Regulatory Impact Statement - Review of the Mobile Exclusion from the Three Notice Regime under the Copyright Act 1994

Transcription

1 In Confidence Regulatory Impact Statement - Review of the Mobile Exclusion from the Three Notice Regime under the Copyright Act 1994 Agency Disclosure Statement This regulatory impact statement has been prepared by the Ministry of Business, Innovation and Employment (MBIE). It analyses options with regard to section 122S of the Copyright Act 1994 (the Act). This section excludes cellular mobile networks from the three notice file sharing regime contained in sections 122A to U of the Act. Without any further action the exclusion will automatically lapse and mobile networks will come under the regime on 1 October 2015 (the status quo). Section 122S allows the Minister of Commerce and Consumer Affairs to extend the exclusion for any period of time, including indefinitely. Officials are unable to ascertain the precise volume of peer to peer sharing that infringes copyright occurring over mobile networks. This was due to two issues. Firstly, providers of mobile data do not consistently collect data about the amount of peer to peer infringing file sharing occurring over mobile networks. Some providers were able to provide snap shots of the level of peer to peer sharing occurring, while others were only able to provide estimates. Secondly, not all peer to peer file sharing infringes copyright as the technology can be used for legitimate purposes. For this reason, the levels of infringing file sharing could be lower than indicated in the analysis. The review process required officials to make predictions about the future trends for peer to peer infringing file sharing over mobile data. There will always be limitations on how accurate these predictions are. Officials have used statistics from the Commerce Commission, Statistics New Zealand, anecdotal evidence from mobile data providers and considered trends that have emerged from previous reviews of the exclusion to make predictions as to future levels of peer to peer infringing file sharing over mobile data. The risk of uncertainty is addressed in the analysis of the options section, where the options are assessed for their ability to adapt to changes in the market. This review was solely focused on the issue of whether mobile should be brought under the regime. It did not seek to review the effectiveness of the three notice regime as a whole. The Government may decide to conduct a wider review in the future. Iain Southall Manager, Business Law Commerce, Consumers and Communication Building, Resources and Markets 27 July 2015

2 2 Status quo Operation of the regime 1 The Copyright Act 1994 (the Act) sets out a three notice regime (the regime) which is aimed at deterring peer to peer file sharing (file sharing) that infringes copyright. 2 The regime allows rights owners to send evidence of an internet user infringing copyright via a file sharing network 1 to an internet protocol address provider (IPAP). Upon receipt of such evidence, the IPAP is required to match the account holder to the relevant Internet Protocol (IP) address and must send the account holder an infringement notice. If an account holder receives three notices within a prescribed timeframe, the rights owner can choose to take enforcement action at the Copyright Tribunal. The Tribunal may make monetary awards of up to $15, The regime has been in operation since 1 September 2011 in respect of fixed line connections. The Copyright Tribunal began issuing monetary awards early in The Tribunal has heard 21 claims; all made by Recorded Music New Zealand (previously known as RIANZ) in its capacity as agent for the relevant rights owners and all in respect of music file sharing. The average award is $ During the consultation process the three IPAPs that currently provide both mobile data and fixed line data in New Zealand (Spark, Vodafone and 2Degrees) all advised that Recorded Music New Zealand is the only rights owner to have requested the issue of infringement notices under the regime. The IPAPs reported that in the past two years they have received a low number of requests in respect of fixed line and no requests have been received since late Recorded Music New Zealand has advised that it intends to continue to use the regime but its use is currently on hold due to resource constraints and costs. History of the exclusion of mobile from the regime 5 The regime does not apply to file sharing that occurs via internet access that is provided across cellular mobile networks (mobile). This is achieved through an exclusion set out in section 122S of the Act. 6 Without any further government action, the regime will apply to mobile from 1 October 2015 because the mobile exclusion automatically expires on this date. However the Act also provides power to the Minister of Commerce and Consumer Affairs to amend the relevant date or to remove the date and make the exclusion indefinite via Order in Council. 7 The decision to exclude mobile was made by the Commerce Select Committee during the legislative development of the regime. The Committee was of the view that the costs of applying the regime to mobile would outweigh any benefits because: relatively little copyright infringement was occurring over mobile due to speed and cost constraints; IPAPs would face significantly higher costs in complying with the regime compared to fixed line; and there would be significant difficulties in matching account details in respect of alleged infringing for pre-pay customers. 1 A file sharing network is a specific method of sharing files involving multiple internet users sharing pieces of a file between each other over a dedicated internet protocol. These networks allow fast and widespread dissemination of information via the internet and are often used to share copyrighted material.

