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The noble Lord, Lord Clement-Jones, claimed that the £250,000 penalty was out of line with penalties for similar offences elsewhere. We would not agree with that. It is in line with other penalties within the

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Communications Act 2003 and is the same as the maximum penalty for breaching a condition relating to premium rate services. It is true that there are other penalty levels in the Communications Act, including the £10,000 suggested by the amendment. There is also in the Act the much steeper maximum penalty for breach of a Section 45 condition-these are conditions of entitlement to provide networks or services-of 10 per cent of annual turnover. We agree that such a penalty would not be appropriate here. However, I am satisfied that we have got it just about right. It is a maximum penalty and Ofcom is required to take into account appropriateness and proportionality.

The noble Lord raised the question of Ofcom's jurisdiction over copyright owners. He is right that Ofcom is a communications regulator and does not have jurisdiction over copyright owners. In this instance, the jurisdiction that it has is over ISPs. It is in that respect that the Act will apply.

On the amendment of the noble Lord, Lord Howard of Rising, we take the view that any future changes to penalty levels should be made by statutory instrument subject to affirmative procedure and therefore will be approved by Parliament rather than set in stone. I hope that, after what I have said, the noble Lord will feel able to withdraw his amendment.

Lord Howard of Rising: Perhaps I could make one point to the Minister. If there is a maximum penalty of £250,000, it is not set in stone for all time; it is set until such time as Parliament chooses to have a different figure. There will be nothing to stop the Minister introducing primary legislation to change the figure if that is thought appropriate. We will come to this point when we discuss Clause 17. My amendment states that this decision should be left to Parliament and not to the Minister.

Lord Faulkner of Worcester: My point, my Lords, is that changes in the level of penalty will be the subject of an affirmative instrument, so Parliament will have a say.

Lord Whitty: My Lords, perhaps I may pick up on one thing that the Minister said, which was that Ofcom does not have jurisdiction over the rights holders. However, rights holders are the trigger for this process, while Ofcom is the regulator. One can conceive of situations where rights holders would abuse their position by putting responsibility for behaviour either on the ISP or on the subscriber who is the target of intervention. If Ofcom has no power over them, who does? We are talking about changing behaviour, but where in the Bill is the control over the behaviour of the rights holders?

Lord Clement-Jones: My Lords, I thank the Minister for his reply. It is interesting that we had his velvet glove when he talked of a graded response, but now we get the mailed fist of the £250,000 maximum penalty. It reminded me of a Home Office debate about the deterrent effect of a £250,000 fine. To my ears, it sounds wholly disproportionate. We will take away the Minister's hard-line rhetoric and consider it carefully.

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It seems out of kilter with the aim of creating a scheme that is acceptable across a disparate industry, including to ISPs and copyright owners, and that builds consensus, certainly within the code. This extremely heavy penalty will not induce good behaviour; indeed, I suspect that it may induce bad behaviour. Time will tell. In the mean time, I beg leave to withdraw the amendment.

Amendment 197A withdrawn.

Amendment 198 not moved.

Clause 14 agreed.

5.45 pm

Clause 15 : Sharing of costs

Amendment 199

Moved by Lord Howard of Rising

199: Clause 15, page 16, leave out lines 31 to 34

Lord Howard of Rising: My Lords, I will try to be brief on this group. Most noble Lords agree that costs should not fall unnecessarily on internet service providers. It is the copyright owners who seek these provisions and it is right that they should pay the bulk of the costs. That is doubly true because of the likelihood that any costs falling on internet service providers will be passed directly to their customers. I hope that, when deciding on the cost division, either initially or when any future orders are made, the Secretary of State will have regard to any evidence suggesting that subscription rates are rising as a result of the regulatory burden falling on the internet service providers. I also hope that the Minister will be able to tell us whether the cost division eventually decided on in the statutory instrument for the initial obligations code will be the same as for the technical obligations code. Are there any considerations that make him think that internet service providers or rights holders should pay a higher or lower percentage in any cases? I beg to move.

