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Date: 21 April 2011

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Digital Economy Act - High Court says it's (mostly) legal

The Digital Economy Act (the "DEA") was passed in April 2010 with Conservative party support during the final days of the Labour government. Its passage through Parliament was fraught and there was much debate about the appropriateness of rushing a key piece of legislation through in the ‘wash up’.

A significant aim of the DEA is to reduce online breaches of copyright (particularly music, films and computer games). This involved placing obligations on Internet Service Providers ("ISPs") to assist rights holders with their enforcement against infringers, including notifying subscribers of an alleged copyright infringement within one month of a request being made by a copyright holder; providing evidence and information to the subscriber about their legal rights; and when requested by a rights holder providing an anonymised list of infringements by individuals who are subscribers of the ISP.

There are obviously costs consequences to ISPs in providing this assistance, and they are set out in draft secondary legislation (the "Costs Order"), which is designed to fund the DEA’s measures. Under the Costs Order 25% of the costs of the regulatory system that will administer the DEA will be payable by ISPs, with the remaining 75% being the responsibility of rights holders.

The Costs Order has faced significant criticism from ISPs and consumer groups (who are concerned that ISPs will - as they are entitled - pass on this to subscribers, most of whom are legal users of the services provided by ISPs).

The Department for Business Innovation and Skills ("BIS") estimates that the aggregate capital cost to the ISPs of setting up the regulatory system, including the establishment of an appeals body, would be £35 million. The ISPs would also be required to pay an estimated total of between £7.5 million and £24.5 million per year to run the notifications system.

In July 2010 ISPs BT and TalkTalk filed a legal challenge against the DEA in the High Court, requesting a judicial review of the DEA. The basis of the review was that the DEA and Costs Order were disproportionate and not compatible with European Union Law ("EU Law"). The DEA was also challenged on a further ground that the government had failed procedurally to notify the European Commission with a draft of the act.

The High Court dismissed the challenges with the exception of part of the ground that the Costs Order was not compatible with EU Law. Mr Justice Parker ruled that it was unlawful to force ISPs to contribute to the cost of establishing a body to which subscribers could appeal charges of breaching copyright. The judge upheld the requirement for ISPs to pay 25% of the other costs of the DEA’s implementation.

The ISPs failed on all other arguments, in particular the DEA is not contrary to current EU data protection or e-commerce specific legislation.

The decision is a significant blow to opponents of the DEA. ISPs will welcome the ruling that they do not have to contribute to the founding of an appeals system but paying 25 per cent of the annual cost of enforcing the provisions of the DEA will still be very significant.

Vanessa Barnett, e-commerce and digital media partner, says:

"Although the decision is a real blow for ISPs, there are positive outcomes for the Internet industry generally - the High Court has endorsed the position of an ISP as an intermediary rather than a publisher and we do not have an expectation that ISPs will become the nation's policemen. However, there is still a significant battle to be had around who ends up paying for the infrastructure, which will be all of us, as subscribers."

Ian De Freitas, IP partner, says:

"Now that the DEA has largely been sanctioned by the court we wait to see whether it will have the desired impact on on-line IP infringement. Equally, the Judge acknowledged concerns that it might have a chilling effect on internet use, making providers of wi-fi access for example less willing to do so. It will be important to monitor the impact of these competing considerations. The debate is likely to continue."

The progress of enacting DEA measures will be slightly slowed by the need for the government to find an alternative method of funding the appeals body. In the meantime BT and TalkTalk are considering applications to the Court of Appeal and the European Court of Justice.

For more information on our digital practice please contact Vanessa Barnett or Ian De Freitas.

 

Contact us

Ian De Freitas

Partner, Intellectual Property ian.de.freitas@blplaw.com