Global media and communications quarterly - winter 2014

Preparing for the Swarm: Ensuring our Airwaves and Airspace  can Accommodate Transformational Drone Technology

In the United States, the country’s leading online retailer,  Amazon, has promised that in the not‑too‑distant future,  drones will deliver packages within 30 minutes after  a customer places an order. 1  In the United Kingdom,  Domino’s has staged pizza delivery via drone. 2  In France,  commercial drones are already providing aerial footage  and agricultural data, and they are being tested for  monitoring the reliability of electric and rail infrastructure. 3 In Australia, Zookal, an Australian textbook rental startup,  will begin dropping off book orders to Sydney residents  as soon as March 2014 using a fleet of six unmanned  aerial vehicles – drones – to deliver packages within two  to three minutes by locating the customer via the Flirtey  Android app. 4  Meanwhile, militaries throughout the world,  including the U.S., the EU, Japan, Israel, and China,  use or are planning to use drones for surveillance and  offensive capabilities, and, in the United States at least,  some of these military functions are being incorporated  domestically, with drones performing border surveillance  and supporting public safety operations. 5  If current  plans are fully realized, no part of our economy will be  left untouched by drone technology – drones may even  change the market for illicit substances. 6 Innovations in commercial aerial drone technology will  fundamentally change how we live. Maybe.  Whether or not this transformation occurs depends on  whether drones, known variously as unmanned aircraft  systems (UAS) or unmanned aerial vehicles (UAVs),  will have access to both 1) airspace, a heavily regulated  resource that, in most of the world, including the U.S.,  has not yet evolved to allow for general operation of  commercial UAS technology, and 2) the wireless airwaves,  a limited resource where demand is far outstripping supply.  Accommodating Drones in the U.S. Airspace An immediate barrier to launching commercial UAS  technology in the United States is that the U.S. Federal  Aviation Administration (FAA) generally does not allow  for commercial operations of UAS. 7  The status of  commercial UAS operations is planned to change, but it  may be a long time coming.  In 2012, Congress passed an Act mandating that the FAA  integrate civil UAS into the nation’s airspace by September  30, 2015, 8  and the FAA has been working to do so, even if  it has been somewhat delayed. For example, in November  2013, pursuant to the FAA Modernization and Reform Act,  the FAA released a five‑year roadmap for the introduction  of civil UAS into the national airspace. 9  Shortly thereafter,  in December 2013, the FAA announced the selection of  six UAS test site operators, which will allow the FAA to  develop, research, and document operational UAS as  part of the process of determining how to integrate UAS  into the national airspace. 10  While an important initial step  towards integration, the selection of these sites does not  provide access to the national airspace for commercial or  civil purposes. Moreover, the selection of these sites was  delayed for more than a year from the original August 2012  deadline due to privacy concerns, 11  perhaps indicating that  the September 30, 2015 deadline may be difficult to meet.  Even if the FAA is able to meet this 2015 deadline, the  type of autonomous drone that, for example, Amazon  has promised, will likely still require further regulatory  reform. Under FAA’s UAS Roadmap, the FAA assumes  that UAS will operate under the existing pilot‑in‑command  framework. 12  In other words, autonomous operations are  expressly prohibited. While numerous important UAS  applications actively employ pilots, the type of drones‑ everywhere future requires automation not currently  contemplated in the Roadmap. Additionally, states and  localities may introduce their own set of hurdles – some  localities have already introduced privacy rules related  to UAS operations, and there has been discussion of  controlling community airspace if widespread UAS  operations come to fruition. 13 France: The First Country to Integrate Civilian  Drones into Its Airspace Compared to the U.S., France is much further ahead of  the curve in terms of integrating drones into its airspace.  In 2012, France became the first country in the world  to update its airspace regulations to accommodate  civilian drones. 14  With these regulations in place, French  entrepreneurs and engineers are already taking advantage  of the rules. Around 350 operators have obtained  licenses to fly unmanned aerial devices. 15  Companies like  Skydrone 16  and Airinov 17  are using drones to capture aerial  footage and collect agricultural data. Even the French  National Railway Company (SNCF), together with Electricité  de France EDF and the French Directorate General for  Civil Aviation, are working to test drone helicopters for  infrastructure inspection and reliability needs. 18 Under France’s rules, drones are specifically authorized  to engage in agricultural activities, package delivery,  advertising (e.g., towing a banner), firefighting, and aerial  observation, among other activities. 19  To the extent  that the activity requires a derogation, or exemption, to  France’s air rules, the drone operator should apply for a  specific administrative authorization. 20 In incorporating drones into the national airspace, France  has taken a similar approach to that proposed in the U.S.,  although, again, France is ahead of the curve. France  classifies drones based on weight and whether the  drone is “captive” (i.e., physically tethered to the pilot). 21 Essentially, the lighter the drone and the more remote  the area, the fewer the operating restrictions, and captive  drones are allowed to be somewhat heavier. In less  populated areas: A) Drones up to 25 kg (150 kg if tethered) can be operated without any specific authorization so long  as the pilot is within 100 meters; B) drones up to 25 kg  can be operated so long as the pilot is within 1 kilometer,  but administrative authorization is required. 22  Meanwhile,  in urban areas, drones up to 25 kg (150 kg if tethered) can  only be flown if the pilot is within 100 meters, and they  require an administrative authorization. 23 Additionally, France allows drones to operate  autonomously (i.e., the flight is performed without the  active control of a remote pilot). 24  However, when a  UAV operates autonomously, the remote pilot should be  able to regain control if there is an emergency situation.  Moreover, in urban areas, for example, pilots are still  required to be within meters of the UAV (whether  operating autonomously or not). 25  Thus, like in the U.S.,  there are still some further reforms required before an  automated swarm of commercial drones are delivering  packages or carry‑out food.  What About the Airwaves?  Even if aviation regulatory issues are resolved, significant  concerns remain regarding whether the airwaves, both  nationally and internationally, can accommodate the  coming flood of drones. While some of these challenges  regarding the national airspace have received attention in  the wake of Amazon’s dramatic introduction of the Prime  Air concept, 26  few outside of the communications world  have discussed the difficulties drones may face due to  limited access to spectrum.  Although no major proceedings are underway in the United  States, top members of the U.S. Federal Communications  Commission (FCC) appear to see this issue looming on  the horizon. Acknowledging that Amazon may need  spectrum for its 30‑minute “Prime Air” delivery service,  recently appointed FCC Chairman Tom Wheeler joked that  if Mr. Lincoln’s T-Mails, a non‑fiction book that he wrote,  happened to pop up to #1 on Amazon’s site, it wouldn’t  necessarily hurt their ability to obtain spectrum. Likewise, at  this year’s Consumer Electronics Show FCC Commissioner  Jessica Rosenworcel told wireless executives that the  Commission was working hard to provide spectrum for  transformative technologies such as drones.  Drones come in all shapes and sizes, but one thing they  have in common is that they will almost certainly need  some form of access to the wireless airwaves for all  different types of functions. At a very basic level, drones  need to receive fundamental marching orders (e.g., go  here at this time), which will likely be communicated  wirelessly. Most will likely incorporate GPS systems,  which will not pose a problem in terms of spectrum  scarcity, but also which are not currently sufficient alone  to support autonomous navigation because they do not  support the requisite level of accuracy. Additionally, many  drones (most or all for the near future under the FAA’s UAS  integration plan) 27  require active pilots who need frequency  for active “command and control” of the aircraft, including,  presumably, a live video feed to carry out this function if the  drone is outside of direct view. These basic functions do  not begin to take account of airwaves necessary for drones  to communicate actively with each other, the surrounding  infrastructure, or the countless other uses for spectrum  that innovators have yet to create.  All of this is to say, as a 2013 U.S. Government and  Accountability Office Report recognized, the U.S. has  significant needs for spectrum dedicated to planned  drone operations. 28  Many drones currently use  unlicensed spectrum – such as the spectrum used for  home WiFi, garage door openers, and baby monitors –  and like those devices, drones operating in unlicensed  spectrum remain vulnerable to unintentional or  intentional interference. 29  Of course, unlike garage door  openers, aerial drones in crowded environments have  significantly greater quality of service (latency, availability,  integrity, continuity) and security requirements (e.g., it  could be very dangerous if a drone gets hacked). In other  words, the current unlicensed regime is likely insufficient  to support future UAS requirements.  To some extent, commercial technology may be able to  sidestep the spectrum shortage by avoiding reliance on  spectrum. Take, for example, Google’s driverless car –  rather than relying on a remote driver controlling the car  using the wireless airwaves, it autonomously navigates  city streets using an active Laser Radar (LIDAR) system  together with detailed topographical maps. 30  That is,  it has no or limited spectrum needs during operations.  Theoretically, drones could rely on a similar type of system  to avoid active radiofrequency needs during flight.  However, the theoretical ability to sidestep spectrum  requirements remains far off, and significant needs for  spectrum still exist. In the FAA’s five‑year roadmap for  integrating drones into the civilian airspace discussed  above, the FAA is not planning to allow autonomous  operations. 31  Therefore, any operations under the  FAA’s current roadmap will need spectrum so that  pilots can operate the UAS. Similarly, the leading group  representing the drone ecosystem, the Association for  Unmanned Vehicle Systems International (AUVSI), has  developed a “Code of Conduct” for drone operations,  and the Code specifically recognizes that providing  adequate and reliable spectrum is a fundamental aspect  of operational safety. 32  Moreover, even fully autonomous  drones that do not require a live communications feed  for piloting may have communications requirements to  send real‑time video, receive updated directions, or carry  out any other potential activities.  As drones promise to transform our day‑to‑day lives,  drone operators and manufacturers, national regulators  and international bodies must prepare for drone spectrum  requirements. AUVSI recognizes as much, including  spectrum as one of its important legislative initiatives. 33 To date, however, there have only been limited regulatory  actions for accommodating drone’s future spectrum needs.  An important start was the international negotiations  at the 2012 World Radio Conference, where countries  agreed to allocate 61 MHz of spectrum between 5,030  and 5,091 MHz to drone line‑of‑sight piloting needs. 34 This step represents an agreement to allow member  countries to allocate spectrum for “command and control” communications (i.e., communications required for  piloting) at these frequencies so long as the transmitter can  transmit directly to the receiver (i.e., the transmitter can  “see” the receiver). The International Telecommunications  Union (ITU) member countries also agreed to discuss an  allocation for beyond‑line‑of‑sight “command and control”  communications (i.e., communications from a remote  pilot to a drone via a satellite) at the next World Radio  Conference, WRC‑15, to be held in Geneva, Switzerland  throughout November 2015.  Drones will likely need far more spectrum than is currently  set‑aside, and future applications will likely require more  than simple command‑and‑control communication  functionality. While the line‑of‑sight and beyond‑line‑ of‑sight allocations at WRC‑12 and WRC‑15 represent  important starting points, national and international bodies  need to start preparing for these coming spectrum  needs. Meanwhile, operators must incorporate spectrum  considerations into strategic business plans.  