The CJEU rules against imposing website filtering obligations on an ISP how does this decision affect the position in the UK?

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1 IP e-bulletin 21 December 2011 The CJEU rules against imposing website filtering obligations on an ISP how does this decision affect the position in the UK? The Court of Justice of the European Union ("CJEU") has ruled that EU law does not permit the imposition of an obligation on an Internet Service Provider ("ISP") to install a filtering system which screens all traffic in order to prevent the use by its customers of infringing websites, especially those using peer-to-peer software. Scarlet Extended SA v Société belge des auteurs, compositeurs et éditeurs SCRL (SABAM) (Case C-70/10) (24 November 2011). In contrast, the UK High Court recently ordered an ISP to block its customers from accessing a specific unlawful file sharing site. It seems, however, that this decision is consistent with the CJEU's, because of the targeted nature of the blocking ordered by the Court. The CJEU's decision comes at a time when the UK Government is hoping to broker a self-regulatory code between ISPs and content owners that will implement swift site-blocking for infringing sites. Any such code will need to be carefully drafted and implemented in order to avoid being prohibited under the principles established by the CJEU. Contacts Andrew Moir Partner Daniel Pearce Associate Related links Herbert Smith website IP homepage More IP publications Herbert Smith news The CJEU's decision This case was referred to the CJEU by the Brussels appeal court following an appeal by the ISP (Scarlet Extended SA), against a first instance decision in 2007 ordering Scarlet to block its customers from sending or receiving files containing musical works in SABAM's repertoire. SABAM is a collecting society for authors, composers and editors of musical works in Belgium. The CJEU was asked to decide whether EU legislation (including the E- Commerce Directive (Directive 2000/31/EC), the Copyright Directive (Directive 2001/29/EC) and the Enforcement Directive (Directive 2004/48/EC)) permits an injunction being imposed on an ISP to force it to introduce a system, at its own expense and for an unlimited period, for monitoring and filtering all communications passing via its services - particularly those involving peer-topeer software - in order to identify and block the movement of protected copyright works (e.g. music or video works). The CJEU looked at the legislation and decided that, although (following Art 8 (3) of Directive 2001/29 and Art 11 of Directive 2004/48) a holder of intellectual property rights may apply for and be granted injunctions against ISPs whose services are being used to infringe their rights, this had to be balanced against Art 15(1) of Directive 2000/31, which prohibits national authorities from requiring ISPs to carry out general monitoring of the information that it transmits over the network. Citing the Court's previous decision in Case C-324/09 L'Oréal v ebay [2011] ECR, the CJEU decided that the filtering system in question would be prohibited as it would constitute such general monitoring. It also considered that such a system would not be fair and proportionate and would be excessively costly (which would be incompatible with Art 3 of Directive 2004/48 and L'Oréal) and result in a serious infringement of the ISP's right of freedom to conduct business under Art 16 of the Charter of Fundamental Rights of the European Union. Page 1

2 Please see here for the full decision. The UK position The decision of the CJEU comes after the recent decision of the UK High Court in the "Newzbin2" case, in which BT was ordered to block its customers from accessing a specific unlawful file sharing site (see our 10 August 2011 newsflash here for further information). Another ISP, Sky, has since then also been ordered by the Court to block Newzbin2. Although the UK High Court and CJEU decisions may appear at first sight to be at odds, the distinguishing factor to note is the breadth and scope of the filtering system in question in the SABAM case (which covers all communications) in comparison with the targeted filtering ordered in Newzbin2 (which applies only to one specific website). In his Newzbin2 judgment, Arnold J considered the interplay of much of the EU legislation referred to by the CJEU in SABAM, in particular Art 15(1) of Directive 2000/31, referred to above. In this regard he (like the CJEU) cited the decision in L'Oréal v ebay, which states that Art 15(1) Directive 2000/31 does not prevent the imposition of monitoring obligations in a specific case. He also considered (again in light of L'Oréal v ebay) that the order awarded was proportionate in the circumstances. These decisions are therefore consistent with each other. This decision also comes at a time when the Department for Culture, Media and Sport ("DCMS") appears to be increasingly interested in encouraging the development of a self-regulatory code of practice for ISPs allowing the rapid blocking of websites which are substantially focussed on infringement of copyright (please see our IT and outsourcing bulletin dated 28 November 2011 here). This is despite the Government announcing on 3 August 2011 that regulations on site-blocking will not be forthcoming