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On 24 July 2008, the Department for Business Enterprise and Regulatory Reform published a consultation on legislative options to address illicit peer-to-peer (P2P) file-sharing (Consultation). The publication of the Consultation coincided with the signature of a Joint Memorandum of Understanding on an Approach to Reduce Unlawful File-sharing by six major internet service providers and various entertainment industry bodies (MOU).
While the ISP signatories of the MOU will now start sending out tens of thousands of letters to holders of accounts associated with IP addresses identified by the BPI as sharing copyright material without permission, the Consultation makes the simple point that a significant number of other ISPs remain free to do nothing, perhaps even anticipating some transference of business as users who object to being morally upbraided by their ISPs switch allegiance. As such, while the MOU would, in an ideal world, be the Government’s preferred solution to the problem of unlawful P2P file-sharing, without the rest of the communications industry on board it remains a partial solution that can only be made complete under a co-regulatory regime based both on the MOU and a Code of Practice overseen by Ofcom requiring all ISPs to have effective policies on unlawful P2P file-sharing. While this approach is unlikely to please the ISPs, the big question marks that remain over exactly what action the ISPs will be required to take suggest that the creative industries may not have got what they want either.
This article sets out a summary of the extent of the problem of illicit P2P file-sharing and describes the background to the present Consultation, including the main terms of the MOU. It goes on to outline the regulatory options to tackle P2P file-sharing identified in the Consultation and examines in detail the Government’s preferred co-regulatory approach. Particular attention is given to the issues and constraints related to the implementation and enforcement of the Government’s preferred approach.
The problem of illicit P2P file-sharing
The Consultation begins by highlighting the extent of the problem it seeks to address. According to studies conducted by Jupiter Research, commissioned by the BPI, 6.5 million people in the UK engaged in online music “piracy” in 2007 (this equates to 25% of UK internet users, although this is not restricted to P2P activity).1 Further research commissioned by British Music Rights into music use by young people found that 63% of respondents used unlicensed P2P networks, downloading an average of 53 tracks per month (although some individuals admitted copying 5,000 tracks per month). 2
The most recent figures released for the UK music industry show that in 2007, music industry revenues fell by 13% to £1.02 billion. Although digital sales rose by 28% to £132.2m (a rise of £28.8m) this was more than off-set by a 16% fall in revenue from CD sales to £871 million – a loss of £166m. The net decline in revenue was some £152.4m. 3 The Consultation concedes that there are a number of factors contributing to this decline, including increased discounted sales via supermarkets and activity substitution as well as piracy and unlawful P2P activity. Indeed, the Consultation quotes one report that attributes only 18% of revenue decline since 2004 to piracy. 4 That aside, given the amount of research that documents the levels of unlawful P2P activity, particularly in some age groups, the Government thinks it reasonable to conclude that unlawful P2P copying represents a significant loss for the creative industries in the UK.
Aside from the damage to the industry, the perceived wider threat is that unlawful file-sharing reduces the incentive for the content industries to invest in the development, production and distribution of new creative content, because they cannot reap all the returns from their investment.
Scope of the Consultation
The Consultation represents the next step in a process that began with Recommendation 39 of the Gowers Review of Intellectual Property, published in December 2006, to “observe the industry agreement of protocols for sharing data between ISPs and rights holders to remove and disbar users engaged in ‘piracy’. If this has not proved operationally successful by the end of 2007, Government should consider whether to legislate.”
The next stage in the process was the Government’s Creative Britain strategy document, published on 22 February 2008, in which the Government stated that it “recognises the value of the current discussions between ISPs and rights holders; we would encourage the adoption of voluntary or commercial agreements between the ISPs and all relevant sectors. While a voluntary industry agreement remains our preferred option, we have made clear that we will not hesitate to legislate in this area if required. To that end, we will consult on the form and content of regulatory arrangements in 2008 with a view to implementing legislation by April 2009.” 5
The Consultation is therefore designed to take that commitment, and Recommendation 39 of the Gowers Report, forward.
Importantly, the Consultation only deals with illicit use of P2P technology. It does not examine, for example, the issue of commercial piracy, websites dedicated to unlawful copying (or the encouragement of) or the hosting of such websites. Neither does it examine the issue of format-shifting.