3 3 8 A two-year exclusion was determined to be an appropriate time frame to review whether technology had advanced to the point that mobile file sharing infringements were more widespread and reassess whether the benefits of applying the regime to mobile outweighed the costs. 9 The exclusion for mobile was reviewed in The review found that the levels of file sharing over mobile had not increased to levels that could justify the cost of implementing the regime. As the review was conducted at the beginning of the roll out of the 4G/LTE mobile networks it was anticipated that these networks would provide consumers with download and upload speeds that are comparable to speeds achieved on fixed line networks. The exclusion was extended until 1 October 2015 as a two year period was seen as appropriate to determine whether the new technology would result in file sharing becoming more wide spread across mobile. Practical issues with identifying mobile customers 10 The regime relies on IPAPs being able to identify an account holder from an IP address provided by the copyright owner. There are a number of practical issues with identifying mobile account holder that mean that it would be difficult to identify who to send an infringement notice to. 11 According to the Commerce Commission s 2014 Annual Telecommunications Report (the Telecommunications Report), just under two thirds of mobile subscribers in New Zealand are pre-pay customers. This means that no account relationship exists between the subscriber and the IPAP and the subscriber is not required to provide any personal information (such as a name or physical address) to the IPAP. The IPAP holds only the subscriber s cell phone number and the sole method of communication between IPAP and subscriber is via text message. In contrast, fixed line accounts and on-account mobile customers have an account relationship with the IPAP for billing purposes which makes it easier for the IPAP to identify and communicate with those customers. 12 In order to identify customers and comply with the regime, IPAPs would be required to collect personal data from pre-pay customers. IPAPs do not currently require customers to supply personal data and some have informed us that attempts to get customers to voluntarily register their personal data have had very limited success. 13 If an IPAPs only method of contact with a customer is via their mobile number, there would be practical difficulties with sending a notice via text message. Regulations prescribe what an infringement notice must contain. This includes: information about the copyright work in which copyright is allegedly infringed, the time and date when the alleged infringement occurred, a link to a challenge notice form, and a link to information on MBIE s website. 14 Due to the extent and specificity of the information that a valid notice requires, it is unlikely that this information could be communicated via text message. Therefore a process requiring pre-pay customers to disclose their personal information to IPAPs is likely to be necessary. This is a significant departure from current practice and it is arguably outside of the scope of a copyright enforcement regime to force pre-pay customers to supply up-to-date personal information. 15 We have also been advised by IPAPs that there are a limited number of IP addresses to which mobile internet access is allocated. A single IP address is shared by around 1000 customers and a mobile user may change IP addresses many times each day depending on their movements. This means that it is often not possible to link a particular use of a mobile IP address with a particular mobile customer. 16 One IPAP has developed the technology to be able to match the use of an IP address with a particular mobile customer, however it is not currently operational and would take six months to implement.

