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Two parties coming together for the greater good: this is the stated aim of the UK’s new Coalition government. But even its supporters admit its unlikely ancestry – as Boris Johnson put it, “a dynamic crossbreed between a bulldog and a chihuahua”.
In Digital Britain, events have taken a similar turn: the Digital Economy Act is now law, welding together rights-owners and internet service providers in a potentially uneasy alliance.
Unlike the Coalition in Number 10, this is an alliance that has to go the whole distance, not just for a fixed five-year term: the regime established to curb online copyright infringement is here to stay – unless the wheels come off as a result of true political shenanigans.
Like the Con-Lib pact, the devil is in the detail. The broad policy strokes are clear: exactly how and when these are to be implemented remains a matter of (almost certainly heated) debate.
An arranged marriage
In the absence of agreement between copyright owners and ISPs on an industry-led solution, Britain now joins a small but growing list of countries employing a legislative approach to the problem of online piracy.
Through the rapid evolution of digital media, consumers are increasingly able to access and share creative content unlawfully. The Impact Assessment published with the Act estimates costs to the creative industries “in the region of £400 million per annum in displaced sales”. For instance, the woes of the recorded-music industry since the advent of digital distribution have been widely reported: while the BPI’s survey of April 2010 revealed a surprising 1.4% annual rise in recorded-music trade income to £928.8 million, the report is quick to put this modest increase in the context of the preceding five years of falling annual income.
Although the detailed workings of the new regime will be determined in codes of practice to be established by Ofcom, the framework is now law.
The marriage vows
While stopping short of a true “three strikes and you’re out” regime, the Act provides for a graduated response to infringement. The graduated response has three main elements:
- Notifying subscribers of reported infringement – A copyright owner must first investigate online file-sharing activity to pinpoint the IP addresses of suspected infringers of the copyright owner’s copyright. The copyright owner may then submit a “copyright infringement report” to the relevant ISP, detailing the alleged infringement and the IP address concerned. The ISP must then notify the customer associated with that IP address, giving details of the report (section 3). It is hoped that notification alone will deter most consumers from further infringement: in the Impact Assessment, the government cited a 2008 survey, which indicated that 70% of copyright infringers would stop downloading illegally after receiving a warning from their ISP.
- Providing infringement lists to copyright owners – Persistent infringers may, however, be undeterred by notification. As a second “initial obligation”, each ISP must compile, and provide copyright owners with, anonymous lists of serious repeat infringers (section 4). This is intended to assist copyright owners in obtaining court orders for disclosure of the identities of persistent infringers in order to bring copyright claims against them. The Act obliges Ofcom to establish a code of practice on the “initial obligations”, either by approving a code drafted by the ISPs and copyright owners together or by introducing one itself (section 6). The code must set out detailed rules on when a copyright owner may issue a copyright infringement report, what information the report must include and when an ISP must notify a subscriber of a report (section 3). It must also specify a threshold number of copyright infringement reports in relation to a subscriber that will trigger the obligation on the ISP to include that subscriber in an anonymous infringement list, as well as the circumstances in which the list must be provided to the copyright owner (section 4). The Act envisages that, where the number of infringement reports received by an ISP within a particular time period is beneath a certain level (to be set by the code), the initial obligations will not apply to that ISP. This, coupled with the absence of smaller ISPs from initial talks with Ofcom following passage of the Act, indicates that the code may effectively exempt smaller ISPs from the initial obligations.
- Limiting internet access – The success of the “initial obligations” regime will be assessed and reported on by Ofcom over a period of 12 months from its implementation (section 8). If, at that point, having considered Ofcom’s reports and assessments and other relevant factors, the government is not satisfied with progress (its target being a 70% reduction in infringement within two years of passage of the Act), it may invoke backstop powers requiring ISPs to impose “technical measures” on infringers, which limit the speed or other capacity of a subscriber’s connection, block or limit the subscriber’s access to particular material, suspend the connection or limit it in some other way. The Act provides for a “super-affirmative procedure” (not included in the original Bill), which must be followed in order to implement such technical measures: they may only be imposed by an order of the Secretary of State, which must be approved by both Houses of Parliament after a 60-day consultation period. As with the initial obligations, Ofcom must establish a code of practice (either separately or as part of a combined code dealing with both the initial obligations and the technical obligations). ISPs found in breach of the initial or technical obligations will face a civil fine of up to £250,000 (section 14).
