6/3/96
LEGAL PROTECTION FOR ENCRYPTED SERVICES
IN THE INTERNAL MARKET
CONSULTATION ON THE NEED
FOR COMMUNITY ACTION
Commission Green Paper
GREEN PAPER ON THE LEGAL PROTECTION
OF ENCRYPTED SERVICES
IN THE INTERNAL MARKET
Executive summary
Introduction
Chapter 1: The European market
in encrypted services
1. A buoyant market
2. A European market
3. A market exposed to piracy
4. A market threatened by regulatory
fragmentation
Chapter 2: International rules
1. The Council of Europe
2. The World Intellectual Property
Organization (WIPO)
Chapter 3: Member States' legislation
1. Overview
2. Regulatory environment in the
Member States (summary)
Chapter 4: Obstacles to the efficient
operation of the Internal Market
1. Obstacles to the free movement of decoding devices (Article 30 et seq.)
2. Obstacles to the free movement of services relating to decoding devices (Article 59 et seq.)
3. Obstacles to the free movement of encrypted services
4. Distortions of competition
Chapter 5: The need for and potential
types of Community action
1. Purpose of the action
2. Consistency with other Community policies
3. Choice of instrument and legal basis
4. Scope
5. Overall structure
List of questions
Executive summary
Objective
In recent years the increase in the
availability of frequencies and the use of new technology have
been accompanied by an increase in the number of television services
whose signal is encrypted with a view to restricting reception
to subscribers. In order to receive the programmes, viewers must
have a decoding device that can reconstitute the original picture.
The market is experiencing rapid
growth particularly as a result of the advent of digital technology,
which permits an expansion in the capacity for communication.
These television services will increasingly be compelled to adopt
a transnational and often even European dimension due to their
specialised nature. However, growth is being jeopardized by piracy:
a flourishing unofficial decoder manufacturing industry is emerging
in parallel to that of authorised manufacturers. Devices enabling
access to a service without payment of the subscription or fee
are produced and marketed without the permission of service operators.
This results in considerable losses for the service provider
and indirectly adversely affects the potential market of programme
suppliers and official manufacturers.
In the light of these developments, the Commission already emphasised
the need for effective protection of coded signals against their
illegal reception in its Strategic Programme for the Internal
Market of 22 December 1993 (COM(93)632 final).
Such a requirement is all the more
urgent in the runup to the Information Society: as more
and more encrypted services become available in the future, measures
will need to be adopted to ensure the protection of these services,
whatever their content, against illicit reception.
Accordingly, in its Communication of July 1994 entitlted "Europe's
Way to the Information Society: An Action Plan" (COM(94)
347) the Commission announced the preparation of a Green Paper
on the Legal Protection of Encrypted Services in the Internal
Market with the aim of examining problems raised both by the absence
of specific legislation on the legal protection of encrypted services
in some Member States and by disparaties between existing legislation
in others.
The current regulatory environment
A comparison of the regulatory methods
chosen by legislators in the Member States reveals appreciable
differences in the approach to the problem of illicit reception
of encrypted services.
Whereas some Member States adopted specific legislation
ensuring protection against the illegal reception of encrypted
services in the late 1980s, others (A,
P, E, GR, DK, D and LUX) have no such legislation to date.
The general rules
(e.g. on unfair competition, telecommunications and copyright)
sometimes applied in Member States belonging to the second group
are often unable to provide effective protection against the illegal
reception of encrypted services. This has allowed the development,
in some of those Member States, of a flourishing industry that
manufactures, markets, installs and maintains pirate devices.
A specialist press has also developed, providing targeted publications
and commercial promotion networks for pirate decoders. The repercussions
of this situation extend to other Member States, where such devices
are introduced on to the market in spite of restrictive measures.
Among the Member States which have
adopted specific legislation, the differences between the
solutions adopted are substantial, in particular as regards
scope, the activities prohibited (commercial promotion, private
possession) and the level of sanctions.
Need for Community action
In view of this situation, Community
action could well be justified. The fact that the Member
States do not all have an equivalent level of legal protection
prevents the Internal Market from operating correctly.
This creates a number of obstacles to the free movement of encrypted
services and decoders and numerous distortions of competition
between operators in the various Member States. The present differences
between the regulatory solutions and the resulting extra
costs and legal uncertainty are viewed by the profession as a
major barrier to the development of a European market of
new encrypted services.
Such an initiative would also be
useful in preparation for the Information Society,
in which encrypted services could be called upon to play a major
role. It would also eliminate the fragmentation of the Internal
Market and would simultaneously take other existing Community
objectives into account such as those persued by the industrial,
audiovisual, cultural and consumer protection policies
Operators have overwhelmingly expressed
support for a Community measure. In this regard, the DVB
(European Digital Video Broadcasting Group) has
adopted a recommendation emphasizing the need for a clear and
uniform EUwide regulatory framework. This view was shared
by the European Parliament, which proposed inserting
in the Directive on the Use of Standards for the Transmission
of Television Signals a recital underlining the need to introduce
and apply efficient antipiracy legislation at European level;
the Directive, along with the recital, was adopted by the Council
on 24 October 1995.
Before proposing an initiative, however,
the Commission would like to consult interested parties on the
course of action described below.
The Commission could propose an initiative
harmonizing national legislation. Taking into account
the principle of proportionality and subsidiarity, the proposed
initiative could provide for minimum harmonisation, leaving Member
States free to adopt stricter principles while ensuring a minimum
level of equivalent protection within the Union. The proposed
initiative could thus prohibit the production, sale, possession
for either commercial or personal use, installation and commercial
promotion of decoders designed to enable access to encrypted services
without the encryptor's authorisation. Such a course of action
would both ensure EUwide equivalent protection against illicit
access to encrypted services and afford legal certainty to the
interests concerned.
Next step
The Commission is keen to ensure
that the Green Paper is the subject of open consultations:
any person, firm, body or authority is free to take part. This
will be a twintrack consultation process, in that it is
addressed not just to trade associations and federations but also
to individual operators. The Green Paper will be sent to the European
Parliament, to the Economic and Social Committee, to the Committee
of the Regions, to the Member States, to the European Economic
Area and to the countries of Central and Eastern Europe.
The timelimit for submitting
comments is 31 May 1996. In the summer of 1996
the Commission will, in the light of the comments received, decide
whether an initiative at Community level is called for.
Introduction
I. The problem of illicit reception
The use of signal encryption
in broadcasting has been on the increase in recent years. In the 1980s
systems characterised by varying degrees of security began to
appear employing a form of scrambling in which the standard picture
and/or sound signals are altered before transmission in such a
way that a normal receiver cannot reconstitute the original programme.
In order to recover the original picture the viewer needed a
special decoding device (decoder, smart card or
computer programme-normally issued on the payment of a subscription
fee) which could interpret the instructions accompanying the encrypted
signal.
Originally used by cable companies
to modulate the number of channels available to the viewer under
the terms of his subscription agreement, the technology rapidly
spread to terrestrial paytelevision stations and evolved
dramatically with the satellite broadcasting of encrypted channels.
The use of encryption will, however, increase sharply with the
advent of digital technology and the development of Information
Society services (such as interactive teleshopping, teleinformation
services, online professional services and interactive games)
since they will all, in varying degrees, need to rely on encryption
to ensure their viable development.
Encryption is used for a variety
of reasons: on top of commercial strategy requirements,
i.e. the need to find fresh sources of revenue,
copyright holders can require to use encryption to protect
and exploit the covered programmes. The protection
of minors, particularly in the case of adult channels,
as well as the improved identification of the audience to allow
for targeted maketing, can also be major factors.
A flourishing unauthorised
manufacturing industry has, however, sprung up alongside
that of official producers of decoding devices. This pirate industry
manufactures and markets decoding devices enabling illicit
reception of the service without the service provider's authorisation
, usually at prices below those of official devices.
It is estimated that unauthorised
devices currently represent about 5 to 20%
of the total number of devices in circulation and generate
turnover of several million Ecus annually. Moreover, a specialised
press developed around this pirate market, providing targeted
publications and thus also a medium for the marketing of unauthorised
devices. An aftersales service market also developed, providing
maintenance and even sometimes the replacement of the device in
the event that the operator would change system.
The sale of these unauthorised devices
has, first of all, an adverse effect on the operators of
encrypted services. As well as suffering losses in terms
of potential market and profits, they bear additional costs as
a result of having to adopt expensive distribution systems for
their decoder devices (which are usually rented out) in order
to control their use.
For the suppliers of the programmes contained in the broadcasts,
the marketing of the unauthorised devices represents a loss of
profits, as in the negotiations concerning the price payable for
the rights, no account will have been taken of the individuals
who receive the programmes via an unauthorised device.
For those supplying the technology,
the marketing of unauthorised devices undermines confidence in
their system and results in lost profits connected with the potential
market taken over by such equipment.
For the consumers, the marketing
of the unauthorised devices constitutes a risk as they could be
mislead about the origin of the decoding device they are purchasing
and thus believe they are buying authorised device, whereas it
is in fact a pirated decoder. In this case, if the operator modifies
the encryption system for security reasons, the device purchased
would be of no use to the consumer, who would have to pay for
another decoder. Moreover, the service providers pass on the
losses they suffer from piracy onto the price of, or rental charges
for, authorised devices made available to consumers.
II. The Regulatory Environment
In order to redress this problem,
operators have asked that Member States adopt specific rules providing
rapid and effective legal protection against the
manufacture and distribution of unauthorised decoding devices.
