Are providers of free Wi-Fi liable for copyright infringement?

An interesting new CJEU case has recently (March 16) reached the Advocate General opinion stage. The case, C-484/14 McFadden, is a reference for a preliminary ruling asking, essentially, whether providers of free Wi-Fi are liable for their users’ infringements. The question is important not only because of the prevalence of arrangements involving a guest user and a host provider (cafes, hotels, municipalities, schools…) but also because it touches upon important questions of what constitutes intermediaries for purposes of ISP liability and what remedies are appropriate for such intermediaries.

 

The facts of the case are straightforward. The applicant operates a business selling and renting sound and lightning equipment for public events. He offers a Wi-Fi connection as part of that business, undoubtedly to increase the popularity of his services. A work over which Sony Music holds rights had been offered for downloading via that network and Sony sought an injunction and damages.

 

Nine questions in total had been referred to CJEU but they can, essentially, be grouped into two.

 

In the first cluster of questions, the referring court is asking whether the provision of free Wi-Fi constitutes a service falling under Article 12 of the E-Commerce Directive (ECD). The Directive applies to services ‘normally provided for remuneration’ but does not define them nor does it provide any guidelines for their definition. Since ECD excludes liability of intermediaries who are “mere conduits” but not initiators of the transmission, taking a free service out of its scope would also expose the provider to liability.

Article 12″Mere conduit”1. Where an information society service is provided that consists of the transmission in a communication network of information provided by a recipient of the service, or the provision of access to a communication network, Member States shall ensure that the service provider is not liable for the information transmitted, on condition that the provider:(a) does not initiate the transmission;(b) does not select the receiver of the transmission; and(c) does not select or modify the information contained in the transmission.2. The acts of transmission and of provision of access referred to in paragraph 1 include the automatic, intermediate and transient storage of the information transmitted in so far as this takes place for the sole purpose of carrying out the transmission in the communication network, and provided that the information is not stored for any period longer than is reasonably necessary for the transmission.3. This Article shall not affect the possibility for a court or administrative authority, in accordance with Member States’ legal systems, of requiring the service provider to terminate or prevent an infringement.

In dealing with the first group of questions, the AG emphasizes that “only services of an economic nature are covered by the provisions of the FEU Treaty” but also that “the concepts of economic activity and of the provision of services in the context of the internal market must be given a broad interpretation.” The AG’s idea is that provision of Internet access is normally an economic activity even when it is ancillary to the provider’s principal activity. The key is found in paragraph 42:

The very operation of a Wi-Fi network that is accessible to the public, in connection with another economic activity, necessarily takes place in an economic context.

This means that what gives an otherwise non-economic ancillary activity an economic context is the economic nature of the primary activity. Thus a hotel can offer free IT services as a way of promoting its primary activity which is economic in nature. Further to that, it is not necessary for the provider to hold itself out as a provider to the public in order to be given the status necessary under Article 12.

 

In the second cluster the Court is asked to determine the extent of liability of intermediaries in cases such as the present one (damages, costs) and the potential remedies including injunctions that can be applied for against them. Regarding the claim for damages or any other pecuniary claims, the AG’s response is clear: Article 12 does not allow any such claim provided that the conditions listed in it are fulfilled. In this case, the cumulative conditions have been fulfilled and, since no further condition can be imposed, the only right conclusion is that Sony’s claim is not justified.

 

The situation is different in respect of injunctions. Preliminary measures are allowed under Article 8(3) Copyright Directive (Dir. 2001/29) and under Article 11 of Copyright Enforcement Directive (Dir. 2004/48). Furthermore, the Court’s case law, in interpreting the aforementioned provisions, clearly allows injunctions “against an intermediary who provides Internet access and whose services are used by a third party to infringe a copyright or a related right” (See SABAM and UPC cases). Article 12 of the E-Commerce Directive, while bringing insulation against liability, is without prejudice to injunctions otherwise available under the Copyright Directive.

Of some interest are Advocate General’s observations concerning general limitations that any such injunctions might have. In answering the question of whether such limitations are possible, the AG draws upon freedom of expression and information and the freedom to conduct business (Article 11 and 16 of the EU Charter of Fundamental Rights, respectively) which, in his mind, must be balanced against the right to the protection of IP rights (Article 17(2) of the Charter). In particular, it should be taken care:

–        that the measures in question comply with Article 3 of Directive 2004/48 and, in particular, are effective, proportionate and dissuasive,

–        that, in accordance with Articles 12(3) and 15(1) of Directive 2000/31, they are aimed at bringing a specific infringement to an end or preventing a specific infringement and do not entail a general obligation to monitor,

–        that the application of the provisions mentioned, and of other detailed procedures laid down in national law, achieves a fair balance between the relevant fundamental rights, in particular, those protected by Articles 11 and 16 and by Article 17(2) of the Charter.