under the Digital Economy Act Commentary Content owners should not be concerned that the later SABAM decision undermines the Newzbin2 line of authorities in the UK High Court. In the future, if it can be agreed in the discussions mediated by the DCMS, content owners may also have recourse to a self-regulatory code with ISPs regarding site-blocking. However, this code will also need to be consistent with the position established by the CJEU in SABAM. In particular, the mechanism for selecting the sites to be blocked is likely to be crucial: if the obligations created on ISPs are too broad they risk being viewed as effectively imposing on ISPs a general obligation to monitor, which would be prohibited. Equally, if the mechanism could lead to the outright blocking of sites which contain a significant proportion of legitimate content, such measures may be seen as disproportionate in the circumstances. To subscribe or unsubscribe To enquire about further publications, or to unsubscribe from this e-bulletin, please us, or visit the Herbert Smith website here. The contents of this publication, current at the date of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication. Herbert Smith LLP, Gleiss Lutz and Stibbe are three independent firms which have a formal alliance. Herbert Smith LLP 2011 Page 2

3 IP newsflash 10 August 2011 High Court orders BT to block its customers from accessing an unlawful file sharing site In the first decision of its kind in the UK, the High Court has held that an Internet Service Provider ("ISP"), in this case BT, must block its customers from accessing an unlawful file sharing site ( on the basis that, under s97a Copyright, Designs and Patents Act 1988 ("CDPA"), BT had "actual knowledge" of its customers using its service to infringe copyright (in this case the copyright in films and television programmes owned by certain well-known studios). This decision will be welcomed by copyright owners and the creative industry in general. However ISPs will be concerned that it will open the floodgates and lead to onerous obligations on them to control their customers' access to a potentially large number of sites. Twentieth Century Fox Film Corp & Ors v British Telecommunications Plc [2011] EWHC 1981 (Ch) (28 July 2011). Contacts Andrew Moir Partner Daniel Pearce Associate Related links Herbert Smith website IP homepage More IP publications Herbert Smith news Background to the case This decision follows a prior decision of the High Court in Twentieth Century Fox Film Corporation & Anor v Newzbin Ltd [2010] EWHC 608 (Ch) (29 March 2010) in which Kitchin J found that Newzbin Ltd (which at the time operated a website accessible from the same address) was liable for copyright infringement in that it had authorised the copying of films by its users, procured and engaged with its users in a common design to copy those films and communicated those films to the public. Please see our 31 March 2010 newsflash for further information. Following the 2010 High Court decision, Newzbin Ltd went into voluntary liquidation and the original website ceased operating. However a successor website soon began operating from the same address, The operators of this website were unknown and it appeared that its operation had been moved offshore, outside the Court's jurisdiction. Therefore, the claimants (being Twentieth Century Fox, Universal, Warner Bros, Paramount, Disney and Columbia, the "Studios") sought an injunction against BT, the UK's largest ISP. The injunction sought would oblige BT to block its subscribers from accessing the Newzbin website using a technology called "Cleanfeed" which BT already uses to block pornographic content. The Studios made it clear that they would seek similar orders against other ISPs if they were successful. The Newzbin website The Newzbin website indexes and categorises "Usenet" messages. Usenet was developed in the 1980s as a means to upload and view short text messages on an electronic equivalent of public bulletin boards. As well as text messages, Usenet also allows its users to post "binary" content, including DVD films, CDs and software. However, as such content is very large, it has to be split into many hundreds, if not thousands, of individual Usenet messages. The Newzbin website indexes these messages, ensures that they are all present and groups the content under headings such as "Movies", "Music", "TV" or "Apps". The evidence indicated that the overwhelming majority of the files on the website were likely to be protected by copyright. This was particularly the case Page 1

