In October 2009, the France’ high court approved “Loi favorisant la diffusion et la protection de la création sur Internet”, or “HADOPI” (see our previous post: Three Strikes and You’re…OUTTTT! (Of French Cyberspace)).  Now almost one year into the life of the law, results have been mixed. The French government has said that it is prepared to begin issuing warnings and sanctions under the law, but no action has been taken yet. Commentators have questioned the feasibility of the law (e.g., the ease with which offenders can regain access to the Internet), and some original supporters of the legislation have qualified their original support of the law in response to adverse political reaction.

The U.K.’s Digital Economy Act  was enacted on June 8, 2010. Aimed at regulating the access of copyrighted material by end-users, one controversial section of the law establishes a system for identifying users who access illegal materials and for gradually increasing technical restrictions on their Internet access. These restrictions involve initially downgrading the quality of a user’s connection (the hope being that slower upload and download speeds will act as a deterrent to piracy) and culminate in a complete denial of Internet access.

Since the enactment of the DEA, the Office of Communication (Ofcom), an independent regulator and competition authority for the UK communications industries, has developed a protocol/obligations codefor implementing the legislation (but has said that plans to disconnect end-users from the Internet would not come into force until next year). ISPs are tasked with identifying and compiling a list of those end-users believed to be engaging in infringing conduct via a three-stage notification process, which includes sending letters to such end-users (which must include certain “standardized” information in connection with the allegations made against the end-user and what actions such end-user can take both to challenge the allegation and to protect their network). Rights’ holders can also request the ISP to identify those end-users who have breached an Ofcom-defined threshold for continued violation of access to information (i.e., following the third notification to a particular end-user), after which the rights’ holder may petition a court for identification of the user for purposes of initiating litigation.

Not surprisingly, the DEA has been subject to criticism from many perspectives.  Certain commentators have claimed that the complete denial of Internet service may violate existing European Union principles and regulations intended to preserve EU residents’ “basic rights and freedoms”, one of which is the right to access and use the Internet, and say that even worse is the manner in which the act was passed into law (which ISPs claim was rushed through Parliament with insufficient scrutiny). Further criticism focuses on the fact that the DEA provides only for an independent, limited appeals process for end-users who believe they have been wrongly accused of copyright infringement (as opposed to due process in a judicial proceeding). Consumer rights groups have raised concerns that an innocent user who has not encrypted her wireless network may be sanctioned if others access the network to engage in authorized conduct.  In addition, some have predicted that the threat of disconnection may alienate the most avid legalbuyers of entertainment content, encouraging them to switch to anonymized, encrypted alternatives so as not to reveal their identity.  Lastly, because the DEA only applies to ISPs with more than 400,000 customers, one consequenceof the law could be a flight of consumers to smaller ISPs, placing the larger ISPs at a commercial disadvantage.

Many major ISPs have recently spoken out against the DEA.  TalkTalk and British Telecom (the UK’s largest providers of broadband to homes) have initiated legal challenges, with their core claim being that the DEA conflicts with existing European Union regulations relating to individual privacy and electronics communications directives, as well as e-commerce directives.  They have also raised concerns about the role of ISPs in policing the Internet (i.e., that ISP’s are mere conduits of content and should not be held responsible for traffic on their services). 

Many reporters and commentators have also started to speculate about the practical ramifications of the DEA.  These include concerns that the increased costs borne by ISPs in identifying and notifying infringing users may be passed onto subscribers, raising access costs across the board.  Additionally, there is speculation that additional taxesmay be imposed on ISPs for transmission of pirated content by their subscribers.  Finally, the potential ramifications of long-term end-user tracking (e.g., data retention issues) have raised additional privacy concerns.

Reception of the three-strikes legislation, or graduated response, has been mixed elsewhere in the European Union and around the world.  In some countries, such as Belgium and Singapore, active or proposed legislation has tried to establish administrative oversight of illegal access to copyrighted material. In others, such as Germany, the government has taken a more laissez-faire approach by asking individual ISPs to handle content regulation and restriction without active government intervention.  

