Opinion of the Economic and Social Committee on the 'Commission Green Paper on Legal Protection for Encrypted Services in the Internal Market` (97/C 30/03)

On 12 March 1996 the Commission decided to consult the Economic and Social Committee, under Article 198 of the Treaty establishing the European Community, on the 'Commission Green Paper on Legal Protection for Encrypted Services in the Internal Market`.

The Section for Industry, Commerce, Crafts and Services, which was responsible for preparing the Committee's work on the subject, adopted its Opinion on 17 July 1996. The Rapporteur was Mr Pardon.

At its 338th Plenary Session (meeting of 25 September 1996), the Economic and Social Committee adopted the following Opinion by 91 votes to two, with three abstentions.

1. Overview of the issues considered by the Green Paper

1.1. The Commission is carrying out a consultation on the need for Community action to ensure legal protection for encrypted services in the internal market.

2.2.1. The Green Paper defines 'encrypted services` as services whose signal is encrypted in order to ensure payment of a fee. This category includes traditional encrypted broadcasts (via cable, hertzian waves or by satellite), the new broadcasting services (digital television, pay-per-view, video on demand) and Information Society services, namely electronic distance services provided at the individual request of a service user (in particular, video on demand, games supplied on request, teleshopping and multimedia information services).

2.2. 'Decoding device` is defined as any device, apparatus or equipment designed or specially adapted, totally or partially, to enable access in the clear to an encrypted service, that is to say without the modification or alteration of its characteristics.

3. The growth of new broadcasting services which encrypt their signals to limit reception to subscribers who have paid their fee is jeopardized by piracy. A flourishing unofficial decoder manufacturing industry is emerging in parallel to that of authorized manufacturers. Devices enabling access to a service without payment of the subscription or fee are produced and marketed without the permission of service operators. This results in considerable losses for the service provider and, indirectly, harms the potential market of programme suppliers and manufacturers.

4.4.1. The illegal marketing of decoders - without the authorization of the service provider - has a negative impact on the commercial activity of the operators of encrypted services. In addition to losses both in potential market and in profits, operators need to meet other costs resulting from the need to put particularly expensive decoder distribution systems in place in order to control the use of such devices.

4.2. The marketing of illegal decoders results in reduced profits for the suppliers of programmes that are broadcast, insofar as those individuals who receive programmes with an illegal decoder will not have been taken into consideration when negotiations take place regarding payment for rights. The number of service subscribers may be a factor in these negotiations.

4.3. As far as the suppliers of this technology are concerned, the marketing of illegal decoders undermines market confidence in their system and results in lost profits where such decoders take over their potential market.

4.4. The marketing of illegal decoders also represents a risk for consumers, as they could be misled about the origin of the decoding device they are purchasing and thus believe that they are buying an authorized decoder when in fact it is pirated equipment.

5.5.1. To counter this trade in pirated decoders, regulation has proven to be necessary. The result has been a wave of regulatory change among the Member States.

5.2. There is currently no single, systematic approach to the problems caused by the illicit reception of encrypted services.

5.3. Specific regulations do exist in a number of countries, in others existing legislation - for example copyright law - is used and in the remaining countries there is no method of legally guaranteeing protection.

6. Committee Opinion

6.1. The Committee has considered the scope of the proposed Community instrument.

6.2. Generally speaking, the encryption of communications is essential to ensure their confidentiality, integrity and authenticity and to prevent access and alteration by unauthorized persons.

6.3. This problem was looked at by the International Chamber of Commerce Commission responsible for automatic data processing, telecommunications and information, which recently adopted guidelines for international encryptography. The published paper highlighted the problems at hand and stressed how essential it was to work together at an international level to secure a clearly defined and coherent policy in this field.

6.4. The issue is under scrutiny by the OECD and was the subject of a Council of Europe recommendation to its Member States.

6.5. The Committee recognizes that the Green Paper is concerned solely with the protection of copyright and related rights in encrypted services and, for now, tackles only the problem of decoding-device piracy.

6.6. The ESC endorses this approach, since it provides a broad-based overview of the various difficulties which have come to light in the field of encryption, but would ask the Commission to follow it up with a closer look at the general problems and to draw up appropriate proposals.

6.7. Accordingly, the Committee accepts the definition of the scope of the Green Paper, but would propose that encrypted services be defined as encrypting services which can be accessed on the payment of a subscription; further details may be found in the answer to question 5.