4 in the "TV" and "Movies" categories (where the Studios' copyrighted works would be found) which accounted for approximately 70% of the site's content. The judgment The Studios sought an injunction under s97a CDPA, which provides in subsection 1 that "The High Court shall have power to grant an injunction against a service provider, where that service provider has actual knowledge of another person using their service to infringe copyright" (Emphasis added). This section was inserted into the CDPA as a result of Article 8(3) of the Information Society Directive (2001/29/EC), which obliges Member States to ensure that injunctions can be granted "against intermediaries whose services are used by a third party to infringe a copyright or related right". BT accepted that it was a "service provider" under s97a CDPA, but opposed the grant of the injunction on six main grounds. 1. There is no "use" of BT's service to infringe copyright BT submitted that the infringement occurs "using" the services of the supplier of the infringing works (i.e. Newzbin) not BT's services. Arnold J considered the wording of Article 8(3) of the Information Society Directive and whether this is aimed at ISPs. He decided that it was, and therefore held that BT subscribers who are members of Newzbin and download infringing content over BT's networks are indeed "using" BT's service. 2. There is no "actual knowledge" as required under s97a CDPA BT contended that it was not enough for BT to know simply that its service is being used for infringing activity in general, but that it was necessary to have actual knowledge of a specific person using its service to infringe a given copyright work. Arnold J rejected BT's arguments based on the context, purpose and wording of s97a CDPA. The provision was therefore not to be interpreted in a restrictive manner, and it was not necessary to prove knowledge of a specific infringement by a specific individual. 3. The injunction sought would contravene Article 12(1) of the E-Commerce Directive (2000/31/EC) BT also argued that the injunction should not be granted because it would contravene Article 12(1) of the E-Commerce Directive, which provides that an ISP is not liable for the information transmitted over its networks provided that it does not control the sending or the recipient of the information, or control the information transmitted. It was noted that Article 12(3) expressly states that this protection does not affect a Court's ability to require a service provider "to terminate or prevent an infringement". However BT compared this provision with Article 14(3) of the Directive, a similar provision aimed at hosting services, which in addition expressly allows Member States to "establish procedures governing the removal or disabling of access to information". This, BT said, was essentially what the Studios were seeking, but such relief should not be granted as it is not expressly provided for in Article 12(3). However Arnold J held that the differences between Articles 14(3) and 12(3) do not justify a restrictive interpretation of the latter clause and therefore the injunction would not contravene Art 12(1). 4. The injunction sought would be contrary to Article 15(1) of the E-Commerce Directive Article 15(1) of the E-Commerce Directive provides that Member States cannot impose a general obligation on service providers to monitor the information they transmit or store. BT submitted that the injunction sought would breach this Article. However Arnold J disagreed, citing the Court of Justice in L'Oréal v ebay (see our newsflash of 13 July 2011), which had held that Article 15(1) applied to prevent the general active monitoring of all data of all customers of a provider, but does not prevent courts from ordering specific monitoring in particular cases. 5. The injunction would contravene Article 10(1) of the First Protocol to the European Convention on Human Rights ("ECHR") Arnold J rejected a number of further arguments from BT that the injunction should not be granted by the Court, based essentially on the balance between the rights of the Studios under Article 1 ECHR (the right to peaceful enjoyment of possessions) and the rights of users of Newzbin under Article 10 ECHR (right to freedom of expression, i.e. the BT subscribers' right to receive information). He found that such balance was firmly in favour of the Studios and therefore the Page 2

5 breadth of the injunction, which necessarily extended beyond the films and TV programmes of the Studios, was justified and proportionate due to the extent of copyright infringement occurring via the Newzbin website. 6. The Court should not exercise its discretion to grant the injunction BT contended that, even if the Court had the jurisdiction to make the order sought by the Studios, it should not exercise its discretion to do so because (i) the Studios did not have rights to the entire content of Newzbin, (ii) there would be a flood of other similar claims, and (iii) the Order would be ineffective as BT subscribers could circumvent the Cleanfeed technology anyway. Arnold J considered that the Studios were the single biggest group of copyright owners affected by Newzbin, and that their rights were being infringed on a massive scale such as to justify making the order. He considered that noninfringing uses of Newzbin were de minimis. He also noted that the injunction would not necessarily lead to a flood of similar applications by other copyright owners against other ISPs, since other applicants would still need to put a substantial amount of evidence before the Court in order to make out their case. Finally he acknowledged that there would be ways to circumvent these blocks, but said that even if only a minority of users are prevented from accessing the website, that would justify the injunction. Comment This is an important decision that will benefit the creative industry, particularly in relation to websites hosting infringing content which are outside the Court's jurisdiction. BT has stated that it will not appeal the judgment, but it is currently uncertain