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It is hardly the Da Vinci Code. Ofcom’s draft code on internet service providers’ initial obligations under the Digital Economy Act is not exactly a page-turner, but worth a read. And, like one of Dan Brown’s pot-boilers, there is plenty of arcane detail to get your head around.
Background
Over the past decade online copyright infringement has presented the creative industries with a conundrum: how to deter infringers effectively without alienating customers. The public’s angry response to early attempts to sue small-scale infringers was a signal failure in the industries’ battle to win hearts and minds. At the same time, the scale of peer-to-peer file-sharing meant that litigation alone would not solve the problem, even if supported with educational initiatives and attractively priced legal music services. The creative industries called for legislative intervention.
It came in the shape of the Digital Economy Act 2010 (DEA), in which the Government laid the foundations of its new regime to tackle online copyright infringement. The DEA received royal assent on 8 April 2010. Much of the brickwork, however, is left to Ofcom, which must establish codes of practice covering the detailed workings of the new regime. On 28 May 2010, Ofcom issued a consultation on the “initial obligations” under the DEA. These are the ISPs’ obligations to notify subscribers alleged to have infringed copyright, as well as to provide copyright owners with lists (on an anonymous basis) of serious repeat infringers.
The Government hopes that the notification process alone will achieve its target of a 70% reduction in online copyright infringement within two years, based on evidence that seven out of ten British file-sharers would stop infringing if they received a termination warning from their ISP. If, however, insufficient progress is made in the first 12 months of the initial obligations regime, the Government may introduce “technical obligations” on ISPs, requiring them to impose sanctions on subscribers which limit the speed or other capacity of connections, block or limit access to particular material, suspend connections or limit them in some other way.
Given the controversy surrounding the introduction of these backstop powers, the Government is unlikely to invoke them lightly. Much may depend, therefore, on the success of the initial obligations regime. Ofcom’s consultation, which includes a draft Initial Obligations Code, examines many of the key issues left open in the DEA.
Which ISPs will be subject to the initial obligations?
The Code reflects the Government’s initial intention that most small and medium-sized ISPs should, at least for the time being, effectively be exempt. Section 5 of the DEA envisages that the scale of infringement on an ISP’s network would determine whether it should be subject to the initial obligations. The aim is to avoid burdening ISPs where no significant reduction in infringement would be achieved. The explanatory notes to the DEA state that “it would be disproportionate (in cost terms) to require an ISP to incur significant costs to counter a problem that does not exist to any significant extent on its network”. The DEA therefore envisages that the initial obligations would not apply to ISPs which receive less than a threshold number (to be specified in the Code) of infringement reports from copyright owners over a certain period.
Since no infringement reports have yet been issued, Ofcom could not in fact set a threshold on this basis. The Code instead provides that the initial obligations will, for the time being, only apply to ISPs with more than 400,000 subscribers to their fixed internet access services. This will exempt all but the seven largest ISPs (BT, O2, Orange, Post Office, Sky, Talk Talk and Virgin Media).
The exclusion of mobile ISPs is based on an assumption that speed, capacity, traffic management and pricing constraints make them less conducive to online infringement. Ofcom’s analysis of information from copyright owners is that 95% of alleged infringement takes place via fixed connections. Mobile ISPs would also face proportionately higher costs in complying with the initial obligations, as their more extensive use of dynamic IP addresses shared between subscribers increases the cost of identifying the alleged infringer.
Ofcom sees a broad correlation between the number of subscribers and the level of alleged infringement. Given that the seven largest ISPs account for 96.5% of the residential and SME business broadband market, Ofcom’s 400,000-subscriber threshold is intended to cover the vast majority of potential infringers. The approach taken by Ofcom in the Code is unsurprising in that its initial discussions after the enactment of the DEA focussed on the larger ISPs that offer fixed services. The Code, however, makes clear that the criteria will be kept under review, and Ofcom may adjust the criteria if infringement is not sufficiently reduced.
When will subscribers be responsible for infringement by others?
Ofcom expects subscribers to take steps to protect their networks from being used for infringement. Where they have failed to take such steps, they may be held responsible for any infringement taking place via their connection. Subscribers who offer internet access to others (such as coffee shops and hotels that offer customers Wi-Fi access or internet cafés) may therefore be responsible for their customers’ infringement.
The DEA left open the question of whether those offering such internet access would be seen as ISPs subject to the initial obligations. It is now clear that, for the time being, most such operators will be exempt by virtue of their smaller size. Ofcom, however, views Wi-Fi operators as providing fixed internet access services. This would in principle bring them within the definition of an ISP where the service is provided by means of an agreement with a customer (even if oral or implicit). Where the agreement with the customer does not in fact extend to the provision of internet access, or where there is no agreement with customers at all, Ofcom will view the operator not as an ISP, but as a subscriber. The consultation does not attempt to resolve the difficult issue of how to establish whether there is an implicit agreement with a customer that covers internet access. Ofcom chooses instead, for the time being, to rely on the size-based thresholds to provide certainty as to which providers are subject to the initial obligations, but will examine the issue in more detail as part of its ongoing review process.
How will the notification process work?