While technological progress has improved the security
of encryption systems, purely technological solutions have often
proved ineffective. When choosing an encryption system the operator
is faced with a trade-off between the cost of the system and the
level of security it provides. Experience has moreover shown
that piracy techniques have developed at the same rate as encryption
techniques and that there is no guarantee that new systems using
digital technology will not come under attack. It was therefore
felt that, in order to deal with pirates, technology had to be
supplemented by legislation. However, the resulting wave
of regulatory change among Member States, which has not
as yet been completed, reveals a substantial difference in approach.
In this context, in its July 1994
Communication entitled "Europe's way to the Information Society.
An Action Plan" (COM(94) 347), the Commission announced
the preparation of a "Green Paper on the Legal Protection
of Encrypted Services in the Internal Market" aimed
at analysing the problems raised both by the absence of specific
legislation on illicit reception of encrypted services in some
Member States and by disparities between existing legislation
in others.
III. Services covered
The subject of the following analysis
is the illicit reception of an encrypted service,
i.e. reception without payment and/or authorisation,by persons
who are not authorised by the service providers, and the solutions
that have been found to this problem by national regulations.
"Encrypted services" is defined for the
purposes of this Paper as services whose signal is encrypted
in order to ensure payment of a fee. This category includes
traditional encrypted broadcasts (via a cable, hertzian
waves or by satellite), the new broadcasting services
(digital television, payperview, near video on demand)
and Information Society services, namely electronic
distance services provided on individual request of a service
user (in particular video on demand, games supplied on request,
teleshopping and multimedia information services ).
Services encrypted for reasons other
than ensuring the payment of a fee, i.e. those encrypted in order
to guarantee the integrity and confidentiality of the message
transmitted, namely financial or telecommunications services
(in particular mobile telephone services using GSM technology)
are not covered. This exclusion is based on the fact that the
general interests involved in the event of interception
of these services (i.e. the integrity and confidentiality of the
communication) differ appreciably from the generalinterest
objective (i.e. the protection of the value of a service provides
against payment) threatened by the illicit reception of encrypted
services as defined for the purpuse of this Paper. As this difference
has led to appreciably different solutions in terms of legislation
both at national and international level particularly as regards
action and the level of sanctions, the joint treatment of both
problems is not justified.
Moreover, the Green Paper does not
cover questions concerning systems designed to prevent the copying
of a work or other protected subject matter. These have been addressed
in the Green Paper on Copyright and Related Rights in the Information
Society adopted by the Commission in July 1995.
Lastly, this Green Paper does not
deal with questions relating to the standardization of conditional
access systems, or with the conditions under which licences
are granted for such systems, since they are already covered by
the Directive on the Use of Standards for the Transmission of
Television Signals, or with the control by national authorities
of coding systems. The latter question, which is closely
linked to the the problem of security, is currently
being studied by the Commission in the context of its work on
the security of information systems. Other studies could furthermore
be launched at a future date if the efficient operation of the
Internal Market would be threatened or jeopardized by the implementation
of national rules.
IV. Preparatory work
In preparation for the Green Paper,
the Commission asked three independent firms to examine the technological,
economic and legal aspects of the market in encrypted services.
The first study, "Technical
aspects related to encrypted broadcasts" concentrated
on the economic and technical aspects of the subject and dealt
in particular with currently used encryption systems, their advantages
and disadvantages and their vulnerability to pirate activities.
As regards the economic aspect, the study focused on the cost
of the managment of a subscribtion system for encrypted services,
on the trend towards the development of compatible decoding systems
and on the advent of the new digital technologies.
The second study, "Protection
of encrypted broadcasts" concerned the legal aspects
of the issue. It analysed the factors which influenced the development
of encrypted services, the reasons for piracy and the legal
solutions adopted to combat it.
The third study, "Legal
protection of encrypted broadcasting signals" examined
the legislation of the Member States on the protection of encrypted
broadcasts, application of these laws by national courts and,
where relevant, the established controls and sanctions. The Institute
also analysed the regulations adopted by international bodies
(Council of Europe, WIPO).
In addition, in March 1995, the Commission
initiated a wideranging process of consultation with the
relevant sectors of industry concerned with the problem of illicit
reception of encrypted services, particularly broadcasters, manufacturers
of decoding devices, cable operators, programme providers, telecommunication
companies and other interested parties who had expressed a desire
to be involved.
The consultation confirmed that illicit
reception of encrypted services and fragmentation
of the legal framework at the level of the EU pose a real
problem for the media industry. It believes that the possibility
of benefiting from effective legal protection against illicit
reception is an important factor when deciding on the distribution
of a new encrypted service in a particular Member State. In
the absence of such protection, operators often prefer not to
market the service.
Operators thus overwhelmingly expressed
support for a Community initiative. Similarly, in 1995, in the
context of the meeting of its group of experts, the DVB
(European Digital Video Broadcasting Group), which is
at the forefront of digital television standards, adopted a recommendation
underlining the need for a clear and uniform EUwide regulatory
framework which can be relied upon in the event of illicit reception
of encrypted services.
That view was shared by the European
Parliament, which, in the procedure leading to the adoption of
the Directive on the Use of Standards for the Transmission of
Television Signals proposed inserting a recital emphasizing that,
in a digital environment, the scope for piracy in the European
audiovisual market will increase, with negative consequences for
both operators and programme providers, and that it is becoming
increasingly necessary to introduce and apply efficient antipiracy
legislation at European level. The recital was adopted along with
the Directive by the Council on 24 October 1995.
Chapter 1: The European market
in encrypted services
1. A buoyant market
The recent past, technological
developments (e.g. satellites and fibre optic cables) have
produced rapid changes in the European audiovisual landscape and
allowed for a steady expansion of the supply of services. As more
operators have increasingly engaged in targeted commercial
strategies, the encryption of their signals has proved essential
for their viability.
The traditional structure for financing
private channels, based exclusively on advertising income, is
often no longer a viable proposition for new entrants. As the
number of broadcasting stations increases, the contribution of
income per channel from traditional television advertisers becomes
smaller. Simultaneousley operators attempt to distinguish themselves
from this growing number of potential competitors by catering
to the needs of specific market niches, i.e. by focusing
on the tastes and interests of particular user groups (thematic
film, music or sports channels, etc.). An operator can thus profile
himself from his mass market competitors by targeting a demand
that had previously been satisfied only in part or not at all.
Comparing identical geographical areas, however, niche service
audiences are invariably more closely targeted and, by the same
token, smaller. Operators of specialised media cannot, therefore,
rely on income from mass market advertisers, who express less
or little interest a media strategy that is not aimed a mass audience.
1.1
Reasons for using encryption:
The main reasons for encrypting signals
can be summed up as follows:
To ensure the financial contribution
of the beneficiaries of the service: the concept of niche
services is based on the ability to provide added value to certain
categories of users as compared to those aimed at the mass market.
Users can therefore be asked to contribute to the financing of
this specialised service which, as a result of encryption, cannot
be received by nonsubscribers;
The possibility of increasing
advertising revenue per audience unit: by encrypting the signal,
the operator will find it easier to sell advertising space to,
or strike sponsorship deals with, firms interested in the targeted
market niche. Advertisers will therefore be asked to pay for the
targeted market only and not for the entire equivalent geographical
market. They will therefore be willing to pay more per audience
unit since the audience will be regarded as being of a higher
quality compared to a mass audience.
The ability to target supply
more accurately: increased knowledge of the user of the service
will help the operator to finetune his service to the exact
requirements of the target market.
Simplifying the acquisition of
broadcasting rights: satellite broadcasting has considerably
increased the potential reception area. Traditionally, however,
broadcasting rights are granted on a territorial basis, which
means access often has to be limited to viewers within a specific
geographical or common language area. Encryption allows the operator
to restrict the reception of the signal exclusively to those territories
for which rights have been acquired. Moreover, as suggested in
the "Cable and Satellite" Directive, encryption will
enable the use of the actual audience (e.g. the number of subscribers
and not the geographical area) as a basis for the negotiation
of satellite broadcasting and cable retransmission rights, thereby
reducing the acquisition cost of programmes intended for the development
of a niche service.
The creation of a new window
in the chronology of media distribution: encryption allows
rightholders to add a new window to the pattern of media distribution;
operators of an encrypted service often carry programming before
it is broadcast to a mass audience and, in order to secure exclusive
rights in respect of those works, they are prepared to pay large
sums, thereby creating a new source of income for the rightsholders.
Regulatory requirements:
on grounds of public policy, in particular the protection of
minors (e.g. in the case of broadcasting channels aimed at
adult audiences), the authorities may, as forseen in the Television
Without Frontiers Directive (Article 22, second sentence),
allow certain services to operate on condition that they are encrypted
so that reception can be limited to specific groups of viewers.
1.2
Encrypted services
The European market in encrypted
services consists mainly of paytelevision channels.
Initially tranmsitted via cable and hertzian waves, this service
especially expanded when medium powered and high powered
satellites were introduced allowing broadcasts to be received
anywhere within the footprint of the satellite using an individual
satellite dish.
The development of technology has,
however, enabled more sophisticated pay broadcasting services
to be launched, e.g. payperview broadcasts,
which must be paid for before they can be seen by viewers. Payperview
is technically possible without digital compression, but it requires
a sophisticated subscription management system. Payperview
could involve the viewer paying to see one particular event (e.g.
a concert or a boxing match) or a series of events (e.g. the right
to see ten football matches). In the latter example the broadcaster
cannot presently identify exactly which events have been viewed
by a particular viewer. Technological progress is however allowing
systems to be developed that will allow rights holders to be remunerated
in line with the actual "consumption" of their programmes.