The advent and rapid development of commercial drone  technology holds great promise for the future. However,  regulators in cooperation with drone innovators have  to work hard to make sure that the regulatory regimes  behind our airwaves and airspace keep pace with these  fast‑moving technical advances. Wireless Medical Body Area Networks: Opportunity in a  Changing Regulatory Landscape Demand for wireless medical devices has exploded  in recent years and continues to grow. The market for  wireless monitoring devices, for example, has doubled  in the past four years to $7.1 billion and is expected  to triple in the next four years, to $22.1 billion. 35 Meanwhile, some analysts have estimated that the  demand for wearable wireless medical devices alone  will exceed 100 million units by 2016. 36 Just what are wireless medical devices? According to  the U.S. Food and Drug Administration, they are any  device or equipment that performs at least one function  using wireless radiofrequency communication to  support healthcare delivery. The device might transfer  patient data from one device to another device, or  monitor patients remotely. 37 As with many other sectors of the economy, expanded  incorporation of wireless technology into healthcare  promises many significant advances. Wireless medical  devices can increase patient mobility by eliminating  wires that might otherwise tether a patient to a bed,  they can save on hospital visits by allowing healthcare  professionals to remotely monitor their patients, and  they can accelerate patient diagnosis, monitoring, and  recovery by giving physicians the ability to continuously  and remotely access patient data and adjust therapies  as conditions change in real time. 38 These benefits not only improve patient comfort, but  also enhance patient care. One 2006 industry survey  found that manually monitoring and recording patient data  consumed fully 40 percent of professionals’ patient‑care  time in a standard hospital setting. 39  Replacing manual  monitoring – and the costs, time, and risk of error that it  entails – promises meaningful therapeutic benefits for  patients as well as substantial financial and time savings  for doctors, healthcare professionals, and hospitals. 40 Within the wireless medical device arena, one of the more  promising technologies is Medical Body Area Networks  (MBANs). MBANs are networks of small low‑power  devices worn on the human body that communicate  with a controller device through a wireless connection. The FCC has promulgated rules for the new technology  but has not yet certified equipment. Once MBANs are  deployed, MBANs will help measure and record patient  information inside and outside healthcare facilities in  support of diagnostic or therapeutic functions. MBANs  can minimize the risk of infection, improve patient  comfort and mobility during monitoring, and prevent  more debilitating and costly diseases that can occur when  patients are not effectively monitored. The precise configurations of MBANs will likely vary, but  MBANs will generally involve a series of sensors that take  readings of key patient‑specific information, which, as  described by GE Healthcare, may include “temperature  readings, pulse readings, blood glucose level readings,  electrocardiogram readings, blood pressure level  readings and readings relating to respiratory function.” 41 Transmitters incorporated into the sensors will then  continuously transfer the data to a body‑worn or closely‑ located hub, eliminating the need for cables. 42 Until recently, wireless medical devices were limited  to discrete, little‑used frequencies featuring limited  amounts of contiguous spectrum. Instead of encouraging  scale economies, a confused mix of medical spectrum  bands prevented common design standards and  required manufacturers to incur higher fixed costs over  a smaller number of units. For example, Medical Radio  applications could operate in the 401‑406 MHz, 413‑419  MHz, 426‑432 MHz, 438‑444 MHz, and 451‑457 MHz  bands, all on a secondary basis. 43  Similarly, The Wireless  Medical Telemetry Service (WMTS), which allows for  the transmission of patient‑related telemetric medical  information to a central monitoring location within a hospital  or other medical facility, could operate in the 608‑614 MHz,  1395‑1400 MHz, and 1427‑1432 MHz bands on a primary  basis. 44  While these and other bands are not contiguous  and can sometimes be congested, the critical point for  the medical community was that few, if any, of these  bands featured access to a readily available, globally scaled  development pipeline that would allow for the production  of low‑cost devices suitable for widespread deployment.  Through a series of rulemaking proceedings at the  Federal Communications Commission, however, GE  Healthcare and other medical equipment manufacturers  and technology companies successfully convinced the  Commission to make a significant amount of spectrum  40 MHz available for MBANs. On May 24, 2012, the  Commission adopted new rules permitting the operation  of MBAN devices in the 2360‑2400 MHz band (the  “2.3 GHz band”). 45  Unlike the other medical‑band  spectrum, the 2.3 GHz band is located immediately  below the existing 2.4 GHz unlicensed band where  billions of low‑power transceiver chips are produced  for use in Bluetooth, WiFi, and similar widely adopted  applications. In sharp contrast to the hodge podge of  diffuse spectrum bands that had previously been available  for medical devices, manufacturers seeking to develop  MBAN devices in the 2.3 GHz band will be able to modify  2.4 GHz transceivers to accommodate the adjacent  frequencies, which means that MBAN devices are likely  to be deployed at lower prices and without the long lead  times associated with more customized equipment.  In its 2012 Report and Order, the Commission authorized  2.3 GHz MBANs under a so‑called “license‑by‑rule”  regime: rather than issue an individual license, the  Commission will authorize any devices meeting minimum  performance standards to operate in the band, subject only  to the condition that they not cause harmful interference  to certain incumbent services. 46  In addition to certain  technical rules, 47  the Commission adopted a number of  service rules for MBAN operations, covering operator  eligibility, permissible communications, authorized  locations, and equipment authorization procedures. 48 Perhaps most importantly from an operational  perspective, the Commission also adopted safeguards  against harmful interference. In the years leading up to  the 2012 Report and Order, several incumbent operators 53 Yantian Hou, Ming Li & Shucheng Yu, Surviving the RF Smog: Making  Body Area Networks Robust to Cross-Technology Interference,  available at http://digital.cs.usu.edu/~mingli/papers/Hou_ SECON_2013.pdf.  54 MBAN R&O at 13 n.70. 55 77 Fed. Reg. 55715 (Sept. 11, 2012). 56 Joint Petition for Reconsideration, Amendment of the Commission’s  Rules to Provide Spectrum for the Operation of Medical Body Area  Networks, ET Docket No. 08-59 (filed Oct. 11, 2012). 57 Id. 10 Hogan Lovells Global Media and Communications Quarterly Winter 2013 and vendors had voiced concerns that without some  protective measures, creating a new MBAN allocation  at 2.3 GHz could result in both co‑channel and adjacent‑ channel interference that might prove difficult to remedy  and damaging to both incumbents and MBANs. On a  co‑channel basis, concerns were raised about interference  to aeronautical mobile telemetry (“AMT”) operations.  Though far from ubiquitously deployed, AMT operations  support sensitive flight testing operations involving  with important payloads. AMT operations can include  everything from flight testing by the commercial aviation  industry to flight testing of aircraft, spacecraft and missiles  by the United States government. 49 The Commission addressed these concerns by, among  other things, limiting MBANs’ use of the 2360‑2390  MHz band to indoor locations within healthcare  facilities, where there is a considerably smaller potential  for interference with airborne AMT operations. The  Commission also adopted certain registration and  coordination rules for MBAN operations to make  sharing between MBAN systems and incumbent AMT  operations easier and more routine. 50  These rules require  a healthcare facility that intends to operate an MBAN  in the 2360‑2390 MHz band to register the MBAN with  a Commission‑designated frequency coordinator that  will record all MBAN operations in a database for use  in identifying potential interference. 51  Furthermore,  a healthcare facility may not operate the MBAN in  the 2360‑2390 MHz band unless and until it receives  clearance and the permissible operating parameters  from the frequency coordinator. 52  MBAN operations  in the 2390‑2400 MHz band, however, are not so  restricted. They can occur at any geographic location,  including inside the home, in ambulances and outdoors.  The Commission also recognized that one of the principal  benefits of the new MBAN spectrum – namely, the scale  economies afforded to MBANs by the 2360‑2400 MHz  band’s proximity to spectrum used for WiFi, microwave  ovens, cordless phones, baby monitors and other  unlicensed devices – could also pose an interference  threat to MBANs. 53  The Commission found that “because  Wi‑Fi channel 1 under the 802.11b standard occupies the  2401‑2423 MHz band, it may prove difficult to operate  on Wi‑Fi channel 1 within close proximity of an MBAN  device.” 54  Rather than require individual healthcare  facilities to prioritize MBANs over improved access to  Wi‑Fi, however, the Commission left the choice of which  wireless services to prioritize to the healthcare providers  themselves. “[H]ealth care providers,” the Commission  found, “may have to consider how they deploy their  various resources to best overall advantage.” The rules authorizing these devices became effective  on October 11, 2012. 55  On that same day, Philips  Healthcare, GE Healthcare, and the Aerospace and  Flight Test Radio Coordinating Council filed a joint  petition to reconsider certain aspects of the MBAN  R&O (the “Joint Petition to Reconsider”). 56  The Joint  Petition for Reconsideration requested the Commission  to make a number of changes to the order, including: 1. Narrow the definition of a “healthcare facility”  where MBANs can be operated in the 2360‑2390  MHz band on a coordinated basis to “include only  hospitals and similar facilities that provide medical  treatment for patient stays of 24 or more hours”. 2. Modify the definition of “body‑worn device”  to include bedside devices by removing the  requirement that the devices be within a “few  centimeters” of the patient’s body. 3. Require all MBAN devices to cease transmitting in  the absence of a control message. 4. Revise the MBAN frequency coordinator’s duties to  make them clearer and more explicit. 5. Require attached antennas for MBAN devices  capable of operating in the 2360‑2390 MHz band. 6. Strengthen the MBAN equipment labeling  requirements to ensure that the label information  is prominently displayed. 7. Publish MBAN equipment authorization  requirements. 57 The American Society for Healthcare Engineering of  the American Hospital Association (“ASHE”) also filed  a petition for reconsideration, limited to “the issue of  whether the public interest will be better served by 60 See, e.g., Ex Parte Presentation of SmartEdgeNet, LLC, Amendment of  the Commission’s Rules to Provide Spectrum for the Operation of  Medical Body Area Networks, ET Docket No. 08-59 (filed Dec. 20, 2012);  Ex Parte Presentation of SmartEdgeNet, LLC, Amendment of the  Commission’s Rules to Provide Spectrum for the Operation of Medical  Body Area Networks, ET Docket No. 08-59 (filed Jan. 17, 2013); Ex Parte  Presentation of Philips Healthcare, GE Healthcare, and the Aerospace  and Flight Test Radio Coordinating Council, Amendment of the  Commission’s Rules to Provide Spectrum for the Operation of Medical  Body Area Networks, ET Docket No. 08-59 (filed Jan. 30, 2013); Ex Parte  Presentation of Philips Healthcare, Amendment of the Commission’s  Rules to Provide Spectrum for the Operation of Medical Body Area  Networks, ET Docket No. 08-59 (filed May 6, 2013).  58 Petition for Reconsideration of the American Society for Healthcare  Engineering of the American Hospital Association, Amendment of the  Commission’s Rules to Provide Spectrum for the Operation of Medical  Body Area Networks, ET Docket No. 08-59 (filed Oct. 10, 2012). 59 Petitions for Reconsideration of Action in Rulemaking Proceeding,  Public Notice, Report No. 2966 (rel. Oct. 31, 2012). Ari Fitzgerald Partner, Washington, D.C. T +1 202 637 5423 [email protected] Trey Hanbury Partner, Washington, D.C. T +1 202 637 5534 [email protected] Hogan Lovells Global Media and Communications Quarterly Winter 2013 11 requiring all MBAN devices capable of transmitting  in any portion of the 2360‑2390 MHz band to be  registered with the MBAN frequency coordinator prior  to deployment and operation.” 