I have previously written about a new sub-institution established by the European Commission in the field of intellectual property enforcement – European Observatory on Counterfeiting and Piracy. In February the name was altered to the European Observatory on Infringements of Intellectual Property Rights (EOIIPR, perhaps).
This second baptism coincided with its transfer to a new home in sunny Alicante, at the Office for the Harmonization of the Internal Market (OHIM), and organisation better known for its administration of EU Community Trademarks and Designs. At birth the EOIIPR was located within the Enforcement Unit at the Internal Market directorate without much in the way of staff or money. The move to OHIM changes this and they will now have 15-20 people on an annual budget of three and half million euros. A Regulation officialising the transfer was passed by the European Parliament in February.
That this transition unfolded without any great ruckus will have been a great relief to both Commission officials and private sector lobbyists for the Trademark and Copyright industries: public commotion over the ACTA treaty raised the worry that the re-establishment of the Observatory could be sunk as collateral damage in the shit-storm.
Function of the Observatory
Once installed the EOIIPR began a consultation with interested parties to devise its programme for the next year, which was presented at its Plenary meeting in Alicante two weeks ago. I find it notable that once again the only consumer or user group present was the European Consumers Organization (European Digital Rights did make a submission as part of the consultation in July). Otherwise this has been a conclave of bureaucrats and lobbyists.
In the short term the Observatory is tasked with sourcing of data regarding piracy, counterfeiting etc which can be used to demonstrate that the Intellectual Property Rights Enforcement Directive is insufficient as stands, and thus requires some form of successor. That the Commission has already decided that this is the case is evident from its review of that legislation.
Consequently the Observatory put out a tender, and duly commissioned RAND to devise a methodology which could generate a set of figures which could be presented as objective (in contrast to the research reports bought and paid for by vested interests).
I was initially cynical about RAND’s involvement. So imagine how refreshing it was to discover that industry ‘stakeholders’ were not satisfied with how the work was developing. Had the research outfit gone off reservation? Decide for yourself: here is a short presentation made in Alicante, and the full report is here. If you don’t have the stomach for it, here are a few things that I gleaned:
(i) Firstly, it contains no estimates as to the size of the market in counterfeits or the impact of file sharing – referred to as unauthorised use of protected content (UUPC) – on the relevant industries or wider economy but is focused on building a methodology. As a result they address the lack of methodological and data transparency inherent in previous reports:
“Often the lack of clarity in fully describing the methods, assumptions and data underlying them constitutes a major barrier to an independent assessment of the statistical consistency of the results. This issue was also highlighted by earlier research efforts on the topic (e.g. OECD, 2008, p.78). In other cases, in the reports that produce the estimates reviewed above, more substantial issues remain poorly addressed from a scientific point of view” (P.17)
Later they extend their criticism to the limitations of the analytical frameworks more generally:
Overall, one of the main weaknesses of some of the existing estimates of the effects of counterfeiting and piracy on macro-economic variables such as GDP and employment is the assumption of a 100 percent substitution rate between counterfeit and genuine products – see for example the OECD (2008) critique of a 2005 IDC study. In addition, one aspect that seems to be systematically excluded from existing studies is consumer surplus. Consumer surplus refers to the welfare benefit of getting access to a substitute good at a lower price, while many studies consider the negative effects of counterfeiting and piracy on consumers (unemployment and health and safety risks) and on producers (lost revenues). Huygen et al. (2009) provide an example of a comprehensive treatment of the distribution of welfare effects and of their net balance (i.e., the balance between costs and benefits) in the case of file sharing (Huygen et al.,2009). From an economics point of view, any study that neglects consumer surplus in a welfare analysis is incomplete. (p.34)
(ii) Their own model (outlined in pages 41-65 of the full report) uses of sales forecast data generated internally by companies in affected sectors. Actual sales achieved are then deducted from the forecast numbers to identify the difference. Part of this discrepancy will be explicable retrospectively due to changed market conditions (e.g. the arrival of new competitors, foreign exchange rate variations etc.) But one part will remain, an ‘unpredicted forecasting error’ some of which will derive from the substitution of product sales by counterfeit alternatives.