The point of restriction of content access varies as well. Graduated response, such as the process promulgated by HADOPI, puts the onus upon the individual end-user (i.e., if the end-user infringes upon copyright and accesses copyrighted material, she suffers the potential sanction of denial of Internet service). In other proposals, this remedy is rejected in favor of putting the burden on ISPs: the service provider must actively block websites known to provide copyrighted material illegally. Yet other proposed regulations include targeting the website itself and have imposed (or have tried to impose) sanctions against individual websites for their presence within a certain country.

These alternate approaches clearly reveal the competing, deeply-rooted political philosophies and interests engaged in the debate.  Is digital piracy something that should be primarily policed by the government through stringent regulatory schemes?  Or should the responsibility fall to commercial stakeholders, such as content owners and ISPs?  How does one resolve the competing interests between content owners (who seek the most stringent protections available) and ISPs (who may view themselves as a passive provider of a basic service, not an active enforcement agency)?  And will innocent end-users find that they are adversely impacted by the actions of true infringers?

While there may be universal agreement that infringing activity must be inhibited, it is unlikely that a single, unified approach to the problem will emerge any time soon.  However, through trial and error and the experience of “early adapter” nations such as France and the UK, it is possible that a consensus will emerge on a scheme that achieves a balance among the concerns and interests of the various stakeholders.

We will obviously keep an eye on future developments in this area of the law and relevant industry practices.

Although in general the entertainment industry’s position is that imposing responsibility on ISP’s to monitor illegal activity is about educating users and responding to a higher standard of evidence for illegal activity via their networks, ISP’s have consistently argued that it is not their job to police the Internet.  Perhaps France’s implementation of  a separate agency to work with the ISP’s in enforcing piracy policies will serve to alleviate some of the concerns of ISPs.

The new French law, which initially empowered French ISPs to terminate user accounts,  was first rejected back in April by the French Constitutional Council, which said  that free access to public communication services online was a human right that only a judge should have the power to disconnect.  Without this protection, the court said that the law would have violated free speech provisions.  The latest version was approved due to the inclusion of an amendment that requires judicial review prior to any account suspensions. 

Critics of the new law argue that it denies the accused the right to due process, pointing out that Internet subscribers will be held liable if someone uses their Internet connection to illegally download copyright works, even if the computer was under someone else’s control.  The critics further argue that the discontinuance of Internet access is an unfair penalty because of the increasing importance of the Web as a channel for expression and commerce.  It is believed that this new law could result in sanctions against 50,000 people per year.  David El Sayegh, the director general of the French music industry association,  Syndicat National de l’Edition Phonographique, counters those arguments by saying that the laws are not meant as a punishment against Internet users but instead hopes that the mandated warnings will have a strong deterrent effect, rendering termination of access a rarely invoked penalty.          

Many policy makers across Europe agree with the bill’s critics and have been apprehensive toward France’s adoption of the solution since they believe it is more important to increase broadband access, not deny citizens their rights to it.  Despite such skepticism, it appears that Britain will introduce similar legislation next month.

Dan Glickman, Chairman and CEO of the Motion Picture Association of America (MPAA), applauded the French court’s decision and said that it is an enormous victory for creators everywhere.  In addition,  Rick Cotton, Executive Vice President and General Counsel at NBC Universal and Chairman of the U.S. Chamber of Commerce-led Coalition Against Counterfeiting and Piracy (CACP), acknowledges that the new French law recognizes that jobs in the creative industries are under assault by digital theft.  Copyright piracy has taken a huge toll on the U.S. movie and music industry due to the current global economic situation.  The MPAA has determined that illegal downloads/streams are responsible for about 40 percent of the revenue the industry loses annually due to piracy.

Although the U.S. entertainment industry has not been as aggressive as the French in lobbying for a “three-strikes” law, the music and film industries are proponents of instituting a graduated-response program, which encourages the implementation of a warning system similar to the warning notices that will be issued to potential copyright infringers under the French law. In addition, the CACP is currently seeking to change federal law enforcement emphasis so that intellectual property crimes are given priority over other kinds of crime.   Although it seems unlikely that we will see a “three strikes” policy instituted in the U.S. anytime soon, the developments in this area of the law will inevitably influence the terms under which content providers distribute and protect their content as well as how consumers access such content.

*    Kari Hirsch, , who recently joined the Firm, assisted in the preparation of this article.

