There is good news and there is bad news for sports events rights holders and their licensees in the European Commission’s second report on the implementation of the Conditional Access Directive 98/84/EC, published on 6 October 2008. The bad news is that, according to the Commission, the sanctions under the Directive do not apply to the use of lawful conditional access devices like smart cards and decoders that fly in the face of territorial restrictions, an issue that is at the heart of the references to the European Court of Justice (ECJ) in FAPL v QC Leisure and, more recently, Murphy v Media Protection Services. In other words, the Commission applies a narrow definition to “illicit devices” such that Mrs Murphy, and, on that reading, also the Defendants in the FAPL case, do not appear to be in possession of, or trading in, unlawful conditional access devices.

The good news, on the other hand, is that the Commission recognises that rights holders “seem perfectly entitled to demand better protection” and in this respect proposes to initiate work to assess the need for additional measures to close what it considers a “loophole”.

Apart from that, the Commission’s report confirms the necessity of protection for digital access systems that represent “a vital pre -condition for the growth of new content distribution services like video on demand, online products and mobile TV”. The report makes a number of recommendations to ensure the further effectiveness of the Directive. Implicit in those is the Commission’s acknowledgement of the Directive’s imperfections resulting in and compounded by uneven transposition of the Directive at national level. In this respect, as the Commission reports, efforts to combat piracy against conditional access systems have varied according to Member State (although all Member States have now implemented the Directive).

THE GREY MARKET

The Commission noted that despite the overriding aim to sustain the development of cross-border services, the EU broadcasting market has remained fragmented and in nearly all cases pay-TV channels are broadcast exclusively within the country in which they are based. Broadcasters tend only to buy rights to broadcast in their own country. Not surprisingly, as many Europeans live outside their country of origin, a grey market has developed. This has been characterised as “not exactly piracy but an infringement of contractual obligations imposing territorial restrictions to rights’ exploitation”. Thus, subscriptions are paid for but are used outside the licensed territory, inevitably breaching the consumer’s subscription contract.

On consultation, the Commission floated the idea of legalising the grey market. Not surprisingly, this did not go down well and most market stakeholders raised objections on the basis that it necessarily challenges the organisation of the sale of rights according to national territory. Whilst the Commission acknowledges the potential erosion of broadcasting revenues , it clearly recognises the requirements of European nationals living in parts of the European Union other than their homeland. In this respect the Commission intends to “continue the examination of the subject” with a view (and only with a view) to encouraging the development of a cross-border market for protected services “catering to the mobility and legitimate expectations of European citizens and, as such, legally available in their mother tongue and a language of their native country”.

UNEVEN TRANSPOSITION

The Directive requires Member States to apply sanctions that are “effective, dissuasive and proportionate”. Unfortunately, as the Commission suggests, not all Member States have achieved this. The ranges of sanctions are indeed very broad with fines ranging between minima of €25 to €7,500 and maxima of €1,158 to €50,000 and for prison sentences, where applicable, between eight days and five years. Some Member States go further in imposing protection beyond the requirements of the Directive by sanctioning private ownership of illicit devices. The Commission therefore intends to give further consideration to this subject and is seeking feedback from Member States.

NEW FORMS OF PIRACY

Another concern is the Directive’s inability to deal with emerging forms of piracy, including smart cards and card sharing. The increasing use of smart cards has led to the widespread availability of decoders and blank smart cards that, once combined with card programming codes that are increasingly disclosed online, allow the user to gain unauthorised access to conditional access protected services. Also prevalent is the practise of card sharing whereby a legally obtained card is used to enable redistribution of a service to other consumers via a wireless network or WiMAX. These forms of piracy make it difficult to detect infringement. The Commission nonetheless is committed to exploring the legal options for countering such practices.

ENHANCED PROTECTION FOR RIGHTS HOLDERS?

For rights holders and audiovisual service providers, the grey market discussed above is merely the tip of an altogether blacker iceberg. The Directive protects against actions relating to the use of “illicit devices” only. As such, it does not extend to the use of lawful devices “without respect for territorial restrictions”. In other words, the Directive “effectively defines piracy as based on the use of illicit devices”. This appears to cut right through the rights holders’ contentions in Murphy and FAPL that the unauthorised use of lawful equipment means that such equipment is in fact “illicit” within the meaning of the Directive. The Commission is clearly referring to the lawfulness of the equipment and not its use in determining whether a device is illicit. The good news, however, is that the Commission is clear that sports events rights holders should be entitled to better protection and that it is committed to assessing “the need for additional measures to close this loophole”.

COMMENT

The message in the Commis sion’s report is “could do better”. However, many of the Directive’s shortcomings suffer from its implementation rather than its substance and the Commission seems confident that most new types of service are protected by the Directive, including video on demand, mobile TV and online streaming. There are a number of loopholes that the Commission intends to close. Unfortunately, the Commission doesn’t promise to resolve any of these problems overnight. It proposes to set up an expert group on conditional access later this year whose first task will be to encourage administrative co-operation between Member States and examine the issues raised in the report more closely. This will take time due to the nature of the discussions, the complexity of the issues and the legislative procedures required to resolve them. The Commission also intends to set up a working group on the grey market whose primary concern will be to solve the problem of displaced European citizens not being freely entitled to watch programmes broadcast back home.

On an international level, the Commission is also pushing for ratification of the European Convention on the legal protection of services based on, or consisting of, conditional access, in recognition of the international dimension of conditional access piracy.