Government ignoring business cost of Digital Economy Bill

BIS has championed the Digital Economy Bill without considering its impact on the UK economy

The Digital Economy Bill has been a matter of high public interest in recent weeks, as the government looks increasingly set to pass controversial copyright legislation.

The Bill proposes to punish illegal file sharers in order to stem the revenue losses of copyright holders in industries such as film, music and software.

While attention has generally focused on how the Bill will curb consumers' internet freedoms, the legislation will also have serious ramifications for many businesses.

This impact has been largely ignored. In fact the latest economic assessment of the bill by the Department for Business, Innovation and Skills (BIS) only recognised that the Bill will pose a cost to internet service providers (ISPs) and mobile network operators, even though many other businesses argue that compliance with the policies will be costly and cumbersome.

The Bill proposes two new regulations for ISPs aimed at reducing illegal downloading, both of which are proving a concern.

So-called 'three strikes' legislation would see culprits kicked off the internet after multiple attempts to download copyrighted material, while an amendment proposed by the House of Lords at the beginning of March would give copyright holders the power to pressure ISPs into restricting web sites seen to be promoting illegal file sharing.

The Digital Economy Bill was published on 20 November and is now ending its passage through parliament. It is likely to be rushed through the House of Commons and passed before the general election.

BIS estimates the cost to ISPs of the three strikes laws could be up to £500m. ISPs will have to monitor internet use to ensure that no copyrighted material is transferred, and then send warning letters to customer accounts used to share illegally downloaded content. The highest cost to ISPs will be the technical measures they will need to employ to restrict internet access if the warning letters do not work.

The ISP Association (Ispa) has been up in arms over such costs, and said that the legislation will deal a heavy blow to its members' business customers. Ispa believes that businesses could be held liable for employees found to be downloading illegal content, although this will depend on whether a business is classed as a 'provider' by the three-strikes policy.

"It is not clear in the Bill whether businesses will be classed as subscribers or providers of their internet connection," said an Ispa spokesman.

"If the business were to be classed as a provider then they would face a lot more liability and responsibility over the use of their connection.

"Ispa questions whether it is ever proportionate to suspend the whole business if one employee bypasses the protection in place."

When reviewing the legislation in the House of Lords, Labour peer Lord Larry Whitty said that he was concerned that the business impact of the three-strikes policy had not been given enough consideration.

Whitty believes that the hotel trade, which provides internet access to guests, and colleges that have Wi-Fi facilities would both be classed as internet providers.

A spokesman for the British Hospitality Association (BHA) claimed that the organisation had been discussing the implications of the Bill with the government, but that its concerns had only been "noted".

"We are presuming that the hotel will be responsible if guests download illegally which, of course, is our main concern,” he told V3.co.uk. " I'm afraid we just don't know the costs involved in dealing with this."

The BHA said that, although liability rests with the ISPs to identify rooms where an infringement had taken place, hotels would be required to provide details of the guests involved and then issue a copyright report. However, while it is relatively easy to identify wired users, wireless users can be significantly more difficult and those using a prepaid card will be impossible to identify.

John Harrison, head of communications for the Museums, Libraries and Archives Council, registered his concern with the copyright plans, saying that if museums and libraries are disconnected from the internet, or have their bandwidth restricted for the activities of a small minority of infringers, it will have a big impact on UK society.

"Given the centrality of online access to our organisations, and the importance of our sectors to UK education and society, we do not believe that such a level of sanction would be appropriate," he said.

Jim Killock, chief executive of the Open Rights Group, argued that businesses will be classed as 'providers' under the three-strikes laws and be held liable for their customers' downloads because they will be the formal account holders. Killock pointed out how this impact on business would affect the UK's growing number of open wireless zones.

"Companies are already liable, but now they may face automatic disconnection and have to appeal against it," he said.

"Worst off are those who allow customers to use their internet connections, like hotels, cafés and bars. Many of these will not wish to have to defend themselves in front of tribunals, and will simply opt to shut down their open Wi-Fi to the detriment of everybody."