Tomorrow a Swedish court is expected to announce it’s ruling in a criminal case that has been closely watched by nearly everyone with a stake-financial or otherwise-in the free-wheeling world of P2P file swapping.  At its core, the ruling will determine whether the operators of the Pirate Bay, the popular torrent search and indexing site, are guilty of violating Sweden’s copyright law.  A conviction-which many observers expect-could lead to imprisonment and a possible fine, as well as a shut-down of the site.  However, despite the potential immediate impact on the Pirate Bay and its operators, the broader implications of a guilty verdict, including whether or not it will serve as a deterrent against unauthorized file-sharing, are a little less certain.

For the uninitiated, a little background:  the Pirate Bay is a Swedish web site that bills itself as the world’s largest BitTorrent tracker.  According to various measurements, the site ranked 105th for daily traffic over the past three months and an estimated 2.7 million people from the US visit every month.  

BitTorrent is a peer-to-peer file sharing protocol used to transfer files, which accounts for approximately 35% of all traffic on the Internet according to one study.  BitTorrent differs from traditional P2P file-sharing in that a single file may be downloaded from numerous sources, each providing small packets of data, rather than from a single source.  A client implementing the protocol creates a small file called a “torrent” which contains metadata about the files to be shared and about a tracker computer that coordinates file distribution.  A user seeking to download the file must first obtain the torrent file associated with it and connect to the tracker computer, which then tells the user’s computer which other computers on the network have pieces of the file to be downloaded.

The defendants in the Pirate Bay case are relying on the underlying nature of the BitTorrent protocol to serve as the basis for their defense.  Specifically, they claim that since the Pirate Bay website only serves as an index for torrent files, and does not actually store any copyrighted materials, the site’s operations cannot be deemed to be infringing.  Taking the argument a bit further, they claim that because many sites and services on the Web point to or link to infringing content or allow users to upload such content-including Google-the infrastructure and inherent nature of the Internet are at issue in the case.  The defendants used the analogy of roads and telephones that sometimes are used for illegal activities: no one suggests destroying the road network or hauling phone companies into court due to offenses committed by one or more individuals using such roads or telephones.

Prosecutors countered that search services like Google, and the roads and telephone lines, were established to foster legal activities.  In contrast, the Pirate Bay’s entire raison d’être appears to be to foster primarily illegal activity in the form of infringing file-sharing. 

The trial itself, which was held over three weeks in February and March, was a bit of circus.  The defendants and their supporters posted daily accounts of the trial on the Web.  And, after the web site of the International Federation of the Phonographic Industry, the trade group for the music industry, was hacked during the trial, one of the defendants posted a note on his Twitter account saying, “Whoever is hacking the IFPI websites, please stop doing that.  It only makes us look bad!”

In many ways, the Pirate Bay’s notoriety is an “only in Sweden” affair.  Until recent amendments, the Swedish copyright law did not prohibit downloading copyrighted material for personal use.  Nearly every Swedish household has a cheap broadband connection, and polls have found that over 10% of the population engaged in some sort of P2P file-sharing and downloading.  A political party dedicated to legalizing P2P file sharing-regardless of copyright issues-was formed and has made credible efforts to gain seats in the Swedish Parliament.

However, in response to international pressure, the Swedish government has begun to take a tougher stance against illegal file-sharing.  Earlier this month, a law came into effect allowing content owners to obtain from Swedish ISPs the names and addresses of people suspected of sharing copyrighted materials without authorization.  The law, which brings to Sweden an investigation and enforcement tool available throughout the EU, had an immediate impact. On the day the law went into effect, total Internet usage decreased by 40% and has remained suppressed since such time.

During the trial, the head of the IFPI testified that 30% of the losses suffered by the global music industry were a result of illegal file sharing, citing several academic papers.  He also testified that, following successful court actions in recent years which led to the shut-down of P2P file-sharing sites Grokster and Kazaa, the Pirate Bay had become the No. 1 source for illegal music on the Web. 

Despite the fact that early in the trial prosecutors dropped charges alleging that the operators were “assisting copyright infringement”-leaving the primary allegation based on “assisting in making available” copyrighted material-it appears that the prosecution will ultimately prevail. 

