COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 06.03.1996 
COM(96) 76 final 
LEGAL PROTECTION FOR ENCRYPTED SERVICES 
IN THE INTERNAL MARKET 
CONSULTATION ON THE NEED 
FOR COMMUNITY ACTION 
Commission Green Paper 

GREEN PAPER ON THE LEGAL PROTECTION 
OF ENCRYPTED SERVICES 
IN THE INTERNAL MARKET 
Executive summary 
Introduction 
Chapter 1: The European market in encrypted services 
1. A buoyant market 
2. A European market 
3. A market exposed to piracy 
4. A market threatened by regulatory fragmentation 
Chapter 2: International rules 
1. The Council of Europe 
2. The World Intellectual Property Organization (WIPO) 
Chapter 3: Member States' legislation 
1. Overview 
2. Regulatory environment in the Member States (summary) 
Chapter 4: Obstacles to the efficient operation of the Internal Market 
1. Obstacles to the free movement of decoding devices (Article 30 et seq.) 
2. Obstacles to the free movement of services relating to decoding devices 
(Article 59 et seq.) 
3. Obstacles to the free movement of encrypted services 
4. Distortions of competition 
Chapter 5: The need for and potential types of Community action 
1. Purpose of the action 
2. Consistency with other Community policies 
3. Choice of instrument and legal basis 
4. Scope 
5. Overall staicture 
List of questions 
Executive summary 
Objective 
In recent years the increase in the availability of frequencies and the use of new 
technology have been accompanied by an increase in the number of television services 
whose signal is encrypted with a view to restricting reception to subscribers. In order to 
receive the programmes, viewers must have a decoding device that can reconstitute the 
original picture. 
The market is experiencing rapid growth particularly as a result of the advent of digital 
technology, which permits an expansion in the capacity for communication. These 
television services will increasingly be compelled to adopt a transnational and often even 
European dimension due to their specialised nature. However, growth is being 
jeopardized by piracy: a flourishing unofficial decoder manufacturing industry is emerging 
in parallel to that of authorised 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 adversely affects the potential market of programme suppliers and 
official manufacturers. 
In the light of these developments, the Commission already emphasised the need for 
effective protection of coded signals against their illegal reception in its Strategic 
Programme for the Internal Market of 22 December 1993 (COM(93)632 final). 
Such a requirement is all the more urgent in the run-up to the Information Society: as 
more and more encrypted services become available in the future, measures will need to 
be adopted to ensure the protection of these services, whatever their content, against 
illicit reception. 
Accordingly, in its Communication of July 1994 entitlted "Europe's Way to the 
Information Society: An Action Plan" (COM(94) 347) the Commission announced the 
preparation of a Green Paper on the Legal Protection of Encrypted Services in the 
Internal Market with the aim of examining problems raised both by the absence of 
specific legislation on the legal protection of encrypted services in some Member States 
and by disparaties between existing legislation in others. 
The current regulatory environment 
A comparison of the regulatory methods chosen by legislators in the Member States 
reveals appreciable differences in the approach to the problem of illicit reception of 
encrypted services. 
Whereas some Member States adopted specific legislation ensuring protection against 
the illegal reception of encrypted services in the late 1980s, others (A, P, E, GR, DK, D 
and LUX) have no such legislation to date. 
The general rules (e.g. on unfair competition, telecommunications and copyright) 
sometimes applied in Member States belonging to the second group are often unable to 
provide effective protection against the illegal reception of encrypted services. This has 
allowed the development, in some of those Member States, of a flourishing industry that 
manufactures, markets, installs and maintains pirate devices. A specialist press has also 
developed, providing targeted publications and commercial promotion networks for pirate 
decoders. The repercussions of this situation extend to other Member States, where such 
devices are introduced on to the market in spite of restrictive measures. 
Among the Member States which have adopted specific legislation, the differences 
between the solutions adopted are substantial, in particular as regards scope, the activities 
prohibited (commercial promotion, private possession) and the level of sanctions. 
Need for Community action 
In view of this situation, Community action could well he justified. The fact that the 
Member States do not all have an equivalent level of legal protection prevents the Internal 
Market from operating correctly. This creates a number of obstacles to the free 
movement of encrypted services and decoders and numerous distortions of competition 
between operators in the various Member States. The present differences between the 
regulatory solutions and the resulting extra costs and legal uncertainty are viewed by the 
profession as a major barrier to the development of a European market of new encrypted 
services. 
Such an initiative would also be useful in preparation for the Information Society, in 
which encrypted services could be called upon to play a major role. It would also 
eliminate the fragmentation of the Internal Market and would simultaneously take other 
existing Community objectives into account such as those persued by the industrial 
audiovisual, cultural and consumer protection policies 
Operators have overwhelmingly expressed support for a Community measure. In this 
regard, the DVB (European Digital Video Broadcasting Group) has adopted a 
recommendation emphasizing the need for a clear and uniform EU-wide regulatory 
framework. This view was shared by the European Parliament, which proposed inserting 
in the Directive on the Use of Standards for the Transmission of Television Signals a 
recital underlining the need to introduce and apply efficient anti-piracy legislation at 
European level; the Directive, along with the recital, was adopted by the Council 
on 24 October 1995. 
Before proposing an initiative, however, the Commission would like to consult interested 
parties on the course of action described below. 
The Commission could propose an initiative harmonizing national legislation. Taking 
into account the principle of proportionality and subsidiarity, the proposed initiative could 
provide for minimum harmonisation, leaving Member States free to adopt stricter 
principles while ensuring a minimum level of equivalent protection within the Union. The 
proposed initiative could thus prohibit the production, sale, possession for either 
commercial or personal use, installation and commercial promotion of decoders designed 
to enable access to encrypted services without the encryptor's authorisation. Such a 
course of action would both ensure EU-wide equivalent protection against illicit access to 
encrypted services and afford legal certainty to the interests concerned. 
Next step 
The Commission is keen to ensure that the Green Paper is the subject of open 
consultations', any person, firm, body or authority is free to take part. This will be a 
twin-track consultation process, in that it is addressed not just to trade associations and 
federations but also to individual operators. The Green Paper will be sent to the European 
Parliament, to the Economic and Social Committee, to the Committee of the Regions, to 
the Member States, to the European Economic Area and to the countries of Central and 
Eastern Europe. 
The time-limit for submitting comments is 31 May 1996. In the summer of 1996 the 
Commission will, in the light of the comments received, decide whether an initiative at 
Community level is called for. 
Introduction 
I. The problem of illicit reception 
The use of signal encryption in broadcasting has been on the increase in recent years. In 
the 1980s systems characterised by varying degrees of security began to appear employing 
a form of scrambling in which the standard picture and/or sound signals are altered before 
transmission in such a way that a normal receiver cannot reconstitute the original 
programme. In order to recover the original picture the viewer needed a special decoding 
device (decoder, smart card or computer programme-normally issued on the payment of a 
subscription fee) which could interpret the instructions accompanying the encrypted 
signal. 