Memorandum of Understanding
The MOU was signed by Virgin Media, Sky, Carphone Warehouse, BT, Orange, Tiscali, the BPI and the Motion Picture Association, and was endorsed by the Anti-Film Theft Taskforce. The stated objective of the MOU is to achieve “within two to three years a significant reduction in the incidence of copyright infringement as a result of P2P file-sharing and a change in popular attitude towards infringement.” 6
Signatories will work together on a process whereby customers are informed when their accounts are being used unlawfully to share copyright material and pointed towards legal alternatives. In the first instance ISP signatories will each put in place a three month trial to send notifications to 1,000 subscribers per week identified to them by music rights holders, to agreed levels of evidence, as having been engaged in illicit uploading or downloading. Based on evidence from the trial, which will be analysed and assessed by all signatories, Ofcom will agree with signatories an escalation in the number of notifications and a widening of content coverage.
Signatories will also be invited by Ofcom to form a group to identify effective mechanisms to deal with repeat infringers. The group will report by the end of November and will look at solutions including technical measures such as traffic management or filtering, and marking of content to facilitate its identification. In addition, rights holders will consider prosecuting particularly serious infringers in appropriate cases.
The Government’s preferred approach
Before setting out its proposals for dealing with illicit P2P file-sharing, the Consultation reiterates that the Government’s preferred solution remains a voluntary industry agreement, provided it is effective in dealing with the problem while at the same time being fair to consumers. The Consultation commends the progress made by the signatories to the MOU and recognises that it may be possible for a solution based on the MOU to be agreed that delivers the objective of reducing significantly the amount of unlawful P2P. In those circumstances, the Government remains prepared to halt the regulatory process. 7
However, the Consultation makes the simple point that while the principles by which the MOU will operate are sound, a voluntary solution that does not have the full support of all ISPs is unlikely to be effective and may well put those that adhere to such a solution at a competitive disadvantage.
The Government therefore proposes a “co-regulatory approach”. This is defined as a self-regulatory approach that is backed up in some way by a regulatory requirement. 8 The aim of such an approach is to harness the benefits of self-regulation in circumstances where some oversight by a regulatory body may still be required.
The preferred co-regulatory approach in this case is “to take the basic approach and principles set out in the MOU and combine these with high level regulatory oversight and an underlying obligation obliging ISPs to engage with rights holders to tackle the issue of repeated infringement through P2P.” 9
Codes of Practice
Key to the Government’s proposal is the establishment by industry of a self-regulatory body to design appropriate codes of practice (Codes). While industry would be responsible for preparing and agreeing the Codes, they would be subject to approval by Ofcom. It is likely that the Codes will address the following key issues:
- standards of evidence;
- actions against alleged infringers;
- actions against persistent or criminal infringers;
- indemnity and compensation resulting from incorrect allegations of file-sharing; and
- routes of appeal for consumers.
Ofcom’s role will be to approve the Codes to ensure they deliver fair and proportionate treatment for consumers, and strike an appropriate balance between the interests of rights holders and ISPs. In examining the Codes, Ofcom will have regard, among other issues, to ensuring that the actions required by the Codes are necessary, proportionate and consistent. It is also anticipated that Ofcom will periodically review the operation of the Codes in relation to these considerations.
The obligation on ISPs to take action
Underpinning the Codes will be an obligation on ISPs to take action against subscribers using their networks to infringe copyright over P2P networks when notified, with adequate evidence, that such infringement is taking place.
The Government anticipates this would take the form of a requirement to have an effective policy in place for dealing with cases of alleged unlawful P2P file-sharing. That obligation is likely to be fulfilled by compliance with the approved Codes.
This requirement will be phrased to limit the obligation on ISPs to take action to those circumstances where it can be demonstrated that an individual subscriber or account is being used to infringe copyright. It would be designed to apply only to unlawful file-sharing over P2P networks. Significantly, the Consultation states that any such obligation will not affect the ISPs' limitation of liability under Articles 12 to 14 of the E-Commerce Directive, 10 insofar as ISPs will not be made liable for the illicit content of what they transmit, cache or host. Furthermore, ISPs will not be required to perform any general monitoring of their networks.
ISPs that choose not to engage in the self-regulatory arrangement will remain bound by the underlying requirement to have an effective policy on unlawful P2P file-sharing.
