The UK Court of Appeal last week dismissed a final attempt by two of the country’s largest ISP’s, BT (British Telecom) and Talk Talk, to have the 2010 Digital Economy Act ruled illegal due to incompatibility with European law.  There are various features of the Digital Economy Act, but as one result of this decision, the UK will become the next country to implement a graduated response regime similar to the Hadopi system in France.

Of course, the British Phonographic Industry (BPI), the equivalent to the RIAA in the United States, lost no time in hailing the decision and claiming almost total victory over ISPs in the two-year legal battle.  But the word “almost” takes on an interesting resonance regarding the one point that the media industry didn’t really win: the apportionment of costs for the progressive response program.

As I keep saying (and thereby quoting the brilliant Jonathan Zittrain of Harvard Law School), the question of who pays is the “gravamen” — the essence or most serious part — of these disputes over copyright policing.  The final Court of Appeal process revealed payment terms that otherwise got very little attention during the deliberations over the Digital Economy Act.  It turns out that copyright owners have to pay 75% of the costs of running the network monitoring functionality, the judicial process, and appeals costs.  ISPs have to pay 25% of the first two but none of the third cost category; the latter was the point that ISPs won.

The financial terms actually fall far short of the results that copyright owners would like to achieve in similar legal disputes.  For example, Viacom would no doubt like YouTube (and other content-sharing sites) to pay all of the costs of enforcing copyright on their sites.  Such costs would run into millions per year (whether in pounds or dollars).

By that standard, as far as this particular aspect of the Digital Economy Act is concerned, I would not call this a victory for copyright owners at all; I’d call it a 75% capitulation.

Yet I would also say that it’s good news for the industry in general.  If copyright owners are responsible for the majority of costs of operating the progressive response system, then they will have an incentive to see that it runs accurately, fairly, and efficiently.  If the technical mechanism for detecting infringers is too aggressive, then they will spend too much money on the appeals end (and deal with public outcry which could lead to repeal of the law).  If it’s too loose, then they don’t catch infringers and waste their money.  The onus for efficiency and accuracy will be on the content recognition and network monitoring vendor that is selected to run the system.  If the technology doesn’t work well, the vendor will need to improve it or be (as they say over there) sacked.  That’s as it should be.

These graduated response regimes are best viewed as experiments in reducing online copyright infringement, and they should be continued if an appropriate balance among accuracy, cost-efficiency, and fairness to the public can be found.

The missing piece in the Digital Economy Bill is that that copyright owners have no incentive to ensure that the technical mechanism does not disadvantage users  by hindering the ISPs’ network performance.  My understanding is that this aspect of it needs to be determined by Ofcom, the UK’s telecommunications regulator, and that this has not happened yet (feel free to correct me by comment if I’m wrong).  Ofcom needs to ensure that technical mechanisms do not interfere with ISPs’ performance and that any disputes should be resolved by facts and independent measurements. And if it turns out that ISPs need to install more equipment (e.g. faster servers or routers) to restore network efficiency, then copyright owners should contribute to those costs as well.

At a more abstract level, I’d say that copyright owners have been given a bigger prize than the Act itself: the right and responsibility, mandated by law, to ensure that these rights technologies work fairly and efficiently.  (Copyright owners already pay network monitoring companies like MarkMonitor and Peer Media, but not as part of an institutionalized, nationwide infrastructure that is connected to legal apparatus.)  This will be healthy for the rights technology industry.

In this way, the Digital Economy Act is an improvement over anticircumvention legislation, such as in the U.S. Digital Millennium Copyright Act, which gives vendors of DRM technology legal backstops so that they have limited accountability for how well their technologies actually work.   True accountability only comes if the entity paying for the technology has no choice but to demand that it works well.