58 On October 31, 2012, the Commission issued a Public  Notice regarding these petitions to reconsider and  requested that oppositions be filed within 15 days. 59  No  oppositions were filed in response to the Public Notice and  there have been only limited ex parte filings since then. 60 The Commission has yet to issue a decision on these  petitions for reconsideration, but a decision is expected  soon. A technology standard developed by the Institute of  Electrical and Electronics Engineers (IEEE), 802.15.6, has  already been developed, which should hasten worldwide  deployment once the FCC’s MBAN rules are finalized. Whatever the final shape of the Commission’s rules  on MBANs, one thing is certain: the therapeutic and  diagnostic value of wireless medical sensors will continue  to place even more pressure on wireless spectrum already  allocated for other, often incompatible uses. Managing  competing demands for spectrum is a challenge not only  in the United States, but also around the world. If proven  successful, the creative mechanism developed by the  U.S. Federal Communications Commission for MBANs  to share AMT spectrum may point the way for other  countries seeking to expand capacity for medical devices  in a congested radiofrequency environment.European Court to examine blocking measures; French court  blocks “allostreaming” The Court of Justice of the European Union (CJEU) is  currently examining a case to determine under what  conditions an Internet access provider can be ordered  to block access to websites that infringe copyright.  In this case 61 , a lower court in Vienna ordered the cable  operator UPC Telekabel (UPC) to block access to “kino. to,” a site that offered unauthorized access to films and  television series. The matter went up to the Austrian  Supreme Court, which in turn sent a series of questions  to the CJEU to determine whether a blocking measure  of the kind ordered by the lower court is compatible with  European law. The CJEU’s advocate general issued his  opinion on November 26, 2013. 62  While not binding on  the court, the opinion provides precious guidance on  the complex legal issues involved in blocking access to  Internet sites that infringe copyright.  In order to be valid under European law, a blocking  measure must satisfy four tests. First, there must be a  copyright infringement. Second, the blocking measure  must target an “intermediary” of the kind mentioned  in Article 8(3) of the EU Copyright in the Information  Society Directive 2001/29/EC (EU Copyright Directive).  Third, the measure cannot constitute a “general  monitoring” obligation prohibited by the E‑Commerce  Directive 2000/31/EC (the “E‑Commerce Directive”).  Finally, the measure must satisfy the proportionality test. Is there copyright infringement? The advocate  general took as a given that the kino.to sites infringed  copyright, and therefore did not analyze this point in  detail. The Paris court in the recent “allostreaming”  case 63 , as well as the High Court of England in the  “SolarMovie” and “TubePlus” case 64 , examined the  question of infringement much more closely, concluding  that providing links to unauthorized streaming files  constitutes an act of infringement. Is an Internet access provider and “intermediary”  within the meaning of the EU Copyright Directive? Article 8(3) of the EU Copyright Directive (2001/29/EC)  requires Member States to ensure that right holders  are “in a position to apply for an injunction against  intermediaries whose services are used by a third party to infringe a copyright or related right.” UPC argued that  its services are not “used” by kino.to, and that UPC  is therefore not an “intermediary” for the purposes of  article 8(3). UPC emphasizes that it has no relationship  with keno.to, and does not have an active role in making  available the infringing content. UPC compares itself to  a supplier of electricity, and argues that its role is too  distant from the activities of kino.to to be considered an  intermediary under article 8(3). The advocate general disagreed, indicating that it  is not necessary for an Internet access provider to  have a contract with the entity that is committing the  infringement. It is sufficient that the Internet access  provider intervenes in the technical routing of the  infringing content. According to the advocate general,  the EU Copyright Directive targets not only the hosting  providers and access providers upstream, who have a  direct link with the infringing website, but also the access  providers downstream, who have links with end‑users.  In the French case “allostreaming”, the Paris court  came to the same conclusion with regard to internet  access providers. The Paris court also found that a  search engine could be considered an intermediary for  the purposes of the French law that transposed the EU  Copyright Directive (the status of search engines was not  discussed by the advocate general in the kino.to case).  In the French allostreaming case, Microsoft argued that  search engines should not be considered an intermediary  under the EU Copyright Directive because, according to  Microsoft, the notion of intermediary should only apply  to entities that have a role in the “carriage” of content.  (Microsoft cited recital 59 of the Directive, which refers to  an intermediary that “carries a third party’s infringement  of a protected work.”) The Paris court did not follow  Microsoft’s reasoning and found that French lawmakers  intended to give courts broad power to order measures  against all entities that have a role in the technical or  commercial supply chain for infringing content. The  scope of the Paris court’s decision could extend not only  to search engines, but to other kinds of intermediaries  such as payment providers, or advertising networks. Does the measure constitute a “general monitoring”  prohibited by the E-Commerce Directive? The  E‑Commerce Directive prohibits Member States from  imposing a general obligation on technical intermediaries  to monitor the information that they transmit or store.  The CJEU previously held that the implementation Hogan Lovells Global Media and Communications Quarterly Winter 2013 of a general filtering obligation violated this provision,  and that social media platforms cannot be required to  implement a “take down and stay down” regime for  the same reason. In the kino.to matter, the advocate  general found that the blocking measure ordered by  the Austrian court was sufficiently targeted so as not to  violate the E‑Commerce Directive’s prohibition of general  monitoring measures. Does the blocking measure satisfy the  proportionality test? The advocate general began by  considering the effectiveness of the blocking measure,  taking into account various technical avoidance  measures that are available to users. This argument was  also raised in the French “allostreaming” case. Most  blocking measures can be defeated by sophisticated  Internet users. The legal question is whether a blocking  measure that can be easily avoided by Internet users  is an “appropriate” and “necessary” measure. On this  point, the CJEU advocate general and the Paris court  are in agreement: the fact that a technical measure can  be avoided does not necessarily mean that the measure  will not be effective in discouraging a significant number  of Internet users from downloading infringing content.  The advocate general believes, however, that courts  must make a quantitative estimate of the efficacy of  a measure as part of their balancing test. The efficacy  of the measure must be balanced against the costs  of its implementation by the technical intermediaries.  When these costs are significant, the court should  also ask whether it is appropriate for those costs to be  borne by the right holders rather than by the technical  intermediaries. According to the advocate general,  the proportionality test may require that right holders  undertake actions against the publisher of the infringing  sites, as well as against the site’s upstream ISP. This  point was also debated in the French “allostreaming”  matter. The question is whether right holders must  first go after the publisher of the infringing sites, or  whether they may act immediately against the technical  intermediaries. The Paris court concluded that it was  not necessary for right holders to act first against the  publisher of the site or against the sites’ hosting provider  because “no legal provision requires claimants to bring  hosting providers into this case and there exists [in the  law] no principle of subsidiarity.”Christelle Coslin 14 Hogan Lovells Global Media and Communications Quarterly Winter 2013 The proportionality test naturally involves a balance of  fundamental rights. The advocate general lists three of  these rights: the right to the protection of property, freedom  of expression, and the right to conduct a business. None of  these rights is absolute; each may be restricted as long as  the restriction is provided by law and is proportionate. As regards freedom of expression, the advocate general  indicated that courts must ensure that blocking measures  target only illegal content, and that there is no risk they  also block access to legal content. This requirement is  probably too strict. If one were to follow the advocate  general’s reasoning to the letter, an illegal streaming  platform would only have to list one public domain  film in order to prevent any blocking measure from  being brought against the site. The approach of the  Paris court is more pragmatic: if the vast majority of  the works available on the site are infringing, that is  sufficient to justify a blocking measure against the site.  The existence of a small minority of works that are not  protected by copyright is not sufficient to protect sites  such as “allostreaming” against court measures. It will  be important to watch how the European Court of Justice  approaches this issue in its final opinion, as the advocate  general’s position could potentially weaken article 8(3) of  the EU Copyright Directive. As regards freedom to conduct a business, the  advocate general was critical of the Austrian court’s  blocking order. He said that the measures ordered by the  court were too general, and left internet access providers  with doubt as to what they should do. The Austrian  courts had ordered the internet access providers to  implement all measures necessary to prevent access  by their subscribers to the kino.to sites. According to  the advocate general, the general nature of this order  puts Internet access providers in a difficult position.  They will not know which of several technical options  ‑‑ DNS server filtering, IP address filtering, or proxy server  filtering – should be implemented. Each option provides  different levels of effectiveness and involves different  costs. According to the advocate general, the Austrian  court should have given precise instructions to UPC on  which technical option to adopt. By keeping UPC in the  dark, the court violated the proportionality principle with  regard to UPC’s right to conduct a business. The injunction in the French “allostreaming” case is  similar to the Austrian court’s injunction. At first blush,  the French injunction would also violate the advocate  general’s proportionality test because it is too general.  However, in the French matter, the point does not seem  to have been debated. The French Internet access  providers and search engines apparently did not argue  that the judge’s order was too general. The court left it to  the parties to determine the most appropriate measure  to implement. Leading U.S. Court of Appeals Strikes Down Key Network  Neutrality Rules: What’s Next for the Open Internet? In a highly anticipated decision, the United States Court  of Appeals for the D.C. Circuit struck down key provisions  of the Federal Communication Commission’s (FCC)  network neutrality regulation 65  that banned blocking lawful  content and prohibited fixed broadband providers from  unreasonably discriminating among content providers. 66 While the majority of the three‑judge panel concluded  that section 706 of the Telecommunications Act gives the  FCC authority to promulgate rules on broadband, the court  concluded the FCC cannot use its section 706 authority  to regulate broadband information service providers as if  they were traditional common carriers. 67 The court considered three main provisions of the  FCC’s Open Internet Order: (1) rules that prevent fixed  broadband providers from unreasonably discriminating  in transmitting data over their networks; (2) rules  that prevent broadband providers from blocking  consumers’ access to lawful content; and (3) rules that  require disclosure of commercial terms, performance  characteristics, and how broadband providers manage  network congestion. 68 The court could not find any basis in section 706 of the  Telecommunications Act for allowing the FCC to prohibit  carriers from discriminating among content providers – for  example, by offering some content providers faster delivery  while limiting others to standard service. Rules that require  equal treatment of all internet traffic looked too much like  traditional common carrier regulation in the court’s view.  