The next stage will probably be near
video on demand, which involves the broadcaster transmitting
the same programme (usually, but not necessarily, a film) at different
starting times. A viewer can thus choose not only the programme
he wants to see but also, within certain limits, the time at which
he wants to see it. This stage will be followed by the commercial
development of actual video on demand, which gives the
viewer complete flexibility over starting times, as they would
no longer be predetermined by the broadcaster.
The explosion of encryption applications
will only take place, however, with the development of the other
services of the Information Society: not only audiovisual services,
but all the other applications (e.g. interactive teleshopping,
teleinformation services, professional online services,
interactive games, etc.) will, to a varying degree, have to rely
on encryption for their viable development. Moreover, as
encryption will often be essential for security purposes (e.g.
for electronic payment in the case of teleshopping), synergy between
these two encryption applications (control/security being enhanced
by the subscription system) would - under conditions of legal
certainty - make its use even better suited to promoting the development
of all services in the Information Society .
The development of these new services
will depend to a large extent on the establishment of a regulatory
framework which simultaneously takes account of the legitimate
requirements of operators and users of the services. In this respect,
great importance will be attached to the solution found on the
international and worldwide level to the multitude of security
problems implied in the use of electronic transactions. These
include in particular the regulatory restrictions on the use of
encryption systems, public authorities' control over encrypted
communications for reasons of national security, and the identification
and verification of the respective parties. At present, the Commission,
in the framework of its activities on the security of information
systems, is analysing the possibility of establishing, at European
level, organisations which would be responsible for the control
and certification, and totally independent from public authorities.
2. The European market
Europe currently has a total of 180
television channels, transmitted via 27 satellites. Many of those
channels (79) use some form of encryption (see Table 1) and are
thematic rather than general (e.g. children's programming,
sports channels, movie channels, etc.).
Table 1:
Number of subscribers to the main paytelevision stations
('000 viewers)
| Canal Plus | |||||||||||||||
| Sky Movies
Movie Channel | |||||||||||||||
| Sky Sports | |||||||||||||||
| Canal Plus Esp. | |||||||||||||||
| Première | |||||||||||||||
| Filmnet | |||||||||||||||
| Telepiù | |||||||||||||||
| Sky Multichannel | |||||||||||||||
| TV 1000 | |||||||||||||||
| Adult Channel | |||||||||||||||
| Canal Plus TVCF | |||||||||||||||
| Canal Satellite France | |||||||||||||||
| Filmmax | |||||||||||||||
| Tele-TV | |||||||||||||||
| Teleclub | |||||||||||||||
| Canal Satellite Esp. | |||||||||||||||
| Lumière TV | |||||||||||||||
| Multichoice | |||||||||||||||
| Total |
In the future, a sharp increase in
the supply of encrypted services can be expected at the European
level. The launching of new, completely digital satellites (e.g.
Astra 1e and 1f) and the spread of fibre optic networks
will enable existing operators presently on the market to increase
their supply. Several operators have already announced details
of their plans to launch packages of digital channels. The Nethold
Group, for instance, which controls Filmnet, will soon launch 150 digital channels,
50 of them offering films on demand. BSkyB plans to
launch between 16 and 32 payperview stations
towards the end of 1996 as an initial step towards the launch
of genuine videoondemand services. Canal Plus
will also soon provide a package of over 20 digital channels.
In addition to the services already available they will provide
a payperview service, video games and digital radio
services. Furthermore a number of French channels, including TF1,
Arte and La Cinquième, will cooperate in the
launch of a package of digital channels using the same satellite.
Lastly, TF1 will launch a package of services ranging from video
on demand to interactive programmes via five Eutelsatbased
transponders.
New operators, in particular telecommunications
companies, can also be expected to enter the market of Information
Society services: British Telecom has already set up a pilot
project in which 2 500 homes can, on demand, receive teleshopping,
videoondemand, video games and other services.
At present, many channels still cover
a particular common language or geographical market. Nevertheless
it is clear that, in the future, national markets will increasingly
prove too limited. There will therefore be a growing need for
easy crossborder access, for this and the following reasons:
As the number of encrypted services
rises, operators will increasingly have to provide more finely
targeted services to satisfy the needs of the market. Since these
particular demands will not satisfactorily be catered for yet,
a niche market could be drawn around a population segment prepared
to pay for the added value offered by the service. With the increase
in generalinterest programming broadcast "in clear",
encrypted services have developed to satisfy an increasingly
specialized demand, therefore justifying the need for their remuneration
by the final user. Nevertheless, the development of viable, targeted
services requires a market of a certain size, and as for identical
geographical areas, a nicheservice market is smaller than
a massservice market, it can often only be constituted
by exploiting a larger geographical market.
The ability to better satisfy
linguistic and cultural requirements. By means of the new
technology, the same channel can be broadcast simultaneously in
several languages by providing separate soundtracks. In addition,
the strategy of interactive services will increasingly be based
on specialized services and/or the supply of packages of services.
The first will often satisfy the demand of transnational niches,
i.e. demand based on factors other than purely national culture,
while the second will allow the user to choose what he wants to
see. Thus, with the incorporation of advanced information technology,
the service provider will be able to offer the widest possible
choice including in his package of services films or programmes
that take account of national differences.
The evolution of technological
applications. Constant improvements and the continuous incorporation
of audiovisual service distribution systems by the commercial
application of new technologies (satellite broadcasting, optical fibres,
the development of the ISDN network (Integrated Services Digital
Network) at European level so as to link up with IBC (Integrated
Broadband Communication networks) make these services increasingly
independent of the distance between the service provider and the
user.
All the regulatory work aimed at
the gradual liberalization of telecommunications (in particular
for satellite and cable) and the harmonisation of cross-border
rules on the carrying of signals in Europe (especially for television
signals in the field of programme content and copyright) is just
beginning to have a positive impact on the freedom to provide
existing audiovisual services between Member States and the development
of new services, a growing proportion of which will be provided
in encrypted form.
Changes in the practice of granting
broadcasting rights: at present only a small proportion of
the output of encrypted stations can be broadcast across frontiers,
because of the traditionally national systems of granting broadcasting
rights. Encryption will enable future rights to be granted on
the basis of the actual number of users rather than according
to national frontiers.
Obtaining the best possible return
on transponder costs: since transponder costs are high, it
is economically sensible for the operator to offer his service
in as many areas as possible within the area covered by the satellite.
The development of these services
in response to the growing needs of cross-border markets is, however,
being jeopardized by a major problem at European level: piracy.
3. A market exposed to piracy
3.1
Technological development
Due to advanced technology, it is
in theory now possible to use a conditional access system providing
such a high level of security that pirates would be incapable
of breaking it. In practice, however, these systems also have
to comply with certain economic and regulatory realities, namely:
Systems must be produced and distributed
at a reasonable price, since consumers will be unwilling
to pay more than a certain amount to buy a decoder, depending
on the extent to which they find the programmes interesting or
the selection of channels that can be picked up with the system
in question.
The cost of operating
the system must not exceed the amount of revenue (i.e. the income
the operator stands to lose if illicit decoding devices are put
on sale) at risk.
Systems must comply with regulatory
requirements imposed by certain Member States on the use
of encryption for commercial purposes.
As the need to achieve an acceptable
cost for the conditional access system means that they cannot
be made completely secure, manufacturers of illicit decoding
devices have taken advantage of this situation, and are now even
able to keep up with the pace of technological developments.
The way in which the systems have
evolved illustrate this phenomenon. The simplest conditional
access system causes a mix-up of the position of the synchronous
pulses that form part of the broadcast signals, so that a standard
receiver can no longer lock its line (horizontal) or field (vertical)
timebases. The picture waveform is transmitted unchanged, but
without normal synchronous pulses, the screen displays only a
jumble of picture components. The synchronizing information is
transmitted in a disguised form (algorithm) which can be detected
by the official decoder and used to reconstruct standard synchronous
pulses. This system has already been widely pirated.
Secondgeneration
encryption systems work differently. Two of these are now particularly
common:
in the "active line rotation"
method the line stays in place, but is cut at randomly chosen
points for each line and the ends are swapped over;
in the "line shuffle"
method the lines that make up the picture are reconstituted in
a totally different order. This method is more effective than
the first, but also more expensive, as it needs more storage in
the decoder.
The great advantage of both systems
is that they completely destroy the structure of the picture.
They can, moreover, be used in conjunction with a "smart
card" that "reads" the incoming signal
and issues instructions to the decoder telling it how to decode
it. The three most widely used encryption systems in Europe (Videocrypt,
Syster and Eurocrypt) belong to this second generation.
Research is still being carried out,
however, into systems that provide even more security. The current
process of the convergence of telecommunications and audiovisual
services and the application of digital technology to broadcasting
will allow encryption systems to be developed that are more and
more sophisticated and secure. After all, the decomposition of
content into bytes is in itself a form of encryption.
Moreover, in order to allow the introduction
of interactive services, decoders themselves will gradually become
"settop boxes", i.e. actual computers controlled
by a smart card that will both identify the user and activate
encryption functions for the incoming and outgoing signals. These
devices will thus make it possible to pick up the signal, decode
it, perhaps change its contents and incorporate it into another
medium, record it and print it. They will also be able to interact
with traditional equipment (video tape recorders, computers, CD
and the new video disc players), and to send back to the operator
an encrypted signal, perhaps with confidential financial data,
designed to help analyse demand.
