Online Infringement of Copyright: Implementation of the Online Infringement of Copyright (Initial Obligations) (Sharing of Costs) Order 2012

  • Start: 26 June 2012
  • Status: Closed
  • End: 18 September 2012

1.1 We are consulting on the implementation of an order to be made by the Secretary of State - The Online Infringement of Copyright (Initial Obligations) (Sharing of Costs) Order (the "Costs Order"). This Costs Order will require Ofcom to set fees payable by Copyright Owners to ISPs and to Ofcom if they intend to take advantage of a notification scheme in relation to online infringements of their copyright.

1.2 The notification scheme itself is to be set out in a code to be made by Ofcom, "the Code"). This is currently the subject of a separate consultation by Ofcom. The Code will give effect to provisions of the Digital Economy Act which are intended to reduce online copyright infringement. Specifically, the Code will impose obligations on Internet Service Providers (ISPs) to send notifications to their subscribers following receipt of copyright infringement reports (CIRs) from Copyright Owners. ISPs must also record the number of reports made against their subscribers and provide Copyright Owners on request with a Copyright Infringement List. This is an anonymised list which enables the Copyright Owner to see which of the reports it has made relate to subscribers who have received more than one notification. ISPs which are subject to these obligations are called "Qualifying ISPs".

1.3 The Costs Order will determine who should bear the costs incurred by ISPs in delivering their obligations, by Ofcom in developing the Code and overseeing the scheme, and by the appeals body which will consider subscriber appeals against reports of infringement. The Order will also set out the basis on which ISPs' costs should be shared among participating Copyright Owners and ISPs.

1.4 The overall framework to be defined by the Costs Order is simple: Copyright Owners should bear all of the costs incurred by Ofcom, the majority of costs incurred by the appeals body, and 75% of the costs efficiently and reasonably incurred by Qualifying ISPs in carrying out their obligations. Other than in relation to the costs of the appeals body, an individual Copyright Owner's share of the costs should be in proportion to the number of CIRs it proposes to send during a term of operation of the Code, called a notification period.

1.5 Under the Order, subscribers will have to pay a £20 fee to make an appeal against a report of infringement, which will be refunded in the event the appeal succeeds; the remaining costs of determining an appeal will be met by the Copyright Owner who submitted the CIR which has been appealed.

1.6 The implementation of these arrangements in the Costs Order requires a number of material issues to be resolved and we set out our proposals in relation to these in this consultation.

1.7 Firstly, we propose when the first notification period for the operation of the Code should begin. We do so after considering how long it will take for Qualifying ISPs to invest in systems to process CIRs and when they can be expected to start investment; and how long it will take Ofcom to establish the independent appeals body which will consider subscriber appeals against the infringement reports made against them.

1.8 We consider that the earliest date by which we can be sure there will be an established appeals body, and ISPs can be expected to be in a position to deliver their obligations is February 2014, and therefore propose that the first notification period should start on the 1st of March 2014. In brief, we consider this appropriate because we do not believe Qualifying ISPs can be obliged or expected to start investment in systems until the Code is in force and the ISPs have committed funding from Copyright Owners. This will be in the first quarter of 2013; secondly, we believe it will take 9 months for the systems to be built. It will take a similar period to tender for the appeals body, and to establish appeals body processes and systems. Finally, we believe that we must make four months provision for the possibility that there will be further unanticipated delays in the various operational, technical and legislative processes required for CIR processing to begin. We further propose that the end date of the first period should be 31 March 2015.

1.9 Secondly, we must determine the costs which Ofcom has incurred to date in executing its functions under the Digital Economy Act, and those which it will incur over the period until the end of the first notification period. These costs cover the development and establishment of a Code overseeing the obligations, the establishment of an independent appeals body, enforcement of the Code and the provision of reports measuring the efficacy of the Code and levels of online infringement.

1.10 These costs must all be charged to Copyright Owners at the beginning of that first period. These costs are as follows (estimates for the period from Q3 2012):

Ofcom Costs
Ofcom Costs
2010/112011/12 2012/132013/142014/15

1.11 Much of this consultation is concerned with the basis for our estimates of the costs Qualifying ISPs will incur in complying with their obligations. We must estimate these costs in order to set a notification fee, which a Copyright Owner must pay a Qualifying ISP for each CIR the Copyright Owner proposes to send. The Fee will include a contribution to the fixed costs of establishing systems as well as an amount to cover the variable costs of processing CIRs.

1.12 The Costs Order will require that we set the notification fee with reference to those costs which "would be reasonably and efficiently incurred by a notional qualifying internet service provider" (and not the actual costs which any individual ISP may incur). Ofcom commissioned BWCS Ltd to provide a report of the costs the notional Qualifying ISP might incur, drawing on information provided by five of the six ISPs which we expect to be Qualifying ISPs in the first notification period (BT, Virgin Media, TalkTalk, BSkyB, and O2 provided information, Everything Everywhere did not).