Because the Commission has designated broadband as  an information service, it is statutorily prohibited from  imposing common carrier requirements. The Court  emphasized the section 706 authority does not give the  Commission free rein to violate other statutory mandates.  But the court viewed the FCC’s “no blocking” provisions  of the Order a bit differently. According to the court,  the FCC’s attempt to prohibit a broadband provider from  blocking a consumer’s access to the lawful content of  their choice could be sufficiently distinguishable from  traditional common carrier regulation to be theoretically  permissible. Since the FCC never addressed how these  “no blocking” provisions would operate in the absence  of common‑carrier type regulation, however, the court  declined to uphold the “no blocking” provisions on the  current record. 69 Finally, the court upheld the FCC’s disclosure rules, finding  them sufficiently narrow – and sufficiently distinct from  traditional common carrier regulation – to survive scrutiny. 70 As a result, the FCC will continue to be able to require  broadband providers to disclose information to consumers  about the providers’ network management practices. The three‑judge panel was comprised of Judge Rogers,  Judge Tatel and Senior Judge Silberman. Because the  majority reasoning of Judge Rogers and Judge Tatel rests  heavily on the FCC’s decision to classify broadband as  an information service rather than a traditional common  carrier telecommunications service, this decision  will likely reignite the debate around reclassifying  broadband. 71  Many advocates who agreed with the  Open Internet Order’s policy goals have long been  concerned that the FCC had failed to undergird the rules  with a solid legal foundation. 72  Reclassifying broadband  as telecommunications service would allow the FCC to  work around the majority’s decision, but presents its own  potential legal and political challenges.  The third panelist, Senior Judge Laurence Silberman,  concurred in part and dissented in part. Judge Silberman  took an even more limited view of the section 706  authority. 73  He agreed with the majority that section  706’s directive that the FCC shall “encourage the  deployment on a reasonable and timely basis of advanced  telecommunications capability” through, among other  things, “measures that promote competition in the local  telecommunications market, or other regulating methods  that remove barriers to infrastructure investment”  grants the FCC positive regulatory authority. But Judge  Silberman also concluded that the FCC’s Open Internet  Order exceeds that authority because the FCC never  actually identified any broadband provider practices  as “barriers to investment” that network neutrality  would remove, nor did the FCC make a reasonable 74 Id. at 2-5. 75 Id. at 7. 76 Statement by FCC Chairman Tom Wheeler Regarding DC Circuit  Opinion on the FCC’s Open Internet Rules, Federal Communications  Commission (Jan. 14, 2014), http://transition.fcc.gov/Daily_Releases/ Daily_Business/2014/db0114/DOC-325106A1.pdf. 77 Brian Fung, Netflix’s secret weapon in the net neutrality fight, The  Washington Post (Jan. 22, 2014), http://www.washingtonpost.com/ blogs/the-switch/wp/2014/01/22/netflixs-secret-weapon-in-the-netneutrality-fight/. 78 Edward Wyatt, Rebuffing F.C.C., Court Allows Deals for Faster  Streaming, N.Y. Times, Jan. 15, 2014 at B1. 79 David Kravets, AT&T Thumbs Nose at Net Neutrality With ‘Sponsored’  Bandwidth Scheme, Wired (Jan. 6, 2014), http://www.wired.com/ threatlevel/2014/01/att-sponsored-data/. 80 See BEREC Guidelines for quality of service in the scope of net neutrality  BoR (12) 131 (Nov. 11, 2012), available at http://berec.europa.eu/eng/ document_register/subject_matter/berec/regulatory_best_practices/ guidelines/1101-berec-guidelines-for-quality-of-service-in-the-scope-ofnet-neutrality. 81 Regulation of the European Parliament and of the Council laying down  measures concerning the European single market for electronic  communications and to achieve a Connected Continent , COM(2013) 627  (Sept. 11, 2013).  82 Czech regulator issues traffic management rules, telcompaper (Dec. 23,  2013), http://www.telecompaper.com/news/czech-regulator-issuestraffic-management-rules--987360. Michele Farquhar Partner, Washington D.C. T +1 202 637 5663 [email protected] Elizabeth A. Bonner “Austin” Associate, Washington, D.C. T +1 202 637 2460 [email protected] 16 Hogan Lovells Global Media and Communications Quarterly Winter 2013 case that network neutrality regulation promotes local  telecommunications competition. 74  Furthermore, Judge  Silberman stated that the FCC’s regulation is arbitrary and  capricious because its findings lack substantial evidence. 75 Reacting to the opinion, FCC Chairman Tom Wheeler  said that the FCC would consider all its available options  for continuing to promote open internet principles,  including appealing the decision to the Supreme Court. 76 Appealing could, however, prove risky for the FCC, as the  Supreme Court could potentially reverse the D.C. Circuit’s  conclusion that section 706 grants the F.C.C. authority to  regulate broadband. The FCC could decide to forgo an  appeal in an effort to protect that favorable ruling.  The court’s decision is expected to fuel increased  interest in paid prioritization programs among fixed  broadband providers, a practice that the Order effectively  curtailed. Lifting the “no blocking” rule may also have  consequences for bandwidth‑intensive applications;  operators could throttle or potentially ban bandwidth‑ intensive applications if network congestion becomes  a serious issue. Netflix, which provides more than 30%  of the content consumed online during the peak parts  of the day, has announced its intention to resist attempts  to charge content providers for access to broadband  subscribers: “Were this draconian scenario to unfold with  some ISP [Internet service provider], we would vigorously  protest and encourage our members to demand the open  Internet they are paying their ISP to deliver.” 77 Broadband providers have sent mixed signals about  their intentions to take advantage of the new regulatory  landscape. At oral argument last fall, Verizon told the court  that it would be pursuing different pricing models but for  the FCC’s rules, but after the decision was announced  Verizon stated that it “has been and remains committed  to the open Internet, which provides consumers with  competitive choices and unblocked access to lawful  websites and content when, where and how they want”  – a commitment the company said the D.C. Circuit opinion  would not change. 78  Even before the ruling, AT&T had  begun exploring new pricing strategies with its recently  announced Sponsored Data program, which sidestepped  the then‑in‑force network neutrality rules but was criticized  as violating the “spirit” of the Open Internet. 79 Unlike the United States, Europe does not distinguish  between “common carrier” telecommunications  services and broadband information services. All Internet  conveyance services are classified in Europe as  “electronic communications services” and the same net  neutrality rules apply both to fixed and mobile Internet  access. 80  Last fall, citing the need for harmonized  regulation, European Union regulators began the  process of strengthening Open Internet protections.  In September 2013, the European Commission  (EC) adopted a far‑reaching “Connected Continent”  legislative proposal that includes new network neutrality  mandates. 81  The proposal is currently working its  way through the European Parliament’s committee  procedures and now faces a potentially lengthy process  of amendments and approval by the full European  Parliament and the EU Member States before it can be  brought into effect. Some national regulators in Europe  are already taking steps to implement similar mandates. 82Hogan Lovells Global Media and Communications Quarterly  Winter 2013 17 Change Any consideration of the changes that have taken place  in the TMT sector in the last five years cannot fail to take  account of its diversity.  Take just one example – regulation.  In some areas of the market, one high profile example  being data security and privacy, regulation is an  established central theme. In others, regulation is trying  to react quickly to the rapid evolution of new business  models. A topical example is the development of over‑the‑ top (OTT) content services which not only challenge the  traditional media providers but also leave regulators across  the globe struggling to keep up with the pace of change in  incorporating OTT into the extensive existing framework  of media regulation and addressing associated issues  such as the data‑rich natures of OTT service providers and  the threat of tax base erosion. By contrast, for many in the industry, regulation plays  only a minor role in their day‑to‑day activities. As a result  we find new regulations cited as a significant change by  just 38% of our respondents. This is a marked contrast  to much higher percentages in the financial services, life  sciences and real estate markets.  Indeed, in the TMT sector, product and service innovation,  and new business opportunities, were both identified by  two‑thirds of our sample as areas of significant change –  two aspects that are bound to be front of mind for decision  makers in a dynamic industry such as this suggests that,  in this space it is often the rapid pace of technological  change and associated evolution in business strategies  which drives regulatory change rather than regulation itself  driving corporate change. In short, whereas for some in  the TMT sector regulation is critical (nearly one in four say  actively engaging in regulatory policy will be their primary  challenge) across the sector as a whole business leads  and regulation responds; a marked contrast to the role of  regulation in driving the shape of financial services, life  sciences and the utilities sectors.  However, perhaps the most surprising finding from  TMT respondents was the fact that 15% considered the  industry to have experienced no change at all in the past  five years; the highest percentage saying so in any of the  sectors in our survey. The only conclusion we can draw  from this is that this is an industry in which change has  become normalised, and one in which business strategy  can never stand still. Respondents in the TMT sector are highly focused on  product and service innovation, with 68% citing this  factor as one of the most significant changes that they  have witnessed in the past five years, and a similar  percentage seeing new business opportunities emerging.  While this innovation presents growth opportunities,  it also has a darker side, with disruptive technologies a  constant concern for TMT operators. Again this is a trend  exemplified by the growth of OTT services which have a  huge potential to displace existing providers. There is always the potential for market leaders to  be displaced by more innovative market participants  meaning there is pressure to secure returns on  investment ever more quickly and to spread the costs  of that investment more widely, given the potential  threat from competitor innovation.  This may be the driver of two trends which emerge from  our survey. In the face of a hotbed of innovation and new business  opportunities, respondents in the TMT sector tell us  that they have adapted since 2008 by entering into  partnerships and strategic alliances, by moving towards  operational flexibility, and by entering new geographic  and product markets. New markets are certainly on the  radar of TMT leaders. This is particularly true of product  Change and Adaptation Extract from Hogan Lovells FT TMT Sector Report 2013 A Hogan Lovells Report Evolution: Reigniting the  Global TMT Sector18 Hogan Lovells Global Media and Communications Quarterly Winter 2013 markets, where our survey shows the TMT sector to be  the most active in making investments.  In addition, the TMT sector appears to be the industry  most in favour of partnerships and strategic alliances,  according to our survey, and this may be a result of  the speed of change its leaders are dealing with. In a  fast‑moving market, strategic partnerships can provide  a quicker, more flexible, means of entry into new  product areas or geographies, or leveraging brand or  technologies, than traditional M&A. Furthermore, in a  difficult financing environment, partnerships can provide  growth opportunities in a way that requires less capital  investment and mitigates competitive risks more than  would be the case if the participants pursued the same  opportunities through traditional M&A transactions.  Challenge Looking to the future, whilst general market weakness  and volatility is seen as the greatest challenge facing the  TMT market in the next two years, it is no surprise to see  TMT decision makers prioritising innovation in operations  and the use of technology as their number one concern  going forward. The sector is certainly the most innovative  of those in our survey, and innovation is cited by half of  our respondents as the most important demand placed  on their business in light of the economic challenges of  recent years.  