3.2
The consequences of piracy
In some Member States, however, the
manufacture and marketing of unauthorised decoding devices
and the manipulation of authorised devices so as to allow
access to a service in breach of the conditions laid down with
regard to time (duration of the subscription) and quantity (number
of channels) have now become highly lucrative. In those Member States,
they have given rise to parallel activities, such as the publication
of specialized magazines and the settingup of maintenance
and aftersales services.
The fact that they allow illicit
reception of encrypted services has several adverse consequences:
the encryptors are deprived of the
subscription revenue they would have obtained if the customer
had purchased a lawful device (about ECU 200250
annually for each unauthorised receiver);
in some cases it is necessary to
replace the pirated system. Operators spend vast sums each
year (from ECU 60 000 to more than ECU 1.2 million
per operator, according to the survey) on system protection (controlling
distribution, making improvements, changing cards, etc.). Even
control systems based on removable smart cards, which seemed more
immune than most, have been compromised. It was at first claimed
that if a system was pirated, it could be safeguarded simply by
a new issue of cards. In fact, when the number of subscribers
is very large, the cost of replacing all the cards can be a significant
drain on earnings. On top of the cost of each smart card, there
are the code development costs, postage and other costs (the survey
revealed that making pirated systems secure again can cost more
than ECU 45 million);
the time needed to develop
a new system. Turning once again to the example of the
smart cards, an operator wishing to replace its card would need
some time to develop a new one. Meanwhile, the only available
course of action would be to engage in a series of temporary electronic
countermeasures until it can issue a new smart card. This is a
risky situation, especially since pirates anticipate the countermeasures
and take appropriate avoiding action. In addition, there would
inevitably need to be a period of time in which both the old card
and the new card would remain operational. This means that the
pirate cards in circulation would also last through the transition
period, giving pirates enough time to develop a new pirate card.
With the assistance of private investors, pirates can now produce
their own cards and chips almost as quickly as the broadcasters.
Other techniques aimed at disabling pirate cards (e.g. sending
deactivating signals that disconnect only unauthorised cards)
have proved shortlived (in this particular case, because
pirate manufacturers themselves distribute devices specifically
designed to block out the deactivating signal).
financial harm to those holding
rights in the programmes. Since the fees paid to
rightholders generally also take into account the potential
audience, the fact that encrypted programmes are picked
up via illicit reception deprives rightholders of the income they
would have received from subscription revenue if the customer
had purchased an authorised decoder instead. Moreover, when negotiations
take place regarding rights in respect of subsequent (in clear)
broadcasts, rightholders will find it more difficult to secure
high levels of remuneration because of illicit reception which
had already occurred when the material was broadcast on the encrypted
channel;
the loss of income and credibility
for suppliers of the technology. When selecting
an encryption system, operators will want to be sure that the
system chosen is the most secure, so that they can provide those
holding the rights in the programmes with a guarantee that a broadcast
they have authorised will not be pirated; a high incidence of
illicit decoding devices might be construed as evidence that a
system is not very effective;
the fact that market confidence
in the system would be undermined. The market requires
confidence in encryption if the notion of exclusiveness associated
with the services is to be maintained and if the window created
in the media chronology is to be justified. Illicit reception
erodes that confidence in such a manner that rightholders will
become reluctant to license firstrun programming, broadcasters
will not be prepared to pay high licence fees and consumers will
be reluctant to pay subscription fees.
the consumers could be mislead about
the origin of the decoding device they are purchasing and thus
believe they are buying authorised device, whereas it is in fact
a pirated decoder. In this case, if the operator modifies the
encryption system for security reasons, the device purchased would
be of no use to the consumer, who would have to pay for another
decoder. Moreover, the service providers pass on the losses they
suffer from piracy onto the price of, or rental charges for, authorised
devices made available to consumers.
As well as these direct consequences
there are indirect effects on the development of the market in
new encrypted services. Clearly, development will be possible
only if an adequate level of security is guaranteed for operators
to be willing to engage in activities requiring heavy initial
investment.
4. A market covered by fragmented
rules
In order to deal with the pirate
industry, technology has had to be supplemented by legislation
as part of a regulatory process at Member State level. This process
has followed different approaches and is still not complete. The
legislation will be examined in Chapter 3.
According to the media industry,
such regulatory fragmentation could well entail
difficulties for the development of encrypted services at European
level and adversely affect the proper operation of the Internal
Market. Since the transnational dimension will become increasingly
necessary for the growth of a truly European encrypted services
industry, the absence of an equivalent level of legal protection
against piracy could well have an adverse effect on the development
of those services on a European scale.
As confirmed by the consultation,
operators could, because of the absence of legal protection in
one or more countries where reception is possible, decide not
to cover a Member State, for fear of the consequences of piracy
in that country. Effective legal protection weighs heavily in
an operator's decision to market his service in a given Member
State.
In addition, the cost of research
into national laws and of possible legal proceedings in the event
of piracy in the various Member States means additional costs
to operators and to their activities, thus adversely affecting
the development of the service.
When negotiations covering programme
rights take place, the absence of equivalent legal protection
in every Member State where reception is possible will make it
more difficult to secure those rights since (especially in the
case of recent works) operators cannot guarantee that there will
be no illicit access in other Member States. It will also be more
difficult to determine what remuneration the rightholders should
receive, given that the actual audience in the signal reception
area cannot be determined accurately. Operators will thus find
it more difficult to secure rights at a reasonable price, and
this will have repercussions on their crossborder activities
in particular.
Since certain methods of transmission
are more exposed to illicit access than others (in particular
offair or satellite transmission as compared with cable
distribution, which is generally more secure due to the physical
link with the viewer), operators may well choose not to use some
of those methods feeling that the risk of piracy is higher. Thus,
in the absence of effective legal protection, certain transmission
systems, in particular those with the strongest transnational
potential, might be used less often than others.
The absence of equivalent legal protection
in Member States will also have negative consequences if illicit
equipment is imported from third countries. Such equipment will
be able to enter the Community via a Member State which does not
prohibit its marketing or distribution and can then easily arrive
in another Member State, making the latter's efforts to combat
illicit reception ineffective.
What is more, the disparity between
rules on illicit reception will result in distortions of competition
between operators in different countries. Those who transmit signals
in Member States providing a high level of legal protection will
have a competitive advantages (this will be reflected in their
programmepurchasing ability, for instance) over those who
distribute their signal in a State where there is no legal protection,
since they will have to bear additional costs through having to
use a particularly secure encryption system.
Lastly there is a risk that, as a result of differences between solutions in the Member States, the opportunities afforded by the Directive on the Use of Standards for the Transmission of Television Signals will be lost. The use of increasingly standardized systems will be hindered by the fact that the level of legal protection against illicit access is not the same in all the Member States from which the programmes are broadcast. This means that the level of security of the system and the means used to distribute decoding equipment will have to vary with the Member State of reception, leading to further fragmentation in an audiovisual area which, to some extent, ought to be standardized. In this respect, DVB (European Digital Video Broadcasting Group, which is at the origin of the digital television standards partly reproduced in Directive 95/47/EC has, in the context of its experts' group on the piracy of encrypted services adopted a recommendation underlining the need to provide operators throughout the Union with a clear and uniform regulatory framework that can be relied upon in the event of illicit access to encrypted services.
Chapter 2: International rules
1. Recommendations of The Council
of Europe
In September 1991 the Council of
Europe adopted and addressed to its Member States a Recommendation
on the legal protection of encrypted television services.
The Recommendation was later updated by another, adopted in January 1995,
on measures against sound and audiovisual piracy.
In the preamble, the Council of Europe
emphasizes the benefits of the development in Europe of pay television
on the European audiovisual production sector. The Council
of Europe recognizes that encrypted broadcasting services contribute
to the diversity of programmes offered to the public, increase
the possibilities of exploitation of protected works and are likely
to increase the sources of financing of works and programmes in
Europe.
The Recommendation goes on to highlight
the adverse consequences of illicit access to encrypted broadcasting
services and sets out the range of activities which are to be
considered unlawful:
the manufacture of decoding equipment
where manufacture is designed to enable access to an encrypted
service by those outside the audience determined by the encrypting
organization;
the importation of decoding equipment
where importation is designed to enable access to an encrypted
service by those outside the audience determined by the encrypting
organization;
the distribution of decoding equipment
where distribution is designed to enable access to an encrypted
service by those outside the audience determined by the encrypting
organization;
the commercial promotion and advertising
of the manufacture, importation or distribution of decoding equipment
referred to above;
the possession of decoding equipment
where possession is designed, for commercial purposes, to enable
access to an encrypted service by those outside the audience determined
by the encrypting organization.
Member States are free to determine
that possession of equipment for private use is also to be considered
as an unlawful activity.
The Recommendation defines an encrypted
service as "any television service, transmitted or
retransmitted by any technical means, the technical characteristics
of which are modified or altered in order to restrict its access
to a specific audience". The Council of Europe emphasizes
in the explanatory memorandum that the definition (and, by the
same token, the protection arising therefrom) applies to all organizations
offering encrypted services, whether at local, regional, national
or transnational level, irrespective of the country of origin
of the broadcast.
The protection guaranteed by the
Council of Europe is not subject to the requirement of reciprocity.
As the Council of Europe emphasizes in the explanatory memorandum,
nonapplication to services originating from other countries
could well give rise to problems for services originating from
the country of reception.
