ISPs to police file-sharing sites?

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1 September 2011 The Cookie Jar is brought to you by Bristows' Technology, Media and Telecommunications Team. Every month we comment on issues affecting suppliers and users of TMT - changes in law, recent cases and market trends. The Team is led by Philip Westmacott and Mark Watts. The Cookie Jar is edited this month by Helen Rose. ISPs to police file-sharing sites? Rachel Mumby, Scott Allardyce High Court examines the legal remedies that can be obtained to combat online copyright infringement. In this recent High Court action, Arnold J agreed to grant an injunction against an internet service provider requiring it to block access to a third party website (Newzbin2) which had been proven to infringe copyright on a large scale. This will be the first such order of its kind in the UK. Under UK law, claims for injunctive relief in relation to copyright infringement are decided under s97a Copyright Designs and Patents Act Under this section, the court can grant an injunction against an ISP where the ISP has actual knowledge of another person using its service to infringe copyright. In this Issue ISPs to police file-sharing sites? Limited Consent-sus Headlines have (copy)rights too Beware withholding critical information on a company sale Click HERE to find out about Bristows' TMT sector Click HERE to find out about Bristows' Information Technology practice Click HERE to see previous issues of The Cookie Jar Newzbin was a file sharing platform. A separate case in the High Court had established that roughly 90% of the material on Newzbin was likely to infringe copyright. Newzbin was therefore shut down, but a clone site (Newzbin2) soon appeared operating out of Sweden. Six well-known film production companies applied for an injunction under s97a to force BT to block users access to the website using BT s Cleanfeed technology. Arnold J found that BT had actual knowledge that its users were using its services to infringe copyright. It was not essential for the rightsholders to prove that BT had actual knowledge of specific infringements of specific copyright works by a specific individual: only a general knowledge was required. Arnold J held that such an injunction would not be contrary to Article 15 E- Commerce Directive which prevents Member States from requiring ISPs to actively monitor their users for infringements. He also found that, as the majority of material on Newzbin2 was infringing, blocking the site would not breach the right to freedom of expression of BT s users and that this was a proportionate response to the wide scale infringements taking place on the site. Arnold J acknowledged that similar orders may now be sought in relation to other sites, but hinted that costs for such injunctions may be awarded on a similar basis to Norwich Pharmacal orders whereby the applicant pays the costs of the order and also the costs of compliance. We await the costs hearing in October to discover if this transpires. The judge took the view that the substantial costs of proving infringements for injunctive relief would deter rightsholders in all but the most egregious

2 examples of infringement. That suggests that the decision to block a website will require a court order in most instances. It remains to be seen whether, to avoid the risk of litigation, ISPs will establish procedures to block websites once they have been put on notice by rightsholders that third parties are using their services to infringe copyright. ISPs may well argue, however, that they require specific details in order to block a website; this appears to conflict with the finding of the judge that actual knowledge can be effected by non-specific notices from rightsholders. Of course, ISPs may choose not to oppose future applications made by rightsholders. However, they would be more likely to oppose applications if the October costs hearing goes against BT in relation to compliance costs. This judgment will provide comfort to rightsholders as they now have a tried and tested mechanism by which they can protect the exploitation of their work in the online environment without having to take action against individual end-users or against website operators. However, it will be interesting to see whether ISPs choose to adopt notice and take-down procedures or whether they insist that rightsholders obtain a court order before blocking websites which use their services to infringe copyright. Their approach is likely to be affected by the costs hearing in October. Limited Consent-sus James Brunger Article 29 Working Party issues EU-wide guidance on obtaining data subject consent. Consent has a significant role in European privacy and data protection law. The influential group of European data protection regulators, known as the Article 29 Working Party, has recently issued an Opinion that is intended as EU-wide guidance on obtaining valid consent. While the Opinion provides a useful, detailed analysis of the issues and may prove a helpful aid for the development of future legislation, it serves as a reminder of the current lack of harmonisation between the national laws of Member States. The European Data Protection Directive uses the concept of consent by the individual who is the subject of the personal data in a number of areas. In particular, consent is one of the grounds on which personal data may be lawfully processed. Obtaining consent can also be used as a basis for transferring personal data outside the European Union. In order to be valid, the Directive states that consent must be a (i) freely given, (ii) specific and (iii) informed (iv) indication of agreement. It also requires that the consent be unambiguous (or explicit in the case of sensitive personal data, such as medical and trade union membership information). The Article 29 Working Party s Opinion, adopted on 13 July 2011, analyses each of these elements in turn and offers guidance on how the Working Party believes the principles should be applied in both a data protection and e-privacy context. To illustrate its guidance, the Opinion provides a number of practical examples. The Working Party recognises the flexibility in the Directive for data controllers to determine how to obtain consent. For example, it notes that dropping a business card into a glass bowl could be an indication of consent. However, it also warns that the mechanism used should ensure proof of consent can be produced in the event of a regulator investigation. While the Working Party s analysis is helpful, its pan-european approach is somewhat strained in places. As the Opinion notes, some Member States