The Deputy Chairman of Committees (Lord Colwyn): My Lords, should the amendment be agreed, I would not be able to call Amendments 200 to 202 inclusive, or Amendments 206A and 207.

The Earl of Erroll: My Lords, Amendment 206 refers to,

It was tabled by the Conservative Front Bench and I can quite see why. Someone has to pay for this. We have an interesting situation where the rights holders will benefit and hope to receive more money, but the internet service providers, who will have to do much of the enforcement, including sending out letters, and who will carry the costs, will receive no benefit. There is no suggestion that the rights holders should divvy up the benefits that will come from the Bill.

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The ISPs will have to recoup the extra cost. They are in the business of business and are not making hugely disproportionate profits. It is a competitive market, so costs have been kept down. Therefore, we will see the monthly cost of internet service provision going up. That will be broadcast in bright lights to subscribers. If the Opposition hope to come to power, they do not want this happening on their watch. They do not want it said that they supported the passing on of these costs. It will be an unpopular measure. I would not quite liken it to the poll tax, but it is amazing what can bring people down-there is nothing like being dramatic about these things. My point is that the cost will be passed on to subscribers: one cannot expect the ISPs to absorb it. I entirely agree that we must protect copyright; I am not against copyright and rights holders. However, this is not the right way to proceed, because the unintended consequences are far more wide-reaching than people have allowed for.

Lord Young of Norwood Green: My Lords, it is worth setting out why Clause 15 is part of the Bill. The apportionment of costs is, not surprisingly, one of the most contentious parts of the process for industry; it is an area where it is not realistic to expect the different industry parties to agree. Both copyright owners and internet service providers are adamant that their view of who should pay is the right one and there is little common ground between them. That is why we decided to include the sharing of costs as part of the Bill, rather than leave it as a matter for the code, which might have made reaching agreement on the code an intractable problem.

We have already discussed in Committee Amendments 200 to 206 and the principle of cost sharing. The draft statutory instrument with which we provided your Lordships set out our working assumption that copyright owners should meet 75 per cent of the costs-both those incurred by ISPs in complying with the initial obligations and the other costs that will arise for Ofcom and in relation to the appeals processes. We are quite clear that the bulk of the cost should apply to the copyright owners. Before the Horsemen of the Apocalypse ride in with somewhat melodramatic comparisons with the poll tax, I stress that in this working assumption ISPs would meet the remaining 25 per cent of those costs. We have been clear that in our view the bulk of the cost should be met by the copyright owners as the main beneficiaries of the process, while leaving internet service providers-I stress this-with a strong incentive to ensure that they keep their costs to the lowest effective level.

Finally, let me address the point about seeking to prevent internet service providers from passing costs on to their subscribers. This just is not practical. It is not appropriate for the Government to dictate how any of the industry parties should cover their costs or to prohibit any particular route. I suggest that the amendment would, in practice, be virtually impossible to police and could lead to endless disputes.

I shall spend some time on how this will be paid for. It will be paid for by industry through a flat-rate fee that copyright owners will pay, which will be set in a way that incentivises both copyright owners and ISPs to keep the process efficient and cost-effective. It is

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only right that copyright owners should bear the cost of infringement identification and any court action that they choose to take. They will also have to pay a flat fee to an ISP for each notification that the ISP has to process. However, the fee will be set at such a level that it will not cover all the ISP's costs. Placing part of the costs on ISPs should ensure that the systems that they put in place to comply with these obligations are both effective-in other words, delivered rapidly-and cost-efficient. It will also provide ISPs with incentives to minimise the number of notifications that they receive either through commercial content deals or by taking voluntary action to limit file-sharing on their network. In light of that explanation, I hope that the noble Lord will withdraw the amendment.

