November 2008

01 Nov 2008

Are ISPs Getting A Rough Deal? The Uncertain Position of ISPs Under the Copyright (New Technologies) Amendment Act

The Copyright (New Technologies) Amendment Act (Act) was passed on Tuesday 8 April 2008 and, with the exception of section 92A, is set to come into force on 31 October 2008. Already the position of Internet Service Providers (ISPs) under the Act has raised some interesting questions - who are they, what are their obligations and what is the scope of their potential liability?

Limited Liability or Increased Responsibility?

The Act seeks to clarify the liability of ISPs when it comes to hosting infringing works. For example:

• Under section 92B, there is no liability for simply providing physical facilities where a user infringes copyright. This means that an ISP will not be held to be infringing the copyright in a work merely because the infringer has chosen to use the ISP's services for hosting an infringing work.
• There is limited liability for storing infringing copyright material provided the ISP has no knowledge or reason to believe that the material is infringing. 
• There is limited liability for caching infringing material. ISPs are not liable where no modification has taken place and they have complied with any conditions imposed by the copyright owner for access to the material, they do not interfere with the lawful use of technology to obtain data on the use of the material and they update the material in accordance with reasonable industry practice. 

While these much heralded new provisions do limit the liability of ISPs, the flip-side is that they come with an obligation on the ISP to delete or prevent access to infringing material as soon as possible after they become aware that the material is likely to infringe copyright. 

Accordingly, whether the Act works for or against ISPs will depend very much on how it is implemented.

Who Will Qualify as an ISP Under the Act?

Under the Act, an ISP means a person who does either or both of the following things:

• Offers the transmission, routing, or providing of connections for digital online communications, between or among points specified by a user, of material of the users choosing; and/or
• Hosts material on websites or other electronic retrieval systems that can be accessed by a user.

The definition is very broad - and will encompass not only businesses traditionally be considered to be ISPs - such as XTRA, Orcon, Clear, Vodafone and Whoosh - but also many other service providers. For example, the second limb of the definition is broad enough to encompass P2P file sharing services, online trading sites such as TradeMe or eBay and social networking sites such as Facebook. 

Are the Obligations on ISPs Workable?

The Act serves to bring New Zealand into line with many of its key international trading partners - for example, introducing 'safe harbour' provisions for ISPs, and putting in place a mechanism for take-down notices. However, in the absence of further guidance or regulations governing the procedural implementation of the provisions of the Act, two areas of uncertainty emerge.

Dealing with Repeat Infringers

Under section 92A of the Act, ISPs must adopt and reasonably implement a policy for terminating accounts of "repeat infringers" (that is a person who repeatedly infringes the copyright in a work by using one or more of the internet services of the ISP). 

Due to the broad drafting of this section, the boundaries of an ISP's obligations are somewhat blurred. What constitutes "repeat infringing"?  More specifically, does infringement need to have been proven (i.e. through the Courts) before it can constitute infringement or will this continue to be controlled by the ISP's own terms and conditions? 

If "repeat infringement" is interpreted to mean that a person has to have been subject to multiple court orders against him, then in practical terms it will be toothless - virtually all copyright cases settle before court and many more are not brought because they are uneconomic or simply too much hassle. This means that even a wilful, repeat infringer might expect to go on for years before actually falling within the "repeat infringer" definition. 

However, the alternative may be significantly worse…a broad definition of "repeat infringer" would be open to abuse and could put undue pressure on the ISP. For example, if "repeat infringer" meant merely that the person had been subject to multiple complaints, then copyright owners could bombard ISPs with complaints, then request the closing of an account. And who will be keeping a record of take-down requests received by other ISPs? Adopting such a broad definition would  achieve exactly what the Act is intended to avoid - an increase in uncertainty for ISPs.

Section 92A will come into force on 28 February 2009, some four months after the rest of the Act. This delay is to enable rights holders and ISPs to work together to reach agreement on how the section can be effectively implemented. Therefore, we can perhaps expect further clarification on the scope of this section (in the guise of new regulations) by early next year. 

Knowledge Requirement of ISPs for Take-Down Notices

The ISP must delete or prevent access to infringing material as soon as possible after it becomes aware (i.e. knows or has reason to believe) that the material is likely to infringe copyright. Such awareness can result from a valid notice of infringement (a "take-down notice") issued by the copyright owner, or independently (via ISP internal monitoring or an independent third party notification). 

With respect to "take-down notices" an ISP's obligations appear to be relatively clear - once a notice is received, the ISP must delete or prevent access to infringing material. Regulations prescribing the form of a take-down notice are set to come into force with the majority of the provisions of the Act on 31 October 2008. A take-down notice must be signed by the copyright owner (or the copyright owner's agent) and must include the name and details of the copyright owner, the date and time when the alleged infringement was discovered, a description of the specific material that is alleged to be infringing, the nature of the alleged infringement and the online location where the allegedly infringing material is found.

Areas of uncertainly arise where an ISP's awareness occurs other than via a take-down notice issued by the copyright owner (bearing in mind that it has an obligation to remove or prevent access to the material as soon as possible after it becomes aware of the potentially infringing material). Awareness is determined by the test "knows or has reason to believe". This test is used in the Copyright Act 1994 and it is intended that guidance as to its application and interpretation will be taken from the Copyright Act and the relevant case law. 

Where awareness occurs as a result of internal monitoring procedures or by way of an independent third party alerting the ISP to potential infringement, it is unclear what obligations the ISP may have to investigate the validity of any copyright infringement before it removes the (potentially) infringing material. Presumably, an ISP, once it becomes aware of an infringement, will invite the copyright owner to issue a take-down notice so they can then take action on this basis. Whether this will work in practice (and co-operation between the ISP and the copyright holder will be this efficient) is yet to be seen.

A recent United States judgment suggests that owners of copyright are required to consider "fair use" of the copyrighted work before issuing a "take down" notice to an ISP. This raises the question of whether an ISP will be required to undertake similar analysis in circumstances where its awareness arises other than via a "take down" notice. The issue of what amounts to a "substantial part" of the copyright work could also be contentious.

Clearing the Muddied Waters

The Act needed to be realistic - limiting liability for ISPs, providing reasonable protection for copyright owners and giving certainty to both ISPs and rights holders when infringement occurs. While for the most part, the Act has balanced the needs well, the new system has been criticised by some ISPs as unduly onerous and open to abuse (citing the similar United States system as an example). This criticism is unfair - at least at present. The fact is that the test of this Act will be its ability to stand up in practice. The cyber world is fast moving and changes regularly. The Act provides a fairly robust basis for protection of ISPs, but the regulations that govern its practical application will make all the difference.   

The Ministry of Economic Development hopes that ISPs and rights holders will work together to develop a system for identifying and removing infringing material effectively and efficiently and in a way that ensures the ISPs will meet their obligations under the Act. 

What is looking likely is that ISPs will (at their own expense) will need to develop stringent guidelines for dealing with infringing material - once awareness has occurred - with or without consultation with the rights holders. 

Authors

Karen Ngan

Partner - Corporate & Commercial

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Michael Sage

Partner - Corporate & Commercial

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Richard Watts

Partner - Intellectual Property

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Sonya Hill

Senior Associate - Corporate & Commercial

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