how easy it will be for copyright owners to seek injunctions in respect of other content on different sites and/or against different ISPs. The Studios' application for an injunction against BT started from the point that they had already obtained judgment against Newzbin Ltd for copyright infringement. Future applicants will need to put forward a good deal of evidence, not only in support of the injunction but also in order to establish infringement itself. Furthermore, as the overwhelming proportion of infringing usage of the Newzbin site was a factor in justifying the breadth of the order granted, it may be harder for an applicant to obtain a similar order in respect of websites which enjoy relatively more legitimate use. It is interesting in this context to note the announcements of the Government on 3 August 2011 following the recent Ofcom report into site blocking (available here). This report looked into the powers granted to the Secretary of State under sections 17 and 18 of the Digital Economy Act 2010 (the "DEA"), which allows the creation of legislation to require ISPs and other intermediaries to block access to internet sites found to infringe copyright. The Ofcom report concluded that none of the currently available techniques of site blocking is completely effective since there are various means to circumvent them and they can sometimes block legitimate content. It also commented that, to provide any real advantage over the s97a CDPA route, the procedure would have to result in blocks being put in place quickly, be low cost, and have a predictable outcome. In the light of this report, the Department for Culture, Media and Sport announced on 3 August 2011 (as part of wider announcements in connection with the Government's response to the Hargreaves review on intellectual property see our 5 August 2011 newsflash here) that they will not "bring forward regulations on site-blocking". However, the notification scheme under the DEA still remains as a means of combating online piracy. This enables customers of ISPs who infringe copyright to be sent warning letters at the request of copyright owners (see our 3 May 2011 newsflash). The Government has announced that the "Initial Obligations Code" under the DEA (which will set out the procedure) will be published soon, almost a year later than initially proposed. However, the first warning letters under this Code are not due to be issued until late To subscribe or unsubscribe To enquire about further publications, or to unsubscribe from this e-bulletin, please us, or visit the Herbert Smith website here. The contents of this publication, current at the date of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action Page 3

6 based on this publication. Herbert Smith LLP, Gleiss Lutz and Stibbe are three independent firms which have a formal alliance. Herbert Smith LLP 2011 Page 4

7 IT and outsourcing e-bulletin 28 November 2011 A round-up of developments This e-bulletin summarises recent developments. Please contact us if you would like more information. Contacts 1. Feature article To Block or not to Block: Europe continues to wrestle with the question of online copyright infringement Mark Turner Partner News One for All and All for One: European Commission publishes proposal for a Common European Sales Law Dark clouds gather over literal construction as Rainy Sky endorses business common sense approach The Final Countdown: the latest on the proposal for data protection reform Feature article 1. To Block or not to Block: Europe continues to wrestle with the question of online copyright infringement In Europe, the ECJ has ruled that an order requiring an ISP to filter and block copyright infringing material was incompatible with EU law. Meanwhile, in the UK, following the recent Newzbin case, it has been revealed that the Department for Culture, Media and Sport is facilitating plans to implement a rapid web blocking procedure to block access to copyright infringing content. Monitoring and Blocking in Europe Nick Pantlin Partner Miriam Shears Professional support lawyer Related links Herbert Smith website Herbert Smith TMT homepage Herbert Smith TMT publications IP publications Herbert Smith news The European Court of Justice has ruled that an order imposed by a Belgian court in 2004, requiring a Belgian internet service provider ("ISP") to filter and block access by its customers to copyright infringing material was incompatible with certain European law, including the E-Commerce Directive and the Charter of Fundamental Rights. The facts of the case date back to 2004 when a Belgian company representing various rights holders ("SABAM") concluded that internet users subscribing to the services of an ISP called Scarlett Extended, were downloading copyright works without authorisation via peer-to-peer networks. SABAM sought, and was granted by the Belgian courts, an order requiring the ISP to block, or make it impossible for customers to send or receive files containing copyright works over peer-to-peer networks without the rights-holders authorisation. The case was referred to the European courts when the ISP claimed that the injunction granted was contrary to European law. In its ruling, the ECJ found that certain EU Directives including the E-Commerce Directive, the Copyright Directive and the IP Enforcement Directive, when read together and construed in light of the requirements stemming from the protection of fundamental rights, must be interpreted as precluding the injunction. In particular, the ECJ appeared concerned that the injunction would require the ISP to monitor data relating to its customers contrary to Article 15 of the E-Commerce Directive which prevents Member States from a general obligation on ISPs to monitor the information which they transmit or store. The UK Dimension The decision of the ECJ has come not long after the High Court in the UK upheld an application by a consortium of movie studios to force BT, as an ISP, Page 1