The result of this first process is then object of a second analysis to try to identify the amount attributable to counterfeiting for a specific product and national market. A series of factors are used in the regression: (i) rule of law (ii) corruption (iv) government effectiveness (iv) customs (v) tourism ; relevant metrics are obtained from international organisations such as the IMF/WB. These factors are presumed to have an effect in encouraging or deterring counterfeit trade.
(iii) Their assessment is that the model is better suited to dealing with physical rather than digital goods, principally because of the difference in the utility and reliability of sales forecast data, but also because of the ease of supply and movement of digital goods.
(iv) Few firms were willing to cooperate with them to test drive the model, largely because of fears regarding control over commercially sensitive data. No digital media companies took part. Ultimately only one physical good manufacturer (unnamed) provided a full data set. The results obtained initially diverged strongly from the firms own research which had been conducted using mystery shoppers, whereby goods are purchased and then analysed for authenticity (apparently the gold standard in this field, but expensive to operate). Once the data was cleaned of severe outliers, it tracked the mystery shopping research more closely.
The Commission is now in a tricky position: they’ve paid RAND at least half a million for this and cannot simply sweep the results under the carpet. RAND have designed a model for use in real markets and products, rather than simply accepting that ‘piracy and counterfeiting’ are costing ‘Europe’ trillions of euros and hundreds of thousands of jobs. My guess is that it will now be minimised. What if any effect this will have on the IPRED review, due imminently, is uncertain.
Over the last two weeks I have been catching up on developments in the copyright enforcement area with a view to writing another boring post about it. But an absurd and scandalous story from Germany requires an entry all to itself.
Abmahnkanzlei: Shock Troops of the Enforcement Machinery?
In Germany there exists a form of legal practice known as as an “Abmahnkanzlei“, which would literally be a legal practice which makes orders to cease, desist and compensate (Abmahnung). These have been employed by copyright owners as agents to pursue filesharers. The procedure is familiar: internet protocol addresses are collected through online monitoring; rightsholders or their agents seek a court order directing the identification of the subscriber names behind the IP address. At this point the abmahnkanzlei sends a letter to the subscriber demanding compensation and a written commitment to stop the infringing activity. The sum demanded varies according to the copyright owner involved. Apparently porn producers insist on more money than the music companies, which figures, given the potential to implicitly blackmail subscribers by revealing their identities and alleged sexual proclivities in court.
The online news portal Heise has now reported that in the last days one of the large abmahnkanzlei, Urmann + Collegen in Regensburg, has announced that it is auctioning off the right to pursue 70,000 subscribers who have already been mailed two demands and have refused to pay up. Within their system a first demand was for a sum of 650 euros. If no settlement was forthcoming, a second letter was sent demanding 1286 euros. These 70,000 letters thus have a notional value of 90 million euros. Presumably whatever amount is coerced through this sum is to be split between the issuers of the ‘warnings’ and the owners of the copyright.
An additional, and perverse, twist to this process is that there are firms specialising in contesting these claims, who offer to handle pending and future cases for a fee which ranges between 500 and 650 euros – and thousands of people have signed up. The whole setup has become a racket whose only beneficiaries apparently are lawyers.
In a hearing hosted by the European Commission last June, the Association of the German Internet Industry, ECO, reported that German Courts are now directing the release of up to 5000 subscriber identities in one hearing. They also said, and I will try and verify these figures, that ISPs are being required to identify 300,000 people per month. Obviously these are huge numbers, and one wonders why this is not a bigger issue in public discussion.
One also wonders where the German Data Protection Authorities are in all this; in 2010 the Swiss Supreme Court ordered a company, Logistep, which does network monitoring for copyright owners with a view to instigating enforcement proceedings, was ordered to cease (see also analysis from a Swiss legal practice and Ars Technica). The case was taken by the Swiss Federal Data Protection agency. Switzerland of course is not in the EU, and the law is different, but there have been cases refusing to release subscriber information in other EU jurisdictions such as Austria and Spain.
In any case, the gigantic scale of this campaign perhaps provides another element of the explanation for the sharp increase in support for the Pirate Party. Despite it not having been a widely discussed topic during the election campaign, there are undoubtedly a lot of people who are furious about all this.
The early winter sunshine is sweeter still since the announcement of the European court of Justice’s decision (full text) in the SABAM v Scarlet litigation yesterday afternoon.