6.8. Given that the problem of illicit reception is a global one, work should begin internationally - using, for instance, bilateral agreements and action by the WTO - to establish effective worldwide rules. Action to provide the internal market with a regulatory framework would, indeed, be incomplete without accompanying third-country measures aimed at resolving this problem internationally and guaranteeing protection against third country imports.

6.9. The Committee recognizes that, initially, Community level is the most appropriate, but urges that this be followed quickly by action on the international stage.

6.10. The ESC now believes that the protection given by the Community act should not be limited to encrypted services providing signals which originate in a Member State, but should recognize that significant interests of rightsholders are affected by all signal piracy occurring in the European Union, whatever the source of the signal.

7.7.1. With the reservations mentioned above, the Committee takes the view that the current legislative diversity may result in obstacles to the free movement of goods and services and undermine the proper working of the internal market.

7.2. Differences in national legislation - and the absence of such legislation in certain Member States - may lead to distortions in competition in the internal market.

7.3. This disparity between the competitive environments of the Member States could have adverse consequences for the development of encrypted services in the internal market, since operators would not be subject to the same market conditions within the EU.

7.4. A Community act is also essential to protect copyright and related rights. In this respect, the beneficiaries of the measure should not be the providers of encrypted services alone but should also include rightsholders of programming transmitted and/or intercepted through unauthorized means.

7.5. A harmonization instrument designed to encourage the development of an encrypted services industry should be one which, modelling itself on copyright rules, provides civil remedies and criminal sanctions for both the illicit reception and further distribution of encrypted services as well as for specific preparatory activities which facilitate signal piracy.

7.6. Among the prohibited preparatory activities should be the manufacture, distribution, sale, importation, exportation (and manufacturing for export), marketing, use and possession of unauthorized decoding devices or systems.

7.7. In addition, it may be advisable to prohibit the separate activity, increasingly common in electronic environments, of publishing information to assist in deencryption.

8. Finally, an obstacle to be avoided would be incompatibility between encrypted networks, creating oligopoly-type positions each time. To counter this, the Commission is urged to create the conditions under which decoder technology can be standardized, so as to prevent consumers having to buy a decoder for each channel they wish to receive.

ANSWERS TO QUESTIONS

9. (Question 3 of the Green Paper)

9.1. Action to establish an equivalent level of protection amongst all the Member States is proving necessary so as to eliminate the obstacles identified and to complete the regulatory framework for the audiovisual sector established by the 'television without frontiers` (89/552/EEC) () and 'cable and satellite` (93/83/EEC) () Directives.

9.2. Insofar as the objective is the removal of obstacles to the efficient operation of the internal market caused by disparities between national regulations for the legal protection of encrypted services, harmonization at Community level is the only effective way of achieving this objective.

9.3. A clear regulatory framework which would secure legal protection throughout the EU against the illicit reception of broadcasting services and ensure the free movement of goods and services is a necessary precondition for the development of the new services.

10. (Question 4 of the Green Paper)

10.1. The Committee feels that the Commission should propose a Council regulation. This option offers the advantage of securing more effective harmonization, since it would be directly applicable in the Member States without having to go through the inevitably lengthy process of transposition into national law.

11. (Question 5 of the Green Paper)

11.1.

11.1.1. The Committee takes the view that it would be preferable not to limit the scope of the harmonization instrument to broadcasting services, but to extend it to all services in which encryption is used.

11.1.2. The criterion chosen by the Commission, namely encrypted services which can be accessed on the payment of a subscription, seems appropriate.

11.2. The possession by private individuals of unauthorized decoders should be included in the scope of the harmonization instrument.

11.3. It should be possible to file claims for damages and interest.

11.4.

11.4.1. As far as the penalty aspect is concerned the Commission Communication on criminal sanctions should be taken as a model. (See also the last recital and Article 2 of the Council Directive of 10 June 1991 on prevention of the use of the financial system for the purpose of money laundering (91/308/EEC) ().

11.4.2. The Committee feels that this final recommendation in no way conflicts with the view that Regulations, as opposed to Directives, should be used in this area, even although, as far as penalties are concerned, provisions would not apply directly in the Member States, but would require each to adopt appropriate legislation.

Brussels, 25 September 1996.

The President of the Economic and Social Committee

Carlos FERRER

() OJ No C 301, 13. 11. 1995.

() OJ No C 98, 21. 4. 1992.

() OJ No C 166, 28. 6. 1991.