Originally used by cable companies to modulate the number of channels available to the 
viewer under the terms of his subscription agreement, the technology rapidly spread to 
terrestrial pay-television stations and evolved dramatically with the satellite broadcasting 
of encrypted channels. The use of encryption will, however, increase sharply with the 
advent of digital technology and the development of Information Society services (such as 
interactive teleshopping, tele-information services, on-line professional services and 
interactive games) since they will all, in varying degrees, need to rely on encryption to 
ensure their viable development. 
Encryption is used for a variety of reasons: on top of commercial strategy requirements. 
i.e. the need to find fresh sources of revenue, copyright holders can require to use 
encryption to protect and exploit the covered programmes. The protection of minors. 
particularly in the case of adult channels, as well as the improved identification of the 
audience to allow for targeted maketing, can also be major factors. 
A flourishing unauthorised manufacturing industry has, however, sprung up alongside 
that of official producers of decoding devices. This pirate industry manufactures and 
markets decoding devices enabling illicit reception of the service without the service 
provider's authorisation , usually at prices below those of official devices. 
It is estimated that unauthorised devices currently represent about 5 to 20% of the total 
number of devices in circulation and generate turnover of several million Ecus annually. 
Moreover, a specialised press developed around this pirate market, providing targeted 
publications and thus also a medium for the marketing of unauthorised devices. An 
after-sales service market also developed, providing maintenance and even sometimes the 
replacement of the device in the event that the operator would change system. 
The sale of these unauthorised devices has, first of all, an adverse effect on the operators 
ofenctypted services. As well as suffering losses in terms of potential market and profits, 
they bear additional costs as a result of having to adopt expensive distribution systems for 
their decoder devices (which are usually rented out) in order to control their use. 
For the suppliers of the programmes contained in the broadcasts, the marketing of the 
unauthorised devices represents a loss of profits, as in the negotiations concerning the 
price payable for the rights, no account will have been taken of the individuals who 
receive the programmes via an unauthorised device. 
For those applying the technology, the marketing of unauthorised devices undermines 
confidence in their system and results in lost profits connected with the potential market 
taken over by such equipment. 
For the consumers, the marketing of the unauthorised devices constitutes a risk as they 
could be mislead about the origin of the decoding device they are purchasing and thus 
believe they are buying authorised device, whereas it is in fact a pirated decoder. In this 
case, if the operator modifies the encryption system for security reasons, the device 
purchased would be of no use to the consumer, who would have to pay for another 
decoder. Moreover, the service providers pass on the losses they suffer from piracy onto 
the price of, or rental charges for, authorised devices made available to consumers. 
II. The Regulatory Environment 
In order to redress this problem, operators have asked that Member States adopt specific 
rules providing rapid and effective legal protection against the manufacture and 
distribution of unauthorised decoding devices. While technological progress has improved 
the security of encryption systems, purely technological solutions have often proved 
ineffective. When choosing an encryption system the operator is faced with a trade-off 
between the cost of the system and the level of security it provides. Experience has 
moreover shown that piracy techniques have developed at the same rate as encryption 
techniques and that there is no guarantee that new systems using digital technology will 
not come under attack. It was therefore felt that, in order to deal with pirates, technology 
had to be supplemented by legislation. However, the resulting M>ave of regulatory change 
among Member States, which has not as yet been completed, reveals a substantial 
difference in approach.' 
In this context, in its July 1994 Communication entitled "Europe's way to the Information 
Society. An Action Plan" (COM(94) 347), the Commission announced the preparation of 
a "Green Paper on the Legal Protection of Encrypted Services in the Internal Market" 
aimed at analysing the problems raised both by the absence of specific legislation on illicit 
reception of encrypted services in some Member States and by disparities between 
existing legislation in others. 
III. Services covered 
The subject of the following analysis is the illicit reception of an encrypted service, i.e. 
reception without payment and/or authorisation,by persons who are not authorised by the 
service providers, and the solutions that have been found to this problem by 
national regulations. "Encrypted services" is defined for the purposes of this Paper as 
services whose signal is encrypted in order to ensure payment of a fee. This category 
includes traditional encrypted broadcasts (via a cable, hertzian waves or by satellite), the 
new broadcasting services (digital television, pay-per-view, near video on demand) and 
Information Society services, namely electronic distance services provided on individual 
See Chapter 3: Member States' legislation. 
request of a service user (in particular video on demand, games supplied on request, 
teleshopping and multimedia information services ). 
Services encrypted for reasons other than ensuring the payment of a fee, i.e. those 
encrypted in order to guarantee the integrity and confidentiality of the message 
transmitted, namely financial or telecommunications services (in particular mobile 
telephone services using GSM technology) are not covered. This exclusion is based on the 
fact that the general interests involved in the event of interception of these services (i.e. 
the integrity and confidentiality of the communication) differ appreciably from the 
general-interest objective (i.e. the protection of the value of a service provides against 
payment) threatened by the illicit reception of encrypted services as defined for the 
purpuse of this Paper. As this difference has led to appreciably different solutions in 
terms of legislation both at national and international level particularly as regards action 
and the level of sanctions, the joint treatment of both problems is not justified. 
Moreover, the Green Paper does not cover questions concerning systems designed to 
prevent the copying of a work or other protected subject matter. These have been 
addressed in the Green Paper on Copyright and Related Rights in the Information Society 
adopted by the Commission in July 1995. 
Lastly, this Green Paper does not deal with questions relating to the standardization of 
conditional access systems, or with the conditions under which licences are granted for 
such systems, since they are already covered by the Directive on the Use of Standards for 
the Transmission of Television Signals,2 or with the control by national authorities of 
coding systems. The latter question, which is closely linked to the the problem of 
security, is currently being studied by the Commission in the context of its work on the 
security of information systems. Other studies could furthermore be launched at a future 
date if the efficient operation of the Internal Market would be threatened or jeopardized 
by the implementation of national rules. 
IV. Preparatory work 
In preparation for the Green Paper, the Commission asked three independent firms to 
examine the technological, economic and legal aspects of the market in encrypted 
services.3 
3 Directive 95/47/EC of the European Parliament and of the Council of 24 October 1995 on the Use of 
Standards for the Transmission of Television Signals (OJ No L 281, 23.11.1995, p. 51). 
