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The Digital Economy Bill is aptly named. Of its potpourri of measures, it comes as no surprise that a regime to tackle digital piracy is first on the menu. This could prove vital to sustaining Digital Britain's creative economy.
Equally unsurprising is the vehemence of the debate it has aroused. With rights-holders pitted against internet service providers, one or other lobby was bound to find these measures hard to swallow. In light of this, the government's indecisiveness in developing its digital policy is understandable. As J K Galbraith put it: "Politics is not the art of the possible. It consists in choosing between the disastrous and the unpalatable."
But, to secure the possibility of art, the "art of the possible" is exactly what is needed – at least as far as rights-holders are concerned. Disaster is widely prophesised for the creative industries if nothing is done – and fast.
Food for thought
The rise of digital media – and the ease of copying and disseminating content electronically – has irreversibly transformed the market for creative content. In its Impact Assessment for the Bill, the Department for Business, Innovation and Skills (BIS) estimated that, if no action is taken to combat illegal peer-to-peer (P2P) file-sharing, the cost for the creative content industries will be "in the region of £400 million per annum in displaced sales."
On any analysis, this is a high price to pay. The alarming year-on-year decline in record companies' revenues over the past decade has been widely reported. The extent to which it is attributable to online copyright infringement has been a matter of extensive debate.
Who ate all the pies?
Internet users, with ever-faster broadband access and file-sharing and other new technologies, can help themselves to content for free. The BPI, which represents the British record industry, estimated in 2009 that online copyright infringement would cost the UK music sector £200 million, with some 7.3 million people engaged in unlawful P2P file-sharing. Its website cites research estimating a cumulative cost to music companies of £1.2 billion between 2007 and 2012.
The ISPs' connections can be used by their subscribers to access content illegally, and it was inevitable that rights-holders would accuse the ISPs of having their cake and eating it. Faced with consumers who are increasingly comfortable with paying nothing for content, rights-holders have campaigned worldwide for ISPs to take greater responsibility for their subscribers' actions.
Just desserts
ISPs countered by invoking the principles of net neutrality and privacy, relying on their immunity (enshrined in e-commerce laws) as the "mere conduit" for their subscribers' infringement and maintaining that it is for rights-holders to chase infringers and to force them to pick up the tab.
That is easier said than done, and it is not for want of trying that rights-holders have largely abandoned that strategy. While rights-holders can investigate (at some cost) which IP addresses are apparently being used for illicit P2P file-sharing, they cannot identify the infringers from that information alone. The ISPs, however, can compare the IP addresses of alleged infringers against their customers' details – information vital to the rights-holders if they are to pursue infringers directly.
But the cost and time involved in obtaining a Norwich Pharmacal order for disclosure of this information and pursuing the alleged infringer directly, coupled with the scale of infringement, prevents rights-holders from pursuing more than a small proportion of infringers. In fact, the fear of alienating the target market by taking legal action against potential customers acts as a disincentive: file-sharers are often big music fans. The recent acquittal of Alan Ellis, founder of music-sharing software Oink, demonstrates that it is also difficult to prove liability.
A recipe for change
The government took the complaints of the content industries seriously throughout its Digital Britain initiative and has been increasingly sympathetic to their cause. In August 2009, the government issued a statement proposing suspension of internet access as a remedy of last resort. The initiative culminated in the introduction of the Digital Economy Bill in November 2009.
The Bill stops short of a "three strikes and you're out" regime, along the lines already introduced elsewhere in the world (including Japan and France). Nonetheless, it provides a three-step graduated response to infringement:
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The first “initial obligation” imposed on an ISP is to send a notification to any of its subscribers if the subscriber’s internet protocol (IP) address is reported to the ISP by copyright owner(s) as being used to infringe copyright (clause 4).
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The second “initial obligation” imposed on an ISP is to compile anonymous lists of serious repeat infringers and to provide those lists to copyright owners (clause 5). Using this information, a copyright owner can apply for a court order to disclose the infringers’ names and addresses and can then bring copyright claims against them.
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Thirdly, the Secretary of State has “backstop powers” that can be used if considered necessary after consulting Ofcom on the effectiveness of the initial obligations. The Secretary of State can require ISPs to take technical measures against serious repeat infringers to limit their internet access (clauses 10 and 11). Although the measures are not exhaustively defined, it is clear from the Bill and the accompanying Explanatory Notes that these could include speed humps, bandwidth shaping/capping, limitation on access to (or use of) particular material or even suspension of internet access.