The measures against individual infringers are complemented by a power conferred on the Secretary of State to initiate regulations enabling courts to grant “site-blocking” injunctions (section 17). This was introduced by an amendment during Parliamentary debate (replacing a controversial “future-proofing” provision in the original Bill, which permitted the Secretary of State to initiate amendments to legislation in order to help the law keep pace with rapid technological change). The new section 17 applies to any internet location that “has been, is being or is likely to be used for or in connection with an activity that infringes copyright”. Regulations based on section 17 may only be imposed by means of a statutory instrument approved by both Houses of Parliament, following a “super-affirmative procedure” similar to that required in relation to the imposition of technical obligations.
Consummating the marriage
Much of the detail of the new regime is to be determined by the codes of practice, which Ofcom is unlikely to finalise before early 2011 at the earliest. Ofcom plans to publish a draft code in May 2010. At the time of writing, Ofcom is currently engaging with stakeholders. By the end of September 2010, Ofcom plans to publish a statement and to submit a draft statutory instrument embodying a code to the European Commission.
The codes must deal with the difficult issue of allocation of costs in relation to the initial obligations and technical measures. The Impact Assessment estimates that, for each letter sent to a suspected infringer, an ISP will incur costs of between £3 to £10, based on evidence from earlier government consultations. Copyright owners will still face significant costs in investigating infringement, obtaining court orders for disclosure of identity and pursuing copyright claims. Section 5 of the Act envisages that copyright owners’ rights under the initial-obligations code may be conditional on payment in advance of contributions towards the ISPs’ costs of implementing the regime. Ofcom may be able to seek reimbursement of Ofcom’s own costs in relation to the new regime from both copyright owners and ISPs (section 15).
The codes will also have to resolve the complexities of shared internet connections. It is unclear how the regime will deal with infringement via public Wi-Fi services, and critics of the new regime fear that people may be held responsible for infringement committed by another member of their household or by hackers accessing their connection without permission. Such concerns influenced the inclusion in the Act of an appeals procedure that did not feature in the original Bill (section 13). The codes must set out a process by which subscribers may challenge infringement notifications or the imposition of technical measures, with a right of appeal first to a person independent of Ofcom and then, in the case of the technical obligations, to the First-tier Tribunal. The Act requires that the burden of proof in any appeal is on the ISP or copyright owner, rather than on the subscriber. The codes will be administered and enforced by Ofcom, which will also preside over disputes between copyright owners and ISPs.
What will the wedding tackle?
Opinion is sharply divided about whether the new regime will prove successful in tackling online piracy. There are signs that similar legislation introduced in other countries may be having a positive effect on their creative industries’ economic performance. South Korea passed legislation in November 2009 imposing notification obligations on ISPs and providing for powers to suspend subscribers’ connections after multiple warnings. Sweden implemented the IPRED anti-piracy law in April 2009. In its 2010 Recording Industry in Numbers report, the IFPI (which represents the international record industry) suggests that both countries enjoyed 10% growth in recorded-music sales in 2009.
Few, however, believe that the problem can be solved through legislation alone. In a recent statement, BPI chief executive Geoff Taylor welcomed the Act as the third element of a “holy trinity approach”, the other equally important elements being “great, convenient, legal services for consumers at an attractive price” and “consumer education”.
- New digital services – The sheer scale of the online infringement problem suggests that consumers are eager for content, but do not want to be restricted in terms of volume, location or device. The Act recognises the need for industry to develop attractive new digital services: courts must, when considering whether to grant a site-blocking injunction, take into account the steps taken by the copyright owner to facilitate lawful access to the content (section 17). The challenge is to offer legal services that whet consumers’ appetite while providing an appropriate return to copyright owners. So far, however, there is no consensus on the perfect legal alternative to unlawful online accessing of content, and various business models have emerged, notably within the music industry.
