality is helping to revitalise the industry and with major brand commercial launches imminent, there is huge potential for rapid market expansion.’ and Juniper expects 2016 to be a watershed year for virtual reality, with significant uptake over the next five years as consumers benefit from a combination of improved technology allied to immersive applications, as well as reduced prices.

Consequently, the technology is now poised to transform the entertainment industry, including gaming and video, over coming years whilst offering the potential to expand quickly into other markets such as industrial and healthcare.

The legal issues applicable to Virtual Reality games are in many ways no different to those applying to traditional 2D games. However, if 2016 does indeed signal a new phase, then issues that have been explored but not necessarily resolved in the past would need considering: much was written about platforms like Second Life where users could ‘own’ virtual assets including real estate, and even advertise. What is the platform’s liability to users in respect of these assets? What if a user’s IP (such as their brand) is infringed in a virtual world? Would a user have any rights against the platform if it was unavailable? Can virtual currency be earned or purchased, can it be used outside the platform and does this raise any issues under financial services laws?

{i}Fantasy Sports turns out to be a fantasy{/i}

Fantasy Sports, where players assemble imaginary teams of real players of a professional sport, for the teams to compete based on the statistical performance of those players’ players in actual games, has become a multi-billion dollar industry, particularly in the US. Regulators in the US have recently begun taking action against the operators – for example the New York Attorney General ruled this year that fantasy sports are essentially ‘games of chance’ and are thus unlawful gambling. The ruling singled out major operators, Draft Kings (offering games based on baseball and other sports) and FanDuel, and is being appealed (on the basis that the operators claim it is a game of skill). This ruling, and the related debate, which has been echoed in other states including Nevada, has echoes of 2006 when the Bush administration passed the Unlawful Internet Gambling Enforcement Act 2006, which essentially pulled the rug out from under the US online poker industry, sending major stocks tumbling overnight.

The industry is looking to new territories to grow revenue and the UK and Europe are firmly within its sights. However, the industry grew rapidly in the US, being a country where sports betting is, generally speaking, illegal, and thus satisfied an untapped demand. Over here, sports betting is lawful (for licensed operators) and one only has to watch an ad break during a Champions League game to see the extent of investment in the sector. As such, it is not surprising that it has not taken hold (in the way poker did many years ago for example) yet. Many think that 2016 will be a watershed for the industry in UK and Europe but we would avoid placing any big bets on that outcome just now.

{i}The net goes neutral whilst video on demand rules tighten{/i}

Binding EU net neutrality rules will come into force in April 2016. Under these rules, throttling (the intentional slowing of internet service by an internet service provider) and blocking will be illegal, but with certain – arguably broad – exceptions, for example to allow ‘day-to-day reasonable traffic management’, and traffic management when it is required to support a ‘service requiring a specific level of quality’.

It will be interesting to see how the rules are applied when it comes to assessing compliance by streaming heavy-weights such as Netflix, which has been criticised for campaigning heavily for net neutrality on the one hand, and then teaming up with ISPs such as Australia’s iiNet in order to offer its service to the ISPs’ customers without impacting on their broadband caps, something which seems counter to its campaigning.

From January 2016, Ofcom will take over the regulation of video on-demand programme services from current regulator ATVOD. This is likely to see more effective regulation of online content – for example, online child pornography, in respect of which ATVOD has been heavily criticised as being an ineffective regulator.

{i}5G networks are coming, but not yet{/i}

In early 2016, Ofcom plans to auction certain portions of spectrum to make way for a 5G network in the UK. The bands that are set to be released are suitable for 5G and high-speed and high-bandwidth data services. A 5G mobile broadband network has the potential to make the likes of humanoid robots and video holograms a reality, although a working 5G network is unlikely to be viable in the UK until 2018 at the earliest.

{i}2016 – an increasing gap{/i}

With the pace of change seen in 2015, the above is only a mere scratch on the surface of what the next year could bring. Consider the 2015 United Nations Climate Change Conference in Paris and its possible impact on (bio)fuel and cleantech development, and breakthroughs in other areas such as food science, healthcare, medical devices and education will continue if not accelerate.

While what exactly 2016 will bring for the tech, media and communications world is unpredictable, certain constants hold true. Gordon E. Moore, a co-founder of Intel, famously predicted that every two years the number of transistors on a chip will roughly double. I predict that the gap between the laws governing technology, and the technology itself, will continue to double at about the same pace.

{b}Graham Hann is a Partner at Taylor Wessing LLP. These predictions first appeared in the Taylor Wessing online publication {Download Media and Tech Law:}, where a series of other predictions on topics such as data protection and cybersecurity, FinTech, gaming and copyright are available.{/b}