4 Redacted under Section 9(2)(ii) Redacted under Section 9(2)(ii) Redacted under Section 9(2)(ii)

5 5 While there is no known data on the impact of legal streaming services on file sharing over mobile, the fact that file sharing appears to have decreased on mobile despite technological changes that facilitate it, would suggest similar trends for mobile as seen over fixed line. 25 It is also much easier for consumers to use free streaming services such as Spotify than using peer-to-peer file sharing technology over mobile, which is quite complex. This is because for services such as Spotify the material is in one instantly accessible location and requires minimal data to access, compared to having to find a torrent and then download it, which is time and data intensive. Problem Definition 26 Without any further government action mobile will be brought under the regime from 1 October The purpose of the mobile exclusion was to ensure that the costs of implementing the regime were not disproportionate to the volume of illegal file sharing that was occurring over mobile networks. 27 Ongoing reviews of the regime appear to be creating uncertainty for market participants and the status quo would create certainty as to IPAPs legal requirements under the Act. 28 The problem that this RIS addresses is that, under the status quo, it is likely that the costs of bringing mobile under the regime will exceed the benefits. Objectives 29 The options in this RIS will be measured against the following four objectives: reduce infringing file sharing of copyright material whether the option would increase the capacity of the regime to reduce infringing file sharing of copyright material. minimise compliance costs this objective measures any potential reduction in file sharing against the additional compliance costs for IPAPs including (a) the costs of implementation and ability to recover those costs and (b) any other barriers to implementation. support flexibility this objective relates to how well the option can adapt to changes in the market, recognising that technological developments could lead to major and rapid shifts in the market. promote certainty about the ongoing scope of the regime regular regulatory reviews impose a cost on market participants due to the fact that their legal position remains uncertain. Given that rates of file sharing appear to have decreased over time and rights owners are not currently requesting that IPAPs send out notices it is timely to consider the ongoing costs of reviewing the regime.

6

7 7 Option 1: Allow the exclusion to automatically repeal (the status quo) 32 The status quo would mean that from 1 October 2015 file sharing over mobile would no longer be excluded from the regime. 33 Rights owners would be able to take enforcement action against people who infringe their copyright through file sharing over mobile data. 34 IPAPs would be required to send infringement notices to alleged infringers. This would mean that IPAPs would have to ensure that they had the technology to identify the account holder who used the IP address to file share copy-righted material. Reduce infringing file sharing of copyright material 35 Theoretically this option may reduce file sharing of copyright material as rights owners would be able to take enforcement action against those who infringed their copyright. 36 However in practice it unlikely to reduce file sharing of copyright material for two reasons. Firstly there appears to be a low level of file sharing on mobile, which means that there is a low potential to affect the level of infringement through the regime. This is reinforced by the downward trends of file sharing, and the increasing uptake of legal streaming services. Secondly, there has been low uptake of the regime by rights owners. Minimise costs of compliance 37 As outlined at paragraphs above there are two fundamental issues that mean that it would be difficult and costly to bring mobile under the regime. Firstly it is difficult to identify the majority of mobile customers. Secondly there are technical issues with matching an offending IP address to a specific account holder. 38 To comply with the regime, IPAPs would have to pay one off implementation costs, as well as ongoing costs associated with monitoring the regime and producing the notices. IPAPs have stated that it is difficult to provide accurate estimates of the costs of implementing the regime in respect of mobile. This is because providing actual estimates is a timely and costly exercise. 39 IPAPs can recover some of their implementation costs via the $25 fee they charge to rights owners for processing infringement notice. Assuming that an IPAP could apply the whole of the $25 fee to implementation costs, IPAPs would have to send out a large number of notices to recover the costs associated with implementing the regime. As rights owners are not currently requesting IPAPs to issue notices, it is unlikely that they would be able to recover the implementation costs through the $25 fee. The costs of implementing the regime are therefore highly likely to be passed onto the consumer. Further, if the IPAP recovered its implementation costs through the $25 fee, this would reduce the amount that they could recover from the fee in relation to their ongoing costs of the regime. 40 The analysis of the costs of implementing the regime that would be incurred by IPAPs is based on industry estimates. It is difficult to predict these costs accurately or to verify them against any similar benchmarks due to the novel nature of the three notice regime. The following table provides estimated implementation costs as submitted by some IPAPs in order to account for the IP addressing issue noted above.