Copies of their findings are obtainable from: 
European Commission, 
Directorate-General for the Internal Market and Financial Services, 
The Media, Commercial Communication and Unfair Competition, 
DG XV/E/5 
C 107 8/59 
200 rue de la Loi 
B 1049 Brussels 
Belgium 
Fax: (32-2)295 77 12 
Email: e5@dgl5.cec.be 
The first study, "Technical aspects related to encrypted broadcasts" concentrated on the 
economic and technical aspects of the subject and dealt in particular with currently used 
encryption systems, their advantages and disadvantages and their vulnerability to pirate 
activities. As regards the economic aspect, the study focused on the cost of the 
managment of a subscribtion system for encrypted services, on the trend towards the 
development of compatible decoding systems and on the advent of the new digital 
technologies. 
The second study, "Protection of encrypted broadcasts" concerned the legal aspects of 
the issue. It analysed the factors which influenced the development of encrypted services, 
the reasons for piracy and the legal solutions adopted to combat it. 
The third study, "Legal protection of encrypted broadcasting signals" examined the 
legislation of the Member States on the protection of encrypted broadcasts, application of 
these laws by national courts and, where relevant, the established controls and sanctions. 
The Institute also analysed the regulations adopted by international bodies (Council of 
Europe, WIPO). 
In addition, in March 1995, the Commission initiated a wide-ranging process of 
consultation with the relevant sectors of industry concerned with the problem of illicit 
reception of encrypted services, particularly broadcasters, manufacturers of decoding 
devices, cable operators, programme providers, telecommunication companies and other 
interested parties who had expressed a desire to be involved. 
The consultation confirmed that illicit reception of encrypted services and fragmentation 
of the legal framework at the level of the EU pose a real problem for the media industry. 
It believes that the possibility of benefiting from effective legal protection against illicit 
reception is an important factor when deciding on the distribution of a new encrypted 
service in a particular Member State. In the absence of such protection, operators often 
prefer not to market the service. 
Operators thus overwhelmingly expressed support for a Community initiative. Similarly, 
in 1995, in the context of the meeting of its group of experts, the DVB (European Digital 
Video Broadcasting Group), which is at the forefront of digital television standards, 
adopted a recommendation underlining the need for a clear and uniform EU-wide 
regulatory framework which can be relied upon in the event of illicit reception of 
encrypted services. 
That view was shared by the European Parliament, which, in the procedure leading to the 
adoption of the Directive on the Use of Standards for the Transmission of Television 
Signals4 proposed inserting a recital emphasizing that, in a digital environment, the scope 
for piracy in the European audiovisual market will increase, with negative consequences 
for both operators and programme providers, and that it is becoming increasingly 
necessary to introduce and apply efficient anti-piracy legislation at European level. The 
recital was adopted along with the Directive by the Council on 24 October 1995. 
Directive 95/47/EC (see above). 
Chapter 1: The European market in encrypted services 
1. A buoyant market 
The recent past, technological developments (e.g. satellites and fibre optic cables) have 
produced rapid changes in the European audiovisual landscape and allowed for a steady 
expansion of the supply of services. As more operators have increasingly engaged in 
targeted commercial strategies, the encryption of their signals has proved essential for 
their viability. 
The traditional structure for financing private channels, based exclusively on advertising 
income, is often no longer a viable proposition for new entrants. As the number of 
broadcasting stations increases, the contribution of income per channel from traditional 
television advertisers becomes smaller. Simultaneously operators attempt to distinguish 
themselves from this growing number of potential competitors by catering to the needs of 
specific market niches, i.e. by focusing on the tastes and interests of particular user groups 
(thematic film, music or sports channels, etc.). An operator can thus profile himself from 
his mass market competitors by targeting a demand that had previously been satisfied only 
in part or not at all. Comparing identical geographical areas, however, niche service 
audiences are invariably more closely targeted and, by the same token, smaller. Operators 
of specialised media cannot, therefore, rely on income from mass market advertisers,5 who 
express less or little interest a media strategy that is not aimed a mass audience. 
JUL Reasons for using encryption: 
The main reasons for encrypting signals can be summed up as follows: 
To ensure the financial contribution of the beneficiaries of the service: the 
concept of niche services is based on the ability to provide added value to certain 
categories of users as compared to those aimed at the mass market. Users can 
therefore be asked to contribute to the financing of this specialised service which, 
as a result of encryption, cannot be received by non-subscribers; 
The possibility of increasing advertising revenue per audience unit: by encrypting 
the signal, the operator will find it easier to sell advertising space to, or strike 
sponsorship deals with, firms interested in the targeted market niche. Advertisers 
will therefore be asked to pay for the targeted market only and not for the entire 
equivalent geographical market. They will therefore be willing to pay more per 
audience unit since the audience will be regarded as being of a higher quality 
compared to a mass audience. 
The ability to target supply more accurately: increased knowledge of the user of 
the service will help the operator to fine-tune his service to the exact requirements 
of the target market. 
In this document, "advertisers" means firms that make use of commercial communication. This 
includes all forms of publicity, commercial promotion, direct marketing, sponsorship and public 
relations. This general approach is preferred since it can take into account recent and possible future 
changes in the use of marketing tools in the wake of developments in the media field. 
Simplifying the acquisition of broadcasting rights: satellite broadcasting has 
considerably increased the potential reception area. Traditionally, however, 
broadcasting rights are granted on a territorial basis, which means access often has 
to be limited to viewers within a specific geographical or common language area. 
Encryption allows the operator to restrict the reception of the signal exclusively to 
those territories for which rights have been acquired. Moreover, as suggested in 
the "Cable and Satellite" Directive,6 encryption will enable the use of the actual 
audience (e.g. the number of subscribers and not the geographical area) as a basis 
for the negotiation of satellite broadcasting and cable retransmission rights, 
thereby reducing the acquisition cost of programmes intended for the development 
of a niche service. 
The creation of a new window in the chronology of media distribution: 
encryption allows rightholders to add a new window to the pattern of media 
distribution; operators of an encrypted service often carry programming before H 
is broadcast to a mass audience and, in order to secure exclusive rights in respect 
of those works, they are prepared to pay large sums, thereby creating a new 
source of income for the rightsholders. 
Regulatory requirements: on grounds of public policy, in particular the protection 
of minors (e.g. in the case of broadcasting channels aimed at adult audiences), the 
authorities may, as forseen in the Television Without Frontiers Directive7 
(Article 22, second sentence), allow certain services to operate on condition that 
they are encrypted so that reception can be limited to specific groups of viewers. 
1.2 Encrypted services 
The European market in encrypted services consists mainly of pay-television channels*. 
Initially tranmsitted via cable and hertzian waves, this service especially expanded when 
medium powered and high powered satellites were introduced allowing broadcasts to be 
received anywhere within the footprint of the satellite using an individual satellite dish. 
The development of technology has, however, enabled more sophisticated pay 
broadcasting services to be launched, e.g. pay-per-view broadcasts,9 which must be paid 
for before they can be seen by viewers. Pay-per-view is technically possible without digital 
compression, but it requires a sophisticated subscription management system. 