8 to block its customers from accessing an unlawful file sharing site, using powers provided for in the Copyright, Designs and Patents Act, on the basis that BT had actual knowledge of its customers using the service to infringe copyright. Please click here for further details of the Newzbin judgment in our IP Newsflash. BT started blocking the Newzbin site on the 2nd November (although the group behind the website claims that its users are still able to access it via a workaround issued in September). More recently, documents obtained under a freedom of information request have revealed that the Department for Culture, Media and Sport ("DCMS") has been facilitating discussions between rights holders, ISPs and other stakeholders to try and develop a code of practice to enable the rapid blocking of websites that are substantially focussed on copyright infringement. According to the proposals obtained by the Open Rights Group, the code of practice would involve: identification of substantially infringing websites by rights holders; notification by the rights holder to the website concerned; pre-agreement with ISPs of a form of blocking order; judicial assessment and approval of the blocking measures; and implementation of the blocking measures. Plans to introduce new website blocking regulations under the Digital Economy Act were recently halted following an Ofcom report into the practicalities of implementation of such regulations. However, the recent Newzbin judgment appears to have perhaps ignited a renewed enthusiasm to introduce some form of blocking measures. Given the recent ruling from the ECJ, it seems likely that the issue of website filtering and blocking will continue to be discussed as rights holders and ISPs struggle to find a practical solution. To view a copy of the ECJ ruling, please click here. To view a copy of the UK Rightsholder Group proposals, please click here. News 2. One for All and All for One: European Commission publishes proposal for a Common European Sales Law The European Commission has published its proposal for an optional Common European Sales Law which would apply to the cross-border sale of goods and related services, including digital content contracts (e.g. music, movies, software or smartphone applications). The Commission proposal, which it says is aimed at facilitating cross-border transactions in the EU, follows a Green Paper published in June 2012 and the publication of a feasibility study in May 2011 which contained a draft contract code. The proposed Common European Sales Law is set out in a draft EU Regulation meaning that, if passed, it would be directly applicable in every Member State, on a par with national laws, with no action needed at Member State level to implement the Regulation. The proposed Common European Sales Law would exist alongside the current national regimes as an optional 28th contract law regime. It would only apply where the following conditions are met: both parties voluntarily and expressly agree to it; the contract is a cross-border contract, although Member States will have the option to make the law applicable to domestic contracts as well; the contract is for the sale of goods, including digital content; and one of the parties is established in one of the EU Member States. The Commission is keen to ensure that the proposal is adopted in 2012, which is the 20th anniversary year of the Single Market. However, it is unclear at this stage how many Member States will support the proposal and therefore whether or not it will receive the required endorsement of the Council of Ministers. However, as the proposal continues to go through the legislative process, Page 2

9 organisations will need to consider the implications of an additional contract law regime to their own cross-border (and possibly domestic) transactions. In particular, organisations in the IT sector should start to consider the scope of the proposals to their own business. For example, will the sale of all software be covered by the new regime as a sale of goods or digital content? Would software maintenance and implementation or integration services also fall within the remit of "related services"? To view a copy of the current proposals, please click here. 3. Dark clouds gather over literal construction as Rainy Sky endorses business common sense approach In Rainy Sky v Kookmin Bank [2011] UKSC 50, the UK Supreme Court has confirmed that it will apply a commercial approach when construing the meaning of disputed ambiguous contractual terms. In the Rainy Sky case, the issue before the Court concerned the interpretation of a performance bond issued by the defendant bank to the claimants and relating