The European Commission questions whether the DE Act cost-sharing is allowable under EU law. And Ofcom suggests that ISPs could give credit vouchers to the rights-holders if they send fewer warning notices than they forecast.

The Westminster Parliament is being asked to pass a law which has been critiqued by the European Commission and is potentially flawed. The matter relates to a Statutory Instrument (SI) setting out the sharing of costs between ISPs and rights-holders under the Digital Economy Ac copyright enforcement (graduated response) measures. It was laid before Parliament last week - as already reported on iptegrity.com. It's full title is the "Online Infringement of Copyright (Initial Obligations) (Sharing of Costs) Order 2011".

The (SI) was notified to the European Commission by the Department for Business, Innovation and Skills under the usual procedures. However, the Commission has come back with a number of questions for BIS, which ought to be addressed befor Parliament can pass an opinion on it.

In a nutshell,

the SI orders that ISPs must pay the specified percentage - 25% - of initial costs for copyright infringement notices, and additionally 25% of costs incurred in respect of any fees for subscriber appeals. The rights-holders pay the remaining 75%.

The Commission has questioned firstly whether such costs fall into the categories of costs which the government is allowed to charge out to ISPs. These cost categories are set out in an EU directive, known as the Authorisation Directive, which was reviewed as part of the Telecoms Package (see my other coverage of the Telecoms Package).

The Commission's main point seems to be whether or not the costs which the ISPs are being ordered to pay are "objective" costs from the ISP perspective. The meaning of "objective" in this context would appear to relate to whether or not the ISPs will benefit from the measures for which they are paying.

I think what the Commission is getting at is that the Authorisation directive only covers the business of providing telecommunications services. Governments are allowed to charge ISPs for measures related to the regulation of telecoms services business, but should not use the Authorisation directive provisions to justify other kinds of measures which benefit other industries. The Digital Economy Act is explicitly about asking ISPs to enforce copyright, and is not about regulating the telecoms industry pe se and so the DE Act costs may not be allowable under the Authorisation directive.

Secondly, the Commission questions the way that the costs for the Copyright Infringement Notices (so-called CIRs) being ordered are based on an estimate supplied by the rights-holders. It asks specifically what happens if the rights-holders under-estimate the number of CIRs? And what happens it they over-estimate?

The barrister, Francis Davey , suggests that it is a 'zero-sum game for the copyright owners' who are incentivised to provide the lowest estimate possible, because, he says, they will never be charged for more than their estimate. He raises the question whether the rights-holders would be asked to pay difference between their estimate and the number of notifications sent out.

An answer from Ofcom which is circulating and which iptegrity has had sight of, is worthy of the best of Yes Minister! Having de-coded the appalling civil service jargon, I paraphrase it here.

Ofcom's answer seems to suggest that if the rights-holders underestimate the number of infringement notices (notifications to users), then the ISPs only have to send the agreed number and no more. If the rights-holders want to send more than the agreed number, then they must make a private agreement with the respective ISPs. If the rights-holders over-estimate the number of infringement notices, they would not get their money back but could ask for a credit with the ISPs.

So watch out for ISPs hiring credit brokers and contract negotiators!

Seriously, this answer, if it indeed from Ofcom as I'm reliably informed, is flawed. It suggests that in parallel with the legislation in the DE Act, the regulator would also be agreable to private agreements between ISPs and rights-holders on 3-strikes measures.

We should not forget that this is just the first stage, but what is agreed now, will also apply to the second stage of technical measures. This therefore suggests a wedge in the door to bypass the DE Act altogether.

The point of having the legislation is that such 'voluntary' agreements are not acceptable where meausures have the potential to infringe on the fundamental rights of citizens, as is the case with the DE Act. Certainly, this was the intention of the final agreement in the EU Telecoms Package.

Moreover, from a business perspective, it is untenable that the ISPs should be put in the position of having to agree and administrate multiple different credit agreements with rightsholders.

The procedure for an SI is that Parliament is asked for its assent, but it may also reject it. Given the uncertainties and potential flaws in the Online Infringement of Copyright (Initial Obligations) (Sharing of Costs) Order, is it appropriate to ask Parliament to give that assent?

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*I would like to make one point in respect of comments by Francis Davey and the 1709 Copyright blog regarding the EU Authorisation directive.

The EU Telecoms Framework (which includes the Authorisation directive) does not, as far as I understand it, say that restrictions may be imposed on the transmission of illegal content. To be absolutely correct, what is actually says is that 'conditions limiting access to content, services and applications' imposed by an ISP are neither mandated nor prohibited, and it does open the door to 'national measures' in respect of such 'conditions'. Therefore, as I have extensively argued in other postings, it opens the door for operators to impose conditions which restrict users' access to content, which is not quite the same as restrictions on transmission.

The EU telecoms framework does not define the purpose of these 'conditions', although the reference to 'national measures' does arguably open the door to graduated response as in the DE Act. Operators are subject to a transparency rule, which specifies disclosure to the telecoms regulator. In this case, Ofcom, the telecoms regulator, is also asked by the DE Act to supervise the restrictions.

The Telecoms Framework, does also contain the reminder that any government measures which impose such restrictions must comply with the European Convention on Fundamental Rights (Framework directive Article 1.3a). The European Convention has been ratifed in the UK's Human Rights Act.

For more information, please see my coverage of this issue in the Telecoms Package sections on iptegrity.com.

This article is licensed under a Creative Commons Attribution Non-commercial-Share Alike 2.5 UK:England and Wales License. http://creativecommons.org/licenses/by-nc-sa/2.0/uk/ It may be used for non-commercial purposes only, and the author's name should be attributed. The correct attribution for this article is: Monica Horten (2011) DE Act: should Parliament pass flawed ISP costs order? http://www.iptegrity.com 2 February 2011.