In an innovation driven business it comes as no surprise  that intellectual property issues are also a key area of  focus. Most of the products which drive the industry  are founded in intellectual property and businesses face  challenges, both conceptual and practical, surrounding  the worlds of patents and copyright. These challenges,  and the need to address them through appropriate  diligence and contractual measures are central to  transactions of every kind including both M&A and the  building of strategic partnerships. And yet, despite these  challenges, there are clear signs of confidence returning,  with only 20% expecting the market weakness to  continue into the longer term and remain a challenge  for the next three to five years. The greatest challenges  that decision makers see on the horizon are growing  competition from overseas, and the rising tax burden. The TMT market, then, finds itself set apart from many of  the other industries in our survey, with regulation a less  consistent theme than for many and constant drive for  innovation the dominant theme. This points to a new era  of growth on the horizon for many in the TMT industry  with strategic alliances and M&A at the heart of many  growth strategies.  Outlook Respondents tell us that there will be a period of great  change ahead, driven by the constant need for innovation  in the pursuit of competitive advantage. They expect  general market weakness to become less of a worry,  but see product innovation and the protection of  intellectual property as key concerns for the years ahead. Product innovation – In the TMT industry, failure  to innovate can lead to extinction. Capitalising on a  competitive advantage in the face of intense competitive  pressure from both domestic and overseas rivals will  continue to be a pre‑eminent challenge in a constantly  changing landscape. Investing in the people that can  drive innovation will be a fundamental tool for achieving  growth, as will operational flexibility that allows for quick  responses to market change. Intellectual property – Properly protecting and leveraging  your ideas and innovations, your brand and your creative  works, is vital in the TMT market. Intellectual property  protection means a commitment to the life cycle of  IP assets, from development to commercialisation  and licensing, through to maturity. Failure to do so can  seriously impact the ability of companies in the industry  to achieve long term growth.Hogan Lovells Global Media and Communications Quarterly Winter 2013 19 One of the most popular responses to the challenges of  recent years in the TMT sector has been a move towards  more partnerships and strategic alliances, a strategy  adopted by more than two in three of our survey  participants (68%) and one that we see only increasing. Recent examples of partnerships in the TMT  sector include: Technology ● Softbank/PayPal (PayPal Japan): Mobile credit  card and payment services in Japan. ● Nokia/Siemens (Nokia Siemens  Networks): Multinational data networking and  telecommunications equipment. Media  ● Disney/Univision (Fusion): English language  news and life style cable network targeted to  Hispanic audiences. ● Lionsgate/MGM/Paramount (EPIX): Premium  entertainment network and subscription video on  demand service. ● Pinewood Shepperton/Seven Stars Media (Song  Lin): Film and television production in China. ● HULU (Fox/Disney/NBC/Providence): Streaming  video of TV shows, movies, webisodes and other  digital content. Telecoms ● AT&T/Akamai: Combining AT&T’s global IP  network portfolio with Akamai’s content delivery  network platform. ● Orange/Facebook: A social calling application  that will allow users to call each other via mobile  or desktop. ● PGi/TeliaSonera: Virtual meetings and cloud‑based  collaboration systems in the Nordic and Baltic regions.  The principal reasons most often cited for entering  into partnerships and strategic alliances are to (i)  share costs and/or risks, (ii) enter new markets  (geographic or products/services), and (iii) gain access to  complementary technologies, know‑how or other assets.  However, as compared to traditional M&A, the potential  disadvantages and risks of partnerships include sharing  the upside in success, giving up control and restricting  future flexibility (if exclusivity or non‑competition  commitments are included or implied). Partnerships  and strategic alliances can take many different forms,  and can be tailored to meet the strategic, financial and  operational objectives of the parties.  Prior to entering into any partnership or  strategic alliance, it is critical for a company to define  its goals and expectations, and seek to understand  those of its prospective partner. If the parties’ goals  are compatible, the form, terms and conditions of the  partnership or strategic alliance can be mutually agreed  upon and clearly documented.  Thus, critical pre‑formation issues include defining the  scope of the joint venture; determining and valuing  the contributions of the parties; deciding how the  joint venture will be financed, managed and operated;  allocating rights to share in distributions and other  bi‑products of the venture’s activities (including new  intellectual property); and agreeing to mechanisms for  resolving disputes.  Furthermore, despite the best intentions of the parties,  most partnerships and strategic alliances end early.  This often occurs because the parties are unable to  agree on key strategic decisions, or the partnership or  strategic alliance fails to achieve its original business  goals (or no longer fits the overall strategy or needs  of one or both of the parties). Accordingly, the legal  documents prepared at the outset of the partnership  or strategic alliance must anticipate these and other  possibilities and provide an “exit” and/or termination  rights to one or both parties.  Finally, given the organic nature of partnerships and  strategic alliances, the parties must be prepared to  dedicate sufficient time and attention to determining  whether they truly are compatible long term business  partners, and then prepare a robust set of legal  documents to govern their relationship as it evolves during  the life cycle of the joint venture or strategic alliance. * Stephen Kay was formerly Managing Partner of Hogan Lovells’  Los Angeles office. Partnerships and strategic alliances in the TMT sector Stephen H. Kay, Senior Vice President, General Counsel, Roku, Inc.* Stephen H. Kay Senior Vice President General Counsel Roku, Inc.20 Hogan Lovells Global Media and Communications Quarterly Winter 2013 With growth firmly on the agenda for many companies  going about their business in the TMT arena, the  challenge has been how that growth can be achieved  against a backdrop of macroeconomic stress.  The answer, according to 80% of our respondents, is  to move into new areas of business, which sets the  sector apart as a leader in diversification. Disposals  in existing markets are firmly off the agenda in TMT,  again more so than in any other sector, but other  strategies on the minds of business leaders include  entering new geographic markets and entering into long  term strategic relationships.  Organic growth To realise this expansionist ambition requires supportive  shareholders and first class staff. These two absorbers  are seen as key priorities for making TMT businesses  successful in current markets. But the main drivers behind organic growth will be  enhancing efficiency and productive capacity, as well as  developing new sales and distribution channels, as those  across the industry move to keep one step ahead in a  fast‑paced competitive environment. The entire sector  is dealing with new types of hardware, software and  services, new ways of producing and monetising content,  and new demands on networks, alongside exponential  growth in customer touch points and data sources.  Organically growing sales of existing products to existing  markets will not be easy. Few in the market expect to be  able to achieve their ambitions in new markets through  organic expansion. Instead organic growth will be focused  on existing markets, and will focus on finding ways to  deliver products to customers in ways that are better,  more efficient, and more attractive. Factors that will inhibit our respondents’ plans for  organic growth include unfavourable regulatory  conditions, perhaps implying antitrust and competition  legislation putting restraints on domestic growth, as well  as global competition and high barriers to market entry. M&A investment The business leaders we spoke to in the TMT sector  see M&A investment and consolidation being driven  primarily by the need to increase market share in  existing markets and fuelled by improved financing  conditions. Something of an M&A boom is already alive  and well in the TMT market, with the most active part  of the sector being the technology field, where activity  is being driven by the U.S. There the largest deals of  late saw the February 2013 announcement that Dell,  the world’s third largest personal computer maker,  was to be acquired in a $24.9bn leveraged buyout led  by Silver Lake Management. Then in September Verizon  Communications agreed to pay $130bn to buy Vodafone  Group out of its U.S. wireless business, in history’s third  largest corporate deal announcement. In Europe the busiest part of the TMT industry has  been the telecoms market, and particularly so in the  12 months to the end of Q2 2013, during which $55bn  has been spent on 99 deals, or 36% of global technology  spending. Whilst the biggest deal was a classic example  of geographic consolidation as Virgin Media acquired by  Liberty Global in a £16bn takeover, many transactions  have been driven by incumbent suppliers moving to  shore up their positions in the face of fierce competitors  snapping at their heels.  It is striking that, in the media market, the volume of  M&A has remained stable since the start of 2011,  but the value of transactions has significantly increased  to a global average deal size of $210m, again driven by  the nature of activity in the U.S. But the TMT industry does not have a good history with  acquisitions, according to our respondents. 35% told us that M&A has failed to deliver what they  had hoped for in past deals; the highest proportion  of dissatisfied dealmakers in any of our sectors  (the average dissatisfaction rate across all of our sectors  was 25%). With such a fast‑paced market this is perhaps  unsurprising, as valuations in the face of competitor  innovation, and at the early stage of new technologies,  can be extremely challenging. Indeed the fact that M&A  can be viewed as too blunt an instrument in some parts  of the TMT market is a significant contributor behind the  rise in partnerships and strategic alliances over the last  five years. This suggests that the flexibility that a joint  venture brings has been seen as outweighing the relative  simplicity of a “clean” M&A deal. Money matters When it comes to the challenging issue of financing  deals, the majority of our TMT respondents expect to  source funding over the next two years through direct  lending from institutional providers, such as pension  funds, insurance companies and other asset managers,  as well as from existing cash deposits and the banks.  Growth in Difficult Times Extract from Hogan Lovells FT TMT Sector Report 2013In terms of funding, where do TMT companies  expect financing will come from over the next 12 to  24 months? And over the next 3-5 years? 0% 10% 20% 30% 40% 50% 60% 70% 80% Banks Specialist credit funds Direct lending from institutional investors Asset financing Project financing Capital markets Existing cash New share issues Next 12-14 months Next 3-5 years Percentage  *e.g. pension funds, insurance companies, other asset managers Percentage  How do you expect businesses will use their cash  over the next 12-24 months? And how do you  believe businesses should be using it?  0% 1% 2% 3% 4% 5% M&A  investment Invest in  organic growth Return money  to shareholders Keep as savings Pay down debt How businesses will use cash How businesses should use cash Hogan Lovells Global Media and Communications Quarterly Winter 2013 21 In the longer term, looking over the next five years,  existing cash is seen as the most likely source of  financing, alongside the capital markets, and increasingly  the banks. We also asked our respondents how they expect  businesses to use their cash over the next two years,  and we found the majority putting an emphasis on M&A  investment, followed by paying down debt. Respondents  said companies should instead be committing more cash to  paying down debt and returning money to shareholders. Hogan Lovells research into the cash on the balance sheets  of the world’s top 1,000 non‑financial companies shows  TMT businesses amongst the most cash‑rich in 2013, with  cash on TMT balance sheets up 19% on 2012 to exceed  $1,119bn across 170 companies at the end of August. Outlook There seems a growing consensus across the TMT  market that the current trend for transactional driven  growth in the sector will continue, driven by consolidation  thanks to the need to increase market share in existing  markets and tap new ones, and fuelled by improved  financing conditions that will push companies to seek  growth externally. Our study shows businesses will prioritise: Talent management – After all, the greatest source  of innovation comes from attracting and retaining the  brightest employees, and empowering them to take the  business forward. Competition for talent is fierce in all  parts of the TMT sector, but getting the right people in  the right positions within the company, and committing  to intelligent recruitment, training and incentivisism,  will be key for growth. Strategic partnerships – Increasingly seen as the nimble  way to tap into the potential of new markets without  taking on the risk of wholesale acquisitions, partnerships  and alliances are becoming an increasing feature of the  TMT world. As experienced practitioners will attest,  such arrangements should not be entered into lightly,  however, and call for careful consideration of strategic,  business and legal issues at the outset, including  pre‑negotiating dispute resolution procedures and exit  rights, utilising tax efficient structures, and considering  potential competition and regulatory challenges. M&A – It seems inevitable that M&A will be a significant  feature of the TMT market in the coming years. But as  consolidation takes hold, businesses will want to improve  their success rates with transactions, so as to achieve a  higher level of satisfaction with deals after completion.  