The Recommendation defines decoding
equipment as "any device, apparatus or equipment
designed or specially adapted, totally or partially, to enable
access in the clear to an encrypted service, that is to say without
the modification or alteration of its characteristics".
Finally, distribution is defined
as the sale, rental or commercial installation of decoding equipment,
as well as the possession of decoding equipment with a view to
carrying out those activities. This covers commercial, not private
activities.
The Recommendation urges Member States
to provide for criminal or administrative sanctions
in respect of all of the abovementioned activities, with
one exception. The marketing and advertising of the manufacture,
importation or distribution of unlawful equipment does not give
rise to criminal or administrative sanctions.
The civil remedies
proposed in the Recommendation provide that, in addition to the
criminal sanctions, the injured encrypting organization should
be able to take action against those involved in unlawful activities
to obtain damages, or a share of the profits.
There are no rights of action
for the rights owners of programmes included in the services.
The Council's view, as expressed in the explanatory memorandum,
is that although holders of the rights in broadcast programmes
may suffer if illicit access occurs, this damage is indirect.
The explanatory memorandum also states that a rights holder can
ensure its interests are protected contractually by requiring
the broadcaster to take legal action against illicit access.
Finally, the Recommendation does
not provide for any sanctions, either civil or criminal, in respect
of private possession of unlawful equipment.
The Recommendation has played a major
role in the regulatory movement at Member State level that
began in the early 1990s: specific national regulations on
the legal protection of encrypted broadcasting services introduced
at the time have often been inspired by the principles enshrined
in the Recommendation.
However, in view of the very nature
of the text, which is not binding, there are substantial differences
between regulations, in particular with regard to scope, unlawful
activities and the level of sanctions. Moreover, a number of Member
States have not yet transposed the principles of the Recommendation
into national law, thus giving rise to the present regulatory
fragmentation at European level.
2. The World Intellectual Property
Organization (WIPO) Study
In the context of the current talks
on the draft Protocol to the Berne Convention and on the New Instrument
for the protection of the rights of performers and producers of
phonograms, the draft memorandum drawn up by the International
Bureau in April 1994 suggests, in Chapter IX "Enforcement
of rights", looking into the possibility of including measures
against the abuse of technical devices.
It is suggested, in the context of
those provisions, that the manufacture, importation and distribution,
for sale or rental, of any device enabling or assisting the reception
of an encrypted program broadcast or otherwise communicated to
the public, by those who are not entitled to receive it should
rank as breaches of copyright.
Moreover, the rightholders of a programme
decrypted by means of an unlawful decoding device would be able
to take legal action to obtain compensation.
Since the talks are still under way, it is too soon to say whether these proposals will be included in the final text. However, if they are included, the scope would not be limited to broadcasting but would cover any form of "communication to the public" of the protected work.
Chapter 3: Member States' legislation
1. Overview
The analysis of the regulatory environment
focuses on the solutions provided by national legislations to
the problem of illicit reception of an encrypted service,
i.e. reception, without payment and/or authorisation, by persons
not authorised by the service provider.
A succinct analysis of the regulatory
solutions of each Member State to the problem of illicit reception
of encrypted services is set out below. It should however be noted
that the legislative environment can evolve very rapidly and any
"snapshot" could cease to be relevant within a very
short time.
2. Regulatory environment in the
Member States (summary)
A single systematic approach to the
problems raised by illicit reception of encrypted services does
not currently exist in Europe. In certain countries, there are,
in fact, specific regulations, others resort to
existing provisions, while some do not have any
legal protection.
In this respect it should also be
noted that although the "cable and satellite" Directive
has harmonised the treatment of protected works used in satellite
broadcasting and the management of cable retransmission within
the Community, it does not in any way assist operators in their
fight against illicit reception.
Indeed right holders could, under
certain conditions, prohibit the unauthorised retransmission of
their works but not unauthorised reception. This is because the
latter does not consitute a relevant "act" for the purposes
of copyright which covers traditionally communication and does
not cover the reception of a protected work. Consequently, the
national regulations implementing the Directive will not be of
any use in preventing illicit reception of encrypted services.
Table I: Legislation on the protection of encrypted services
| Broadcasting | Telecommunications | Intellectual property | Criminal law | Unfair competition | Intellectual property | |
| Austria | ||||||
| Belgium | ||||||
| Denmark | ||||||
| Finland | ||||||
| France | ||||||
| Germany | ||||||
| Greece | ||||||
| Ireland | ||||||
| Italy | ||||||
| Luxembourg | ||||||
| Netherlands | ||||||
| Portugal | ||||||
| Spain | ||||||
| Sweden | ||||||
| United Kingdom | ||||||
2.1
Application of provisions on unfair competition and Intellectual
Property
Countries which do not have any specific
rules on this subject often make use of other more general
legislation, in particular that of unfair competition,
which protects against dishonest trade practices. The application
of these principles has in some cases paved the way for a ban
on the manufacture, importation and marketing (sale, rental or
possession for commercial purposes) of unauthorised decoding devices
(A, B, D and NL).
Generally, this has been based on
the fact that unauthorised manufacturing and marketing of decoding
devices deprive the encryptor of the remuneration
normally payable in respect of the service provided. Unauthorised
manufacturers would in effect be paid for a service that was being
provided by someone else.
It has been recognized in some cases
that there is competition between encryptors and manufacturers
of illegal decoders, a precondition for applying the rules on
unfair competition. For this to apply, the party concerned must
in effect be present on the market. The principles of unfair competition
would not apply in the absence of a commercial interest which
needs protection.
Moreover, an action based on unfair
competition laws can normally be brought only in respect of the
distribution and marketing of unauthorised decoding devices, not
against their importation or possession. This means that it is
difficult to start an action before the devices have actually
been marketed or to request preventive measures.
Other general rules have proved unwieldy.
Admittedly, in cases of unauthorised manufacture of decoding devices,
industrial property law already gives rightholders some protection.
Several components of the device will indeed be covered by industrial
property or intellectual property rights.
However, such action has often proved
ineffective. On the one hand, in order to prove that a smart card
contains a copy of the system owners software, the encryption
algorithm, and by the same token the technology used, will have
to be disclosed in the course of the proceedings, thus opening
the door to further copying. On the other hand, proceedings based
on the industrial property contained in the card would prove pointless
in the case of genuine cards fraudulently reactivated after their
period of validity had expired.
Such a course of action is in any
case not always open to encryptors since they do not hold the
industrial property rights concerned and cannot, therefore, institute
proceedings against manufacturers of unlawful devices.
2.2
Application of specific regulations
Specific legislation
on the protection of encrypted services against illicit access
is a fairly recent phenomenon, resulting from the technological
development seen in the communication sector in the late 1970s.
Following the wave of illicit decoding devices that flooded the
market in countries where encrypted broadcasting was most developed
(F, UK), the first regulations were adopted in 1987 in
France and in 1988 in the UK.
A second wave of legislation took
place in the early 1990s, as encrypted stations spread across
Europe, viz. the legislation adopted in Ireland, Belgium (1991),
Italy (1992), Finland and Sweden (1994). This process
is not yet over, as shown by the debate in Denmark concerning
the presentation of a draft law.
Where it exists, the legislation
has traditionally been in the form of a specific audiovisual
law which, modelling itself on copyright rules, provides
for criminal sanctions for certain activities relating to the
illicit reception of encrypted services and gives operators, and
in some cases other interested parties, the right to claim damages
from those responsible for such activities.
Accordingly, the situation with regard
to current national regulations on the protection of encrypted
services can be summarised up as follows:
2.2.1
Objective of the measures: protecting encrypted services against
illicit reception
Although the national regulations
concerned do not all have the same definition of illicit reception this
is sometimes referred to as receiving paytelevision
programmes without paying the fee (B, F, UK) or access
to an encrypted system without the encryptor's authorisation
(S, I) the objective is invariably the same:
to ensure that only authorised people can receive the service.
There is, however, a division
between legislation which covers only broadcasting and cable
distribution services, i.e. where the same programme is
communicated to the public at large (I, F, B, IRL, S) and
legislation that also covers information services which
are carried on networks and function on individual demand
(SF, UK, NL); the latter makes no distinction between services
communicated to the general public and services sent on demand.
Where legal protection against illicit
reception of an encrypted broadcasting service is available, it
normally protects every type of broadcasting signal, whereas this
is not always the case for radio services. However, some Member
States (UK, IRL) grant such protection on the basis of the origin
(national or foreign) or of how the service is broadcast
(by satellite or terrestrial).
Table II: Types of protected services
| Protected signals | ||||||
| Austria | ||||||
| Belgium | ||||||
| Denmark | ||||||
| Finland | ||||||
| France | ||||||
| Germany | ||||||
| Greece | ||||||
| Ireland | ||||||
| Italy | ||||||
| Luxembourg | ||||||
| Netherlands | ||||||
| Portugal | ||||||
| Spain | ||||||
| Sweden | ||||||
| United Kingdom | ||||||
National legislation has followed
two approaches to protect service providers against
reception by unauthorised persons.
The first consists in protecting
the encrypted signal. This is normally done by recognising
the encryptor's right of ownership in respect of the signal.
The unauthorised reception of the encrypted signal is therefore
regarded as "theft", against which the owner has a right
to be protected (B (French Community), IRL, I, UK, NL, SF). As
a secondary effect, legislation of this type sometimes prohibits
retransmission, interception and activities related thereto, in
so far as they facilitate and/or allow illicit reception of the
signal.
