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BT and Talk Talk lose challenge to the Digital Economy Act

Nick Rose
06/06/2012

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ISPs lose appeal – what now for the Digital Economy Act?

R (on the application of (1) British Telecommunications Plc, (2) Talk Talk) v BPI Ltd andothers [2012] EWCA Civ 232, 6 March 2012

On 6 March 2012, the Court of Appeal ("CA") rejected BT and Talk Talk's appeal in relation to a judicial review of the Digital Economy Act 2010 ("DEA"). BT and Talk Talk had challenged various provisions of the DEA (sections 3 to 16 regarding Internet Service Providers' (ISPs) obligations for online copyright infringement) claiming they were incompatible with various EU directives. In the CA decision, the judges dismissed all of the ISPs' grounds of appeal apart from one narrow point on costs. It remains to be seen whether the ISPs will appeal to the Supreme Court as they have indicated they might.

The Digital Economy Act 2010

The DEA aims to regulate digital media and to set out measures to combat online copyright infringement. The copyright provisions of the DEA are unusually skeletal and much has been left to secondary legislation and codes of practice. The DEA is perhaps better described as a framework rather than a new set of laws about online copyright infringement.

Many of its provisions have proved highly controversial and are still awaiting final implementation. The highly controversial provisions include 'initial obligations' on ISPs to send out warning letters to subscribers who have been reported by copyright owners for infringement and providing copyright owners with lists of infringing subscribers. Ofcom is currently in the process of drafting the initial obligations code of practice to underpin the duties of the ISPs. If the initial obligations prove to be ineffective, the DEA gives the Secretary of State the power to impose certain 'technical measures', such as limiting the internet speed or subscriber access to particular material, to deter further infringement. It is these provisions that are leading to much criticism among the large ISPs (smaller ISPs will not be subject to the code) who say that the provisions are onerous and they should not have to police their customers’ online activities.

 Click here for further Fieldfisher reading on the history of the DEA.    

Facts

BT and Talk Talk claimed the DEA was in breach of, or incompatible with the following:

  • Technical Standards Directive (98/34/EC) which requires member states to notify any draft technical regulation to the European Commission.
  • E-Commerce Directive (2000/31/EC) which provides that ISPs who transmit information on behalf of a subscriber, or who provide access to a communications network, are "not liable for the information transmitted" where they did not initiate the transmission, select the receiver of the transmission or select or modify the information contained in the transmission ("mere conduit" exemption).
  • Data Protection Directive (95/46/EEC) which prohibits the processing of certain special categories of personal data, such as that revealing racial or ethnic origin, political opinion or religious beliefs unless it "is necessary for the establishment, exercise or defence of legal claims".
  • E-Privacy Directive (2002/58/EC) which provides that the processing of "traffic data" which is "data processed for the purpose of the conveyance of a communication on an electronic communications network or for the billing thereof" must comply with certain criteria unless a derogation applies under the E-Privacy Directive.     
  • Authorisation Directive (2002/20/EC) which harmonises and simplifies the authorisation regime for electronic communications networks and services and sets out specific obligations applicable to electronic communications networks and services.

BT and Talk Talk also claimed the DEA was disproportionate and discriminatory because only the six largest ISPs in the UK would be subject to the initial obligations code.

The Appeal decision

Technical Standards Directive

There was no breach of the Technical Standards Directive.

If a technical regulation is not notified to the European Commission, which the ISPs claimed was the case here, it is unenforceable at national level. The CA ruled there was no need for notification.

The true test for deciding what amounted to a "technical regulation", which required notification, was whether the measure "by itself" had "legal effect for individuals". In this case, the initial obligations under the DEA did not have the prescribed "legal effect" because the incidence of the initial obligations was made expressly contingent upon the initial obligations code, and the initial obligations were not yet sufficiently particularised so as to be enforceable. It was only the code that would need to be notified in due course as a draft technical regulation.

E-Commerce Directive

The provisions were not incompatible with the E-Commerce Directive.

The ISPs argued that the contested provisions rendered them potentially "liable for the information transmitted" contrary to Article 12 of the E-Commerce Directive, because of the responsibilities imposed on them in relation to the warning letters and infringing subscriber lists,  together with the related financial burden and exposure to liability for costs, compensation and penalties. The CA rejected their arguments saying the provisions did not render ISPs potentially liable for the information transmitted – the initial obligations on ISPs did not impose any liability in respect of underlying copyright infringement.