Here the focus will need to be around robust deal  execution, which means thorough due diligence and  consideration of the primary issues, namely what is the  acquisition bringing to the core business, and whether  the valuation is correct. 22 Hogan Lovells Global Media and Communications Quarterly Winter 2013 While deal activity is already happening around the world  and across the subsectors that make up the TMT industry,  there remains an appetite for more. Respondents in the  TMT space broadly agree, more than most, with the  assertion that short term challenges are inhibiting long  term planning in their industry, and that companies are  under‑investing.  And so the question comes to what it will take to bring  out even further investment by businesses? Here the  three biggest issues are improvement in the financing  markets, reduced uncertainty in the Eurozone, and bold  regulatory reform by governments. If we take the latter  measure to be a call for elected leaders to kick‑start the  recovery with new rules to encourage bank lending or  the like, then it appears that the issues dampening the  already‑fairly potent TMT markets are macroeconomic as  opposed to sector specific. There is also some demand in  the TMT sector for a simplification of the tax regimes. TMT businesses continue to look to international  expansion as a path to growth. The focus is on Southeast  Asia and Greater China over the next couple of years, and  on Western Europe and Southeast Asia in the longer term.  Other growth markets when we ask respondents to look  five years ahead appear to be Central and Eastern Europe,  South America, South Asia and North America with Africa  and the Middle East appearing to lag even when looking  that far ahead.  It is likely that patterns of activity will vary between  different strands within the sector. For example the  smartphone business will continue to have a strong  emphasis on China, both in terms of handset‑making and  building networks whilst in European telecoms continued  consolidation will continue as the as the battle between  the phone companies and the broadband and cable  providers to offer multi‑service bundles drives more deals  like Vodafone’s acquisition of Kabel Deutschland, Germany’s biggest cable company. OTT businesses by  contrast are likely to see growth across the globe. But cross‑border expansion is not without its issues:  the greatest challenges to international expansion are  focused again around regulatory hurdles and international  tax structures. Deal outlook TMT businesses are under pressure from the pace of  innovation in the sector and the ever‑present challenge of  both domestic and international competitors. In that context  acquisitions are likely to become increasingly attractive  as a means to access new geographies and new product  lines. The deal outlook for the sector is already extremely  positive, and the TMT M&A market looks certain to remain  active as financing conditions improve and the most difficult  macroeconomic challenges are slowly addressed. We expect to see significant deal activity in Western  Europe and North America across all subsectors, and  within technology in particular, and in telecoms in Europe.  Particularly active subsectors look likely to include cyber  security and big data analytics, where we expect to see  significant deal activity going forward. The media industry  will also see increased M&A as new ways of producing  and selling content threaten existing business models.  Reigniting the Global TMT Sector Extract from Hogan Lovells FT TMT Sector Report 2013Hogan Lovells Global Media and Communications Quarterly Winter 2013 23 The U.S. telecoms market has witnessed a flurry of  significant M&A transactions in recent months, most  notably Verizon Communications’ $130bn deal for  Vodafone Group’s U.S. assets, which is history’s third‑ largest corporate deal and gives Verizon full access to  the profits from the largest mobile operator in the U.S.  Other transactions include Softbank’s $21.6bn acquisition  of Sprint Nextel, the number three U.S. wireless provider,  and AT&T’s $1.2bn acquisition of Leap Wireless. These deals are being driven by favourable market  conditions and the need for more spectrum, particularly  in the absence of Federal Communications Commission  (FCC) auctions, which have not happened since 2009.  Many of the wireless transactions are being pushed  ahead by consumer demand for more wireless  services, as the move away from traditional wires  towards smart phone services gathers pace. Many of  the deals have at their heart the need to penetrate  particular market segments, such as the prepaid market  in the case of AT&T’s Leap buy, and to gain competitive  edge in distinct niches. The constant need to innovate is another M&A driver,  with the big telecoms providers perpetually entering  new spaces, as with AT&T and Verizon’s recent moves  into the mobile video arena. Often the best way to  move quickly into new product areas is via acquisition. On the technology side, perhaps the most interesting  deal is Microsoft’s $5bn purchase of Nokia’s mobile  phone business, as the main makers of mobile‑network  equipment continue to give up making handsets. The  handset makers are now focused around three systems  – Google’s Android, Apple’s iOS, and some way behind,  Microsoft’s Windows. And the operators of mobile  networks are preparing for further consolidation, both in  the U.S. and worldwide.  There is also change afoot at the United States Federal  Communications Commission, where new chairman  Tom Wheeler, a managing director at Washington, D.C.,  venture capital firm Core Capital Partners, has taken  the helm. One of his most important challenges is  a successful television spectrum incentive auction,  expected within two years, and he will also need to  drive efforts to increase internet connectivity in schools,  but his approach is not expected to differ markedly  from that of his predecessors

Hogan Lovells bolsters TMT Practice with Leading  Hong Kong Hire

HONG KONG, 13 January 2014 –  Hogan Lovells has recruited Mark  Parsons into its Corporate/Commercial  team in Hong Kong as a partner with a  particular focus on complex commercial  transactions and regulatory matters in  the TMT sector. Mark is expected to  join around the end of January 2014. Mark was formerly a partner at Freshfields Bruckhaus  Deringer in Asia where he led their IP/IT practice and  their work in the TMT sector. Within a practice covering  a wide range of commercial, regulatory and intellectual  property matters, Mark is particularly experienced in the  negotiation of multi‑jurisdictional outsourcing, technology  licensing and distribution agreements, as well as advising  on commercial matters in the internet and e‑commerce  space. Mark also has a well‑developed practice advising  on Asia’s fast developing telecommunications, media  and data privacy regulations. Mark is a highly regarded  TMT practitioner and is listed in Chambers as a leading  individual, where clients reported “He has a very positive  and solution‑based approach to problems, and is an  excellent technician as well.”  Mark’s hire adds further breadth and depth to  Hogan Lovells’ leading global Commercial practice and  the well‑established multi‑disciplinary TMT practice  across the Asia region.  Commenting on Mark’s arrival, Peter Watts and Robert  Waldman, global Co‑Heads of Hogan Lovells’ Commercial  practice, said:  “We are delighted that Mark Parsons will be joining us  in Hong Kong to strengthen our team. Mark is a leading  practitioner in the TMT sector and he brings a unique  blend of genuine commercial, corporate and sector  experience that perfectly aligns with our practice both in  Asia and globally.  Mark’s arrival in our TMT sector team comes shortly  after that of LA based media and entertainment partner  Sheri Jeffrey who also has a significant Asian component  to her practice. This underlines our commitment to further  enhance our market leading capability serving the TMT  sector in Asia and across our global network.“  Mark added:  “I am delighted to be joining an outstanding practice in  Hong Kong and look forward to working closely with  the Hogan Lovells’ teams globally to provide our clients  with the highest level of support in Asia’s increasingly  important and dynamic markets.”  Hogan Lovells bolsters TMT Practice with Leading  Hong Kong Hire26 Hogan Lovells Global Media and Communications Quarterly Winter 2013 On 6 January 2014, the Ministry of Industry and  Information Technology (“MIIT”) – the internet and  telecommunications services regulator – and the Shanghai  municipal government jointly issued the Opinions on  Further Opening Value-added Telecom Business Sector  to Foreign Capitals in the Shanghai Free Trade Zone (“Opinions”). This short, but significant document  provides for the liberalisation of foreign investment in  certain types of value‑added telecom services (“VATS”)  within the Shanghai Free Trade Zone (“FTZ”).  In order to understand the significance of this  development, it is necessary to understand some of  the history of foreign investment in telecommunications  services in China. When China joined the World Trade  Organisation (“WTO”) in 2001, the opening up of  telecoms was widely trumpeted as a breakthrough,  as previously foreign investment in telecoms had been  banned. However post‑WTO, the Ministry of Information  Industry (now MIIT) took a very restrictive interpretation  of China’s WTO commitments, which was at odds with  that of the EU delegation that had been negotiating the  China commitments with the Ministry of Commerce. The VATS commitments provide for opening up VATS  to foreign investment subject to a 50% cap using the  “including” formulation, which those on the other  side of the table interpreted to mean “including but  not limited to” and those from MIIT took to mean  “namely.” The list of services that follow includes  email, voice mail, online information and database  retrieval, electronic data interchange, enhanced/ value added tax services (including store and forward/ store and retrieve, code and protocol conversion and  online information) and/or data processing (including  transaction processing). MIIT’s view, therefore, has  been, that services like Internet Data Centres (“IDC”),  or call centres are outside the scope of China’s  WTO commitments as are Internet access services,  domestic Virtual Private Networks and domestic  conferencing services (which China classifies as VATS).  As can be seen from the number of approved Foreign  Invested Telecommunications Enterprises (“FITEs”) on  the MIIT website, very few (under 30 and apparently none  since 2008) FITEs have been approved by MIIT since  China became a member of the WTO. If we interpret the  wording of the Opinions strictly, MIIT may still grant app  store and store‑and‑forward services operating permits in  a selective fashion, in other words, on a pilot basis. The table below summarizes the new position on  foreign investment in VATS within Shanghai FTZ. Shanghai FTZ shows its Hand on Telecoms Opening up  – Could this be the Long-Awaited Breakthrough in VATS?  