The AG then discusses whether injunctions phrased in general terms, which leave specific measures to the addressee are allowed. The UPC Telekabel case permits, in principle, such injunctions and the AG refers to this case but he further adds that it is for the national courts to determine not only that proper measures exist but also that they are compatible with the EU requirements listed above.

Finally, the AG discusses hypothetical interim measures proposed by the referring court. These are: 1) termination of the Internet connection, 2) the password-protection of the Internet connection and 3) the examination of all communications passing through that connection. The AG dismisses the first and the third immediately. In his mind, the first is incompatible with the fundamental rights while the third is incompatible with the general prohibition to monitor (Article 15 of the ECD). In regard to the second question (making the network secure), the AG points out the negative sides that such a requirement would bring. Not only would it change the business model of some of them significantly, but it would also increase the burden to store data in compliance with privacy laws.

Looking at the Advocate General’s analysis of the case, one finds little that is truly surprising. The fact that the provision of free Wi-Fi falls under the E-Commerce Directive is not unusual since the term “normally provided for remuneration” never has been restrictively interpreted in Internet-related cases. In Papasavvas, for example, the Court ruled that ECD “covers the provision of online information services for which the service provider is remunerated, not by the recipient, but by income generated by advertisements posted on a website.” Equally unsurprising is the extension of Article 12 ECD to such cases since the provision in question falls squarely within that article.

On the other hand, Advocate General’s ideas concerning the legal limitations to interim measures are of note since he effectively manages to steer clear of some of UPC‘s more problematic aspects. Whereas UPC demands only that the measures should not “unnecessarily” deprive of lawful uses and that they at least have the effect of making it difficult to access illegal services, the AG demands very specifically that they be balanced against fundamental rights in each individual case. This immediately disqualifies connection termination and monitoring but also, and not entirely without surprise, a demand that networks be made secure.

It remains to be seen whether the Court follows the Advocate General.
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Geoblocking in the EU: why it is not going away any time soon

In its 2015 Digital Single Market Strategy, the European Commission emphasized, among other aims it sought to achieve on its path to a more integrated EU Single Market for digital services, a desire to prevent “unjustified geo-blocking”. Geoblocking generally refers to technical measures which are introduced to prevent the access to consumers from one state to digital content or services in another. The Commission ambitiously announced that it would present proposals to end geo-blocking in the first half of 2016. This, it said, could be done either through a “targeted” change to the E-Commerce Directive, or through Article 20 of the Services Directive. The Commission then conducted a public consultation, which ran from 24 September 2015 till 28 December 2015, the first results of which have been published on 27 January 2016. These confirm that consumers believe that “consumers and businesses should be able to purchase and access services everywhere in the EU” and emphasized that the majority of them had experienced geo-blocking in one form or another. Businesses agreed, in principle, that consumers in one Member State should not be denied services offered to consumers in another. On the other hand, they also pointed out that it would be a mistake to force traders to do business in areas in which they do not normally desire to do so.

The Commission’s DG Connect Inception Impact Assessment from December 2015 is a preliminary working document exploring policy choices for future action in the field. It lists a number of options through which the problem could potentially be addressed, including improving existing laws or taking no action at all. Its preference, however, seems to lie in the form of five mutually compatible courses of action. These include improved transparency, better enforcement but also variations on a theme of prohibition of Geoblocking. At present, it remains unclear which combination of options the Commission would go after. In addition to this, the audio-visual business model is also being scrutinized by the competition authorities, which may result in an entirely different course of action.

Separately, but as part of the general drive to reform copyright, the Commission proposed in December 2015 a Regulation on cross-border portability of online content services.  While the title may suggest that the overall aim is permanent removal of geo-blocking, the Regulation (impact assessment available here) only ensures that those who have access to services in their own Member State can temporarily access them when travelling to another Member State. As such, it does little to address the main problem at issue here.

Few in EU the would disagree with the notion that geo-blocking is annoying. There is less agreement, however, about what prompts it and how it could be eliminated. Comparisons are usually made with the United States, where a resident of, say, California, can access the same streaming service as a resident of New York or purchase goods freely online. Not so in the EU where websites typically have their national versions and catalogues. It is important to emphasize that geo-blocking essentially has two sources. One of them are of commercial nature: websites wishing to operate only in some states and taking steps to limit custom coming from other states. Thus an e-commerce web page may only ship to customers in the country where it has its commercial basis. It could ship elsewhere, but it desires not to. The second obstacle results from copyright and licensing regulation in the EU. This is the case when a streaming company clears rights for one package of movies in state A but a different package in state B. Arguably, it is this second obstacle that is more prominent in the EU. This is for a simple reason: customers in the EU rarely buy across borders (and that is usually not because they are blocked) but are ready to enjoy streaming services based in the USA or in another Member State (mostly the UK). It is the latter that is both generating most debate in the EU and that is more problematic of the two.