Data Protection Directive

The provisions were not incompatible with the Data Protection Directive.

The ISPs argued that in a substantial proportion of cases, the procedure prescribed by the DEA was not intended to involve legal claims at all. One of the main aims of the DEA measures was said to be educational and the government had assumed that 70% of infringers would stop infringing if they received a notification from their ISP and would therefore not need to resort to legal action. The ISPs argued the scheme would operate as extra-judicial and that the processing could not be said to be necessary for the establishment, exercise or defence of legal claims.

It was held that the processing was plainly necessary for the establishment, exercise or defence of legal claims, even if it meant that on receiving a notification, subscribers stopped infringing and no further action was required. Even if the scheme sought to educate users about the legal rights of copyright owners and encouraged them to cease infringing activities without the need for legal action, that did not mean that the copyright owners were not establishing, exercising or defending their legal rights.

E-Privacy Directive

The provisions were not incompatible with the E-Privacy Directive.

The ISPs argued that the data they processed was "traffic data" and that this processing did not comply with the E-Privacy Directive and that the derogation under Article 15 did not apply. This argument was rejected by the CA which considered that the derogation did apply and that traffic data could be stored to protect IP rights. Member States were entitled to adopt legislative measures to allow for the retention of data for a limited period in order to protect property rights, which would include copyright.

Authorisation Directive

There was a breach of the Authorisation Directive.

The ISPs claimed the DEA imposed onerous costs obligations on ISPs contravening this Directive. The CA held that the provisions of the draft costs order (draft Online Infringement of Copyright (Initial Obligations) (Sharing of Costs) Order 2011) breached the Directive and various fees and charges (qualifying costs, i.e. costs incurred by Ofcom in carrying out its functions under the copyright infringement provisions and case fees, i.e. fees charged by the appeals body in respect of each subscriber appeal received) were administrative costs which could not be imposed on ISPs. This was a partial victory for the ISPs and widened the previous declaration on costs. This means an ISP will only be liable for relevant fees, i.e. those which would be reasonably incurred in carrying out its obligations under the copyright infringement provisions e.g. costs of sending copyright infringement letters and ISPs will be able to recover some of those from copyright owner.

Discrimination and proportionality

The proposed exclusion of smaller ISPs and mobile network operators from the scope of the initial obligations was proportionate.

The CA rejected the argument that the proposal in the draft initial obligations code that it would initially cover only fixed-line ISPs with over 400,000 subscribers, i.e. the six largest ISPs, was discriminatory contrary to Article 6 of the Authorisation Directive. The CA agreed with the Court's previous decision that this was reasonable and proportionate and was soundly based on detailed evidence submitted on behalf of the Secretary of State.

Comment

The government and copyright owners will be pleased with this decision and by the fact that the court did not refer any questions to the Court of Justice for the European Union, since that would have further delayed the progress of the contested provisions. Talk Talk and BT have indicated, however, that they may appeal to the Supreme Court, sparking concerns that there may be further delays to the implementation of the DEA provisions.  The Department for Culture, Media and Support recently announced, however, that it expected to publish the draft code at the end of June this year. But it will then need to go through various EU hoops so ISPs may only need to start sending out warning letters some time in 2014. There will also need to be some reworking of the costs provisions. The measures were always going to have to strike a balance between ISPs and rights holders and the CA seems to think that the DEA strikes the right balance.

While the judgment does provide clarification on ISP liability, it remains uncertain what effect the DEA will really have until the provisions have been implemented and put to the test.


Time line of events

April 2010:  Digital Economy Bill - Royal Assent

May 2010:  Draft Initial Obligations Code

July 2010:  BT and TalkTalk apply for judicial review

Jan 2011:   Draft Online Infringement of Copyright (Initial Obligations) (Sharing of Costs) Order 2011 (75:25 split copyright owners/ISPs)

Feb 2011:   Review of site-blocking provisions

Aug 2011:   Government says no blocking regulations “for the time being”

April 2011:  High Court dismisses BT & Talk Talk challenge

October 2011: BT and Talk Talk granted permission to appeal outcome of judicial review

Mar 2012:   Court of Appeal upholds High Court decision and rejects ISPs appeal

…..Appeal to Supreme Court??


Rebecca Pakenham-Walsh, Senior Associate (PSL) IP Protection and IP Enforcement and Litigation at Fieldfisher.