The Earl of Erroll: I think that trying to limit file-sharing on the network is totally unfair. File-sharing is a very good technology for offloading load from certain servers. It is only when it unlawfully breaches copyright that it matters. The concept that file-sharing should be limited on your network-given, for instance, that Skype traffic can look like file-sharing traffic-is a very dangerous one to have in this Bill.

Lord Howard of Rising: I thank the Minister for his reply. I was interested to hear the comments of the noble Earl, Lord Erroll. I am not sure that we would have demonstrations in Trafalgar Square about this, with people being thrown into fountains, but who can tell? The Minister said that he did not think that costs would be passed on to the public by internet service providers. I think that that is unrealistic. If you increase a business's overheads, sooner or later they will be passed on. Of course, a business might decide to absorb them initially, but over the longer term that cost will be paid by someone and it will not be the business; it will be paid by those paying for the service. I hope that the Minister will bear that in mind and perhaps comment on it briefly before I withdraw the amendment.

Lord Young of Norwood Green: Far be it from me to make an absolute prediction-"Never say never", they say. I stress that internet service provision is a highly competitive environment. We are not dismissing the fact that copyright owners should bear the bulk of this. We are saying that there should be an incentive on internet service providers to ensure that their part of the bargain should be to have the most efficient and cost-effective process. Which way this will go is an even bet. It is reasonable to say that we do not think that these costs will be passed on, although we do not think that we could find a way of prohibiting that. Our view is that, in a competitive environment, ISPs are capable of absorbing those costs, although I confess that in reality only time will tell. In return, I ask that the noble Lord, Lord Howard, reflects on the fact that this is a very competitive market.

Lord Howard of Rising: Maybe we can get together in a few years' time to see what has happened. In the mean time, I beg leave to withdraw the amendment.

Amendment 199 withdrawn.

Amendment 200 not moved.

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Amendment 200A

Moved by Lord Faulkner of Worcester

200A: Clause 15, page 16, line 34, at end insert-

"( ) Any provision specified under subsection (1) must relate to payment of contributions by one or more of the following only-

(a) copyright owners;

(b) internet service providers;

(c) in relation to copyright infringement disputes or subscriber appeals within the meaning of section 124E or 124J, subscribers."

Amendment 200A agreed.

Amendments 201 to 206 not moved.

Amendment 206A

Moved by Lord Faulkner of Worcester

206A: Clause 15, page 17, line 7, at end insert-

"( ) No order is to be made under this section unless a draft of the order has been laid before Parliament and approved by a resolution of each House."

Amendment 206A agreed.

Amendment 207 not moved.

Clause 15, as amended, agreed.

Clause 16 : Interpretation and consequential provision

Amendment 208 not moved.

Amendment 209

Moved by Lord Lucas

209: Clause 16, page 17, line 14, at end insert-

""copyright infringement" and "infringement of copyright" has the same meaning as in the Copyright, Designs and Patents Act 1988"

Lord Lucas: This is an attempt to be helpful, as are all my amendments, but this one purely so. I beg to move.

Lord Faulkner of Worcester: I can be as helpful as the noble Lord, Lord Lucas. The amendment would specify that "copyright infringement" and "infringement of copyright" would have the same meaning as in the Copyright, Designs and Patents Act 1988. However, those two terms are not defined in that Act, so nothing can be gained by accepting his amendment. At any event, if a copyright owner decides to take civil action against a person who has infringed his copyright, he will do so in the context of that Act. I hope that the noble Lord feels that those are reasonable grounds for his withdrawing the amendment.

Lord Lucas: Yes, my Lords.

Amendment 209 withdrawn.

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Amendment 210

Moved by Lord Howard of Rising

210: Clause 16, page 17, line 36, leave out "entirely or mainly"

Lord Howard of Rising: This is a brief probing amendment to highlight a possible drafting confusion. The drafting of the definition of "internet access service" has led to concern that mobile operators might be excluded permanently from these provisions. Limiting the provisions to impact only on those "entirely or mainly" providing internet access will surely discount mobile providers which primarily provide telephone services. If it is the Minister's intention that the definition should apply only to the internet service part of a telephone service, when would the "or mainly" flexibility be needed? I beg to move.