Council Directive 93/83/EEC of 27 September 1993 on the Coordination of Certain Rules 
Concerning Copyright and Rights Related to Copyright Applicable to Satellite Broadcasting and 
Cable Retransmission (OJ No L 248. 6.10.1993, p. 15). 
Council Directive 89/552/EEC of 3 October 1989 on the Coordination of Certain Provisions Laid 
Down by Law, Regulation or Administrative Action in Member States concerning the pursuit of 
television broadcasting activities (OJ No L 298, 17.10.1989, p. 15). 
"Pay television" is a term used to define a situation in which a viewer pays to receive a particular 
station hertzian, by satellite and/or by cable. 
In the United States, 35% of the homes that subscribe to cable (i.e. about 20 million) are equipped 
with devices enabling them to receive these services. In France, Multivision offers two pay-per-view 
services to 220 000 homes. 
10 
Pay-per-view could involve the viewer paying to see one particular event (e.g. a concert 
or a boxing match) or a series of events (e.g. the right to see ten football matches). In the 
latter example the broadcaster cannot presently identify exactly which events have been 
viewed by a particular viewer. Technological progress is however allowing systems to be 
developed that will allow rights holders to be remunerated in line with the actual 
"consumption" of their programmes. 
The next stage will probably be near video on demand, which involves the broadcaster 
transmitting the same programme (usually, but not necessarily, a film) at different starting 
times. A viewer can thus choose not only the programme he wants to see but also, within 
certain limits, the time at which he wants to see it. This stage will be followed by the 
commercial development of actual video on demand, which gives the viewer complete 
flexibility over starting times, as they would no longer be pre-determined by the 
broadcaster. 
The explosion of encryption applications will only take place, however, with the 
development of the other services of the Information Society: not only audiovisual 
services, but all the other applications (e.g. interactive teleshopping, tele-information 
services, professional on-line services, interactive games, etc.) will, to a varying degree, 
have to rely on encryption for their viable development. Moreover, as encryption will 
often be essential for security purposes (e.g. for electronic payment in the case of 
teleshopping), synergy between these two encryption applications (control/security being 
enhanced by the subscription system) would - under conditions of legal certainty - make 
its use even better suited to promoting the development of all services in the Information 
Society . 
The development of these new services will depend to a large extent on the establishment 
of a regulatory framework which simultaneously takes account of the legitimate 
requirements of operators and users of the services. In this respect, great importance will 
be attached to the solution found on the international and worldwide level to the multitude 
of security problems implied in the use of electronic transactions. These include in 
particular the regulatory restrictions on the use of encryption systems, public authorities' 
control over encrypted communications for reasons of national security, and the 
identification and verification of the respective parties. At present, the Commission, in the 
framework of its activities on the security of information systems, is analysing the 
possibility of establishing, at European level, organisations which would be responsible for 
the control and certification, and totally independent from public authorities. 
2. The European market 
Europe currently has a total of 180 television channels, transmitted via 27 satellites.10 
Many of those channels (79) use some form of encryption (see Table 1) and are thematic 
rather than general (e.g. children's programming, sports channels, movie channels, etc.). 
European Audiovisual Observatory: 1994/95 Statistical Yearbook on cinema, television, video and 
new media in Europe, Strasbourg (1994). 
11 
Table 1: Number of subscribers to the main pay-television stations ('000 viewers)11 
Caiial Plus 
Sky Movies 
Movie Chamiel 
Sky Sports 
Canal Plus Esp. 
Première 
Flluiuet 
Telepiu 
Sky Multichannel 
TV 1000 
Adult Channel 
Canal Plus TVCF 
Canal Satellite France 
Filiiunax 
Tele-TV 
Telechib 
Canal Satellite Esp. 
Lumière TV 
Multichoice 
Total A 
35 
35 B 
150 
152 
302 CH 
90 
90 D 
850 
5 
855 DK 
100 
45 
145 E 
893 
10 
903 Eir 
0 F 
3700 
5 
142 
142 Fui 
8 
8 I 
650 
5 
655 L 
0 NL 
160 
2 
162 P 
0 S 
230 
230 
80 
41 
31 
612 UK 
2587 
2579 
481 
167 
5814 
In the future, a sharp increase in the supply of encrypted services can be expected at the 
European level. The launching of new, completely digital satellites (e.g. Astra le and If) 
and the spread of fibre optic networks will enable existing operators presently on the 
market to increase their supply. Several operators have already announced details of their 
plans to launch packages of digital channels. The Nethold Group, for instance, which 
controls Filmnet, will soon launch 150 digital channels, 50 of them offering films on 
demand. BSkyB plans to launch between 16 and 32 pay-per-view stations towards the 
end of 1996 as an initial step towards the launch of genuine video-on-demand services. 
Canal Plus will also soon provide a package of over 20 digital channels. In addition to the 
services already available they will provide a pay-per-view service, video games and 
digital radio services. Furthermore a number of French channels, including TF1, Arte 
and La Cinquième, will cooperate in the launch of a package of digital channels using the 
same satellite. Lastly, TF1 will launch a package of services ranging from video on 
demand to interactive programmes via five Eutelsat-based transponders. 
Source: European Audiovisual Observatory: 1994/95 Statistical Yearbook on cinema, television and 
new media in Europe, Strasbourg (1994); Libération "Les comptes décryptés de Canal+", 
L'Evénement (4 November 1994). 
New operators, in particular telecommunications companies, can also be expected to eiucr 
the market of Information Society services: British Telecom has already set up a pilot 
project in which 2 500 homes can, on demand, receive teleshopping, video-on-demand, 
video games and other services. 
At present, many channels still cover a particular common language or geographical 
market. Nevertheless it is clear that, in the future, national markets will increasingly prove 
too limited. There will therefore be a growing need for easy cross-border access, for this 
and the following reasons: 
As the number of encrypted services rises, operators will increasingly have to 
provide more finely targeted services to satisfy the needs of the market. Since 
these particular demands will not satisfactorily be catered for yet, a niche market 
could be drawn around a population segment prepared to pay for the added value 
offered by the service. With the increase in general-interest programming 
broadcast "in clear", encrypted services have developed to satisfy an increasingly 
specialized demand, therefore justifying the need for their remuneration by the 
final user. Nevertheless, the development of viable, targeted services requires a 
market of a certain size, and as for identical geographical areas, a niche-service 
market is smaller than a mass-service market, // can often only be constituted by 
exploiting a larger geogi'aphical market. 
The ability to better satisfy linguistic and cultural requirements. By means of the 
new technology, the same channel can be broadcast simultaneously in several 
languages by providing separate soundtracks. In addition, the strategy of 
interactive services will increasingly be based on specialized services and/or the 
supply Of packages of services. The first will often satisfy the demand of 
transnational niches, i.e. demand based on factors other than purely national 
culture, while the second will allow the user to choose what he wants to see. Thus, 
with the incorporation of advanced information technology, the service provider 
will be able to offer the widest possible choice including in his package of services 
films or programmes that take account of national differences. 