Table III. Types of action
| Encrypted television services | ||||
| Austria | ||||
| Belgium* | ||||
| Denmark | ||||
| Finland | ||||
| France | ||||
| Germany | ||||
| Greece | ||||
| Ireland | ||||
| Italy | ||||
| Luxembourg | ||||
| Netherlands | ||||
| Portugal | ||||
| Spain | ||||
| Sweden | ||||
| United Kingdom |
*Frenchspeaking Community
only
The second approach consists in focusing
directly on the need to prohibit preparatory activities
(B (Flemish Community), F and S). Unauthorised reception as such
will thus no longer be regarded as an unlawful activity, but the
commercial activities facilitating it would nevertheless
be prohibited.
Such a difference of approach impacts
on the extent of the protection. As a rule, legislation based
on the protection of signals against theft prohibits all preparatory
activities, be they for commercial or for private purposes. Those,
however, that deal exclusively with the preparatory activities
do not cover the behaviour of individuals.
Table IV. Purpose of unlawful
activities concerning decoding devices
| Austria | ||
| Belgium | ||
| Denmark | ||
| Finland | ||
| France | ||
| Germany | ||
| Greece | ||
| Ireland | ||
| Italy | ||
| Luxembourg | ||
| Netherlands | ||
| Portugal | ||
| Spain | ||
| Sweden | ||
| United Kingdom |
Depending on the circumstances, the
preparatory activities, which may either be an ancillary target
of the ban on reception or be the specific subject of the legislation,
can be placed under the following headings:
(a) Manufacture of decoding
devices intended to enable reception of an encrypted service
without payment of the subscription fee.
To ensure that private individuals
can only receive the programme by means of the equipment manufactured
directly by the encryptor or on his behalf, all the regulations
concerned prohibit the manufacture of devices intended solely
to enable reception of an encrypted service without payment of
the subscription fee (B, F, I, S, SF, NL, UK and IRL);
(b) Importation of decoding
devices intended to enable reception of an encrypted service
without payment of the subscription fee.
With the gradual elimination of
border controls there is undoubtedly a greater risk that unauthorised
devices manufactured in a Member State which does not prohibit
their manufacture might subsequently be imported for the purpose
of enabling reception of an encrypted service without payment
of any charge. The laws of some Member States (B, F, I, UK, SF
and IRL) accordingly prohibit the importation of decoding devices
designed to enable reception of an encrypted service without payment
of the subscription fee;
(c) Distribution of decoding
devices intended to enable reception of an encrypted service
without payment of the subcription fee.
The activity which constitutes,
however, the most serious threat to encrypted service providers
is without doubt the marketing of equipment intended to enable
reception of their service without payment of the subscription
fee. To guard against this possibility, national legislation normally
prohibits the distribution of decoding devices designed to enable
reception of an encrypted service without payment of the subscription
fee (B, F, I, S, UK, IRL, SF and NL);
(d) Possession, for commercial
purposes, of decoding devices intended to enable reception
of an encrypted service without payment of the subscription fee.
Possession for commercial purposes,
in particular with a view to sale and/or rental, is another stage
in the sequence of fraudulent activity leading to reception of
an encrypted service without payment of the subscription fee;
that is why some regulations (B, F, I, IRL, SF and NL) prohibit
the possession, for commercial purposes, of decoding devices intended
to enable reception of an encrypted service without payment of
the subscription fee;
(e) Possession, for private
use, of decoding devices intended to enable reception
of encrypted service without payment of the subscription fee.
Although possession, for private
use, of decoding devices intended to enable access to an encrypted
service without payment of the subscription fee is intrinsically
a less serious activity than possession for commercial purposes,
some Member States (UK, NL, B, F and IRL) have taken the view
that even the private possession of an unauthorised device should
be prohibited;
(f) Marketing of decoding
devices intended to enable reception of an encrypted service without
payment of the subscription fee.
Where there are rules aimed at protecting
the service provider against illicit reception, the laws of some
Member States (B, F, UK, I, NL and IRL) also prohibit marketing
activities for devices intended to enable reception of encrypted
services without payment of the subscription fee;
Table V. Unlawful activities concerning
decoding devices
| Decoding devices | Manufacture | Importation | Distribution | Marketing and advertising | Possession for commercial purposes | Possession for private use |
| Austria | ||||||
| Belgium* | ||||||
| Denmark | ||||||
| Finland | ||||||
| France | ||||||
| Germany | ||||||
| Greece | ||||||
| Ireland | ||||||
| Italy | ||||||
| Luxembourg | ||||||
| Netherlands | ||||||
| Portugal | ||||||
| Spain | ||||||
| Sweden | ||||||
| United Kingdom |
*Flemish
Community only
Most Member States also prohibit
other ancillary activities, all of which are connected with the
marketing of decoding devices.
Table VI. Other unlawful activities
concerning decoding devices
| Decoding devices | ||||||||
| Austria | ||||||||
| Belgium | ||||||||
| Denmark | ||||||||
| Finland | ||||||||
| France | ||||||||
| Germany | ||||||||
| Greece | ||||||||
| Ireland | ||||||||
| Italy | ||||||||
| Luxembourg | ||||||||
| Netherlands | ||||||||
| Portugal | ||||||||
| Spain | ||||||||
| Sweden | ||||||||
| United Kingdom |
2.2.2 Sanctions
National regulations generally provide
for criminal or administrative sanctions if the
law is broken, as well as the possibility of civil proceedings
to obtain damages and interest. On the latter point
there are several possible scenarios.
In the first case, no reference is
made in the specific regulation to an action for damages and interest,
which would normally mean that general principles should be applied
(B, F, I and NL).
In the second case, there may be
a specific reference to rules covering actions for damages and
interest (such as the Danish draft law). The explanatory memorandum
to the draft Law states that both service providers and right
holders of a broadcast should be able to claim damages and interest
for the losses caused by the activities of unauthorised manufacturers.
The third possibility is that of
a provision that applies the civil remedies of copyright holders
(UK). This includes the possibility of obtaining cessation of
the fraudulent activity and the indemnisation of damages and
interest. The final possibility is that of a provision containing
specific civil remedies, that states who may bring proceedings
and the possible types of actions (IRL).
Table VII. Sanctions
| Sanctions | ||||
| Austria | ||||
| Belgium | BFR 26 to 100 000
(ECU 0.7 to 650) | Confiscation of decoding equipment, forfeiture of profits | ||
| Denmark | ||||
| Finland | fine | up to two years | Seizure of equipment, forfeiture of profit | |
| France | FF 5 000 to 200 000
(ECU 772 to 30 880) | up to two years | Seizure of the technical information, seizure and confiscation of devices and advertising material, forfeiture of profit | |
| Germany | ||||
| Greece | ||||
| Ireland | up to IRL 20 000
(ECU 24 554) | up to two years | Seizure and forfeiture of equipment used in the commission of the offence | Specific remedies |
| Italy | LIT 500 000 to
6 million (ECU 220 to 2 645) | 3 months - 3 years | ||
| Luxembourg | ||||
| Netherlands | up to HFL 100 000
(ECU 48 670) | up to three years | Forfeiture of goods, forfeiture of profit | |
| Portugal | ||||
| Spain | ||||
| Sweden | fine | up to six months | Seizure of objects and equipment used in the commission of the offence, forfeiture of profit | |
| United Kingdom | up to UKL 5 000
(ECU 6 045) | up to two years | Copyright remedies | Proceedings under copyright law |
2.2.3 Disparities between measures
From the above, it is clear that
there are major disparities between existing legislation, in particular
as regards:
scope (domestic services or services
originating in other Member States; broadcasting services or any
encrypted service, including services on individual demand);
the degree of protection (ban on
possession for private use and on marketing);
the person who may bring proceedings
for civil remedies (encryptor or any party concerned);
the level of sanctions.
These disparities are even more marked
in the absence of specific legislation.
Conclusion
In the late 1980s some Member
States began to adopt specific legislation aimed at protecting
encrypted services against illicit reception by means of unauthorised
decoding devices. In order to provide the same protection, other
Member States apply existing general legislative provisions that
are already included in their legislation (unfair competition,
intellectual property laws). And yet another group of Member States
provide no such protection at present.
This means that there are disparities
between the legal treatment of the illicit reception of an encrypted
service in the European Union: some activities may be prohibited
in some Member States but be legal in others.
Q 1: The Commission would like to have any additional information to enable it to examine national regulations in greater detail.
CHAPTER 4: BARRIERS TO THE EFFICIENT
OPERATION OF THE INTERNAL MARKET
In view of the regulatory environment
in the Member States, the Commission considers that the present
legislative differencies can create obstacles to the free movement
of goods and services and can thus damage the efficient
operation of the Internal Market.
Some of these obstacles seem
incompatible with the principles of the Treaty
and will therefore have
to be removed. This applies, first, to certain national regulations
which make a distinction, for the purposes of legal protection
against illicit reception, based on the origin of the service.
Under such rules, services originating from other Member States
are sometimes protected against illicit reception only if the
national authority has first issued a certificate which
entitles them to such protection.
Secondly, other regulations simply
make it impossible for some services to obtain protection, because
of the means of transmission used, e.g. when only
hertzian services or services carried by cables are protected
against illicit reception, whereas encrypted satellite services,
all of which are of foreign origin, do not enjoy such protection.
This is consequently disguised discrimination.
