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Thursday, 20 October 2011

First Digital Economy Act warning letters: summer 2013 - Ofcom

The first copyright infringement warning letters sent under the Digital Economy Act won't be dispatched before summer 2013. That's not another one of my (now-proven-relatively-accurate) predictions, this was the view of Ofcom's Director of Internet Policy Campbell Cowie speaking this morning at the Westminster eForum Seminar "Implementing the Digital Economy Act..."

It's significant for a senior Ofcom figure to admit such a time frame for implementation - over three years since the Digital Economy Act was passed.  And there are still factors outside Ofcom's control.

Behind the admission lies a dysfunctional team in Ofcom and a government suffering from a heavy dose of loss psychology.

UK taxpayers have already invested £2,036,000 in the form of a loan from BIS to Ofcom to work on the implementation of the UK's 3-strikes law.  My own investigation showed this is expected to rise to £5.9m.

This money can only be recouped by implementing the notification provisions of the Act, but there's no certainty it will ever be recovered. The copyright owners then pay for each copyright infringement notification sent, a portion of which goes to repay Ofcom's set up costs.

Loss Psychology

Many rookie investors fall into the trap of holding onto falling shares hoping they'll recover and make a profit one day.  So-called loss psychology makes people afraid to admit they're on a losing streak, preventing them from getting out ASAP to limit their loss.  Instead they hold and hope for a spectacular recovery.

In a similar way, the UK government is holding on to bad legislation, spending stacks of cash implementing a complex scheme that will probably prove ineffective in its aims and perhaps never recover the vast implementation costs, as copyright owners won't use the scheme if it costs more than other initiatives to combat piracy.

The maths doesn't stack up for rights holders.  Experience from a similar scheme now operational in France showed only 1 in every 38 copyright infringement reports paid for was actually sent on to the account holder, mainly due to rules preventing account holders receiving multiple warnings in any one month.

Similar rules will exist in the UK's version.  If Ofcom set the cost of a notification reasonably low, say £20, copyright owners will still pay on average £760 for each warning letter sent out by an ISP if a ratio of 38:1 applies in the UK.  3 warnings are required for "disconnection" (or, as the government prefers to call it, "technical measures"), total cost to rights holders: £2,280.

Okay, copyright owners may get smart and avoid duplicates. They may only send single warnings to culprits seen to commit multiple infringements.  But herein lies another problem. If less reports are submitted by rights holders, Ofcom will have to increase the cost per notification significantly if it is to recoup the £5.9m set up costs (and repay the £2,036,000 BIS loan).

Lets take the figures from France.  18 million reports.  Ofcom could recoup costs in a year charging a levy of only 33p (there's a few other costs behind the £20 fee I assumed, such as the ISP's data processing costs and a second levy to fund an appeals body).

If rights holders act intelligently, volumes will drop to 1/38th and the levy will have to increase to around £12.80.  Still not bad, £33.50 to send a warning letter.  3 warnings for a "disconnection": cost to rights holders: £100.

But this is the sweet spot.  A best case scenario.  A far more likely scenario will follow the rules of herd mentality.  The scheme will either be used by the major studios, or not.  There will be 18 million reports submitted, or 18,000 (mainly from independent production companies).

If notifications are as low as 18,000 per year it will take over 26 years to recoup the £5.9m set up costs if with a levy of £12.50.  Other options include increasing the levy, but that surely will make the scheme even less attractive to rights holders.  I certainly wouldn't expect to see a £100 levy on each notification in order to repay the public purse in, say, 3 years.

Potential for further delays, trouble inside Ofcom

Two pieces of legislation still need to be passed by both houses of Parliament. One - a Costs Sharing Order governing how the cost of the letter-writing, "disconnection" and appeals process is split between ISPs and rights holders - is held up in Brussels until 9th November (all "technical regulations" affecting telecoms providers need to be notified to the EC).  It could be delayed further if a member state objects.

The second, known as the Initial Obligations Code - a far more complex order regulating how the whole process will operate - is yet to be sent to Brussels, meaning parliament can't enact it until 21st January 2012 at the earliest (the notification period is at least 3 months).

- And that's assuming Ofcom send the legislation to Brussels today, which is most unlikely, as Mr Cowie this morning apologised for the late release of the code.  One can assume Ofcom's Director of Internet Policy would have done everything in his power to avoid having to make such an apology, so I'd be amazed if release is just a day away.  In any case, it still needs to be signed off by cabinet, so I'm told.

UPDATE 21/10: An Ofcom press officer has contacted me, disputing the fact that Campbell Cowie offered any apology for the late release of the code.  I asked them for clarification and am awaiting their response. and they maintain no apology was made.

Sources familiar with the situation inside Ofcom paint a picture of a highly dysfunctional team under Cowie.  One source tells me pretty much his entire workforce moved heaven and earth to be pulled off the Digital Economy Act, leaving the important legislation in the hands of a chap called Le Patourel; who I'm told was one of a very few number of willing volunteers.

(I'm also told the senior civil servant dealing with the Digital Economy Act in the Department for Culture, Media and Sport was this summer moved to deal with issues arising from the phone hacking scandal, leaving the legislation there in the hands of her deputy..)