The evolution of technological applications. Constant improvements and the 
continuous incorporation of audiovisual service distribution systems by the 
commercial application of new technologies (satellite broadcasting, optical fibres, 
the development of the ISDN network (Integrated Services Digital Network) at 
European level so as to link up with IBC (Integrated Broadband Communication 
networks) make these services increasingly independent of the distance between 
the service provider and the user. 
All the regulatory work aimed at the gradual liberalization of telecommunications 
(in particular for satellite and cable) and the harmonisation of cross-border rules 
on the carrying of signals in Europe (especially for television signals in the field of 
programme content and copyright) is just beginning to have a positive impact on 
the freedom to provide existing audiovisual services between Member States and 
the development of new services, a growing proportion of which will be provided 
in encrypted form. 
13 
Changes in the practice of granting broadcasting rights: at present only a small 
proportion of the output of encrypted stations can be broadcast across frontiers, 
because of the traditionally national systems of granting broadcasting rights. 
Encryption will enable future rights to be granted on the basis of the actual number 
of users rather than according to national frontiers. 
Obtaining the best possible return on transponder costs: since transponder costs 
are high, it is economically sensible for the operator to offer his service in as many 
areas as possible within the area covered by the satellite. 
The development of these services in response to the growing needs of cross-border 
markets is, however, being jeopardized by a major problem at European level: piracy. 
3. A market exposed to piracy 
3.1 Technological development 
Due to advanced technology, it is in theory now possible to use a conditional access 
system providing such a high level of security that pirates would be incapable of breaking 
it. In practice, however, these systems also have to comply with certain economic and 
regulatory realities, namely: 
Systems must be produced and distributed at a reasonable price, since consumers 
will be unwilling to pay more than a certain amount to buy a decoder,12 depending 
on the extent to which they find the programmes interesting or the selection of 
channels that can be picked up with the system in question. 
The cost of operating the system must not exceed the amount of revenue (i.e. the 
income the operator stands to lose if illicit decoding devices are put on sale) at 
risk. 
Systems must comply with regulatory requirements imposed by certain Member 
States on the use of encryption for commercial purposes. 
As the need to achieve an acceptable cost for the conditional access system means that 
they cannot be made completely secure, manufacturers of illicit decoding devices have 
taken advantage of this situation, and are now even able to keep up with the pace of 
technological developments. 
The way in which the systems have evolved illustrate this phenomenon. The simplest 
conditional access system causes a mix-up of the position of the synchronous pulses that 
form part of the broadcast signals, so that a standard receiver can no longer lock its line 
(horizontal) or field (vertical) timebases. The picture waveform is transmitted unchanged, 
but without normal synchronous pulses, the screen displays only a jumble of picture 
components. The synchronizing information is transmitted in a disguised form (algorithm) 
12 Some encryptors have preferred to rent, rather than sell, decoding equipment to their subscribers. 
This allows them to distribute the devices at a price which is within the reach of more people and to 
ensure the return of the equipment when the subscription expires. 
14 
which can be detected by the official decoder and used to reconstruct standard 
synchronous pulses. This system has already been widely pirated.13 
Second-generation encryption systems work differently. Two of these are now 
particularly common: 
in the "active line rotation" method the line stays in place, but is cut at randomly 
chosen points for each line and the ends are swapped over; 
in the "line shuffle" method the lines that make up the picture are reconstituted in 
a totally different order. This method is more effective than the first, but also more 
expensive, as it needs more storage in the decoder. 
The great advantage of both systems is that they completely destroy the structure of the 
picture. They can, moreover, be used in conjunction with a "smart card" that "reads" the 
incoming signal and issues instructions to the decoder telling it how to decode it. The 
three most widely used encryption systems in Europe (Videocrypt, Syster and Eurocrypt) 
belong to this second generation. 
Research is still being carried out, however, into systems that provide even more security. 
The current process of the convergence of telecommunications and audiovisual services 
and the application of digital technology to broadcasting will allow encryption systems to 
be developed that are more and more sophisticated and secure. After all, the 
decomposition of content into bytes is in itself a form of encryption.14 
Moreover, in order to allow the introduction of interactive services, decoders themselves 
will gradually become "set-top boxes", i.e. actual computers controlled by a smart card 
that will both identify the user and activate encryption functions for the incoming and 
outgoing signals. These devices will thus make it possible to pick up the signal, decode it, 
perhaps change its contents and incorporate it into another medium, record it and print it. 
They will also be able to interact with traditional equipment (video tape recorders, 
computers, CD and the new video disc players), and to send back to the operator an 
encrypted signal, perhaps with confidential financial data, designed to help analyse 
demand. 
3.2 The consequences of piracy 
In some Member States, however, the manufacture and marketing of unauthorised 
decoding devices and the manipulation of authorised devices so as to allow access to a 
service in breach of the conditions laid down with regard to time (duration of the 
subscription) and quantity (number of channels) have now become highly lucrative.15 In 
The pirate decoders are believed to reconstnict the sequence of delays by monitoring the start point of 
successive active lines. A decoder design was even published some years ago in the French press. 
The standardization of encryption systems for digital broadcasting that has taken place in the context 
of the work of DVB (Digital Video Broadcasting Group) is a major step towards the general use of 
encryption technology and an increase in the level of security. 
It is estimated that unauthorized decoding equipment now accounts for 5-20% of the total market. 
15 
those Member States, they have given rise to parallel activities, such as the publication of 
specialized magazines and the setting-up of maintenance and after-sales services. 
The fact that they allow illicit reception of encrypted services has several adverse 
consequences: 
the encryptors are deprived of the subscription revenue they would have obtained 
if the customer had purchased a lawful device (about ECU 200-250 annually for 
each unauthorised receiver); 
in some cases it is necessary to replace the pirated system. Operators spend vast 
sums each year (from ECU 60 000 to more than ECU 1.2 million per operator, 
according to the survey) on system protection (controlling distribution, making 
improvements, changing cards, etc.). Even control systems based on removable 
smart cards, which seemed more immune than most, have been compromised. It 
was at first claimed that if a system was pirated, it could be safeguarded simply by 
a new issue of cards. In fact, when the number of subscribers is very large, the 
cost of replacing all the cards can be a significant drain on earnings. On top of the 
cost of each smart card,16 there are the code development costs, postage and other 
costs (the survey revealed that making pirated systems secure again can cost more 
than ECU 45 million); 
the time needed to develop a new system. Turning once again to the example of 
the smart cards, an operator wishing to replace its card would need some time to 
develop a new one. Meanwhile, the only available course of action would be to 
engage in a series of temporary electronic countermeasures until it can issue a new 
smart card. This is a risky situation, especially since pirates anticipate the 
countermeasures and take appropriate avoiding action. In addition, there would 
inevitably need to be a period of time in which both the old card and the new card 
would remain operational. This means that the pirate cards in circulation would 
also last through the transition period, giving pirates enough time to develop a 
new pirate card. With the assistance of private investors, pirates can now produce 
their own cards and chips almost as quickly as the broadcasters. Other techniques 
aimed at disabling pirate cards (e.g. sending de-activating signals that disconnect 
only unauthorised cards) have proved short-lived (in this particular case, because 
pirate manufacturers themselves distribute devices specifically designed to block 
out the de-activating signal). 