This case began in 2004 with the Belgian copyright and collective rights organisation taking a legal action against the ISP Scarlet to implement measures to stop their users from violating copyright through use of p2p software. To this end they sought to oblige the ISP to institute a filtering system which would have intervened to terminate data transfers involving works identified as copyrighted.
Decisions in the Belgian courts went in SABAM’s favour, but no-one could come up with a feasible technical scheme capable of meeting the plaintiffs requirements. Eventually the national authority referred the matter to the ECJ.
The Legal Calculus
Argument at the ECJ centred around the following issues:
(1) Both Copyright directive and the Intellectual Property Enforcement Directive established that copyright owners should have access to injunctions as a means to halt ongoing infringements, the question was – and to some extent remains – to what extent and with what consequences.
(2) The eCommerce directive set out clear limitations to the liability of ISPs, including cases where they act as ‘mere conduit’ for data transactions in which they are not direct protagonists but merely instruments of their users. In addition to sveral enumerated safe harbours, the eCommerce directive also limits the legislative discretion of individual states as regards the obligations of ISPs in Article 15:
Member States shall not impose a general obligation on providers, when providing the services covered by Articles 12, 13 and 14, to monitor the information which they transmit or store, nor a general obligation actively to seek facts or circumstances indicating unlawful activity.
(3) Monitoring users’ data traffic involves the processing of personal data as protected by European Data Protection directives, which consequently must be taken into consideration in assessing the validity of any proposed filtering scheme.
(4) Multiple rights and freedoms protected under the European Convention on Human rights and the Charter of Fundamental Rights of the European Union (which became part of EU law in 2009) are implicated in the adjudication. On one side the property rights of the copyright owners, on the other the rights of privacy and freedom of expression of internet users, and the freedom to conduct business of the ISP.
Round 1: The Advocate General’s opinion
Cases sent to the ECJ are first analysed by the office of the Advocate General, who produce an advisory opinion for the Court, which is not however bound by either its mode of analysis or conclusions. The examiner in this case was the spaniard Pedro Cruz Villalón. His attention focused on the question of the consistency of such injunctive relief with the Charter, and his conclusion was that it was noncompliant and in breach of the principle of legality on several counts. At the core of his opinion (in french) was a criticism of the general nature of the surveillance system sought by SABAM, its lack of proportionality and indefinite duration. Having resolved the question by reference to the Charter, he did not delve into the conflicting provisions of the different directives.
Round 2: The ECJ decision
The ECJ however elected to approach the matter the other way around, dealing first with the question of Article 15 of the eCommerce directive. An indication of the result is already provided by the framing given by the Judges to the proposed filtering system, which abounds with red flags:
29. … a system for filtering
– all electronic communications passing via its services, in particular those involving the use of peer-to-peer software;
– which applies indiscriminately to all its customers;
– as a preventive measure;
– exclusively at its expense; and
– for an unlimited period,
Indeed it only takes another six paragraphs for the scheme to be definitively struck out:
36. In that regard, the Court has already ruled that that prohibition applies in particular to national measures which would require an intermediary provider, such as an ISP, to actively monitor all the data of each of its customers in order to prevent any future infringement of intellectual-property rights. Furthermore, such a general monitoring obligation would be incompatible with Article 3 of Directive 2004/48, which states that the measures referred to by the directive must be fair and proportionate and must not be excessively costly (see L’Oréal and Others, paragraph 139).
The Judges then proceeded to deal with the vying rights and freedoms under the Charter.
43. The protection of the right to intellectual property is indeed enshrined in Article 17(2) of the Charter of Fundamental Rights of the European Union (‘the Charter’). There is, however, nothing whatsoever in the wording of that provision or in the Court’s case-law to suggest that that right is inviolable and must for that reason be absolutely protected.
44 As paragraphs 62 to 68 of the judgment in Case C‑275/06 Promusicae  ECR I‑271 make clear, the protection of the fundamental right to property, which includes the rights linked to intellectual property, must be balanced against the protection of other fundamental rights.
45 More specifically, it follows from paragraph 68 of that judgment that, in the context of measures adopted to protect copyright holders, national authorities and courts must strike a fair balance between the protection of copyright and the protection of the fundamental rights of individuals who are affected by such measures.
46 Accordingly, in circumstances such as those in the main proceedings, national authorities and courts must, in particular, strike a fair balance between the protection of the intellectual property right enjoyed by copyright holders and that of the freedom to conduct a business enjoyed by operators such as ISPs pursuant to Article 16 of the Charter.