8 Redacted under Section 9(2)(ii)

9 9 Reduce infringing file sharing of copyright material 48 Under this option, the level of infringing file sharing is unlikely to decrease due to the regime, as rights owners would not be able to take enforcement action through the regime. However, based on the information provided, the levels of file sharing are already low, and decreasing due to external factors, so it is unlikely that extending the exclusion will impact on the level of infringing file sharing relative to the status quo. Minimise costs of compliance 49 The IPAPs would not have to comply with the regime for five years. This means that they would not have to adopt technology that allows them to identify each customer from the IP address used or require the collection of pre-pay user s information at this time. These costs would not be passed on to consumers. 50 The IPAPs have argued that the review process associated with the automatic expiry of the exclusion requires the expenditure of resources with no benefit gained. Officials would be required to conduct a further review of the exclusion. This would require further input from IPAPs including costs related to the gathering of information and consulting with the Ministry. 51 The review process has identified that there has been little change in the level of infringing file sharing since the regime was first introduced and that issues related to the costs of implementation of the regime remain significant. There is likely to be little benefit in conducting another review when the trends suggest that the balance between the cost and the benefits of the regime appear unlikely to change. Support flexibility 52 Flexibility is retained under this option because if a significant volume of file sharing infringement begins to occur on mobile prior to 1 October 2020, the Minister of Commerce and Consumer Affairs has the power under the Act to recommend that an Order in Council be made to apply the regime to mobile before the expiry date. The Minister also has the option of extending the exclusion past this date if the levels of file sharing have not increased at this point. Promote certainty about the ongoing scope of the regime 53 Extending the regime for five years will result in uncertainty for IPAPs about their legal obligations at the end of the five year period, and whether they will be required to implement systems to enable them to comply with the regime The longer the exemption is in place for the more certainty it will provide IPAPs, but ultimately with a time limited extension there will always be uncertainty. Overall assessment of option two 54 In summary, this option recognises that at this time, it is not clear that there would be sufficient benefits in the reduction of file sharing over mobile to justify the costs of implementing the regime. However scheduling a further review creates uncertainty about whether or not mobile will be brought under the regime in the future.

10 10 Option 3: Extend the exclusion indefinitely (preferred option) 55 This option would extend the exclusion of mobile from the regime indefinitely. Any further review of the exclusion of mobile networks from the regime would be conducted in response to an identified problem rather than as a time limited default. Reduce infringing file sharing of copyright material 56 Under this option the level of infringing file sharing over mobile is unlikely to decrease due to the regime. However, based on the information provided, levels of file sharing are already low and there is evidence to suggest that consumers are adopting legal means of accessing copyright material, particularly as more legitimate options become available. Due to these trends it is unlikely that extending the exclusion indefinitely will impact on the levels of infringing file sharing relative to the status quo. 57 Rights owners have expressed their concern that an indefinite exclusion may be perceived as an admission that the regime is not working, or that it may incentivise people to circumvent the regime by using mobile, however this is likely to be unfounded. Mobile was only intended to be brought under the regime if technology developed to the point where the benefits of it applying to the regime outweighed the costs. Despite the advancements in the 4G/LTE network, and a large increase in the use of mobile data, there has been no apparent corresponding rise in the proportion of file sharing over mobile. Minimise compliance costs 58 IPAPs would not be required to comply with the regime in respect of mobile. This means that they would not have to adopt technology to enable them to identify consumers from an IP address, or be required to collect pre-pay users information. This cost would not be passed on to consumers. Support flexibility 59 Flexibility is retained under this option because if a significant volume of file sharing infringement begins to occur on mobile, the Minister of Commerce and Consumer Affairs has the power to revoke the exclusion at any time via Order in Council. This would have the effect of bringing mobile under the regime. Promote certainty about the ongoing scope of the regime 60 Excluding mobile networks from the regime indefinitely would create a presumption that mobile will be excluded from the regime unless evidence of a problem arose. This will create greater certainty for market participants regarding their ongoing legal obligations. If mobile was brought under the regime, the Minister s recommendation could take into account the transitional period required for IPAPs to comply with the regime, creating more certainty for IPAPs. Summary of option three 61 Our view is that the benefits of this option exceed the costs. Under this option, IPAPs would not be required to comply with the regime, and would not have to implement costly and difficult changes to ensure that they can comply. An indefinite exclusion would create greater certainty for market participants as to their legal obligations. There would be no required review of the regime unless there was evidence of a problem. If file sharing over mobile became problematic, the Minister could recommend that mobile be brought under the regime.