financial harm to those holding rights in the programmes. Since the fees paid to 
rightholders generally also take into account the potential audience, the fact that 
encrypted programmes are picked up via illicit reception deprives rightholders of 
the income they would have received from subscription revenue if the customer 
had purchased an authorised decoder instead. Moreover, when negotiations take 
place regarding rights in respect of subsequent (in clear) broadcasts, rightholders 
will find it more difficult to secure high levels of remuneration because of illicit 
reception which had already occurred when the material was broadcast on the 
encrypted channel; 
Between ECU 5 and ECU 25. 
16 
the loss of income and credibility for suppliers of the technology. When selecting 
an encryption system, operators will want to be sure that the system chosen is the 
most secure, so that they can provide those holding the rights in the programmes 
with a guarantee that a broadcast they have authorised will not be pirated; a high 
incidence of illicit decoding devices might be construed as evidence that a system 
is not very effective; 
the fact that market confidence in the system would be undermined. The market 
requires confidence in encryption if the notion of exclusiveness associated with the 
services is to be maintained and if the window created in the media chronology is 
to be justified. Illicit reception erodes that confidence in such a manner that 
rightholders will become reluctant to license first-run programming, broadcasters 
will not be prepared to pay high licence fees and consumers will be reluctant to 
pay subscription fees. 
the consumers could be mislead about the origin of the decoding device they are 
purchasing and thus believe they are buying authorised device, whereas it is in fact 
a pirated decoder. In this case, if the operator modifies the encryption system for 
security reasons, the device purchased would be of no use to the consumer, who 
would have to pay for another decoder. Moreover, the service providers pass on 
the losses they suffer from piracy onto the price of, or rental charges for, 
authorised devices made available to consumers. 
As well as these direct consequences there are indirect effects on the development of the 
market in new encrypted services. Clearly, development will be possible only if an 
adequate level of security is guaranteed for operators to be willing to engage in activities 
requiring heavy initial investment. 
4. A market covered by fragmented rules 
In order to deal with the pirate industry, technology has had to be supplemented by 
legislation as part of a regulatory process at Member State level. This process has 
followed different approaches and is still not complete. The legislation will be examined in 
Chapter 3. 
According to the media industry, such regulatory fragmentation could well entail 
difficulties for the development of encrypted services at European level and adversely 
affect the proper operation of the Internal Market. Since the transnational dimension will 
become increasingly necessary for the growth of a truly European encrypted services 
industry, the absence of an equivalent level of legal protection against piracy could well 
have an adverse effect on the development of those services on a European scale. 
As confirmed by the consultation, operators could, because of the absence of legal 
protection in one or more countries where reception is possible, decide not to cover a 
Member State, for fear of the consequences of piracy in that country. Effective legal 
protection weighs heavily in an operator's decision to market his service in a given 
Member State. 
17 
In addition, the cost of research into national laws and of possible legal proceedings in the 
event of piracy in the various Member States means additional costs to operators and to 
their activities, thus adversely affecting the development of the service. 
When negotiations covering programme rights take place, the absence of equivalent legal 
protection in every Member State where reception is possible will make it more difficult to 
secure those rights since (especially in the case of recent works) operators cannot 
guarantee that there will be no illicit access in other Member States. It will also be more 
difficult to determine what remuneration the rightholders should receive, given that the 
actual audience in the signal reception area cannot be determined accurately. Operators 
will thus find it more difficult to secure rights at a reasonable price, and this will have 
repercussions on their cross-border activities in particular. 
Since certain methods of transmission are more exposed to illicit access than others (in 
particular off-air or satellite transmission as compared with cable distribution, which is 
generally more secure due to the physical link with the viewer), operators may well 
choose not to use some of those methods feeling that the risk of piracy is higher. Thus, in 
the absence of effective legal protection, certain transmission systems, in particular those 
with the strongest transnational potential, might be used less often than others. 
The absence of equivalent legal protection in Member States will also have negative 
consequences if illicit equipment is imported from third countries. Such equipment will be 
able to enter the Community via a Member State which does not prohibit its marketing or 
distribution and can then easily arrive in another Member State, making the latter's efforts 
to combat illicit reception ineffective. 
What is more, the disparity between rules on illicit reception will result in distortions of 
competition between operators in different countries. Those who transmit signals in 
Member States providing a high level of legal protection will have a competitive 
advantages (this will be reflected in their programme-purchasing ability, for instance) over 
those who distribute their signal in a State where there is no legal protection, since they 
will have to bear additional costs through having to use a particularly secure encryption 
system. 
Lastly there is a risk that, as a result of differences between solutions in the 
Member States, the opportunities afforded by the Directive on the Use of Standards for 
the Transmission of Television Signals17 will be lost. The use of increasingly standardized 
systems will be hindered by the fact that the level of legal protection against illicit access is 
not the same in all the Member States from which the programmes are broadcast. This 
means that the level of security of the system and the means used to distribute decoding 
equipment will have to vary with the Member State of reception, leading to further 
fragmentation in an audiovisual area which, to some extent, ought to be standardized. In 
this respect, DVB (European Digital Video Broadcasting Group, which is at the origin of 
the digital television standards partly reproduced in Directive 95/47/EC has, in the context 
of its experts' group on the piracy of encrypted services adopted a recommendation 
underlining the need to provide operators throughout the Union with a clear and uniform 
Directive 95/47/EC (see above). 
regulatory framework that can be relied upon in the event of illicit access to encrypted 
services. 
19 
Chapter 2: International rules 
1. Recommendations of The Council of Europe 
In September 1991 the Council of Europe adopted and addressed to its Member States a 
Recommendation on the legal protection of encrypted television services }% The 
Recommendation was later updated by another, adopted in January 1995, on measures 
against sound and audiovisual piracy.19 
In the preamble, the Council of Europe emphasizes the benefits of the development in 
Europe of pay television on the European audio-visual production sector. The Council of 
Europe recognizes that encrypted broadcasting services contribute to the diversity of 
programmes offered to the public, increase the possibilities of exploitation of protected 
works and are likely to increase the sources of financing of works and programmes in 
Europe. 
