UK: High Court Rules Digital Economy Act Legal and Proportionate

Last Updated: 28 April 2011
Article by Chris Watson, Susan Barty and Scott Fairbairn

The High Court has passed down judgment in relation to a judicial review brought by two of the UK's largest Internet Service Providers relating to the legality and proportionality of the Digital Economy Act. The Court ruled on Wednesday 20 April 2011 that the Act was legal and proportionate. The decision paves the way for the Government to press ahead with its plans to prevent and punish illicit peer-to-peer downloading of content in breach of copyright. The Court also ruled that the Government's costs order, which sought to establish that ISPs should bear 25% of all of the costs associated with the scheme, was unlawful.

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The Digital Economy Act (DEA)

The DEA was passed into law in April 2010 and includes controversial provisions to prevent and penalise various electronic means of copyright infringement, notably peer-to-peer (P2P) file-sharing.

The DEA sets out a number of measures to prevent online copyright infringement. The first of these are:

  • an obligation on Internet Service Providers (ISPs) to notify subscribers that their accounts have been associated with copyright infringement; and 
  • an obligation on ISPs to compile and keep anonymised lists of those subscribers associated with copyright infringement; these may be provided to rights holders on request.

Together these are known as the 'Initial Obligations'.

In addition to the Initial Obligations, the DEA also includes controversial further powers allowing the Secretary of State to require ISPs to impose 'technical measures' against subscribers identified as repeat infringers, (which may include disconnection), and to enable the Secretary of State to draft new regulations to govern the Court's powers to grant injunctions against websites associated with copyright infringement.

The Government also drafted a costs order, the Copyright (Initial Obligations)(Sharing of Costs) Order 2011, which would govern the allocation of costs associated with the implementation of the Initial Obligations (the "Costs Order") and allocated the costs associated with the Initial Obligations so that rights holders would pay 75% of the qualifying costs and ISPs 25%.

Judicial Review

BT and TalkTalk's application for a judicial review of the 'online infringement of copyright' provisions of the DEA was based on five grounds:

  1. The Government should have notified the European Commission under the Amended Technical Standards Directive which they faild to do.
  2. Provisions of the DEA are not compatible with the E-Commerce Directive (Directive 2000/31/EC) which provides that ISPs may not be held liable for data going though their networks. 
  3. Provisions of the DEA are not compatible with the Privacy and Electronic Communications Directive (Directive 2002/58/EC).
  4. Measures contained in the DEA are disproportionate in their impact on ISPs, consumers, business subscribers and public intermediaries.
  5. Measures contained in the DEA infringe the Authorisation Directive (Directive 2002/20/EC as amended by Directive 2009/140).

It's Alright By Me

Mr Justice Penneth Parker of the Administrative Court decided the following:

1.  The primary purposes of the 'notification requirement' under Article 9 of the Amended Technical Standards Directive (ATSD) is to allow the Commission and Member States time to propose any amendments which may remove or reduce restrictions on the free movement of services or the freedom of establishment, and also to serve transparency, legal certainty or allow Member States to accommodate forthcoming EU legislation. If a 'technical regulation' (as defined) is not duly notified it is unenforceable at national level.

After reviewing the case law, Parker J ruled that as the Initial Obligations were not currently legally enforceable or suitably particularised in an industry code nor (in the absence of a code) do they currently have legal effect for individuals, they do not currently qualify as 'technical regulations' and so need not be notified under the ATSD.

2.  It was contended that the DEA infringed Articles 12, 15, and 3(2) of the E-Commerce Directive (ECD).

Article 12 ECD states that Member States should ensure service providers are not liable for information transmitted on their network where they do not initiate or select the receiver of the transmission and do not select or modify the information contained in the transmission.

Parker J concluded that this provision was primarily intended to protect an ISP where a person has unlawfully placed material in the public domain from liability in respect of that particular infringement. The legislation specifically allows Member States to authorise the courts or competent administrative authority to order an ISP to terminate or prevent infringements so long as the ISP is not made liable in respect of the infringement itself. The financial penalties which ISPs may be liable for in the DEA relate to breaches of the obligations in it, not to the underlying infringements. The DEA contains procedures designed to put appropriate controls on those subscribers who, despite other measures, have persisted in copyright infringements and was not contrary to Article 12.