Meanwhile a new entity called the Coalition for a Digital Economy (Coadec) plans to represent British businesses by embracing technological innovation. Coadec argues that the Bill will choke UK innovation in the long term, and will lead to a less innovative digital economy with less copyright to protect.

"Businesses will suddenly be treated like ISPs, responsible for everything that happens in their networks," said Coadec chairman Mike Butcher.

"Right now businesses may well be unaware of illegal downloading as any legal action went after the individuals involved. Now the businesses will be looking over their shoulders and adding untold amounts of increased costs in the middle of the UK's worst recession."

Butcher explained that a major problem for businesses is the lack of clarity around the legislation and the fact that they have no idea how much it will cost.

"It's totally unclear from the Bill. All it says is you have to take 'reasonable steps'. Even basic steps cost money. And what happens if some judge deems that not to be enough?", he said.

The Federation of Small Businesses (FSB) claimed that a significant proortion of its members would be affected by the government's copyright proposals. While a potential solution for businesses would be to subscribe to a third-party service to identify the use of the internet, the FSB said that in reality this would not be viable as it would be at a substantial cost to both the business and its customers.

The FSB also recognised that the Bill could affect any small business that allows home working. The issue of household infringement could lead to a business employee being unable to access the internet through no fault of their own at a cost to business productivity, said the FSB.

"This is inconsistent with the vast majority of legislation, which places the burden on the person directly responsible for an offence they committed. To illustrate, in the case of the owner of the car who insures another person on that car who goes on to commit an offence – it is that person as opposed to the car owner who would be legally responsible for this," said a recent statement from the organisation.

Steve Nicholson, chief executive of ISP The Cloud, disagreed with the three-strikes policy, but argued that it could benefit his business in the long run because it could lead to small businesses partnering with new internet providers.

"The risk to small businesses offering their own public Wi-Fi access to the public is very real. Businesses need to be seeking an alternative. Offering a public Wi-Fi service will evade all risks of prosecution relating to anonymous access or copyright infringement," he said.

While the government has failed to acknowledge many of the risks to businesses posed by the three-strikes policies, and has yet to assuage their fears, it admitted that it did not have time to consider the economic cost of the House of Lords amendment, which will force ISPs to restrict access to web sites that host copyrighted content or make copyrighted content easily accessible to file sharers. The amendment is referred to as Clause 18 in the Bill.

"The clause has not been subject to prior consultation and, due to the limited time between the introduction of the clauses and the finalisation of the impact assessment, it has not been possible to assess the impact of these costs and benefits," noted the BIS revised economic impact assessment.

The 324-page document explained that an initial look at the clause had raised significant cost issues relating to ISPs and communication service providers because of the expense involved in blocking web sites, and the costs to businesses and subscribers who use the web sites as part of their legitimate business.

The government also acknowledged economic damage caused to the owners and operators of the web sites concerned, and the legal costs to the owners and operators of the web sites, the ISPs and the court system itself in seeking to contest the High Court action.

"This is an entirely new measure to tackle online copyright infringement and, as set out above, information on the nature and level of the costs and benefits involved is not available at this stage," the BIS document concluded.

Saskia Walzel, policy advocate at Consumer Focus, also believes that the legislation has not undergone a proper impact assessment.

"This is a grave shortcoming as the economic impact assessment for draft legislation should fully consider the costs for business and the not for profit and public sectors," she said.

"As no proper impact assessment has been done, the government risks implementing legislation with a significant, but as yet unknown, cost to the economy. This is symptomatic of a Bill that has been rushed through parliament and is unlikely to realise the potential of Digital Britain."

While the majority of businesses recognise that copyright holders need more protection against the revenues they lose from an unregulated internet, rushing through legislation without considering the affect on the economy is likely to be a dangerous move.

The hurried approach to passing the Digital Economy Bill could hinder the UK in its competition with the US and the rest of Europe. While the policies endorsed by the Bill would protect innovation in the music, film and software industries, other businesses may choose not to innovate because of the increased cost of doing so.