In these cases the transfrontier
provision of services, such as that which exists between the subscriber
and the encryptor, would be rendered more difficult than the provision
of national services. The latter would be automatically protected,
whereas services originating from other Member States would
not be so protected or would have to obtain prior authorisation
in order to enjoy such protection. These measures do not seem
justifiable in the light of European Court of Justice caselaw.
Indeed discriminatory measures affecting the freedom to provide
services are compatible with Community law only if they can be
brought within an express derogation, such as that contained in
Article 56 of the Treaty, which refers to grounds of public
policy, public security or public health. In these particular
cases, it would appear that none of the grounds in question could
justify such discrimination. In this regard, the Commission
may put an end to such discrimination as part of its monitoring
of the application of Community law.
By contrast, the analysis of national
regulations has identified a number of obstacles to the
free movement of goods and services which might be justified by
a public interest objective, and therefore compatible with the
principles of the Treaty. For these obstacles,
an initiative to ensure the operation of the Internal Market
might be necessary.
1.
Obstacles to the free movement of decoding devices (Article 30
et seq.)
Article 30 of the Treaty states that
quantitative restrictions on imports and all measures having equivalent
effect shall be prohibited between Member States. Manufacturing
and marketing prohibitions are indistinctly applicable
regulations which have restrictive effects on trade,
in so far as they erect barriers to the importation and marketing
of products originating in other Member States.
In the light of the caselaw
of the Court, these prohibitions are justified because they pursue
public interest objectives. First, they aim to protect
the encryptor against those who might fraudulently profit from
his activities (namely manufacturers and distributors
of unauthorised decoding devices), and to protect the consumer
against the marketing of devices which, as they are not official,
would no longer guarantee reception of the service if the operator
were to change the system. This objective, which aims to ensure
that trade is conducted within a framework of equity and fairness,
is one of the general or public interest objectives which, according
to the Court, may justify an obstacle to the free movement of
goods. The protection of consumers and the fairness of
commercial transactions have on several occasions been
recognized by the Court as justification for barriers to the free
movement of goods.
Secondly, these prohibitions aim
to ensure the right to remuneration of the intellectual
property right holders of encrypted broadcasts and industrial
and intellectual property right holders in respect of
devices. However, the objective of ensuring the right to legitimate
remuneration, whether it is the remuneration of the right holders
for programmes or that of the right holders for the technology
contained in unauthorised devices, is one of the rights which,
under the caselaw of the ECJ, is the specific aim of industrial
and intellectual property.
These rules also respect the proportionality
criterion, since they confine themselves to prohibiting
the marketing of devices manufactured without the prior authorisation
of the encryptor, irrespective of their domestic or foreign origins;
therefore they do not go beyond what is necessary for the attainment
of the objective. Finally, they also respect the substitution
and equivalence criterion, since there are no alternative
and less restrictive measures that would ensure the desired protection.
In conclusion, an obstacle
to the free movement of decoding devices manufactured and marketed
in the State of origin, without the prior consent of the encryptor,
may be justified by consumer protection and the fairness of commercial
transactions, as well as by the protection of industrial or intellectual
property.
2. Obstacles to the free movement
of services relating to decoding devices (Article 59 et seq.)
The analysis of national regulations
has shown that some laws prohibit activities which are ancillary
to the manufacture and marketing of illicit decoding devices.
This applies to regulations which prohibit the marketing,
installation, maintenance and replacement of illicit decoding
devices.
These activities constitute the provision
of services within the meaning of Articles 59 and 60 of the Treaty.
Although these prohibitions are indistinctly applicable, they
nevertheless do have restrictive effects on the free movement
of services. Marketing activities and/or aftersales services
carried out by service providers established in other Member States
would be prohibited.
Nevertheless, according to the caselaw
of the Court, these restrictive effects may be justified; in fact
these laws pursue public interest objectives such as the protection
of consumers and industrial and intellectual property.
In addition, these restrictive effects do not go beyond what
is necessary for the attainment of the objective, and may therefore
be regarded as proportionate.
In conclusion, prohibitions
on the marketing, installation, maintenance and replacement of
decoding devices manufactured and marketed in the State of origin
without the prior consent of the encryptor may be justified by
the need to protect consumers and industrial and intellectual
property.
3. Obstacles to the free movement
of encrypted services
Obstacles to the free movement of
encrypted services may also result from the absence of legal
protection in certain receiving States. The consultation
conducted by the Commission has confirmed that operators consider
effective legal protection against illicit reception of the service
to be an important factor when deciding whether to distribute
the service in a country. The absence of such legal protection
certainly makes marketing more difficult and more haphazard.
Operators will have to bear additional costs due not only to
the use of a particularly secure system, but also to the need
to adopt particularly costly distribution systems for the decoding
devices (normally rental).
A legal void of this kind gives rise
to restrictive effects on the movement of encrypted
services in the Internal Market, since their distribution in countries
without legal protection against illicit reception is made more
difficult.
However, this restrictive effect
is not contrary to Community law because, as has been recognized
by the Court, in the absence of any Community harmonisation,
Member State are free to regulate economic activities in
their territory in line with the principles of the Treaty. They
may therefore decide, whilst respecting the proportionality criterion,
whether or not to prohibit certain activities on the grounds of
general interest objectives.
In conclusion, regulatory policy
considerations relating to economic activities, which are for
the Member State to assess, may justify the restrictive effect
entailed by the regulatory void in the absence of any Community
harmonisation.
4. Distortions of competition
Disparities between national regulations
or the absence of such regulations in some Member States
may also lead to distortions of competition in the
Internal Market. An operator who distributes his decoding devices
in a State with strong legal protection will have competitive
advantages (which will for example be reflected in his programme
purchasing capacity) over the operator who has to distribute his
service in a State without effective legal protection, since the
latter will have to bear additional costs resulting for example
from the choice of a particularly secure distribution system.
This disparity between the competitive
environments of the Member States could have adverse consequences
for the development of encrypted services in the Internal Market,
since operators would not be subject to the same market conditions
within the European Union.
In conclusion, disparity between
regulations may lead to distortions of competition which might
make it more difficult
to develop encrypted services.
Q 2: The Commission would
like to know the opinion of the parties concerned on the existence
of restrictions and restrictive effects other than those identified
above.
CHAPTER 5: THE NEED FOR AND POTENTIAL
TYPES OF COMMUNITY ACTION
The preceding analysis demonstrates
that there are a number of obstacles to the efficient
operation of the Internal Market; some of these obstacles
may prove to be incompatible with Community law
and would have therefore to be removed. This would apply to those
obstacles caused by the application of national legislation which
on the grounds of protecting encrypted services, make a distinction
between the nature (hertzian or by satellite) or
the origin of the service.
Other obstacles could however be
justified by general interest objectives such as the protection
of consumers, and intellectual and industrial property rights
where they respect the principle of proportionality.
This applies to obstacles to the free movement of decoding devices
and other services linked to them flowing from the disparity in
national regulations relating to the manufacture and marketing
of these decoding devices.
Furthermore, from an economic point
of view, consultations have shown that the current differences
between regulatory solutions together with the additional costs
and legal insecurities which they cause, are peceived by the market
leaders as a major impedement to the development of new
encrypted services. Effective legal protection
against illicit reception is a fundamental factor in persuading
an investor to develop an encrypted service and to launch it in
other Member States.
Consequently, in respect of this
last type of obstacles, an action to establish an equivalent
level of protection amongst all the Member States could prove
necessary to eliminate the obstacles identified and to complete
the regulatory framework for the European audiovisual sector established
by the "Television without frontiers" Directive (89/552/EC)
and the "Cable and satellite"Directive (93/83/EC) .
In this respect it should be emphasised
that insofar as the objective sought is the removal
of obstacles to the efficient operation of the Internal Market
caused by disparities between national regulations for the legal
protection of encrypted services, such an objective may be attained
solely through Community harmonisation. Indeed,
it seems implausible that the Member States would spontaneously
carry out a rapprochement of national regulations which concern
the legal protection of encrypted services. However, should the
case arise, the fact that it would not be within the institutional
framework of the Community legal order would render it ineffective
and fail to grant the industry the necessary legal security for
the development of encrypted services.
However, before deciding in favour
of a regulatory initiative, the Commission would like to know
the opinion of the parties concerned on the initiatives which
appear below.
1. Aim of the action
The general objective of the measure
would be to enable media professionals, whether encrypted service
providers, suppliers of programmes or manufacturers of devices,
to benefit in full from the opportunities offered by the Internal
Market. Indeed, in the perspective of the Information Society,
there is a risk that the full potential of these opportunities
will not be realised if these companies do not enjoy sufficient
legal protection within the Union.
A clear regulatory framework,
which would secure, throughout the Community, legal protection
against illicit reception of the service and would thus ensure
the free movement of services and of goods is a
necessary precondition for the development of the new services.
Moreover, considering the global
nature of the problem of illicit reception, work should be launched
on an international level, especially within the framework of
bilateral agreements and the work of the WTO, in order
to establish effective and efficent rules on a worldwide scale.
Indeed, an initiative to establish a regulatory framework within
the Internal Market would be incomplete if it did not include
an external dimension aimed at resolving the problem on an international
level and providing protection against imports from third countries.
2. Consistency with other Community
policies
A regulatory initiative to ensure
the legal protection of encrypted services would also be consistent
with other Community objectives and policies.