There are three stages:
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Copyright infringement reports (CIRs) – Where a copyright owner believes that a subscriber has infringed (or allowed another person to infringe) copyright, the copyright owner may send a CIR to the relevant ISP. The CIR must be submitted within ten days of identifying the apparent infringement, in a standard format agreed between copyright owners and ISPs (or prescribed by Ofcom). Details to be specified in the CIR include the IP address, the relevant copyright work, the apparent infringement (including the name and contents of the relevant files) and the date and time the evidence of infringement was gathered, using Universal Co-ordinated Time (UCT), which is crucial for identification of the relevant subscriber under a dynamic IP address system. Ofcom has based these requirements on the current practice of specialist organisations engaged by copyright owners to investigate infringement. A copyright owner must submit a “quality assurance” report to Ofcom before submitting the first CIR, and then on an annual basis. This must set out the copyright owner’s proposed processes and systems for gathering evidence and details of the measures in place to ensure reliability and accuracy. Ofcom proposes that it will have power to direct copyright owners to change their processes and systems and to require them to be audited by an appropriate independent party. ISPs will be under similar quality assurance obligations in relation to the standards of their subscriber identification and notification processes.
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| (b) |
Notifications – CIRs will trigger ISPs’ obligations to notify subscribers. The first CIR triggers the first notice. The first CIR received on or after one month from the date of the first notification will trigger a second notice. A third and final notice will be triggered by the first CIR received on or after one month from the date of the second notice. The Code proposes the required content of notices and appends three template notification letters. The wording of the first notice anticipates that the recipient may not be aware of the potential infringement (e.g. because he/she is not familiar with relevant copyright law or is unaware that a third party is carrying out infringement through his/her connection). There is a strong emphasis on education of the subscriber: notifications must also include guidance on copyright and its purpose, how to protect a connection and how to access content legally. The templates include a factsheet setting out the required information in question-and-answer format.
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| (c) |
Copyright infringement lists – The DEA requires that the Code must specify the circumstances in which an ISP must provide a copyright infringement list to a copyright owner and the threshold for determining whether a subscriber should be included on such a list. Ofcom proposes that the receipt of a third notification (under the process described above) in a period of 12 months would trigger the obligation to provide the list to the copyright owner, as long as the copyright owner has sent at least one CIR relating to the subscriber within the previous 12 months. Ofcom’s preference is that the escalation to inclusion on an infringement list should be based on the receipt of CIRs within a prescribed period of time, rather than on volume of CIRs alone or on the value of the alleged infringements (albeit that pre-release infringements, for example, are potentially more damaging to copyright owners). |
How can subscribers appeal?
Ofcom will appoint an independent appeals body to determine subscriber appeals, which will establish its appeal procedures (subject to Ofcom approval). Any subscriber directly affected by an act or omission of a copyright owner or ISP to which the Code applies may submit an appeal, which must be conducted on an anonymous basis as far as possible.
The Code sets out various grounds for appeal, including that:
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the alleged infringement was not in fact an infringement of copyright;
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the infringement report does not relate to the subscriber’s IP address at the time of the infringement; and
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the relevant acts were not carried out by the subscriber (and the subscriber has taken reasonable steps to prevent others from using his/her connection to infringe). |
The appeals body must take account of the subscriber’s level of technical knowledge and the subscriber’s awareness of the ability to control access to the connection. Successful appeals may result in an award of compensation to the subscriber and directions for reimbursement of costs (in each case, payable by the relevant ISP or copyright owner).
How will Ofcom enforce the Code and deal with disputes?
Ofcom plans to issue enforcement notices to those that it believes, on reasonable grounds, to have contravened the Code. On receipt of such a notice, recipients will be entitled to make representations. Should Ofcom find against the recipient, it will have the power to impose financial penalties (of up to £250,000 per breach) and to issue directions requiring compliance with the Code or payment of compensation to a third party. Ofcom could impose similar sanctions where it has heard a dispute between a copyright owner and an ISP in accordance with a procedure set out in the Code. Ofcom would hear such disputes only where one of the parties has breached the Code and there are no alternative means to resolve the issue despite the parties’ reasonable attempts to do so.
Costs
A key element of BIS’s proposals was that 75% of the costs of the notification regime should be borne by copyright owners and 25% by ISPs. The costs of the new regime remain a key issue: the Government’s Impact Assessment published with the DEA estimates that the ISPs will incur costs of between £3 to £10 for each letter sent to a suspected infringer, based on evidence from earlier Government consultations and ISPs. Copyright owners will also have to contribute to Ofcom’s costs.
What happens next?
The deadline for responses to the consultation is 30 July 2010, and Ofcom plans to publish a statement on the Code in September 2010, following the consultation process. At the time of writing, no formal responses have been published by Ofcom, but several ISPs have expressed their initial reactions in press statements. Both Virgin Media and O2 stress the importance of providing attractive legal services as an alternative to infringement. O2’s particular concern is to set “clear and agreed standards of proof” of alleged infringement and “a straightforward and effective appeals mechanism”. Talk Talk has been the most outspoken among ISPs in its opposition to the DEA: its statement refers to its fears of a “bureaucratic dog’s breakfast” under which “millions of customers would be at risk of being falsely accused of copyright infringement, being falsely put onto an ‘offenders' register’ and so potentially taken to court”. Both Talk Talk and BT fear the potential for distortion in the ISP market as a result of the exemption of mobile services and smaller ISPs from the initial obligations.
The Government is due to introduce a cost-sharing statutory instrument in July 2010. Ofcom plans to publish two further consultations – on disputes and enforcement in July 2010 and on tariff setting in September 2010 – with statements on both to be published in December 2010. The overlap in timing is intentional, due to the linkages between consultations. In the meantime, a draft Initial Obligations Code is to be submitted to the EU by September 2010, to enable both EU and Parliamentary approval by the end of January 2011.
So some twists and turns lie ahead before the Code takes final shape. As Dan Brown said of the Bible, the Code has the propensity to evolve “through countless translations, additions and revisions”. The UK’s creative industries will hope that its evolution is not too tortuous.
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.
Article written for Entertainment Law Review.
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