Last week, British internet service providers BT and TalkTalk lost their court appeal against the Digital Economy Act, meaning that they will have to send warning letters to customers suspected of illegal file-sharing.

Following a failed appeal against the Act last year, in which four out of five grounds for appeal were rejected, the two ISPs argued that the anti-piracy measures were “inconsistent with European law” and would breach the privacy of their customers, as well as driving up costs for providers and consumers.

However, Lord Justice Arden, Lord Justice Patten and Lord Justice Richards dismissed these objections on 6 March, saying that the DEA is proportionate in dealing with illegal file-sharing and that the costs incurred are justified.

In response to the ruling, BT said it was “considering its next steps” and TalkTalk said that it would “continue fighting to defend its customers’ rights against this ill-judged legislation”. But what options are open to the ISPs now that their appeal has been rejected?

ISPs are running out of options

“They are running out of options,” said Ian De Freitas, IP partner at law firm Berwin Leighton Paisner (BLP). “They can ask the Supreme Court for another appeal, but I would be surprised if the Supreme Court would agree to hear it, although there are quite a lot of public interest arguments. Nevertheless the Court of Appeal judgement is pretty strong.

“They can't go to the Court of Justice for the European Union – they tried that in the Court of Appeal, but the Court of Appeal said no. You can only really get permission to go to the Court of Justice if the European law is in doubt. The Court of Appeal said the position was so clear that they didn't need to ask the Court of Justice for any guidance on this one.”

In order for the DEA to be implemented, two pieces of legislation have to be passed. The first establishes the cost-sharing element – who will pay for the operating fees, the running and setting up of an appeals body, and case fees charged by the proposed appeals body. The second is Ofcom's Initial Obligations Code, which sets out the practicalities of how the Act will be enforced.

Both these pieces of legislation have to be submitted to the European Union for approval – which involves a three-month consultation – before the Act can be passed and become law.

A spokesperson for the Department for Culture Media and Sport (DCMS) explained that, before the appeal by BT and TalkTalk, the cost-sharing legislation had been scrutinised by the EU and been approved. However, the latest judicial ruling states that, although ISPs will still have to pay 25 percent of operating fees, and 25 percent of the cost of setting up an appeals body, they will not have to pay 25 percent of case fees, as was previously stipulated.

This means that, even though this piece of legislation has already been approved, the government has to withdraw it, rewrite it and re-submit it to the EU before proceeding.

A new Initial Obligations Code?

This will have a knock-on effect on the second piece of legislation – Ofcom's Initial Obligations Code. Ofcom published its initial draft of this code in 2010, generating a great deal of criticism from organisations that campaign for freedom of access to the Internet, such as the Open Rights Group.

For example, the draft code does not necessarily target the person using a system to infringe copyright; it targets the person who has the computer, or controls it. This means that the reports about infringement could be directed at cafés, museums and libraries that offer free WiFi access, putting the burden of responsibility on those outlets.

“One of the challenges to the Act was that it was so burdensome that some of these organsiations will think that it's simply not worth offering free WiFi. This means that people who found the access useful for lots of things will no longer have access, and that has a chilling effect on use of the internet.”

Following the judicial ruling by the Court of Appeal, Ofcom is now expected to issue a second draft, to address these kind of issues. However, Ofcom said that it cannot begin redrafting the code until the DCMS has resubmitted the legislation around cost sharing.

This will be BT and TalkTalk's opportunity to reignite their campaign against the DEA, according to De Freitas.

“The devil is in the detail,” he said. “People like BT and TalkTalk and the other people who intervened in the Court of Appeal who are really in favour of freedom of access to the internet have a second go at trying to water down the Act in practice through the code.”

The DCMS added that the original draft code contains three sets of measures. The first is mass notification, aimed at informing people that their internet connection has been used to infringe copyright. The second is site blocking, which DCMS has decided not to implement, as the recent case between BT and Newzbin2 has proved that existing legislation is sufficient. The third is technical measures to slow down the internet connection of infringers or cut them off all together.

The DCMS spokesperson said that these technical measures will not begin until at least a year after the mass notification begins, so it has not even started thinking about how this will be implemented.

New Communications Act

Furthermore, DCMS is currently reviewing all regulations that cover the communications industry, with the aim of passing a new Communications Bill towards the end of this parliament. The government will issue a green paper this year, followed by a white paper, which will, among other things, consider measures to deal with unlawfully distributed content.

Culture Secretary Jeremy Hunt alluded to these plans at a meeting with the Royal Television Society in September 2011, suggesting that new legislation would be included in the Communications Bill.

“I think we should look at an industry-led body that could come together and agree what the offending websites are. I think we need a streamlined legal process so that the courts can make a quick decision. I think we need a responsibility on search engines to co-operate in making it more difficult for people to access sites that facilitate unlawful sharing of content. And also we need responsibility on banks and credit card companies to do their bit in trying to make payment processes more difficult for people who are involved in this,” said Hunt.

“We need to nail right on the head this idea that tackling this problem is somehow an attack on internet freedom. J. S. Mill's definition of freedom was that we should be free to do anything we like as long as it doesn't impinge on the freedom of others. Well, stealing someone else's digital content is impinging on their right to earn a living from their work, and we need to recognise this.”