11 11 Summary of options 62 In summary, officials consider that option 3 best meets the policy objectives. 63 The regime remains difficult for IPAPs who provide mobile data to comply with. Overcoming these difficulties would require systemic changes for IPAPs as they would need to gather information on pre-pay customers and introduce new technologies to enable them to identify individual consumers from shared IP addresses. Bringing mobile under the regime would reduce the overall proportion of the costs of sending out notices that is recoverable from the $25 fee that rights owners pay IPAPs for sending out a notice. These additional costs are likely to be passed on to consumers. These high compliance costs are out of proportion to any benefits that may arise from bringing mobile under the regime, as the levels of file sharing over mobile do not appear to have increased, despite the proliferation of mobile data capable devices and new networks that enable fixed line like speeds. The burden of requiring IPAPs to comply with the regime should be proportional to the expected reduction in file sharing. 64 An indefinite exclusion is preferred because it does not require a regular review of the exclusion. This will reduce the costs of the regime for IPAPs as they will not be required to participate in regular reviews. If there was any significant increase in file sharing over mobile, the Minister could recommend that mobile be brought under the regime at any time by Order in Council. Consultation 65 The Ministry consulted with the rights owner who has used the regime and the IPAPs that currently provide consumer mobile internet access. 66 Recorded Music New Zealand was of the view that any extension of the mobile exclusion, particularly an indefinite extension, sends a message that the government is reducing the scope of the three notice regime. Recorded Music was concerned that this would reflect negatively on the perception of the regime as a whole. 67 The purpose of this review is to consider only the issue of whether the mobile exclusion should continue, not to consider the regime as a whole. 68 In addition, mobile was only ever intended to be brought under the regime if the benefits outweighed the costs of implementing the regime. The Ministry s view is that extending the exclusion indefinitely is not a reduction in the scope of the three notice regime. Mobile has never been part of the regime and it can still be brought under the regime at any time. 69 IPAPs were supportive of an indefinite exclusion for mobile data. They expressed concern that the costs associated with implementing the regime for mobile would be disproportionately high compared to the level of file sharing that is occurring. IPAPs also stated that certainty around whether mobile is likely to come into the regime would be useful. Conclusions and recommendations 70 Based on the analysis above, we recommend option 3, to extend the exclusion for mobile networks indefinitely. We consider that this option best meets the purpose of the exclusion as it: recognises that the cost of bringing mobile under the regime would materially exceed any benefits in the reduction of file sharing over mobile; provides certainty for IPAPs about their ongoing legal obligations; and provides the flexibility to bring mobile under the regime if a significant volume of file sharing did begin to occur.

12 12 Implementation 71 The Minister of Commerce and Consumer Affairs can implement options 2 and 3 via an Order in Council. Any order should be gazetted on or before 3 September 2015, in order to account for the 28 day rule. Under the preferred option there are no risks. 72 If option 1 is chosen no further action is necessary. There are a number of risks under this option. This includes consumer discontent from the likely increased costs and the requirement that they provide their contact details to their IPAP. Monitoring, evaluation and review 73 If the preferred option is chosen, the Ministry would not actively review the impact of the exclusion. If a significant issue did arise, MBIE is able to review the exclusion and make appropriate recommendations at any point in the future. The review would be of a similar nature to the one conducted in this review. 74 If option 2 is chosen, MBIE would again review the implications of the exclusion lapsing in the first quarter of In order to monitor the levels of file sharing over mobile, officials will continue to monitor the levels of file sharing, through engagement with stakeholders, such as Recorded Music New Zealand, who would alert officials to any issues that they see emerging. 76 Officials are looking into ways to obtain data about the rates of peer to peer file sharing from an independent third party, rather than having to rely on information from the IPAPs. The Commerce Commission s yearly Telecommunications Monitoring Report highlights the main trends in telecommunications. We have asked the Commerce Commission whether rates of peer-to-peer sharing could be collected as a part of this review.