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Subscription services – Sky Songs launched in the UK in October 2009, offering download packages and unlimited streaming bundled into Sky subscriptions, with access to a library of over 4 million tracks. The ISP Virgin is also working on a subscription-based music service known as Music Unlimited, its first partner being Universal, the world’s largest music group. Research published by the BPI in March 2010 suggests that, if the UK’s six biggest ISPs launched bundled subscription music services, they could, assuming a “medium adoption scenario”, generate £103 million of additional revenue per year by 2013. |
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Ad-supported services – Other services seek to monetise free access to content through advertising. After widespread initial scepticism as to the viability of advertising-supported free streaming services, We7’s recent announcement that its advertising revenues had covered its music streaming costs for the first time is encouraging. |
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Freemium services – Few of the leading services now rely on one source of revenue alone. Last.fm currently remains free for users in the UK, the US and Germany, but the CBS-owned service now charges subscription fees to users in other territories. Spotify, perhaps the most talked-about new platform, combines an ad-supported free service with a subscription-based premium offering. This so-called “freemium” business model depends on converting non-paying users to the paid service – the latter having the added attraction of being available via smart-phone applications on the iPhone, Android and Symbian platforms. We7 now offers a similar service. |
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Multiple platforms – Many streaming-based music platforms also offer downloads for purchase. In December 2009, Apple, whose iTunes paid download service is unquestionably the most successful online music offering to date, acquired Lala, a music streaming and downloading site with social interactivity. Speculation that this signified plans for a streaming and music-sharing iTunes service was fuelled by the announcement in April 2010 that Lala would shortly close, with users being able to use any outstanding credit at the iTunes store. |
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New digital services are, however, far from dominant: the BPI’s recent survey puts the combined contribution of advertising-supported services and subscription services to the total annual recorded-music industry income at little more than 2%. Physical sales, meanwhile, continued to fall, with an annual decrease of 6.1%. The IFPI’s Recording Industry in Numbers report found an overall decline in global recorded-music revenues of 7% in 2009. |
- Education – The education part of the “holy trinity” may need renewed focus. Recent surveys by government-sponsored quango Consumer Focus have led it to claim that the problem is partly that consumers have been slow to recognise new services, and that copyright law needs reform in the digital age because consumers do not understand it. The government emphasised the importance of education in its reports and consultations as part of the Digital Britain initiative that led to the introduction of the original Bill. This theme is borne out in the Act: ISP notifications to suspected infringers must include information about copyright and its purpose, as well as guidance on how to access content legally and how to protect an internet connection from unauthorised use.
Until death do us part?
The recent change of government may yet spell the demise of the Act, which was passed shortly before New Labour’s own demise. During the course of the election campaign, David Cameron said the Act had been “rushed through too quickly”. Nick Clegg went further, describing the “wash-up” passage of the Act as a “stitch-up” and pledging to repeal the Act.
It is intriguing that the Labour champion of the original Bill, Lord Mandelson, has now been replaced as Secretary of State by the Lib Dem Vince Cable. It is hard to imagine that Mr Cable will exercise the Business Secretary’s considerable discretion under the Act in quite the way that Lord Mandelson might have envisaged. That said, there is no indication, at the time of writing, that the writing is on the wall for the Act. In fact, it would be heartening if Mr Cable’s own prediction for the Coalition proved true for the strange bedfellows conjoined by the Act: “Arranged marriages often work better than ones born out of love.”
For better or for worse
Given the tribal nature of the divisions between the rights-owners and the ISPs, the new regime might prove more of a shotgun marriage than a civil partnership. And, depending on how the political pendulum swings, either lobby might perceive itself as the weaker player.
But neither should feel like the Lib Dem negotiator Andrew Stunell, who summed up the Lib Dems’ role in the Con-Lib talks as being “like a scuba diver in the shark tank”. Each lobby represents powerful political principles: property rights need to be balanced carefully with freedoms of expression and communication, and neither should be sacrificed for the other.
It is overly simplistic to satirise the record labels and film studios as desperately propping up an ailing “analogue economy” in a digital world. As in real politics, it is all too easy to carp from the backbenches. There is a genuine and urgent national interest in preserving British culture (not to mention content from around the world), and the new regime could – with the support of wider choice and education – help rebuild our long-troubled and now crisis-stricken creative industries. An equilibrium needs to be reached between coercion and persuasion: statistical evidence suggests that it is unlikely that one can fully succeed without the other.
To adapt the hackneyed, but well-meant turn of phrase of the new Chancellor of the Exchequer, now is the time to roll up the sleeves and get Digital Britain working.
Ed Baden-Powell is a partner at Michael Simkins LLP in London, specialising in media and entertainment law, with a particular focus on music, sport, live events and new media.
Nick Eziefula is an associate at Michael Simkins LLP, who specialises in providing commercial advice to a wide range of clients in the media and entertainment industries.
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