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The regime will apply to every larger ISP that meets qualifying threshold criteria, which will be set under a code of practice to be approved or (in the absence of agreement between interested parties) drawn up by Ofcom. Accordingly, most small and medium ISPs (and possibly mobile networks) would not be bound by the regime. The same code will set out details of how the initial obligations will be met, including a process for detection of infringement, the standard of evidence to be provided by copyright owners, the number of (and timeline for) notifications to be sent to infringers, and a threshold number for determining serious repeat infringers.
Should it be necessary to involve the backstop powers, a further code will be made by Ofcom to set out the procedural mechanisms to give effect to the technical obligations, including an appeals process for subscribers wishing to challenge the imposition of technical measures (with a right of appeal first to a person independent of Ofcom and then to the First-tier Tribunal).
ISPs that are in breach of the initial or technical obligations will face a civil fine of up to £250,000.
A balanced diet?
Since the Bill weighs up protection of property against interference with freedoms, the measures have been widely criticised by ISPs and consumers alike as being "disproportionate" – whether on human rights grounds or on purely practical grounds:
Human rights issues
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Any effective blocking of a subscriber's internet access is difficult to reconcile with the subscriber’s rights to freedom of expression and communication and to respect for private life under the European Convention on Human Rights.
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A further concern is the right to a fair trial, as the Bill does not require a court order before the imposition of a technical measure – merely providing a right of appeal. This could yet fall foul of European human rights law or of EU law. The telecoms package recently agreed (after intense debate) by the European Parliament is inconclusive on the point, stressing the need for a "right to be heard" (over and above a right to an "effective and timely judicial review"), but leaving open the possibility of derogation in "duly substantiated cases of urgency". |
Practicality
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While there are some encouraging statistics from other jurisdictions, it remains to be seen whether the measures will actually be effective in curbing online piracy: indeed, the Bill explicitly acknowledges that the initial obligations may not work.
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The government is confident that the notifications alone will discourage many casual infringers from engaging in illicit P2P file-sharing. The Impact Assessment cites the findings of Entertainment Media Research, which in 2008 found that 70% of infringers would stop illegal P2P downloads after being notified by their ISP. Assuming this figure is accurate, BIS estimates that content-industry annual revenues could increase by approximately £200 million if ISPs were required to issue such notifications.
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While there is cautious optimism that the silent law-abiding majority might fall into line, many are sceptical that the technical measures will have any real effect on serious repeat infringers. There are already signs that new, non-P2P forms of piracy are emerging, and sceptics argue that the law has failed to keep pace with the rapid changes in technology. |
What to do with the leftovers
This time, however, the government did attempt to "future-proof" the legislation, with the highly controversial clause 17. In its draft form, this would have empowered the Secretary of State, without primary legislation, to make an order to amend the Copyright, Designs and Patents Act 1988 and/or the Communications Act 2003 for the purpose of preventing or reducing online copyright infringement "taking account of technological developments". Such an order would need to be made by statutory instrument and approved by a resolution of each House of Parliament; however, Select Committees on the Constitution and on Human Rights both expressed concerns over clause 17, even though subsequent amendments to the Bill expanded on the level of Parliamentary scrutiny required.
Then, shortly before the time of writing, the House of Lords voted down clause 17, instead approving Amendment 120A as an alternative measure to tackle non-P2P piracy. This would, if adopted, empower the High Court to grant an injunction requiring an ISP to block access to a particular website or mobile data network in order to prevent online copyright infringement. The criteria for granting an injunction include: (a) whether a "substantial" proportion of the content accessible at or via the site infringes copyright; (b) the extent to which the site operator has taken reasonable steps to prevent/remove access to infringing content; (c) whether the ISP has taken reasonable steps to prevent access to the site; and (d) the extent to which the copyright owner has made reasonable efforts to facilitate legal access to the content. The ISP will not generally have to pay the copyright owner’s costs of the application unless the copyright owner has given the ISP a reasonable cure period.
This proposal for network-level blocking has elicited "outrage" from the ISPA, the ISPs' association, which fears that ISPs will simply block access to notified sites rather than run the risk of incurring litigation costs. Many commentators see this as giving rights-holders an effective right of censorship, contrary to freedom of expression. The Open Rights Group has predicted routine blocking of sites that host user-generated content. These anxieties are perhaps alarmist: Amendment 120A explicitly cites "the importance of human rights" as a factor in whether or not an injunction should be granted – but with little guidance on how "freedom of expression" and "the right to property" would be balanced – a precarious equilibrium that appears so far to have eluded legislatures around the world.
Next course
The Bill will now go the House of Commons for its reading and committee stages, where further changes could be made.