The Recommendation goes on to highlight the adverse consequences of illicit access to 
encrypted broadcasting services and sets out the range of activities which are to be 
considered unlawful: 
the manufacture of decoding equipment where manufacture is designed to enable 
access to an encrypted service by those outside the audience determined by the 
encrypting organization; 
the importation of decoding equipment where importation is designed to enable 
access to an encrypted service by those outside the audience determined by the 
encrypting organization; 
the distribution of decoding equipment where distribution is designed to enable 
access to an encrypted service by those outside the audience determined by the 
encrypting organization; 
the commercial promotion and advertising of the manufacture, importation or 
distribution of decoding equipment referred to above; 
the possession of decoding equipment where possession is designed, for 
commercial purposes, to enable access to an encrypted service by those outside 
the audience determined by the encrypting organization. 
Member States are free to determine that possession of equipment for private use is also 
to be considered as an unlawful activity. 
The Recommendation defines an encrypted service as "any television service, transmitted 
or retransmitted by any technical means, the technical characteristics of which are 
18 Recommendation No R(91) 14 of the Committee of Ministers to Member States on the legal 
protection of encrypted television services. 
19 Recommendation No R (95) 1 of the Committee of Ministers to the Member States on measures 
against sound and audiovisual piracy. 
20 
modified or altered in order to restrict its access to a specific audience". The Comic- of 
Europe emphasizes in the explanatory memorandum that the definition (and, by the same 
token, the protection arising therefrom) applies to all organizations offering encrypted 
services, whether at local, regional, national or transnational level, irrespective of the 
country of origin of the broadcast. 
The protection guaranteed by the Council of Europe is not subject to the requirement of 
reciprocity. As the Council of Europe emphasizes in the explanatory memorandum, 
non-application to services originating from other countries could well give rise to 
problems for services originating from the country of reception. 
The Recommendation defines decoding equipment 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".20 
Finally, distribution is defined as the sale, rental or commercial installation of decoding 
equipment, as well as the possession of decoding equipment with a view to carrying out 
those activities. This covers commercial, not private activities. 
The Recommendation urges Member States to provide for criminal or administrative 
sanctions in respect of all of the above-mentioned activities, with one exception. The 
marketing and advertising of the manufacture, importation or distribution of unlawful 
equipment does not give rise to criminal or administrative sanctions.21 
The civil remedies proposed in the Recommendation provide that, in addition to the 
criminal sanctions, the injured encrypting organization should be able to take action 
against those involved in unlawful activities to obtain damages, or a share of the profits. 
There are no rights of action for the rights owners of programmes included in the 
services. The Council's view, as expressed in the explanatory memorandum, is that 
although holders of the rights in broadcast programmes may suffer if illicit access occurs, 
this damage is indirect. The explanatory memorandum also states that a rights holder can 
ensure its interests are protected contractually by requiring the broadcaster to take legal 
action against illicit access.22 
20 As stated by the Council of Europe in the explanatory memorandum, the principles of the 
Recommendation are to apply exclusively to the part of the decoder that enables the signal to be 
decrypted. Thus, in the case of a system using smart cards, the part covered would be the card only 
and not the decoder as such since the latter cannot, on its own, decrypt the signal. 
The Council of Europe justifies the exception on the grounds that sanctions should be aimed 
exclusively at manufacturers, importers and distributors of unlawful decoding equipment, and not at 
organizations that simply carry material used for commercial promotion or advertising (advertising 
agencies, newspapers and magazines). 
While it is true that rightholders may include such clauses in contracts, this does not obviate the need 
to protect interests specific to the rights holder independently of those of broadcasters. When the 
unlawful activity affects the rights holder and not the broadcaster the broadcaster may have little 
incentive to act swiftly against those activities. Admittedly, the rights holder could take legal action 
against the broadcaster to enforce the original contractual provisions, but this acts as a further delay 
in the action against the pirate. 
21 
Finally, the Recommendation does not provide for any sanctions, either civil or criminal, 
in respect of private possession of unlawful equipment. 
The Recommendation has played a major role in the regulatory movement at 
Member State level that began in the early 1990s: specific national regulations on the legal 
protection of encrypted broadcasting services introduced at the time have often been 
inspired by the principles enshrined in the Recommendation. 
However, in view of the very nature of the text, which is not binding, there are substantial 
differences between regulations, in particular with regard to scope, unlawful activities and 
the level of sanctions. Moreover, a number of Member States have not yet transposed the 
principles of the Recommendation into national law, thus giving rise to the present 
regulatory fragmentation at European level. 
2. The World Intellectual Property Organization (WIPO) Study 
In the context of the current talks on the draft Protocol to the Berne Convention and on 
the New Instrument for the protection of the rights of performers and producers of 
phonograms, the draft memorandum drawn up by the International Bureau in April 199423 
suggests, in Chapter IX "Enforcement of rights", looking into the possibility of including 
measures against the abuse of technical devices. 
It is suggested, in the context of those provisions, that the manufacture, importation and 
distribution, for sale or rental, of any device enabling or assisting the reception of an 
encrypted program broadcast or otherwise communicated to the public, by those who are 
not entitled to receive it should rank as breaches of copyright. 
Moreover, the rightholders of a programme decrypted by means of an unlawful decoding 
device would be able to take legal action to obtain compensation. 
Since the talks are still under way, it is too soon to say whether these proposals will be 
included in the final text. However, if they are included, the scope would not be limited to 
broadcasting but would cover any form of "communication to the public" of the protected 
work. 
Doc. WIPO 9099D/COP/0691D of 29 April 1994. 
22 
Chapter 3: Member States' legislation 
1. Overview 
The analysis of the regulatory environment focuses on the solutions provided by national 
legislations to the problem of illicit reception of an encrypted service, i.e. reception, 
without payment and/or authorisation, by persons not authorised by the service provider. 
A succinct analysis of the regulatory solutions of each Member State to the problem of 
illicit reception of encrypted services is set out below. It should however be noted that the 
legislative environment can evolve very rapidly and any "snapshot" could cease to be 
relevant within a very short time. 
2. Regulatory environment in the Member States (summary) 
A single systematic approach to the problems raised by illicit reception of encrypted 
services does not currently exist in Europe. In certain countries, there are, in fact, specific 
regulations, others resort to existing provisions, while some do not have any legal 
protection. 
In this respect it should also be noted that although the "cable and satellite" Directive24 
has harmonised the treatment of protected works used in satellite broadcasting and the 
management of cable retransmission within the Community, it does not in any way assist 
operators in their fight against illicit reception. 
Indeed right holders could, under certain conditions, prohibit the unauthorised 
retransmission of their works but not unauthorised reception. This is because the latter 
does not consitute a relevant "act" for the purposes of copyright which covers 
traditionally communication and does not cover the reception of a protected work. 