However, it is unclear what impact, if any, shutting down the Pirate Bay will have on illegal file-sharing as a whole.  As has been seen numerous times over the past decade, every time a prominent P2P site or service has been successfully challenged and shut down (see Napster, Kazaa, Grokster, etc.), downloaders have simply found other sites to use.  Moreover, the Pirate Bay is merely one of many BitTorrent search and tracking services currently available to end users, including Mininova, isoHunt and btjunkie.  (Ironically, while none of these sites have become a high-profile target of the entertainment industry, Mininova actually has a higher traffic ranking than the Pirate Bay (86^th v. 105^th).  And the others aren’t shy about self-promotion:  isoHunt says it is the “most comprehensive BitTorrent search engine”; and btjunkie bills itself as “the largest and most advanced BitTorrent search engine” with over 1.5 million active torrents.)  [As an aside, in researching the information above and merely visiting the home pages of those sites via Google links, the PC we were using was apparently infected with a virus (notwithstanding the fairly extensive systems in place here).  Perhaps the media industry's strategy vis a vis these sites is based on its awareness of this "deterrent" we unwittingly and regretfully stumbled upon.]

However, in light of the brazen attitude that the Pirate Bay’s operators have taken toward illegal file-sharing, a conviction will enable the entertainment industry to claim a major victory in its fight against Internet piracy.

Regardless of the outcome, the trial-and similar enforcement efforts-should not be viewed by the entertainment and media industry as a substitute for a viable P2P business strategy.  Current and future technologies are making the digital distribution of music, video and book files faster, simpler and more ubiquitous.  Initiatives such as collective licensing-under which ISPs would pay an independent agency a fee based on its user base (presumably passed on as a fee to the users), which would in turn be pooled by the agency and used to pay royalties to content owners-are being considered viable alternatives that may effectively compensate content owners, foster the wide distribution of entertainment assets and move the digital space to a less adversarial environment.

The Act is actually not a new stand-alone law, but amends several existing intellectual property laws in an effort enhance current enforcement and remedy provisions.  For example, the Act authorizes the government, in connection with a criminal copyright proceeding, to seize any article that may be used to commit or facilitate copyright infringement.   The Act also amends the Lanham (Trademark) Act by doubling statutory damages for counterfeiting to a minimum of $1,000 and a maximum of $200,000 per counterfeit mark, with the willful damage figure doubled to $2,000,000 per mark.  In addition, the Act amends the Computer Crime Enforcement Act to allow expand the scope of grants made by the federal government for computer crimes to also be used for training, prevention, enforcement and prosecution of IP theft and infringement crimes.  

Perhaps the most groundbreaking element of the Act was the creation of new, cabinet-level position, the Intellectual Property Enforcement Coordinator.  This IP Czar is charged with heading an interagency intellectual property enforcement advisory committee (also newly-created by the Act) and coordinating the development and implementation of a “Joint Strategic Plan” against counterfeiting and piracy, which will focus on, among other things, reducing counterfeit and infringing goods in the domestic and international supply chain and disrupting and eliminating domestic and international counterfeiting networks.  The first IP Czar will likely not be appointed until the next administration takes office in January 2009, thus it is too early to determine precisely how he/she might implement the newly created enforcement role and what shape the Joint Strategic Plan might take. 

The Pro-IP Act is certainly a victory for the many groups that lobbied for its passage, including the entertainment/film industry, the recording industry, and major media companies fighting against the pervasiveness of digital piracy.    However, some public advocacy groups opposed the new law, stating that its penalties are far too harsh and that it does not balance consumers’ rights and concerns over those of major media and software companies. In addition, critics of the Pro-IP Act have argued that the bill risks punishing people who have not committed copyright infringement, citing provisions in the Act that authorize the seizure of all computers and compatible devices from a home if a single, pirated MP3 was discovered on just one of the devices.
Ultimately, the passage of this bill sends the U.S. and the world a message that intellectual property infringement and piracy is at the forefront of the U.S. federal government’s focus and will be heavily scrutinized going forward.  And while the focus of the Act was enhancing IP criminal law enforcement and crime prevention, it is clear that content owners and other stakeholders in the digital media industry will be closely eyeing the government’s initiatives in order to ensure that their own efforts to protect and secure their digital assets are done in a manner to best leverage the newly-expanded protections provided in the Act.