Even if the Bill is passed substantially in its current form, it will leave many other issues unresolved. The devil will remain in the detail of the codes, which will have to resolve the many open issues. For example, what parameters should be set for exercise of the technical measures? How will liability be determined where a subscriber's connection has been accessed by a third-party infringer? How will the appeals process work?
All you can eat
Whatever shape the Bill takes, it is widely acknowledged – and by commentators on all sides – that the stick will not work without a carrot.
The Open Rights Group has advocated resolving the problem by developing more attractive legal services. The challenge is to develop legal services that whet consumers' appetite for the product and provide an appropriate return to rights-holders. The very scale of the P2P problem suggests that consumers are hungry for content. Despite the recent decline in sales of recorded music, consumer interest in music remains strong: in February 2010, research company Sysomos reported that music was the most popular category on Google’s YouTube video streaming service, accounting for over 30% of all views (over twice as many as the next largest category).
Some services try to emulate the "all you can eat" experience of illegal file-sharing, inviting users to consume as much content as they like, but attempting to monetise the product in different ways. The past few years have seen a smorgasbord of new services based on a variety of business models – some advertising-funded, some subscription-based and some combining the two in a so-called "freemium" offering.
So far, however, there is no consensus on the perfect offering. Apple’s iTunes is unquestionably the most successful online music fare on offer to date (celebrating its 10 billionth download this February), but the success of the model has come through driving device sales, rather than from actual content sales. There is speculation that Apple is planning a shift towards a "cloud" service, following its recent purchase of streaming and download site LaLa.
Spotify, the most talked-about "cloud"-like service, is perhaps the best-known "freemium" offering and claims to have developed an impressively large user base. Many of its users, however, pay nothing. Its business model depends on converting sufficient users from its advertising-funded free service to its paid-for premium service. In January, Rob Wells, senior vice-president of Universal Music Group International, described Spotify as "a very sustainable financial model – full stop". Warner Music chief executive Edgar Bronfman, by contrast, has recently expressed doubts over the viability of the "freemium" model, stressing his preference for subscription-based systems.
Universal, the world’s largest music group, and the ISP Virgin are collaborating on such a service. Other ISPs, however, are far less interested in stepping into the world of content provision. Talk Talk CEO Charles Dunstone stated in January at a reception as part of his company's "Don’t Disconnect Us" campaign that "it's not our job to sell music". He has not hidden his lack of sympathy for the recording industry, which he views as having "treated its customers so badly they have effectively gone on strike". If labels' doubts over unproven services cause them to withhold their support and ISPs' lack of sympathy for the content industries discourages them from co-operation, new business models may struggle to establish themselves in an already difficult market.
Footing the bill
It is exactly this lack of a viable commercial solution to date that has resulted in legislative intervention, and the new regime will not be cheap to run.
Perhaps the least digestible part of the Bill for rights-holders and ISPs alike is the provision on allocating the costs of implementing the notifications, lists and technical measures: the Secretary of State will have the power to order inclusion of provisions in the codes requiring ISPs and/or rights-holders to contribute to the ISPs' and Ofcom's costs in operating the regime.
The government's cost-benefit analysis in the Impact Assessment estimates a one-off capital cost to ISPs of £35 million and annual average costs of £7.5 million to £24.5 million for the notification regime, £60,000 for running a call centre in relation to the regime, £2-9 million for consumers and a £19 million operating cost to mobile network operators. Talk Talk CEO Charles Dunstone told the Times recently: "Broadband consumers shouldn't have to bail out the music industry. If they really think it's worth spending vast sums of money on these measures then they should be footing the bill, not the consumer."
Under the Bill, rights-holders are likely to have to go Dutch in any event – and it could end up a relatively small price to pay in comparison with the lost revenues that are likely to result from doing nothing. For the ISPs and consumers, on the other hand, the costs of the regime may seem a high price to pay for loss or restriction of freedoms that they have so far enjoyed without derogation. The Bill pointedly defers the true cost implications.
In terms of the debate, then, we are still on the hors d’oeuvres. But the creative industries urgently need the legislature not to make a hash of it. Let's hope that another dictum of J K Galbraith is borne out in this case: "It takes some skill to spoil a breakfast – even the English can't do it."
References in this article to the Digital Economy Bill are, unless otherwise stated, to the text of the Bill as amended in committee and published on 9 February 2010 on the UK Parliament website.
Ed Baden-Powell and Nick Eziefula
Article written for Copyright World. Digital copy courtesy of Copyright World, published by Informa Law.
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