Digital Economy Act not in breach of EU laws, Court of Appeal rules

The Court has rejected claims made by BT and TalkTalk that the Digital Economy Act (DEA) violates EU laws. The ruling has been welcomed by the Government and representatives of the creative industries, but may yet be appealed by the ISPs to the UK Supreme Court.

“We are pleased the Appeal Court has upheld the original ruling that the Digital Economy Act is a lawful and proportionate response to the threat posed by online piracy," a spokesperson for the Department for Culture, Media and Sport (DCMS) said in a statement.

The DEA is a controversial law that includes provisions aimed at combating online copyright infringement.

In a judicial review ruling in April last year the High Court rejected claims by the ISPs that the DEA violated EU laws.  

According to a summary of the Court of Appeal judgment by a coalition of creative industry bodies, the ISPs argued that the DEA breached EU laws on data protection and privacy. BT and TalkTalk also failed to convince the Court that the Act was "incompatible" with provisions set out in the E-Commerce Directive. The Court also rejected claims made by the ISPs that the DEA was unlawful because the Government had failed to give the European Commission enough time to scrutinise parts of the legislation, according to the bodies.

However, the ISPs did successfully argue that they should not be required to pay 25% of the "case fees" that would stem from ISP customers bringing appeals against warning letters they could receive for allegedly infringing copyright under measures allowed for by the DEA. The ISPs will still have to pay 25% of the costs they incur to comply with their obligations under the Act after the Court ruled that it was lawful to impose the charge on them, according to the creative industry bodies' summary.

“The measures were always going to have to strike a balance between ISPs and rights holders and the court has decided that the balance struck by the Digital Economy Act is about right,” said copyright law expert Iain Connor of Pinsent Masons, the law firm behind Out-Law.com. “How this will operate in practice remains to be seen.”

"Some may argue that BT’s and Talk Talk’s public stance on the issue left the legislators no room to negotiate and so arguably a more conciliatory approach during the Bill’s passage through Parliament might have been better or at least so it seems with the benefit of hindsight,” Connor said.

Both ISPs said they would consider what action, if any, to take next in light of the ruling.

“We have been seeking clarification from the courts that the DEA is consistent with European law, and legally robust in the UK, so that everyone can be confident in how it is implemented," BT said in a statement. “Now that the Court has made its decision, we will look at the judgment carefully to understand its implications and consider our next steps."

TalkTalk said it was "disappointed" by the ruling but said that it did "welcome the additional legal clarity" it brought. "We are reviewing this long and complex judgement and considering our options.  Though we have lost this appeal we will continue fighting to defend our customers’ rights against this ill-judged legislation," it said.

Under the DEA communications regulator Ofcom is required to publish a code of practice setting out the procedures ISPs must follow to combat illegal file sharing. Ofcom published a draft code in 2010 but finalised rules have still to be published.

In its draft code of practice Ofcom said that internet users should receive three warning letters from their ISP if they are suspected of copyright infringement online. Details of illegal file-sharers that receive more than three letters in a year would be added to a blacklist, the draft code said. Copyright holders would have access to the list to enable them to identify infringers. Ofcom's draft code enables users to appeal against copyright infringement notices they receive to an independent appeals body, although subsequently Ofcom has said the Government had asked it to reduce the scope of this right.

The finalised code had been expected to be published last year. A DCMS spokesperson told Out-Law.com that changes had to be made in light of the Court's findings on the cost sharing arrangements. "Government will seek to make this change as soon as possible," the spokesperson said.

Under sections 17 and 18 of the DEA other anti-piracy measures can be drawn up at the behest of the Culture Secretary. Those measures would see courts decide whether to force ISPs to block access to pirated copyright works. In August the Government announced that it had no plans to bring any new regulations under sections 17 and 18 into law "at this time". The Government has however been chairing meetings between creative industry groups, ISPs and other stakeholders aimed at fostering voluntary frameworks for combating online piracy.

Last year Lord Justice Lewison granted BT and TalkTalk permission to appeal against aspects of the High Court's findings into the lawfulness of the DEA.

Under the E-Commerce Directive member states are obliged to introduce national laws that prevent service providers becoming liable for the transmission of communications over their network under certain conditions.

This 'mere conduit' defence can be used as long as service providers do not initiate the transmission, select who receives it and do not "select or modify the information contained in the transmission". These provisions "shall not affect the possibility for a court or administrative authority, in accordance with member states' legal systems, of requiring the service provider to terminate or prevent an infringement," the Directive states.

BT and TalkTalk argued that parts of the DEA make ISPs responsible for the copyright infringement of customers and that this violates the 'mere conduit' laws provided for in the E-Commerce Directive. At the time Lord Justice Lewison had said that the ISPs' arguments on that point had "a real prospect of success".

The ISPs had also argued that the DEA required them to process sensitive personal data unlawfully under the terms of the EU's Data Protection Directive.

Under the Directive member states are required to "prohibit the processing of personal data revealing racial or ethnic origin, political opinions, religious or philosophical beliefs, trade-union membership, and the processing of data concerning health or sex life" subject to a number of exemptions. One exemption to that rule is if "the processing relates to data which are manifestly made public by the data subject or is necessary for the establishment, exercise or defence of legal claims".

The ISPs also claimed that the DEA breached the EU's Privacy and Electronic Communications Directive. The Directive governs what information can be gathered from electronic communications and says that ISPs should not be responsible for material sent over their network unless informed about infringements of the law.

Representatives from across the creative industries called on the ISPs to abandon any plans to appeal and instead work to combat online piracy.

"We always believed that the Judicial Review was misconceived. Rather than needlessly spending more time and money on further legal challenges, BT and TalkTalk now need to focus on working with rightsholders and the Government in implementing the DEA with immediate effect," John McVay, chief executive of Protection Against Copyright Theft (PACT) said in a statement.

"Today’s news that BT and TalkTalk are actively encouraging people to take up internet packages to make it easier to access large amounts of infringing material demonstrates that naked self interest is driving a total abdication of responsibility in dealing with illegal filesharing. This is an attitude that needs to change for the sake of the millions of people in the creative industries whose livelihoods are put at risk from continued high levels of online infringement," he said.

However, digital freedoms campaigners said that anti-piracy measures should not be introduced until objective evidence is produced about file-sharing.

"There is one thing the court cannot tell us: that this is a good law. The Department for Culture, Media and Sport had no evidence when they wrote this Act, except for the numbers they were given by a couple of industry trade bodies. This is a policy made on hearsay and assumptions, not proper facts or analysis," Peter Bradwell of the Open Rights Group said.

"So significant problems remain. Publicly available wifi will be put at risk. Weak evidence could be used to penalise people accused of copyright infringement. And people will have to pay £20 for the privilege of defending themselves against these accusations. The Government needs to correct these errors with a proper, evidence-based review of the law," he said.