The Digital Economy Act 2010 and online copyright infringement

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The Digital Economy Act 2010 – legislation to fit Britain for the digital age, or the oppressive tool of capitalist lickspittles? You be the judge.

Digital Britain was an impressive white paper published in June 2009 containing a raft of recommendations relating to the communications sector. An act based on the white paper ran out of time in the last parliament, but some parts were passed by consensus in the end-of-term ‘wash-up’. Most of these came into force on 8 April 2010.

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The most controversial part of the act creates a procedure for dealing with online copyright infringement – pirated books, films and, of course, music.

The procedure is essentially this: copyright owners identify incidents of infringement and compile lists of internet protocol (IP) addresses at which they believe their copyright has been infringed. They then send a copyright infringement report, with evidence of the infringements, to the appropriate internet service provider (ISP). The ISP reviews the evidence and, if it meets a required standard, sends a notification letter to the ­subscribers identified. ISPs keep track of how often each subscriber is identified and written to, and if they reach a certain threshold of alleged infringements (currently proposed as three in the previous 12 months) then their IP address is entered onto a copyright infringement list (CIL). The CIL is anonymous, but the copyright owner can seek a court order ­requiring the ISP to identify some or all of the subscribers on the list. If disclosure is ordered the copyright owners can commence infringement proceedings against the individual subscribers.

The act increases the penalty for online copyright infringement, to a maximum of £50,000 (up from £5,000, a recommendation of the Gowers review). The act also gives the secretary of state the power to order ISPs to impose technical measures on users who meet certain level of infringements (say, a particular number or frequency). These technical measures might include bandwidth capping or shaping, or temporary suspension of an account.

These provisions have attracted a lot of criticism. Passed in a febrile pre-election atmosphere, some claim that they did not receive sufficient parliamentary scrutiny. There are objections that blocking internet access amounts to an infringement of civil liberties. ISPs question whether they should be lumbered with policing internet usage in this way. And anyone with a teenager at home toiling away on their computer may feel anxious about whether they could find themselves cut off because of some covert online copying that they had nothing to do with.

Before the 2010 general election the Liberal Democrats pledged to repeal the act, but there is no mention of it in the coalition agreement, and it is hard to see that it will be very high on the government’s list of priorities. A greater threat may come from BT and Talk Talk, which are seeking judicial review of the act. The claimants are relying on arguments that the act was not properly ­scrutinised by parliament and will cause undue harm to basic rights and freedoms.

The operational details of the online infringement provisions will be dealt with in a code drafted by the communications industry regulator Ofcom, a consultation draft of which was released on 28 May 2010 and must be finalised by 8 January 2011. The code will contain provisions regarding the nature of the required evidence of infringement, the notification process and a procedure for appeals. There are a number of smaller ISPs which may struggle with the burden of the new regime, and so Ofcom has proposed that, initially at least, only fixed ISPs with 400,000 users will be subject to the code.

Ofcom is trying to pull off a ­balancing act. The hope is that the code will contain enough hurdles before internet access is blocked to satisfy internet libertarians, while not having so many hurdles as to neuter the act from the point of view of rightsholders. The stage is set for an autumn of debate.

IT standard termsThere is a condition that practitioners sometimes encounter, which you might call ‘contract blindness’. ­Contract blindness occurs when the signatories to an agreement appear not to have seen what the words on the page actually say. Perhaps ­dazzled by all those headings, ­numbered paragraphs and boilerplate clauses, parties fail to notice that the agreement they are signing bears ­little resemblance to what they are planning to do.

The world of IT seems particularly susceptible to contract blindness. A useful warning against the risks of failing to properly check your IT contract was recently handed down in Kingsway Hall Hotel Ltd v Red Sky IT (Hounslow) Ltd [2010] EWHC 965.

Red Sky IT supplied a software package to the Kingsway Hotel chain to manage reservations, billing and check-ins. Kingsway bought the package subject to Red Sky’s standard terms and conditions. The software quickly proved to be unsuitable, for example failing to show room availability.

Kingsway sought to reject the software and claim damages for loss of revenue flowing from the failures, on the grounds that the package was not of satisfactory quality or fit for purpose (section 14 of the Sale of Goods Act 1979 and section 4 of the Supply of Goods and Services Act 1982).

However, Red Sky’s standard terms excluded all terms ‘as to performance, quality, fitness for purpose etc’, save that ‘the program will in all material respects provide the facilities and functions set out in the operating documents’. The program did indeed comply with the operating documents, and Red Sky relied on this exclusion clause to argue that it had therefore fully discharged its warranties. Kingsway responded that the term did not apply because it had never seen the operating documents, and because the software simply did not comply with its requirements, which were known to Red Sky. Kingsway further sought to have Red Sky’s exclusion clause struck out as unreasonable (section 11 of the Unfair Contract Terms Act 1977).

The judge agreed with Kingsway that the exclusion clauses did not apply and furthermore were unreasonable. In reaching this decision the court emphasised the point that the standard terms failed to reflect the reality of the sales process. Red Sky had used terms drafted for an off-the-shelf software package. For off-the-shelf software it is arguably more reasonable to assume that the buyer has checked that the package ­matches its needs, such that it may be reasonable to exclude other ­warranties. Whereas in these circumstances, Kingsway had specified its needs to Red Sky, and had relied on Red Sky’s positive recommendation of its system.

The lesson for IT companies is not to assume that a one-size-fits-all set of standard terms will offer protection, regardless of the nature of the transaction. The lesson for recipients of goods and services is to read your contract, and if it is an IT contract, read it twice.

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