The so-called Cost Sharing Order is controversial as it introduced an up-front fee of £20 for those wanting to appeal an allegation of copyright infringement.  £20 doesn't sound too bad until you consider the allegation is merely that - an unproven allegation.

There's no presumption of innocence: 3 uncontested allegations in 3 separate months and your internet access can be cut (albeit for a limited, as yet undefined period) or restricted in some way,  and it's this which gets me most riled about the legislation.

Precisely because there's no presumption of innocence makes the appeals process so important, and we're yet to find out how this is going to work. What we know from the primary legislation ( Section 13(6)(b) of the Act) says that internet account holders who do not take "reasonable steps to prevent other persons infringing copyright" (i.e. closing-down all open WiFi) will not be able to appeal any accusations of copyright infringement made against them.

The issue of shared internet access has angered libraries, universities and other public bodies; but the same issues apply to hotels, internet cafes and other spaces offering open WiFi.

We also know the Government has pressed Ofcom to make the appeals process harder by removing some catch-all grounds for appeal that hadn't yet been foreseen, sending the Initial Obligations Code back to the drafting board and increasing the possibility the code will need to be revised as technology evolves.

I've also been told Ofcom has held meetings with companies hoping to cash in on the Digital Economy Act by offering "copyright infringement detection and notification services".  I believe accuracy of such services was discussed, but since there's been no official word from Ofcom I'll have to pen a Freedom of Information Act request to find out.

Not that I expect such a request to be granted lightly.  Ofcom boss Ed Richards indicated last week he wasn't such a big fan of transparency when I questioned him on the subject last week, instead arguing the public interest wasn't always met "handing out minutes and other scraps of paper".



  1. It occurs to me that if I were the unscrupulous manager of a bar that offered free wifi situated next-door to another bar that offered free wifi, I could 'invest' £100 or so accusing my neighbour of illegally sharing my copyrighted menu, and the only way they could avoid having their wifi cut off would be to appeal against my inane bleatings, which would require them to stop offering the wifi at all.

  2. Assuming that the rights owners decide that the scheme isn't worth getting involved with at all, and no CIR's are issued at all, who pays the ISP's for any up front expenditure that they have already incurred?

  3. Another good point. In theory the ISPs aren't obliged to stomach any up-front costs. The process to look up and inform subscribers based on IP address can be as inefficient as they like, and they can change rights holders 75% of the cost.

    The idea is, with the ISPs stomaching a quarter of the costs, they will have an incentive to be efficient. Being efficient might take some up-front cost.

    But in practice the costs will be set after a consultation next August, the scheme will then run for a year, and any discrepancy between the forecast cost and actual cost will be redressed in the fees set for the second year, and so on.

    So yes, ISPs might in practice have to invest in gearing up to work within the agreed fees. structure.

  4. Why is OFCOM getting involved with "companies hoping to cash in" at all. Is that within their remit?

  5. It is rather interesting to see what is going on in New Zealand where the cost of the equivalent of a CIR is about £12.50. In the first two months, music rights owners have issued about 75 notices, and the movie studios none at all - citing the high costs.



  6. The 9th of November has come and gone. Does anyone know what has happened in Europe with the Costs Sharing Order?

  7. The sponsoring department can and probably will introduce the Order to parliament. It will then be scrutinised by the Merits of Statutory Instruments Committee (Lords) and the Statutory Instruments Committee (Commons) before a vote in both houses (double affirmative procedure).

    Public can pass concerns on any Statutory Instrument directly to the relevant committee, links here:

  8. I was at the same event and he did not say what you claim. So, why make it up?

  9. I didn't "make anything up". I am not in the business of making things up. I'm curious as to why you even argue the point after I have already fairly reported the contention in the article via the strike-through and addition of the "official" line from Ofcom press office.

    I see someone else, also at the event said:

    "Campbell Cowie, Director of Internet Policy at OFCOM, apologised for not being able to present the audience with an Initial Obligations code outline for the Digital Economy Act and he said that the first warning letters to potential copyright infringers won’t go out until 2013."


  10. Having read the transcript on the second page there is no apology. http://www.thecommentator.com/article/572/government_needs_to_move_up_through_the_gears_on_digital_policy_/page/2#article_content_top

  11. Transcripts that went out for pre-approval to speakers - those transcripts?

    In any case I don't understand why you're still arguing the point. By my strike-through and annotation I accept the point is contentious. I'm being fair and transparent then someone accuses me of making stuff up.

    That's not how I operate this blog. Every story is based on experience, reports, interviews or tips and I try to be as fair as I can. Other bloggers cut far more corners (and throats).

    It's a fact of life that no one report can be 100% accurate, and in being open about contested points I get accused of making stuff up, great! I might as well not take the time to admit a contested point, will that be better?

    I speak to other journalists, advocates, bloggers and campaigners and I'm spotting a common theme - certain government departments are more concerned about their image than their performance. I'm not suggesting comments on this thread are from a government department but I have emails sent to me and other journalists that prove this point in general re Ofcom.

  12. Oh - and if people want to post anonymously that's fine, but if you want any more responses on this topic please at least invent a pseudonym so I know whether each responder is the same person.


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