Lord Faulkner of Worcester: The amendment would remove the qualifying words "entirely or mainly" from a definition of an internet access service. Although it appears to be a simplification, it could have the effect of excluding organisations that offer such a service as the main part of their business as opposed to their entire business. We do not think that we should facilitate that situation. The current wording is designed deliberately to apply only to electronic communication services whose business is wholly or predominantly the provision of internet access-in effect, ISPs. The amendment would make the obligations apply only to an electronic communications service that provides a service to subscribers that involves only access to the internet and the allocation of an IP address. That risks exempting ISPs from the obligations if acting as an ISP is not the sole activity in which they engage. We do not think that that is right. We have no intention of catching organisations or businesses that happen, as part of their normal operations, to allocate IP addresses to their staff, for instance, but we think that it is right that those organisations that, as a business, provide internet access and allocate IP addresses should be covered by this legislation. I suggest that we should focus on where the problem is likely to reside on those networks operated by internet service providers whose business either wholly or mainly consists of access to the internet. I hope that, on the basis of this explanation, the noble Lord will feel able to withdraw his amendment.

6 pm

The Earl of Erroll: Before we move on, may I just ask a quick question? Does that therefore solve the problem of the libraries, the local authorities and everyone else, because their business is not mainly to do with providing services-oh, this is about the obligations in the code, is it not? I think that I am talking off the point. Sorry.

Lord Howard of Rising: Well, the noble Earl has produced a most interesting point and I shall look forward to hearing what the Minister says about it before I withdraw.

Lord Faulkner of Worcester: I do not think that the noble Lord will hear the answer immediately, as I will need to take advice, but my understanding is as the

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noble Earl admitted at the end. He was a little bit off the point with his intervention, but if I am wrong I will of course correct myself and inform the Committee.

Lord Howard of Rising: I thank the Minister for his remarks and I beg leave to withdraw the amendment.

Amendment 210 withdrawn.

Amendment 211 not moved.

Clause 16 agreed.

Clause 17: Power to amend copyright provisions

Amendment 211A

Moved by Lord Young of Norwood Green

211A: Clause 17, page 18, line 19, leave out from "reducing" to end of line 22 and insert "any infringement of copyright by means of the internet if satisfied that-

(a) the infringement is having a serious adverse effect on businesses or consumers, and

(b) making the amendment is a proportionate way to address that effect."

Lord Young of Norwood Green: My Lords, we move now to government Amendment 211A which is grouped with Amendment 211B and other amendments to the eagerly anticipated Clause 17. Before speaking to the government amendments, I thought it would be worth while highlighting why this clause is included in the Bill, and what we hope to achieve with it. Clause 17 introduces a power to amend the Copyright, Designs and Patents Act 1988 by means of secondary legislation. If it is considered-and I stress considered-that such an amendment is necessary to address problems around online infringement of copyright, this power is a necessary tool to provide future proof supplementary to the action that is being taken in Clauses 4 to 16 that this House has already debated.

Illegal peer-to-peer file-sharing is-I say this for the benefit of the noble Earl, Lord Erroll-the biggest problem facing our creative industry today, but it may not be the biggest problem tomorrow. We need to be able to respond quickly and flexibly if new methods of infringement grow in significance and start to damage those industries. Clause 17 aims to provide this important flexibility. As with any delegated power, Clause 17 has attracted significant interest from parliamentarians and committees of this House. As I will explain, however, the Government have listened to the concerns that have been raised by noble Lords and committees, and we have proposed some substantial amendments to address these. These government amendments clarify the scope of the power, and strengthen the safeguards that surround its use. I shall explain these by moving onto the detail of the amendment laid in the name of the noble Lord, Lord Mandelson.

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