Issues and constraints
The Consultation makes clear that when the Codes are being drafted particular emphasis must be given to a number of issues and constraints, some commercial and practical, others that stem from the complex legislative environment that is already in place, including privacy, E-Commerce, competition law, as well as copyright law.
Commercial and practical issues
Scale - The estimated number of unlawful downloads is in the millions (although for films, games and business software the number appears to be significantly lower). Any damage to the industry comes from the aggregate impact of unlawful activity. For action to work as a deterrent and as a means of addressing the problem, any solution must be able to handle a significant number of cases in the short term at least.
Enforcement – Given the numbers engaged in unlawful copying, however, action against all those involved is impracticable. As such, the scale of any type of enforcement activity is a key issue – it must be sufficient to act as a deterrent but not at a level where the cost would be prohibitive.
Cost - Any effective action is likely to carry a significant cost to one or more of the parties involved. While the Consultation is clear that the costs of its preferred self-regulatory approach would have to be met by industry, it seeks responses on how these should be split between the stakeholders, including between the different content industries.
Technology - The use of proxy servers, anonymous proxies and encryption could all have implications for the effectiveness of enforcement measures.
Legal issues
Data protection - In actions against file-sharers to date, it has been the practice of ISPs only to pass personal data to rights holders with a specific court order. While a less onerous approach is envisaged going forward, any regulatory solution must not contravene the principles contained in either the Data Protection Act 1998 or the E-Privacy Directive 11 in respect of the processing (including the sharing) of personal data.
Liability of ISPs - the “internet intermediary” status of ISPs means that conduits, caches and hosts who facilitate the transmission of information through the Internet are not liable for the information carried across their networks provided they do not initiate the transmission, exercise any control over the content of that information, and in the case of caches and hosts, they remove or disable access to the information upon obtaining knowledge of illegal activity. 12 Although in certain circumstances, internet intermediaries can be requested to take action to terminate or prevent specific infringements (e.g. monitoring specific accounts for a specified time), the E-Commerce Directive prohibits the imposition of general monitoring requirements on ISPs or the imposition of a general obligation actively to seek the facts or circumstances indicating illegal activity (e.g. to identify which subscribers might be involved in file-sharing).
Consumer protection – Although an ISP contract is with a named individual, in most cases they are not the only person who will use that service (e.g. other family members in the same household, employees or staff in the workplace, customers in wi fi cafes etc). This raises issues when someone other than the actual subscriber is responsible for unlawful file-sharing activity. If action is taken without the individual case being tested in Court, there must be a sufficiently robust level of proof. Consideration must also be given to who will be responsible for examining the evidence and determining whether or not there has indeed been an infringement. Finally, any action taken to tackle infringers who continue unlawful P2P file-sharing needs to be proportionate, and must allow the consumer the right of appeal and a clear channel through which they can seek redress if necessary.
The other legislative options
The Government’s view is that its preferred option would provide the greatest flexibility in a fast-changing area and impose a lower burden on industry. The Consultation does, however, invite stakeholders to give their views on a number of alternative options. These alternatives are set out below, together with a summary of the Government’s view of the benefits and drawbacks of each.
- Streamlining the existing process of enforcement by requiring ISPs to provide personal data relating to a given IP address to rights holders on request without them needing to go to Court. The Government’s view is that this option would require clarification as to whether passing personal data to rights holders in this way would be compatible with current data protection legislation.
- Requiring ISPs to take direct action against users who are identified (by the rights holder) as infringing copyright through P2P (this is essentially the same legal obligation as in the preferred option, but without any self-regulatory element). The Consultation stresses that this option would give rise to issues relating to what standards should be set for the assessment of evidence, consumer protection and a route of appeal for consumers. An assessment would also need to be made of this option’s compatibility with the protections given to ISPs under the E-Commerce Directive.
- Allocating a third party body to consider evidence provided by rights holders and to direct ISPs to take action against individual users as required, or to take action directly against individual users. This approach would deal with many of the issues raised by the preceding option, but the cost would be substantially higher. Establishing a new regulatory body from scratch would take time and be costly, and utilising an existing body would increase pressure on its resources and could be expensive. Further, it is not clear how such costs would be met.