Reference to Article 16 caught my attention as it was not mentioned at all in the Advocate General’s opinion. In addition it is raised as the first countervailing factor weighing against any absolute vindication of the copyright owners’ rights. Next up are the rights of individual users:
50 Moreover, the effects of that injunction would not be limited to the ISP concerned, as the contested filtering system may also infringe the fundamental rights of that ISP’s customers, namely their right to protection of their personal data and their freedom to receive or impart information, which are rights safeguarded by Articles 8 and 11 of the Charter respectively.
51 It is common ground, first, that the injunction requiring installation of the contested filtering system would involve a systematic analysis of all content and the collection and identification of users’ IP addresses from which unlawful content on the network is sent. Those addresses are protected personal data because they allow those users to be precisely identified.
52 Secondly, that injunction could potentially undermine freedom of information since that system might not distinguish adequately between unlawful content and lawful content, with the result that its introduction could lead to the blocking of lawful communications. Indeed, it is not contested that the reply to the question whether a transmission is lawful also depends on the application of statutory exceptions to copyright which vary from one Member State to another. Moreover, in some Member States certain works fall within the public domain or can be posted online free of charge by the authors concerned.
SABAM have issued a press release with the somewhat misleadinbg title ‘Authors worried about the decision by the Court of Justice of the European Union’ (which authors exactly?), wherein they announced that they are going to lick their wounds in private and reflect on the options left open to them by the decision.
Meanwhile the IFPI took the opportunity to emphasise that the decision reiterated the sanctity of copyrights online and that the problem here was merely in the overbroad nature of the injunction sought by SABAM, and would not undermine either their three strikes schemes or pursuit of so-called rogue sites.
La Quadrature du Net hailed the decision:
At a time of all-out offensive in the war against culture sharing online, this decision suggests that censorship measures requested by the entertainment industry are disproportionate means to enforce an outdated copyright regime.
They also point to the more general landscape in which the decision occurs, specifically the current passage of the Anti Counterfeiting Trade Agreement and the upcoming consent vote regarding the Treaty at the European Parliament.
Naturally Belgacom, the current owners of Scarlet also expressed satisfaction with the result, which comes more generally at a time when rightsholders have been trying to corner ISPs into more intense policing of their users, an operation to which the European Commission has also been party.
It’s a Knock Out
In sum this is a rare occasion to celebrate as regards legal developments concerning online freedom. This decision will have an important impact on national jurisprudence throughout the Union, and will put pressure on legislators to tailor any further copyright enforcement measures with at least some regard to proportionality and fundamental rights. Of course there are other fronts to this battle, notably the current hysteria about so-called rogue sites. At a later point I will provide an EU-wide survey of the situation in that regard, and of course there is legislation pending on the same theme in the US.
After the controversy surrounding the appointment of Maria Martin Prat as head of the Copyright Unit at DG Markt, there has been less attention to another personnel change. Alvydas Stancikas, former head of Unit D3 on Enforcement, has headed off for other pastures to be replaced by Jean Bergevin. Tillman Lueder, incidentally, has been moved to the financial services directorate as head of unit for Asset Management. What a rum place the Commission is; staff who spend time years getting to grips with technical fields then get summarily redeployed in a totally different area – very logical!
Bergevin is an economist by background and was one of the main designers of the ECommerce Directive, and most recently head of unit E2, focused on services and including areas such as gambling and gaming.
His appointment suggests two things to me. Firstly it is perhaps welcome to have someone with the tools to think, if inclined, about intellectual property in a wider economic context as opposed to treating it as a good in itself (a problem especially with the lawyers). Secondly, as someone with significant experience in the design and management of directives, and specifically the ECommerce directive, his arrival may mean that they are going to get serious about IPRED 2, not least as it will have a an interface with the provisions limiting liability for ‘Information Society Service Providers’ set out in the aforementioned directive. You can read his take on intermediary liability here.
On June 7th in Brussels there will be a public hearing on “Directive 2004/48/EC on the enforcement of intellectual property rights: Challenges posed by the digital environment”, where there is scheduled to be a presentation by Unit D3, so we will soon get an idea of the flavour which Bergevin will bring to the debate.