3 (including the UK) treat consent as a ground for processing that should only be relied upon as a last resort where other legal grounds are not available. Other countries, however, see consent as more akin to a fundamental right and require consent to be obtained in a greater range of circumstances. This conflict of views is apparent in a number of areas in the Opinion. For instance, while the Opinion stresses several times that consent is only one of the available grounds for processing, its very first example suggests that consent must always be obtained in order to collect and disclose personal data to third parties for marketing activities. This would not necessarily be the case in the UK although consent might be required in order to send direct marketing. Consent is one of the subjects on which the European Commission s ongoing review of the Directive is currently consulting and it is likely to be addressed in the resulting new legislation. The Working Party s Opinion was issued partly with this in mind and makes a number of recommendations. The current differing opinions on consent can make life difficult and costly for multinational data controllers operating across Europe. Greater harmonisation is likely to be welcome, provided it is pitched at a pragmatic level. The Working Party s Opinion can be found here. Headlines have (copy)rights too Sacha Wilson The Court of Appeal has confirmed in a recent case that PR agencies require a licence to use media-monitoring services. The Court of Appeal has upheld a High Court ruling that PR agencies need a licence from newspaper publishers to use online media-monitoring services which aggregate online newspaper content. The original action was brought by a group of newspaper publishers and the Newspaper Licensing Agency which collects licensing fees on behalf of its members. The goal of the claim was to obtain declarations that an online media-monitoring service called Meltwater News required a licence from newspaper publishers to provide its service and that PR agencies who used Meltwater News also need a licence to receive the service. Meltwater News uses spider programmes to scrape the contents of media websites. Subscribers can specify a search term and every reference to that term in the websites scraped by Meltwater News will be aggregated and provided either in an alert or on the Meltwater site. The results are presented as a link to each article, the headline, the opening words of the article and an extract. During the trial, Meltwater conceded and agreed to take a licence to continue its service, so the action was stayed against Meltwater and continued solely against the PR agencies who were represented by the Public Relations Consultants Association. In November 2010, the High Court ruled that the members of the PRCA did require a licence to receive Meltwater News on the basis that the copies of the aggregated content made by end-users computers when they opened the from Meltwater or accessed the Meltwater site or when they forwarded Meltwater News or its contents to their clients, was an infringement of the newspaper publishers copyright. The High Court s conclusion was based on the analysis that the headlines to the various articles were capable of being independent literary works and the extracts from the articles were capable of being a substantial part of the literary

4 works consisting of the articles. PRCA appealed, contending that these conclusions were wrong. On 27 July 2011, the Court of Appeal handed down its judgment in which it dismissed the appeal and upheld the High Court s original decision. This decision is likely to infuriate PR agencies who rely on services such as Meltwater News to aggregate online references to their clients. It is therefore unsurprising that the Chief Executive of the PRCA has been quoted as saying that the PRCA will be seeking leave to appeal to the Supreme Court. The NLA may therefore decide to hold off imposing licence fees on the PRCA s members for their use of services such as Meltwater News until any appeal has been concluded. The amount of any such licence fees is also a contentious issue and the Copyright Tribunal will be hearing separate submissions by the same parties on this issue later this month. Beware withholding critical information on a company sale David Horner The High Court orders rescission where a purchaser is found to have entered into a share purchase agreement because of a fraudulent misrepresentation made on behalf of the vendor. In the recent case of Erlson Precision Holdings Ltd v Hampson Industries plc, the High Court was asked to consider an allegation of fraudulent misrepresentation in the context of a share acquisition. In July 2009, Hampson Industries plc (Hampson) commenced actively seeking a purchaser for one of its subsidiary companies, Hampson Precision Automotive Ltd (HPA). One interested party was Erlson Precision Holdings Ltd. During the period leading up to late April 2010, Erlson attended management presentations given by HPA management and was also provided with access to financial information. Forecasts communicated to Erlson included breakdowns of historic and forecast sales revenues in respect of major customers of HPA. These revenue breakdowns identified Cummins Turbo Technologies as the second largest customer of HPA since 2003/04 and, importantly, also forecast that by 2011/12 Cummins would still be generating approximately 34% of HPA s revenue. On 30 April 2010 Mr Ward, the CEO of Hampson and a director of HPA, participated in a telecon with representatives of Cummins, during which Cummins confirmed a decision to withdraw all business from HPA. No formal termination notice was served by Cummins, although it was verbally agreed the business relationship would finish at the end of August Mr Ward did not share this development with other senior management at HPA or Hampson. On 22 June 2010, Cummins wrote to Mr Ward, referencing previous conversations and formally terminating the trading relationship with HPA. Erlson completed the purchase of HPA from Hampson during the early hours of 23 June 2010 and it was only later that same day Mr Ward became aware of the letter from Cummins whereupon he forwarded it to Erlson. Erlson alleged Mr Ward was made aware of Cummins intention to withdraw its business on the telecon on 30 April 2010 and that his failure to correct the inaccurate sales forecasts constituted a fraudulent misrepresentation, which entitled it to rescind the sale and purchase agreement. Hampson sought to rely upon evidence given by Mr Ward that he believed the

5 discussion with Cummins to be a negotiating ploy to obtain improved supply terms. The judge found in favour of Erlson, concluding the share purchase agreement was induced by a fraudulent misrepresentation of Hampson and ruling Erlson was entitled to rescind the share purchase agreement. This decision highlights the importance of ensuring senior management involved in a transaction are made aware of their obligations as regards the accuracy of information being provided to potential acquirers. It is also interesting to note that no express representations or warranties were given by Hampson concerning customer relationships, the future potential of the business, accuracy of management accounts or with respect to possible customer claims or disputes. Securing warranties of this nature could have provided Erlson with an additional layer of protection. The existence of such warranties might also have encouraged Mr Ward to disclose details of his conversation with Cummins before the deal was done. The information contained in this document is intended for general guidance only. If you would like further information on the above, or advice on any other TMT law issues, please do not hesitate to contact a member of our Technology, Media and Telecommunications team - philip.westmacott@bristows.com or mark.watts@bristows.com. If you would prefer not to receive The Cookie Jar in future please cher.standing@bristows.com with "Unsubscribe The Cookie Jar" in the subject box. 100 Victoria Embankment London EC4Y 0DH T +44 (0) F +44 (0) info@bristows.com Bristows, see Terms of Use