- Requiring that ISPs allow the installation of filtering equipment that will block infringing content (to reduce the level of copyright infringement taking place over the internet) or requiring ISPs themselves to install filtering equipment that will block infringing content. Here, the Government points out that opinions are divided on whether filters could be an effective, long-term, cost-effective way of tackling not only P2P piracy but also other forms of copyright piracy.
Comment
Assuming the Government’s preferred approach is not significantly altered by the responses the Consultation elicits, the framework that will be put in place to address illicit P2P file-sharing is now clearly delineated. A self-regulatory body, overseen by Ofcom, will draw up Codes of Practice that will be underpinned by an obligation on ISPs to take action against subscribers using their networks to infringe copyright over P2P networks when notified, with adequate evidence, that infringement is taking place. This obligation will be fulfilled by compliance with the approved Codes.
The elephant in the room, however, is the question of what action the ISPs will be obliged to take. The Consultation contains no concrete proposals in this regard; it merely states that Ofcom will work with ISPs and rights holders to “explore effective mechanisms to deal with repeat infringers.” 13
While the Consultation recognises that effective regulation requires effective enforcement, 14 sending out informative letters (as currently being undertaken by the ISP signatories to the MOU) is one thing, imposing effective sanctions on repeat infringers is quite another. The Consultation acknowledges the challenges inherent in this – the complex legislative environment already in place, the technical and practical problems facing enforcement – but it posits these issues, rather than seeking to resolve them.
For example, the Consultation refers to the Olivenness Agreement 15 on ISP cooperation signed in France in November 2007, pursuant to which a “three strikes and you’re out” model is expected to be adopted when the related legislation comes before the French parliament in the autumn. The Consultation, however, suggests that such an approach “throws up a number of questions – including how such a solution would be financed”. 16 Add to this the fact that the French approach has been questioned by the European Parliament as one potentially at odds with “civil liberties and human rights and with the principles of proportionality, effectiveness and dissuasiveness, such as the interruption of internet access,” 17 and the myriad difficulties inherent in prescribing sanctions against infringers become clear.
Whether the self-regulatory body envisaged by the Consultation will be able to navigate this minefield to come up with an effective and proportionate sanction for ISPs to impose on their own infringing customers remains to be seen. Such a sanction will need to be acceptable to industry stakeholders and Ofcom, and must also be enforceable under European law.
What is certain is that the many and various interested parties, ranging from the music and film companies to the ISPs to the consumer groups, will be waiting with baited breath for the first report from the group set up under the MOU, due at the end of November.
So, although most would agree there is some way to go before agreement on an effective solution is reached, 18 it seems that the regulatory tide is turning against illicit file-sharing on P2P networks.
Perhaps the more pertinent question, one that the Consultation does not attempt to broach, is not whether a way can be found to reduce significantly the amount of illicit P2P file-sharing, but whether such a reduction will, in the long-term, restore to the creative industries those revenues lost over the last few years to pervasive online piracy.
Article to be published in the Entertainment Law Review Volume 20 Issue 1 2009. Reproduced here with permission of Sweet & Maxwell.
1 Jupiter Research, “2008 European Next-Generation Digital Music Services”, www.jupiterresearch.com.
2 BMR/University of Hertfordshire, “”Music experience and behaviour in young people”, Spring 2008, www.bmr.org.
3 18th June 2008, http://www.ifpi.org.
4 http://www.theregister.co.uk/2007/10/19/vrs_value_gap_report/.
5 Creative Britain: New Talents for the New Economy, www.culture.gov.uk.
6 Consultation, Annex D, second paragraph.
7 Consultation, paragraph 6.1.
8 Consultation, Annex E.
9 Consultation, paragraph 8.1.
10 Directive 2000/31/EC.
11 Directive 2002/58/EC.
12 See Directive 2000/31/EC, Articles 12-14.
13 Consultation, paragraph 1.4.
14 Consultation, paragraph 7.5.
15 Also known as the Sarkozy Agreement.
16 Consultation, paragraph 5.1.
17 See http://news.bbc.co.uk/1/hi/technology/7342135.stm.
18 See, for example, news article published on www.digitalmusicnews.com on 23 September 2008 titled “British ISPs Keep Striking Against Three Strikes”.
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