to six shipbuilding contracts between the claimants and a shipbuilder. The purpose of the bonds was to guarantee the refund of the claimants' payments to the shipbuilder in certain prescribed circumstances. The shipbuilder subsequently went insolvent but the bank refused to make the repayments to the claimants. On the bank's construction of the relevant term of the performance bond, it argued that the shipbuilder's insolvency did not trigger the obligations to guarantee the repayments. Finding in favour of the claimants, Lord Clarke, who gave the Supreme Court's only judgment, endorsed the view that where a contractual term is ambiguous, such that it is open to more than one interpretation, "the court is entitled to prefer the construction which is consistent with business common sense and to reject the other." Only where the parties have used clear and unambiguous language should the courts rely on the rule of strict interpretation. The justification for this approach is that a commercial construction is likely to resolve the question of what the reasonable person would have understood the contract to mean. In the Court's view, it would have been commercially nonsensical for the claimants to have excluded their entitlement to repayment in the event the shipbuilder went insolvent. This was entirely the sort of scenario that the bonds were intended to contemplate. The Rainy Sky decision reaffirms the line of recent Supreme Court/House of Lords case law and is therefore more evolutionary than revolutionary. The decision is likely to encourage those who wish to challenge the most obvious meaning of a contractual provision on the basis that it goes against the commercial purpose of the contract. To minimise the risk of such a challenge, clear drafting and, where practical, establishing a consistent commercial rationale for key provisions across a contract (for example through recitals) will be important. However, where such efforts fail and ambiguity remains, the courts appear to be increasingly willing to favour a commercial interpretation over a literal one. Whether such an abstract concept as "business common sense" will always be capable of determination is another question. To view a copy of the judgment, please click here. 4. The Final Countdown: the latest on the proposal for data protection reform In advance of the European Commission's proposal for data protection reform, which is due in January 2012, the Information Commissioner's Office (the "ICO") has set out the key elements it would like to see in future legislation. In the latest instalment of the much anticipated European data protection reform process, the European Commission has indicated that it now expects to publish its legislative proposals towards the end of January In the meantime, the ICO has published a briefing to inform stakeholders about the upcoming proposed changes to the EU data protection legal framework and the ICO s views on some of the expected proposals. The ICO set out the following key features that it thinks should be present in any future legislation: Page 3

10 A single overarching framework which is easily understandable and defined in scope The ICO believes that the new framework should include obligations placed directly upon data processors so that they become accountable as part of the information lifecycle. The ICO also considers that definitions and exemptions for domestic purposes and journalism need to be updated to take into account the changing technological environment. Robust rights for individuals with an easy and inexpensive means of enforcing them The ICO would like to see a strengthening of individuals' rights to object to and block processing. However the ICO does not believe that a separate "right to be forgotten" should be implemented. The ICO maintains the view that this could lead to confusion amongst individuals about their rights, and would be difficult to implement in practice. Clear standards for responsibility and accountability The ICO would like to see the setting of clear standards which organisations are expected reach. However, it believes that the legislators should be less prescriptive about the processes organisations should introduce to achieve such standards. The ICO supports a "privacy by design" approach and a shift of responsibility to organisations to ensure compliance. Clarification of the role of the data protection authorities' ("DPA") In accordance with the ICO's desire to see responsibility for data protection compliance resting with the organisations processing personal data, it believes that the role of the DPA should be to supervise, enforce and advice. It does not believe that a DPA should be drawn into giving prior approval or authorisation for each given action. The ICO also supports the need for DPAs across Europe to cooperate with one another, whilst remaining independent. To view a copy of the ICO briefing, please click here. To subscribe or unsubscribe To enquire about further publications or to unsubscribe from this e-bulletin, please us, or visit the Herbert Smith website here. The contents of this publication, current at the date of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication. Herbert Smith LLP, Gleiss Lutz and Stibbe are three independent firms which have a formal alliance. Herbert Smith LLP 2011 Page 4