Article 15 ECD states that Member States shall not impose a general obligation on service providers to monitor the information which they transmit, or actively to seek facts or circumstances indicating illegal activity. Parker J ruled that the DEA does not impose an obligation to monitor information, nor does it impose an obligation actively to seek such facts or circumstances. Rather copyright owners will be carrying out the monitoring and ISPs' role will be limited to identifying wrongdoers, keeping records and sending letters.

Article 3 states that Member States must not restrict freedom to provide information society services across the EU. Parker J ruled that at this stage, prior to the formalisation of an industry code and the notification of it to the Commission and other Member States, he could not conclude that the DEA would inevitably breach this provision.

3.  The thrust of this ground of objection under the Privacy and Electronic Communications Directive was that the initial obligations would require ISPs and copyright owners to process "personal data". Because ISPs were effectively authorised to do so by compulsion of law the issue centred on the role of copyright owners.

Parker J ruled that such processing was necessary and fell within a derogation under Article 15(1), which allows restrictions to the principles of data protection where such restrictions constitute a necessary, appropriate and proportionate measure. While this Article does not refer to intellectual property rights, Parker J referred to case law of the Court of Justice (C-274/06 Productores de Musica de Espana v Telefonica) that supported an approach that the provision, as construed by the Court, should indeed cover property rights including copyright protection. As a result the data processing involved was considered to be permissible under Data Protection legislation.

4.  The Authorisation Directive provides a scheme for electronic communications networks and services to allow any person who wishes to provide such networks and services to do so in accordance with publicly available conditions. In the UK, Ofcom has drawn up "General Conditions of Entitlement". Parker J confirmed that the obligations under the DEA need not be included in them.

The claimants also argued that the initial targeting of only the six largest fixed line ISPs for compliance with the Initial Obligations would discriminate in favour of other ISPs and service providers of mobile services. Parker J believed that it was reasonable and proportionate to concentrate on the larger ISPs and that the problem of customer migration was speculative at this stage. As mobile networks are less conducive to online copyright infringement it was proportionate not to include them at present; Ofcom had a duty to monitor the situation and it would, if appropriate, be possible to include them later. 

Proportionality

5.  The final ground of objection raised by the Claimants was that the DEA was disproportionate. In particular the claimants argued that the contested provisions represent a disproportionate restriction on the free movement of services, the right to privacy, the right to free expression or to impart or receive information.

Respecting the Role of Parliament

Parker J took the position that judges must be careful in seeking to make assessments that are more properly rightly made by Parliament. The Courts should afford particular deference to elected and accountable decision makers where those decisions concern subjects that are matters of social and economic policy and politics:

"How these competing and conflicting interests should be accommodated and balanced appears to me to be a classic legislative task, and the court should be cautious indeed before striking down as disproportionate the specific balance that Parliament has legislated."

Parker J was also influenced by arguments that freedom of expression (unlike, for example, the right to life or the prohibition on torture) were not absolute fundamental rights but fundamental rights which could be restricted and competent authorities enjoy a wide margin of discretion in that regard.

Parker J rejected the arguments on the grounds of proportionality and that the DEA does not pursue a legitimate aim, concluding that it promotes the aim of judicial protection of copyright. In relation to a number of related arguments he also felt that it would be premature or inappropriate to conclude that the effect of the measures would be disproportionate.

Costs Order to be Rewritten

Parker J did however find in favour of the Claimants in finding that the Costs Order was unlawful and in breach of the Authorisation Directive. In essence Article 12 of the AD states that any charges on service providers should be limited to certain specified costs. Parker J found that some of the costs that ISPs had to pay under the Costs Order, namely "qualifying costs", amounted to administrative charges which would be unlawful under Article 12.

While the Costs Order will need to be redrafted, it seems to have been deemed unlawful only in so far as certain administrative costs could not legally be included in it; the Government will need to develop a different mechanism for allocating costs, but this is unlikely to present a significant obstacle to the Government's plans.

Full speed ahead?

The decision paves the way for the Government to press ahead with its plans to prevent and punish illicit P2P downloading of content in breach of copyright. Ofcom is expected soon to publish a final form industry code to govern the workings of the Initial Obligations.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 26/04/2011.

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