What is happening when a streaming company (irrespective of whether it is based in the EU or the USA) decides to operate in more than one EU state? Typically, it has to clear rights for the content that it intends to offer in each state. This can be a complicated process because, unlike the United States, there are 28 separate Member States with 28 separate copyright regimes. There is no EU-wide system of licensing for audio-visual works. Some steps have been made in the music world, where multi-territorial licensing has been impossible until 2005 but where the new EU regime made it significantly more convenient. No similar directive exists for audio-visual works and a package of rights that a company gets in France may significantly differ to those it gets in Germany. Geoblocking is then an annoying but necessary consequence of this reality. On top of that, the audio-visual sector, which is always high risk, does not see licensing as an obstacle – it depends on copyright whose exploitation monopoly helps them survive financially. “The pre-financing of audio-visual works requires significant involvement from stakeholders from the territory they are designed for ” (see a detailed study on Multi-Territory Licensing of Audio-Visual Works in the European Union dating from 2010). In other words, obstacles which prompt geo-blocking are not necessarily copyright in nature but come from the way the audio-visual industry functions in the EU. The resulting fragmentation is a consequence of cultural differences but also financial arrangements where local content is heavily subsidised. Copyright is not its cause but its manifestation.

Gisueppe Mazzioti (@gmazziotti), who has done extensive research on EU licensing regimes, convincingly argues that both copyright and non-copyright factors severely limit the Commission’s options but also put it in an awkward position since it already announced the removal of geo-blocking as one of its high priorities. Although creating a “digital single area for pan-European exploitations of audio-visual works ” is the most effective solution, it is also the most politically demanding. In his view, other options, such as the European Court’s activism, the creation of EU-wide soft-law standards for the implementation of existing laws or the creation of lists of allowed restrictions are more realistic.

The present EU copyright reform will almost certainly not result in a full harmonization of copyright law, which is a prerequisite for a fully-functional EU-wide area for digital works licensing. This is not surprising, since that has not been the present Commission’s ambition. However, this also implies that the use of a blunt instrument in the form of a prohibition of geo-blocking is impossible. Prioritizing the removal of geo-blocking so highly in the Digital Single Market strategy seems to have had an odd effect. The Commission has “painted itself into a corner”. Not acting risks the intervention of the European Court (which has already caused a stir in its Premier League judgment in 2011) while acting more vigorously will meet an instant opposition from all those whose financing models depend on strong copyright. The resulting proposal, if it arrives in 2016, will almost certainly be milder than it initially seemed and would avoid outright bans and probably move in the direction of lists and soft-law.

In an odd way, this is indirectly confirmed elsewhere. Those reading the geo-blocking documents (the Inception Impact Assessment, for example) would only find few references to copyright. In its essence, it is not a copyright instrument at all and the measures discussed in it have only indirect impact on rights licensing. At the same time, the Digital Single Market Strategy is clearly mentioning the E-Commerce and the Services Directives. All of this means that the Commission will, for now, leave copyright largely intact (except for the portability Regulation) and will act on the E-Commerce and service side, eliminating geo-blocking restrictions which are not primarily caused by licensing regimes. It remains to be seen whether even this can be achieved.

If you are interesting in the finer legal aspects of this issue, I encourage you to read Giuseppe’s excellent article referred to above.

Welcome to EU Internet Law and Policy Blog.

Over a number of years which I have spent both researching and teaching Information Technology (IT) law in Europe, one thing struck me as significant: it is often difficult for non-professionals to understand both how IT laws are made in the EU and what implications these laws might have. The purpose of this blog is to help bridge this gap for anybody who is not a lawyer but needs some understanding of the issues involved.

First, in a series of shorter posts, I will attempt to explain the basics of EU law and policymaking in the area that might tentatively be called EU Cyberlaw. These posts will explore the sources, the interplay between institutions, comparative perspectives and literature. Second, I will comment on current policy issues in the world of EU Cyberlaw. The EU has recently completed a number of law reforms in this area, including a revision of the EU Telecommunications package and of data protection rules. Many more are on their way, among them the reforms of the Audio Video Media Services framework, the copyright reform and the introduction of new contract rules for digital contracts.

Since cyberworld concerns both the carrier (broadband, mobile technology, fixed telephony, cable and satellite) and the content (media, web sites, TV programs, etc.), I will attempt to cover both. Traditionally, the former has been the subject of a discipline called Telecommunications Law. The second falls under a number of disciplines, most significant of which are electronic commerce law and media law. Links to relevant documents will be provided wherever they are available. Comments are welcome.