VATS opened up in SH FTZ Previous restriction on  foreign ownership Restriction on foreign  ownership in FTZ Notes App store (under Internet  information services) 1 50% cap No cap Other information services are  still subject to the 50% cap. Store‑and‑forward services 50% cap No cap Online data processing  and transaction processing  (operational e‑commerce) 50% cap 55% cap Call centres Not allowed 2 No cap This item was not included in  China’s WTO commitments,  and hence was not previously  open to foreign investment. Domestic multi‑party  communications (i.e. conference  call services) Not allowed 2 No cap The same as above Internet access 3 Not allowed 2 No cap The same as above Domestic IP‑VPN Not allowed 2 50% cap The same as aboveHogan Lovells Global Media and Communications Quarterly Winter 2013 27 The Opinions require that companies applying for  operating permits for the VATS listed in the Appendix  must register the company and have their infrastructure  located within the Shanghai FTZ. However, it is  important to note that all services may be made available  nationwide, except for Internet access services,  which will be confined to the FTZ, which presumably  means only subscribers physically located within the  FTZ can use the service. The Opinions state that implementation of the  Foreign-invested Telecom Enterprise Administrative  Procedures (“FITE Regulations”) promulgated by the  State Council with effect from 1 January 2002 will  be suspended in the FTZ. This is necessary to allow  exceeding the 50% cap on foreign investment in VATS  set out in the FITE Regulations.  There is a further breakthrough in that for the first  time the Opinions will permit Wholly Foreign‑owned  Enterprises (“WFOEs”) to engage in certain VATS  services. The news release from MIIT confirms this to  be the case (see http://www.miit.gov.cn/n11293472/ n11293832/n11293907/n11368223/15825208.html).  The news release provides that the following services  will be opened up to WFOEs: ● app stores (under information services) ● store and forward services ● call centres ● domestic multi‑party communications ● Internet access. This is consistent with the table (left) reflecting the  position under the Opinions. The MIIT news release also indicates that new pilot  measures are to be promulgated to simplify the  approval procedures and shorten the review period  in the Shanghai FTZ. One interesting development is that we understand that  Yi Hao Dian 4  has established a Sino‑Foreign Joint Venture  within the Shanghai FTZ and that the MIIT granted the  joint venture an ICP operating permit and an operating  permit for online data processing and transaction  processing in late 2013. The Opinions give rise to the  possibility that MIIT will actually grant VATS operating  permits to foreign‑invested enterprises established  within the Shanghai FTZ on a regular basis. As a result,  it is anticipated that more and more multinationals will  consider setting up subsidiaries in, or relocation to,  the FTZ. However the proof of the pudding is in the  eating, and it will be some time before it becomes  clear that issuing telecoms operating permits within  the FTZ is becoming routine and that this is indeed the  breakthrough that industry participants and their advisors  have long been waiting for.  1 Also known as Internet Content Provider or ICP services. 2 However under the Closer Economic Partnership Arrangement  (“CEPA”) and CEPA IV, qualified Hong Kong Service providers were  allowed to set up joint ventures in China to provide the following  VATS, subject to a foreign investment cap of 50%: internet data centre  services; store and forward services; call centre services; internet  access services; content services and domestic IP-based VPNs.  3 Also known as Internet Service Provider or ISP services. 4 One of the largest and fastest growing online retailers in China,  majority controlled by Wal-Mart. Andrew McGinty Partner, Shanghai T +86 21 6122 3866 [email protected] Hogan Lovells Global Media and Communications Quarterly Winter 2013 On 14 June 2012, Hong Kong entered into an era for  competition law. That day, the Competition Ordinance  was enacted. Since then, however, progress has  been slow. At the moment, the Hong Kong government  is busy with the establishment of the two new  institutions in charge of enforcing the ordinance –  the Competition Commission and the Competition  Tribunal. The substantive provisions of the Competition  Ordinance have yet to come into effect.  While people are waiting for the antitrust regime  revolving around the Competition Ordinance to take  shape, Hong Kong has witnessed the adoption of one  of its first antitrust decisions: in September 2013, the  Hong Kong Communications Authority (“Authority”),  formerly the Broadcasting Authority, issued its decision  to sanction Television Broadcasts Limited (“TVB”)  for anti‑competitive practices. Its decision was  adopted under the Broadcasting Ordinance (“BO”)  – which contains sector‑specific antitrust rules – but  the implications may be broader. The decision may  give a boost to the antitrust “institution building,”  as the Authority will also have powers to enforce  the Competition Ordinance in the broadcasting and  telecommunications sectors.  Timeline The Authority announced the ruling against TVB after a  three‑year investigation. The investigation was initiated  by a formal complaint from Asia Television Limited  in December 2009 alleging that certain clauses in  TVB’s contracts with its artists and singers and certain  informal policies and practices pursued by TVB were in  violation of the BO. On 28 August 2010, the Authority decided to launch  a full‑blown investigation into some of the contractual  clauses and policies of TVB, and its final decision was  released on 19 September 2013. On 17 October 2013, TVB appealed the Authority’s  decision to the Chief Executive in Council. In December,  TVB filed an application for judicial review of the decision. The Relevant Market The Authority started its analysis by defining the ‘relevant  markets.’ It noted that the case concerned an issue of  “two‑sided markets,” with TV viewers on one side and  TV advertisers on the other side. As to the TV viewer  side, the Authority ultimately left open the question of  which products/services comprise the relevant market.  Its analysis assumed that ‘all TV viewing’ would be the  broadest possible relevant market, and focused on that  area. The Authority proceeded on the basis of the broad  scope of the relevant market as this approach was more  favourable for the defendant. It concluded that TVB  possessed a dominant position in this broad market as a  result of variety of factors. Perhaps most importantly, the  Authority found that TVB had a market share above 60%  in the ‘all TV viewing market.’  As for the TV advertiser side, the Authority found that  ‘TV advertising’ was the relevant market. It examined  and ruled out the possibility that other types of advertising  – such as advertising through traditional media including  cinema, radio, print, billboards and buses, or Internet  display advertising – would be in the same relevant  market. TVB’s share in the TV advertising market was  found to be approximately 56‑59% from 2006‑2009,  dropping to 47% in 2010. Again, the Authority looked at  other factors such as high entry barriers, substantial sunk  costs, brand loyalty, and weak countervailing buyer and  supplier power to reach its finding of dominance. The Anti-Competitive Conduct In terms of anti‑competitive conduct, the Authority  concluded that TVB restricted competition in the TV  programme service market by foreclosing rivals’ access  to artists and singers, thereby impairing their ability to  compete with TVB and raising their costs. TVB’s contracts contained restrictive clauses requiring  artists to be totally exclusive to TVB during the contractual  period or requiring them to obtain consent from TVB  before engaging in outside work. The Authority found that  the consent requirement worked as de facto exclusivity.  Artists did not frequently apply for consent between 2007  and 2010, perhaps concerned about detrimental effects  on their careers at TVB. And, in none of the instances was  consent granted for artists working for rival TV stations in  Hong Kong.  In short, the Authority held that TVB had “secure[d] for  itself exclusive supply of a large portion of an essential  input in TV and music programme production, i.e.  artistes and singers.” Referring to guidelines issued  by itself and the European Commission, the Authority  examined the degree of “foreclosure” of the exclusivity  practice, finding among other things that over 90% of  singers in Hong Kong had signed contracts with TVB. Hong Kong Regulator Fines Broadcaster for  Anti-Competitive PracticesHogan Lovells Global Media and Communications Quarterly Winter 2013 In addition, the Authority held that TVB had put in  place so‑called “no original voice,” “no promotion,”  and “no Cantonese” policies to back up its exclusivity  practices. As such, TVB’s contracts with artists  prohibited them from performing in other TV stations’  programs with their original voices and from attending  promotional activities. It also prohibited them from  speaking Cantonese on the programs of other TV  stations in Hong Kong, a prohibition the Authority found  to be “implicitly imposed” rather than spelled out in  contractual clauses.  Overall, the Authority seemed to hold that these  three policies were ancillary to the main issue, the  contractually imposed exclusivity. It held that these  ancillary policies “extend the reach of TVB’s exclusivity  provisions. They create an additional hurdle for other  local TV stations…” The Authority also examined a variety of defences  and justifications put forward by TVB, but all of them  were rejected. Sanctions and Remedies The Authority ordered the adoption of a series of  sanctions and remedies. In particular, it ● imposed a fine of HK$ 900,000 (approximately  US$ 115,000) on TVB (the maximum penalty for  the relevant violations being HK$ 1 million) ● directed TVB to bring the infringement to an end  and refrain from repeating or engaging in equivalent  conduct going forward ● ordered TVB to communicate to all artists and  singers with contracts that it was abandoning the  challenged contractual clauses and policies ● requested that TVB report back on the steps it  was taking to comply with the decision. Comments This decision is one of the first antitrust decisions in  Hong Kong. With its adoption, the Authority signals  that it is a force to be reckoned with before and after  the Competition Ordinance is in effect – given its  concurrent enforcement powers with the Competition  Commission. In a broader sense, the decision may be  an indication that Hong Kong authorities are keen to  demonstrate their commitment – and ability – to deal  with anti‑competitive practices.30 Hogan Lovells Global Media and Communications Quarterly Winter 2013 The decision provides important reading for antitrust  aficionados and companies looking for guidance  on how to comply with the BO and, perhaps more  importantly, the Competition Ordinance. There is plenty  of information as the full decision of the Authority  spans over 115 pages.  The Authority’s decision is about abuse of dominance,  and focuses to a large extent on contractual exclusivity.  In a way, contractual exclusivity is one of the most  straightforward examples of potentially exclusionary  conduct in situations where foreclosure is significant  enough in terms of scope, intensity, and time.  The decision’s finding that TVB engaged in de facto exclusivity is less straightforward but perhaps even  more interesting. This seems to be an indication  that the Authority takes an effects‑based approach,  seeing through the form of the alleged restraint. Finally, it is also interesting to see that the Authority  referenced European Union competition law at various  points. In its assessment of “dominance,” the Authority  even explicitly stated that it will pay regard to European  case law while bearing in mind that “the law of Hong  Kong demands independent interpretation.” Clarice Kan Associate, Shanghai T +86 21 6122 3856 [email protected] Lovells Global Media and Communications Quarterly Winter 2013 31 Despite the apparent side‑lining of the draft Personal  Data Protection Law (“Draft Personal Data Law”),  which has been circulating since 2006 but appears to  have little prospect of becoming law in the foreseeable  future, China has nonetheless been very busy stepping  up the battle against the abuse of personal data from a  legislative perspective in recent years. As China does not have a single comprehensive data  protection law, many actions that historically relate  to personal data protection have been brought under  different guises, such as actions for infringement of  rights to reputation or rights to image under the General  Principles of Civil Law first effective 1 January 1987  (as amended) (“GPCC”). In fact, rights to privacy  can be traced back to the People’s Republic of China  Constitution (“Constitution”) which treats a citizen’s  communications (e.g., telephone conversations, letters,  emails) as private information. Other regulations  such as the Telecommunications Regulations and the  Internet and E-Mail Services Administrative Measures (“E-mail Measures”) reflect the language of the  Constitution in their respective domains. Until recently, those whose rights to privacy had been  infringed upon were limited to relying on Article 140 of  the Opinions of the Supreme People’s Court on Several  Issues Concerning the Implementation of the General  Principles of Civil Law (Trial) (“Supreme People’s Court  Opinions”), which provides that “disseminating the  privacy of another person” is regarded as damage to  that person’s right to reputation (rather than a direct  infringement or invasion of privacy) as well as various  