The Digital Economy Act: Radical New Legislation to Clamp Down on Piracy

The creative industries are an important part of our economy. They account for some seven percent of the UK’s GDP and experienced four percent growth last year, despite the recession. Their potential to attract investment to the UK is also immense, but, according to the Government’s groundbreaking Digital Britain report, they are in grave danger.

The report bluntly states that “The current model is not working” and points out that peer-to-peer (P2P) file-sharing costs the British music business an estimated £180 million per year, while the same technology causes a loss of £152 million for the TV and film industries. It should be remembered too that the lack of a viable business model – with law to back it up – harms not just big business, but also individual artists, musicians, small music labels and independent production companies.

Isn’t it up to the creative industries themselves to seek out new business models that will enable them to stay profitable in the digital age? In one sense, yes, but many have felt for some time that one of the obstacles to an effective business model was an outdated system of enforcing copyright, and that only drastic action on behalf of legislators would give the industries the power to get themselves back on top.

The Government agrees and the report, which was commissioned by Peter Mandelson, contains the reasoning and theory behind the new Digital Economy Bill (DEB), the most important piece of legislation to regulate the creative industries since the Copyright, Designs and Patents Act of 1988. Currently making its way through Parliament, the DEB aims to help the creative industries “create workable mechanisms to ensure that content-creators are rewarded for their talent and endeavour”.

With P2P file-sharing more widespread and easy than ever, the Government now feels that only drastic action can save our content-makers.

One of the most radical effects of the bill is that it will be possible for internet service providers to be forced to hand over the details of users who persistently download music or movies illegally. This is a battle that many in Europe thought had already been settled. In Promusicae v Telefonica (ECJ Case C-275/06), a group of Spanish music labels were unsuccessful in their action against the country's main telecoms company after the European Court of Justice ruled that telecoms operators are not obliged to pass on details of users swapping copyrighted material on a recreational level. In the UK, however, this precedent will not apply.

Even more radically, courts will be able to order persistent illegal downloaders to have their internet connections cut off. Unsurprisingly, pop puppetmaster Simon Cowell and bestselling author Terry Pratchett have thrown their weight behind the new bill, arguing that draconian measures are required for the creative industries to thrive. Others, however, are uncomfortable with this, not least those who argue that to cut off a person’s connection is an infringement of their human rights. The internet industry, too, is up in arms. Carphone Warehouse, for instance, has protested vigorously that ISPs should not be forced to act as spies or policemen.

One particularly controversial aspect of the bill is that it seems to advocate holding account holders responsible for the actions of those who use their account. This appears to mean that if I illegally download the new Jay Z single at a small internet cafe before disappearing into the night, the owner of the cafe may have his connection – and a significant part of his livelihood – cut off.

On the face of it, this appears hugely unfair. Should small businesses really be punished for failing to protect the interests of huge corporate entities? That’s the question posed by the Open Rights Group, the organisation that advocates more lenient copyright laws and fears that the DEB will kill internet cafes.

It could well be argued, however, that it is unacceptable for businesses, small or otherwise, to allow regular theft of copyrighted material using their equipment and for this to form part of their business model. Giving cafes an obligation to police what happens on every machine they rent out may be an onerous responsibility. But would it be such a great sacrifice for internet cafes to block access to P2P networks, except the legal ones? Many internet cafes already have mechanisms to prevent users accessing pornographic material; so why not use the same means to block access to illegal file-sharing sites?

In 2001, the Consumers' Association reported that the average price of a chart CD in London was a whopping £14.16. This was at a time when the major labels were under investigation by the Office of Fair Trading for alleged price fixing. The only explanation the industry could give for the huge discrepancy between the cost of CD production and the retail price was that it reflected “the price to find talent and develop them into successful acts”.

Now, the industry has to sell its wares for a far lower sum. This is not just the result of piracy, but also the result of a perfectly healthy and legitimate opening up of the market, with services like Spotify enjoying massive popularity. Prices have come down and profits have fallen largely because music labels no longer have a monopoly on the system used to deliver that music.

Yes, the music business had it too good for too long. Yes, there is a sense in which the big companies are now getting their comeuppance. But a knee-jerk reaction against the companies involved would be a mistake. Simply condemning the music and movie industries and accepting the juvenile, anarchistic argument that big business is bad, music should be free, and anything “the kids” do is OK, will harm not only big business but also smaller copyright holders. The DEB represents a grown-up, pragmatic and proactive approach to this issue. It may be a painful process, but ISPs, internet cafes and even “the kids” are going to have to learn to take responsibility for their actions when it comes to their use of copyrighted material.

But enforcement is not enough. If Britain’s creative industries stick stubbornly to their old business model, despite the penalties, young people will feel that music and movies are unfairly priced and not easily available, and will simply refuse to pay for them. On the other hand, as the report’s research shows, “where there are easy, affordable and lawful routes, consumers will take them.”

The challenge for the creative industries now is to create a model that offers consumers a package that’s competitive both in price and functionality. If they get that right, they have a chance of bringing consumers back into the fold. One of the most insightful passages in the Digital Britain report is the statement that: “Most consumers would prefer to behave lawfully if they can do so practically and with a sense of equity.” The message that consumers are not the enemy is a positive, hopeful one that the entertainment industry must take on board if it is to survive. The new bill gives them the stick they needed. Now they must offer consumers a carrot.

The Digital Economy Bill is a huge piece of legislation with far-reaching implications for all copyright holders. If you would like advice on how the new regime may affect you, please contact our Intellectual Property team on +44 (0)20 7749 2700 or email:

Dennis Lee - dktl@silvermansherliker.co.uk.
Fiona Rodgers - fcr@silvermansherliker.co.uk.
Neil Eagleton - nde@silvermansherliker.co.uk.
Robert MacGinn - rm@silvermansherliker.co.uk.
Christopher Elwell-Sutton - ces@silvermansherliker.co.uk.