His former unit also handled the 2010 consultation on the E-Commerce Directive which was criticised for its resistance to incorporating the views of NGO and user groups around the broader questions at stake in filtering and monitoring of online services.
Unconfirmed reports claim that Maria Martin-Prat is to succeed Tilman Lueder as head of Directorate unit D1 at the European Commission, responsible for copyright policy. Martin-Prat took a sabbatical between 2000 and 2004 to work for the International Federation of the Phonographic Industry. As yet there has been no official confirmation, but the news is being relayed by french webzine PCinpact, Pirate Party MEP Christian Engstrom and consumer organization KEI (which includes a precis on the positions expressed by her whilst working for the IFPI such as her aggressive opposition to private copy rules). Being a high level appointment, i presume the decision was in the hands of Commissioner Michel Barnier.
People are understandably outraged at the appointment. While there is no question as regards her suitability to work for the Commission in general, it is grotesque that she should be put in charge of a policy unit in an area where she was previously a paid lobbyist. She is currently head of Directorate Unit E1, concerned with the Services Directive.
Whilst web commentary presents her as ringmaster for the new Enforcement Directive (IPRED2), I’m not so sure. As I wrote in February, there is now a unit dedicated specifically to Enforcement, headed by Alvydas Stancikas. His unit ran the legal sub-committee formed to report on the first IPRED and suggest modifications. Head of Directorate Margot Fröhlinger has also been prominent in the enforcement field.
Tilman Lueder was a pretty entertaining guy, rather wry, who also expressed some scepticism about the direction of copyright policy in recent years, pointing out the impossibility, for example, of the Google Books initiative in the EU due to the lack of a general fair use defense. Apparently he’s off to China.
Much of the EU’s output is not the work of officials but rather of thousands of firms contracted per project. Tender reference MARKT/2010/03/D requested proposals for:
A study to assess the scope, scale and impact of counterfeiting and piracy in the internal market, through a defined methodology for collecting, analysing and comparing data.
This study will be the flagship publication of the European Observatory on Counterfeiting and Piracy. The tender process concluded in December and the winner was announced in January: the RAND Corporation (UK), and they will be paid half a million euros for their labours.
RAND has a certain fame as the birthplace of much of modern game theory under John Nash, and the doctrine of nuclear deterrence through mutually assured destruction (MAD). Launched an part of the cold-war security apparatus, RAND is now a massive organization heavily focussed on statistics and modeling for the devleopment of policy recommendations, often in ‘public safety’ fields.
Their selection warrants unease because although they would not be regarded as IP specialists, they do have form: in 2009, their US organization produced a lengthy report ‘Film Piracy, Organized Crime, and Terrorism’. This study was financed by the Motion Picture Association, and much of the documentation compiled was assembled by a consultant on ‘organized crime’ employed by the MPA. RAND did at least disclose the relationship with a vested interest.
My intent initially was to publish this in January, but as the preceding posts make clear, there was considerable digging to be done to get a better picture of the context. In what follows, I begin with some comments with regard to shaky basis for the enforcement project, and then move on to a more detailed review of the Commission’s report.
1. The most noteworthy element of the Commission’s Report on the IP Enforcement Directive is what is absent. The Directive itself mandated the review, under Article 18, titled ‘Assessment’:
Three years after the date laid down in Article 20(1), each Member State shall submit to the Commission a report on the
implementation of this Directive.
On the basis of those reports, the Commission shall draw up a report on the application of this Directive, including an assessment of the effectiveness of the measures taken, as well as an evaluation of its impact on innovation and the development of the information society (my emphasis).
Those interested in reading about ‘impact on innovation and the development of the information society’ will be disappointed, as such a section does not exist. Late transposition by several member states is offered as explanation for its absence. Yet this tardiness was no obstacle to a commentary on the efficacy of the Directive’s enforcement measures. A strange anomaly, but easily explained:
“… in the context of the European Observatory on Counterfeiting and Piracy, DG Internal Market and Services works with experts from the private sector to assess the application of the Directive and to complete the information received from the Member States.”
Commission Staff Working Document, p.5 (hereinafter CSWD)
So we’re in good hands. Elsewhere the Report relies on work commissioned by copyright industry players in support of its assertions, such as that produced by Tera consultants, whose methodology was questioned by the Social Sciences Research Network (SSRN).
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