other disparate provisions in laws, administrative  regulations, and other rules relating to areas as diverse  as banking, medical services, and the protection of  minors and HIV‑infected persons. Many of the provisions  that come closest to general data protection provisions  are set out in rules related to consumer protection such  as the Shanghai Municipality Protection of the Interests  of Consumers Regulations effective 1 January 2003. Recent Key Legislative Developments In terms of employers’ data protection obligations towards  their employees, the main set of rules is the Regulations  on Employment Service and Employment Management (“Employment Information Regulations”) 1  which  govern the protection of personal information of  employees. Employers in China now have an obligation to  maintain the confidentiality of their employees’ personal  information. According to the Employment Information  Regulations, an employer must keep its employees’  personal information confidential and must obtain an  employee’s written consent if the employer wants to  make the employee’s personal information public. The Employment Information Regulations do not clearly  define the employee’s “personal information,” a term  that appears to vary by industry. Officials we spoke  with suggested that the scope of the term would be  left to the discretion of the labour authorities on a case‑ by‑case basis. However, one should note that China’s  Internet and telecommunications industry regulator,  the Ministry of Industry and Information Technology  (“MIIT”), promulgated rules in 2011 defining “personal  information” within the telecoms space (see below). A legislative landmark was achieved when China amended  the People’s Republic of China Criminal Law (the “Criminal  Law”) in 2009, such that it is now a criminal offence for  “government or private sector employees in the financial,  telecommunications, transportation, medical, or other  such like sectors to sell or otherwise unlawfully provide  the personal data that has been obtained by them in the  course of performing their work duties to third parties, or  for any person to obtain such information by means of  this or other unlawful means.” This section of the Criminal  Law does not, however, provide guidance on how to  construe “personal data” or what would constitute the  “unlawful provision” of personal data. Subsequent to this  development, China went a step further when the Tortious  Liability Law, effective 1 July 2010, specifically cited rights  to privacy as one of the group of protected personal and  property rights on which a tortious claim may be based. In December 2011, MIIT promulgated the Regulating  the Internet Information Service Market Order Several  Provisions (“Internet Information Service Provisions”)  which became effective on 15 March 2012. The Internet  Information Service Provisions apply to entities in China  providing information services through the Internet –  also known as Internet content providers (or “ICPs”)  or engage in related activities, and have a special focus  on protecting Internet users’ legitimate expectation of  privacy from perceived abuses.  China Turns Up the Heat in the Battle Against Abuses  of Personal Data 1 Issued by the Ministry of Labour and Social Security (the  predecessor to the Ministry of Human Resources and Social  Security), effective 1 January  2008.  2 Jointly issued by the General Administration of Quality Supervision,  Inspection and Quarantine and the Standardization Administration of  China, effective 1 February 2013.32 Hogan Lovells Global Media and Communications Quarterly Winter 2013 The Internet Information Service Provisions contain  rules on the treatment of “users’ personal information,”  which is defined as “any information associated with  a user which, either independently or when combined  with other information, is able to identify such user”  (our emphasis). The rules, among other things, provide  limitations and consent requirements on ICPs for the  collection and dissemination of personal information. More recently China passed the Guidelines of Personal  Information Protection within Information System for  Public and Commercial Services on Information Security  Technology (“Guidelines”) 2 , governing the protection  of personal information in general. The Guidelines  are intended to regulate all organizations and entities  with respect to the protection of personal information  (except for government bodies that exercise any public  administration function). The Guidelines contain a set  of rules and principles for the collection, processing,  transferring and deletion of personal information on  “computer information systems” (as opposed to other  data storage media in hard copy form). The Guidelines  constitute recommended standards rather than  mandatory standards, and a company may choose to  adopt the Guidance in whole or in part. However, they  are as close as China currently gets to data protection  best practices and hence worthy of consideration by  companies with operations in China, as they provide a  taste of things to come. Under the Guidelines, personal information is defined very  broadly to be “any computer data relating to a specific  natural person which can be processed by an information  system and which is capable of identifying such natural  person, either individually or in conjunction with other  information.” The Guidelines set out two categories of  personal information: “sensitive personal information” (i.e.,  information that, if divulged, may have negative implications  on the owner of the information) and “general personal  information” (i.e., everything other than sensitive personal  information). The collection and use of “sensitive personal  information” requires the owner’s express consent, and  evidence of such consent must be kept. The collection  and use of “general personal information” requires implied  consent (that is, where the owner raises no objection to  its collection). In either case, express consent is required  to transfer any personal information outside China under  these non‑mandatory guidelines.Hogan Lovells Global Media and Communications Quarterly Winter 2013 33 In parallel to these developments, there has been a notable  trend for local legislation such as the Jiangsu Province  Information Regulations 3  which seem to be designed to fill  in the perceived gap in the law left by the failure of the draft  Personal Data Protection Law to gain traction.  It is against this background that two additional  major pieces of legislation on the collection and  use of personal data by network services providers,  enterprises, other institutions, and even individuals  have emerged. It is notable how the emphasis remains  very much on regulating the conduct of service  providers despite the raft of prior legislation in this  regard, suggesting the problem persists.  The Personal Information Provisions and the  Network Information Protection Decision The Provisions on Protection of Personal Information  of Telecommunications and Internet Users (“Personal  Information Provisions”) were released by MIIT on  16 July 2013 and came into force on 1 September 2013.  The Personal Information Provisions follow a decision by  the National People’s Congress Standing Committee –  the Decision on the Strengthening of the Protection of  Network Information (“Network Information Protection  Decision”) – that came into force on 28 December 2012.  In terms of their relationship, the Network Information  Protection Decision is a top‑down ‘helicopter’ view  that sets out the framework and provides overarching  principles with regard to personal data protection.  However the scope of application of the Network  Information Protection Decision is very wide, as it  regulates the collection and use of “personal electronic  information” of network service providers and by all other  enterprises and institutional organizations in the course  by their operations, and requires that the collection and  use of personal electronic personal data must be on the  basis of informed consent and information owners must  be notified about the purpose of data collection, the  method and the scope. Policies in relation to the collection  and use of electronic personal information must be made  public. The Personal Information Provisions follow the  same principles, but are much more detailed.  The Personal Information Provisions address the  collection and use of the personal information of  individual users such as passwords, names, date of  birth, addresses, account numbers and so forth by  providers of telecommunications services and Internet  information services within China (“Service Providers”).  The Personal Information Provisions include standards,  security measures, and penalties concerning collection,  use of information, and violations in respect thereof by  Service Providers and third parties engaged to handle  collection and use of such information (i.e., outsourcing).  Key Obligations and Penalties under the Personal  Information Provisions The Personal Information Provisions set out a number  of security measures regarding collection and use of  personal information which Service Providers must  adopt to prevent disclosure, damage, and loss of  personal information.  These measures include: ● limiting the right to access to users’ personal  information to certain employees only ● ensuring safe storage ● maintaining records of staff who handle user data ● setting internal policies on data collection and use ● training staff on personal information protection. Service Providers are also required to formulate rules  on the collection and use of personal information  of users, which must be displayed at their business  premises, websites, etc.  Unlike the Network Information Protection Decision,  under which enforcement through the imposition of (fairly  vague) penalties is uncertain without further implementing  legislation, the Personal Information Provisions are more  concrete and specific. Penalties are linked to Service  Providers’ level of implementation of rules and security  measures. Fines of up to RMB 10,000 may be imposed  for failure to formulate or display rules, or to set up a  mechanism for user complaints. Other breaches may lead  to fines between RMB 10,000 and 30,000. The Personal  Information Provisions also refer to potential criminal  liability, presumably referring to criminal data protection  violations set out in the Criminal Law. 3 Issued by the Standing Committee of the Jiangsu Province People’s  Congress, effective 1 January 2012. 34 Hogan Lovells Global Media and Communications Quarterly Winter 2013 Conclusion: Practical Implications of the  New Rules It has been suggested that one of the reasons why the  drafting of the Draft Personal Data Law appears to have  been side‑lined and has fallen off the legislative calendar is  because there was no consensus among key stakeholders  as to whether China was ready for, or even needed, a  ‘full‑on’ law on data protection. Yet some consumers in  China, who have to live with very high levels of spam on  mobile telephones and in email accounts, may beg to  differ. Nonetheless, China’s legislative machine appears to  have been notched up a gear in recent years in response  to concerns regarding the issue, although there seems to  be substantial overlap between that legislation that has  surfaced. China’s decision to enforce the Criminal Law  provisions on data protection in certain recent high‑profile  cases is the clearest indication that China increasingly  views data protection as a serious issue.  The increase in legislation in this area must be understood  against the backdrop of mounting public discontent with  Service Providers’ use of personal data. While responsive  to such concerns, the Personal Information Provisions  have drawn criticism for lacking teeth. Critics argue that  even a fine of RMB 30,000 is miniscule in comparison  to revenues of major operators that tally into the billions  of RMB, and it has been suggested that the purpose of  these regulations is more to head off public discontent  than a genuine effort to protect personal information.  Some note that the provisions regarding reputational  damage – alluded to in the Network Information  Protection Decision, for example – may be more potent. While the Personal Information Provisions certainly  appear to have important business implications for  entities falling within the definition of “Service Provider”  and are more specifically discussed in this article,  the Network Protection Decision has implications for all  enterprises collecting data in China. These businesses  will now be required to comply with the core principles  of “lawfulness, appropriateness, and necessity”  when collecting personal electronic data of individuals  while engaging in business activities. They will also,  henceforth, need to specify the method and scope of  collection and use and obtain the consent of the subject  of the data collection. That is a significant change, and as  more data protection‑related legislation and regulations  surface, domestic and foreign‑invested enterprises in  China may need to regularly review their data collection  models and practices.