- A regulatory framework providing
a high level of legal protection at Union level would help to
develop the European encrypted services and decoding equipment
manufacturing industries. Without effective legal protection,
illicit reception and the resulting loss of revenue could undermine
the financial stability of encrypted service providers and make
it more difficult to develop such services. Similar consequences
would affect the decoding equipment manufacturing industry which,
in the absence of legal protection, would not embark on an activity
that was not protected against fraudulent actions.
- A regulatory intervention
to ensure the efficient operation of the Internal Market would
be coherent with the objectives pursued by the audivisual and
cultural policy of the Union. Such a measure would ensure
that greater advantage was taken of intellectual property rights
for programmes broadcast by TV channels, which would lead to increased
operating resources for audiovisual production.
Indeed, the new encrypted services are important for the development
and circulation of artistic creation, as well as for the growth
of the Union's cultural and linguistic diversity; however, the
right holders will be reluctant to assign their rights if encrypted
services are not protected from illicit reception. If this means
that encrypted services are deprived of programmes, they will
be unable to develop, and audiovisual creation will have lost
the opportunity of benefiting from a powerful broadcasting medium.
- A regulatory intervention
to ensure the operation of the Internal Market would be consistent
with the objective of consumer protection. In the absence
of a secure regulatory framework, consumers could be mislead about
the origin of the decoding device they are purchasing and thus
believe they are buying authorised equipment, whereas it is in
fact a pirated decoder. In this case, if the operator modifies
the encryption system for security reasons, the device purchased
will be of no use to the consumer, who will have to pay for another
decoder. Moreover, unauthorised devices will not always be guaranteed
by the pirate manufacturers: should the device breakdown, the
consumer will have to bear the cost of repairs. In both cases,
there are clear disadvantages for the consumer from the marketing
of unauthorised decoding devices. In addition, the losses suffered
by the service providers have a negative effect on their financial
stability; consequently, the development of encrypted services
could be delayed by the lack of protection and this situation
would represent a loss for the consumer, who would be unable to
benefit from the service.
3. Choice of instrument and legal
basis
In view of the analysis carried out,
following consultation with the interested parties, the Commission
could decide to adopt one of the following two measures.
The Commission could propose a directive
to harmonise national legislations (Option 1). In this
respect, whilst taking account of the principles of proportionality
and subsidiarity, the proposed Directive could provide for minimal
harmonisation leaving the Member States free to adopt stricter
measures, which would ensure a minimal level of equivalent
protection within the Union. This option would
have the advantage of securing legal protection for the sector
concerned whilst leaving the Member States some flexibility to
widen the scope of this protection.
The Commission could, alternatively,
propose a Council regulation (Option 2). This option
would have the same objective as the option above and the advantage
of securing a more effective harmonisation as it would be directly
applicable in the Member States without being implemented by national
law.
Moreover the chosen option could
be accompanied by a proposal to modify the existing Community
law provisions in respect of the free circulation of counterfeit
goods originating from third countries, so that the measures could
apply with equal force to decoding devices. It should nevertheless
be noted that this measure alone is inadequate to ensure effective
legal protection within the Union. In effect, the regulatory measures
applicable to counterfeit goods are based on a voluntary agreement
by operators and interested parties, and apply solely to goods
orginating from third countries when they are imported into the
Union. Trade between Member States is regulated by national and
Community regulations. However, there is no real uniformity between
national regulatory approaches to the manufacture and marketing
of illicit decoding devices ; this results in divergences between
possible solutions and in some cases there is a lack of protection.
It therefore follows that an intervention to control imports from
third countries should accompany any regulatory proposal to ensure
protection against illicit reception within the Union.
The appropriate legal basis would
be Articles 57(2), 66 and 100a, taking into account the objective
of ensuring the efficient operation of the Internal Market and
of enabling the free movement of services and goods.
4. Scope of application
The harmonisation envisaged would
cover the current national regulations in the field of the
legal protection of encrypted services. These regulations,
where present, may be found in copyright law, broadcasting law,
civil law or administrative law. Consequently their location
in national law is unimportant; what counts is their objective,
i.e. the protection of encrypted services against illicit access.
Such harmonisation could cover all
encrypted services, for which encryption is used
to ensure the payment of a fee, without being restricted
to broadcasting services. This category would therefore include
the traditional encrypted broadcasting services
(cable, hertzian or satellite), the new broadcasting services
(digital television, payperview, near video on demand)
and Information Society services, namely services provided
electronically at a distance on the individual demand of a service
receiver (video on demand, supply of games on demand,
interactive teleshopping).
Indeed, where a service is encrypted
to limit its reception, it will need the same protection independent
of the type of service concerned (broadcasting, on individual
demand etc.). On the other hand, if harmonisation were confined
to broadcasting services alone, it would not be possible to cover
the new uses of encryption such as data transmission on individual
demand or without images (e.g. a newspaper sent to a home via
satellite), as well as video games delivered directly to a home,
by satellite or cable.
Consequently, all encrypted
services, for which decoding devices are available to
the public, should be able to enjoy the same protection.
Looking ahead to the convergence of broadcasting and information
technology services, the definition of "encrypted services"
should cover any service which can be received by a television
or computer screen, i.e. radio or television broadcasting services,
as well as the other interactive Information Society services,
which are defined in the proposal for a Directive on regulatory
transparency in the Internal Market, namely distance services
transmitted electronically on the demand of the service receiver.
However, harmonisation should
not cover the services which use encryption for reasons
other than that of ensuring payment of a fee, such as services
which are encrypted to ensure the integrity and confidentiality
of the message transmitted, namely financial or telecommunications
services. The reason for this exclusion is that the general
interest objectives put at risk if they are intercepted,
i.e. the integrity and confidentiality of the communication, differ
significantly from the protection of the value of a service provided
in exchange for a fee, which is the general interest objective
threatened by illicit reception. This difference has led to regulatory
solutions which differ significantly, both at national
and international level, in particular as regards the action to
be taken and the level of sanctions, and which do not justify
joint treatment of the two problems.
Protection against goods from third
countries should cover all decoding devices imported from a third
country which enable reception of an encrypted service without
the prior authorisation of the encryptor.
5. Overall structure
In view of the proportionality principle,
the proposed provisions could prohibit the following activities:
the manufacture of decoding
devices intended to permit access to encrypted services without
the authorisation of the encryptor;
the sale of decoding devices
intended to permit access to encrypted services without the authorisation
of the encryptor;
the possession for commercial
purposes of decoding devices intended to permit access to
encrypted services without the authorisation of the encryptor;
the possession for private purposes
of decoding devices intended to permit access to encrypted services
without the authorisation of the encryptor;
the installation, maintenance
and replacement of decoding devices intended to permit access
to encrypted services without the authorisation of the encryptor;
the marketing of decoding
devices intended to permit access to encrypted services without
the authorisation of the encryptor;
the decoding of encrypted
broadcasts without the authorisation of the encryptor.
The proposed measure should also
provide that Member States adopt effective, proportionate
and deterrent penalties for the breach of these provisions.
In this respect, as the Commission has stated in its communication
on the role of penalties in implementing Community legislation,
the Member States would remain free to determine the structure
for these sanctions. The measure could therefore provide for
a procedure whereby the Commission is notified of provisions which
Member States intend to adopt.
It should also enable any interested
party to bring a claim for damages and interest.
As regards provisions on protection
against the release into circulation of goods from third countries,
the proposed measure should prohibit the importation of decoding
devices intended to permit access to encrypted services without
the authorisation of the encryptor.
Q 3: The Commission would like
to know the opinion of the parties concerned on the need for harmonisation
at Community level.
Q 4: The Commission would like
to know the opinion of the parties concerned on the form of a
possible harmonisation instrument from the options presented in
the Green Paper.
Q 5: The Commission would like
to know the opinion of the parties concerned on the content of
a possible harmonisation instrument, as envisaged above, in particular:
i. the scope
a. should this be limited to broadcasting services or extended to all services in which encryption is used to ensure payment of the subscription fee;
b. if the scope were to be
extended, would the criterion used be appropriate (services encrypted
to ensure payment of the subscription fee), or should another
criterion be used to determine the scope ? If so, would it be
considered necessary for the harmonisation instrument to protect
all services against illicit reception which use conditional access
techniques, including for example passwords (whether they are
encrypted or not)?
ii. the desirability of including
the possession by private individuals of unauthorised decoding
devices;
iii. claims for damages and interest.
LIST OF QUESTIONS
Q 1: The Commission would like
to have any additional information to enable it to examine national
regulations in greater detail.
Q 2: The Commission would like
to know the opinion of the parties concerned on the existence
of restrictions and restrictive effects other than those identified
above.
Q 3: The Commission would like
to know the opinion of the parties concerned on the need for harmonisation
at Community level.
Q 4: The Commission would like
to know the opinion of the parties concerned on the form of a
possible harmonisation instrument from the options presented in
the Green Paper.
Q 5: The Commission would like
to know the opinion of the parties concerned on the content of
a possible harmonisation instrument, as envisaged above, in particular:
i. the scope
a. should this be limited to broadcasting services or extended to all services in which encryption is used to ensure payment of the subscription fee;
b. if the scope were to be
extended, would the criterion used be appropriate (services encrypted
to ensure payment of the subscription fee), or should another
criterion be used to determine the scope ? If so, would it be
considered necessary for the harmonisation instrument to protect
all services against illicit reception which use conditional access
techniques, including for example passwords (whether they are
encrypted or not)?
ii. the desirability of including
the possession by private individuals of unauthorised decoding
devices;
iii. claims for damages and
interest.