1.13 Based on the BWCS report, and information subsequently gathered by Ofcom, we propose to set the notification fee on the following basis:

  • All of the six Qualifying ISPs will be considered to face the same costs for the purposes of setting the notification fee
  • The fixed costs of processing CIRs, including both capital and fixed operating costs, are £1.4m for each Qualifying ISP, of which 75% (£1.05m) will be charged to Copyright Owners through the notification fee
  • The variable cost of processing CIRs, for each Qualifying ISP is £0.80 per CIR, of which 75% (£0.60) will be charged to Copyright Owners through the notification fee
  • We will set two notification fees, one covering the four larger Qualifying ISPs (BT, Virgin, Talk Talk, and BSkyB) and the other for the two smaller Qualifying ISPs (O2 and Everything Everywhere). We consider that two different Fees are required in order to ensure that individual ISPs do not unfairly over or under-recover the fixed costs of processing CIRs

1.14 The Costs Order requires that each Copyright Owner pay a share of Ofcom costs set by reference to the number of CIRs it estimates it will send; each Copyright Owner's share of costs is equal to the share of CIRs it estimates it will send in a notification period as a proportion of the total number of CIRs all Copyright owners estimate they will send in that period

1.15 Similarly, the level of the notification fee which a Copyright Owner must pay a Qualifying ISP will be determined by the total number of CIRs all Copyright Owners estimate they will send during a notification period. This is because the total of notification fees must include a proportion of the fixed costs of processing CIRs: the more CIRs are to be sent, the lower the notification fee will be set, since the fixed costs will be spread over more CIRs.

1.16 In order to allow Copyright Owners to make estimates about the number of CIRs they will send which are informed by a good understanding of the likely costs they will bear, we propose to run an iterative process when setting these fees. Having determined the issues which are the subject of this consultation, we will publish fee tables, setting the charge which each CIR would incur, given different total volumes of CIRs. Copyright Owners will make a series of estimates, based on this information, until we are able to agree with each participating Copyright Owner the level of CIRs they propose to send, and the consequent charges they will incur.

1.17 On the basis of the proposals in this consultation for Ofcom costs, ISP costs and the notification period set out above, the fee tables for the two groups of ISPs are as follows:

Total and per-CIR Costs of Scheme to Copyright Owners
Large ISP Group Totals
Total CIRs Per Month for all ISPs
CIRs per Month for each large ISP (000)Total Fixed ISP Costs payable by CO (£000)Total Variable ISP Costs payable by CO
Notification Fee payable to ISP by CO
(£ Per CIR)
Ofcom Costs payable by CO (£000)Total Cost to COs (£000)Total Price
(£ Per CIR)
8018.6 4,2005834.99,71914,50215.0
100 23.34,2007294.19,71914,64812.1
125 29.14,200 9123.49,71914,8309.8
Small ISP Group Totals
Total CIRs Per Month for all ISPs
CIRs per Month for each small ISP (000)Total Fixed ISP Costs payable by CO (£000) Total Variable ISP Costs payable by CO
Notification Fee payable to ISP by CO
(£ Per CIR)
Ofcom Costs payable by CO (£000) Total Cost to COs (£000) Total Price
(£ Per CIR)
702.52,10038 33.67322,87045.1
802.82,10044 29.47322,87539.5
903.22,1004926.2732 2,88135.2
1254.42,1006919.1732 2,90025.5
1756.12,1009613.8 7322,92818.4

1.18 As set out in paragraphs 4.3-4.7, and in detail in Annex 6, the actual charges to Copyright Owners will be determined through an iterative process under which each participating Copyright Owner will submit, to Ofcom, estimates of the number of CIRs it wishes to send to each Qualifying ISP. Copyright Owners will be entitled to accept or reject the costs associated with their proposals in a series of tariff estimation rounds until an agreed level of activity is reached or until Ofcom makes a final determination that Copyright Owners have not accepted the fees for which they would be liable given their estimated level of CIRs. Under those circumstances, Copyright Owners will, in effect, have elected not to take advantage of the provisions of the Initial Obligations Code, as they have not been able to make binding commitments to fund CIR processing

1.19 The consultation document below sets out the evidence and analysis on which we have based these proposals, and presents a series of specific questions through which we request comment and further relevant evidence on those proposals.

Main documents

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Responder name Type
Alliance_for_Intellectual_P1.pdf (PDF File, 223.1 KB) Individual
Association_of_Learned_and_1.pdf (PDF File, 89.5 KB) Individual
BBC.pdf (PDF File, 148.3 KB) Individual
BPI.pdf (PDF File, 177.8 KB) Organisation
BSkyB.pdf (PDF File, 104.2 KB) Individual
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