Consequently, the national regulations implementing the Directive will not be of any use in 
preventing illicit reception of encrypted services. 
Table I: Legislation 
Austria 
Belgium 
Denmark 
Finland 
France 
Germ any 
Greece 
Ireland 
Italy 
Luxembourg 
Netherlands 
Portugal 
Spain 
Sweden 
United 
Kingdom on the protection of encrypted services 
Specific legislation 
Broadcasting 
X 
X 
X 
X Telecommunications 
X 
X Intellectual property 
X Criminal law 
X 
X 
X General legislation 
Unfair competition 
X 
X 
X 
X Intellectual 
property 
X 
2.1 Application of provisions on unfair competition and Intellectual Property 
24 Directive 93/83/CEE mentioned above. 
23 
Countries which do not have any specific rules on this subject often make use of other 
more general legislation, in particular that of unfair competition, which protects against 
dishonest trade practices. The application of these principles has in some cases paved the 
way for a ban on the manufacture, importation and marketing (sale, rental or possession 
for commercial purposes) of unauthorised decoding devices (A, B, D and NL). 
Generally, this has been based on the fact that unauthorised manufacturing and marketing 
of decoding devices deprive the encryptor of the remuneration normally payable in 
respect of the service provided. Unauthorised manufacturers would in effect be paid for a 
service that was being provided by someone else. 
It has been recognized in some cases that there is competition between encryptors and 
manufacturers of illegal decoders, a precondition for applying the rules on unfair 
competition.25 For this to apply, the party concerned must in effect be present on the 
market. The principles of unfair competition would not apply in the absence of a 
commercial interest which needs protection. 
Moreover, an action based on unfair competition laws can normally be brought only in 
respect of the distribution and marketing of unauthorised decoding devices, not against 
their importation or possession. This means that it is difficult to start an action before the 
devices have actually been marketed or to request preventive measures. 
Other general rules have proved unwieldy. Admittedly, in cases of unauthorised 
manufacture of decoding devices, industrial property law already gives rightholders some 
protection. Several components of the device will indeed be covered by industrial property 
or intellectual property rights. 
However, such action has often proved ineffective. On the one hand, in order to prove 
that a smart card contains a copy of the system owners software, the encryption 
algorithm, and by the same token the technology used, will have to be disclosed in the 
course of the proceedings, thus opening the door to further copying. On the other hand, 
proceedings based on the industrial property contained in the card would prove pointless 
in the case of genuine cards fraudulently reactivated after their period of validity had 
expired. 
Such a course of action is in any case not always open to encryptors since they do not 
hold the industrial property rights concerned and cannot, therefore, institute proceedings 
against manufacturers of unlawful devices. 
2.2 Application of specific regulations 
Specific legislation on the protection of encrypted services against illicit access is a fairly 
recent phenomenon, resulting from the technological development seen in the 
communication sector in the late 1970s. Following the wave of illicit decoding devices 
In this respect, an Austrian Court of Appeal recognised explicitly (Case Teleclub v Olbort) that actual 
competition between parties is not required, where the goods are, by their nature, already competitive. 
24 
that flooded the market in countries where encrypted broadcasting was most developed 
(F, UK), the first regulations were adopted in 1987 in France and in 1988 in the UK. 
A second wave of legislation took place in the early 1990s, as encrypted stations spread 
across Europe, viz. the legislation adopted in Ireland, Belgium (1991), Italy (1992), 
Finland and Sweden (1994). This process is not yet over, as shown by the debate in 
Denmark concerning the presentation of a draft law. 
Where it exists, the legislation has traditionally been in the form of a specific audiovisual 
law which, modelling itself on copyright rules, provides for criminal sanctions for certain 
activities relating to the illicit reception of encrypted services and gives operators, and in 
some cases other interested parties, the right to claim damages from those responsible for 
such activities. 
Accordingly, the situation with regard to current national regulations on the protection of 
encrypted services can be summarised up as follows: 
2.2.1 Objective of the measures: protecting encrypted services against illicit reception 
Although the national regulations concerned do not all have the same definition of illicit 
reception - this is sometimes referred to as receiving pay-television programmes without 
paying the fee (B, F, UK) or access to an encrypted system without the encrypt or's 
authorisation (S, I) - the objective is invariably the same: to ensure that only authorised 
people can receive the service. 
There is, however, a division between legislation which covers only broadcasting and 
cable distribution services, i.e. where the same programme is communicated to the public 
at large (I, F, B, IRL, S) and legislation that also covers information services which are 
carried on networks and function on individual demand (SF, UK, NL); the latter makes 
no distinction between services communicated to the general public and services sent on 
demand. 
Where legal protection against illicit reception of an encrypted broadcasting service is 
available, it normally protects every type of broadcasting signal, whereas this is not always 
the case for radio services. However, some Member States (UK, IRL) grant such 
protection on the basis of the origin (national or foreign) or of how the service is 
broadcast (by satellite or terrestrial). 
25 
Table II: Types of protected services 
Protected signals 
Austria 
Belgium 
Denmark 
Finland 
France 
Germany 
Greece 
Ireland 
Italy 
Luxembourg 
Netherlands 
Portugal 
Spain 
Sweden 
United Kingdom Cable 
X 
X 
X 
X 
X 
X 
X 
X Broadcasting 
Satellite 
X 
X 
X 
X 
X 
X 
Only for services 
originating in the 
UK Other 
X 
X 
X 
X 
X 
X 
X Radio 
X 
X 
X 
X 
X Other 
X 
X 
X Against pay only 
X 
X 
X 
X 
X 
X 
National legislation has followed two approaches to protect service providers against 
reception by unauthorised persons. 
The first consists in protecting the encrypted signal. This is normally done by recognising 
the encryptor's right of ownership in respect of the signal. The unauthorised reception of 
the encrypted signal is therefore regarded as "theft", against which the owner has a right 
to be protected (B (French Community), IRL, I, UK, NL, SF). As a secondary effect, 
legislation of this type sometimes prohibits retransmission, interception and activities 
related thereto, in so far as they facilitate and/or allow illicit reception of the signal. 
Table III. Types of action 
Encrypted television services 
Austria 
Belgium' 
Denmark 
Finland 
France 
Germ any 
Greece 
Ireland 
Italy 
Luxembourg 
Netherlands 
Portugal 
Spain 
Sweden 
United Kingdom Interception 
X 
X 
X 
X Use 
X 
X 
X 
X Transmission 
X 
X 
X Organise/allow reception 
by third parties 
X 
X 
X 
X 
X 
French-speaking Community only 
The second approach consists in focusing directly on the need to prohibit preparatory 
activities (B (Flemish Community), F and S). Unauthorised reception as such will thus no 
longer be regarded as an unlawful activity, but the commercial activities facilitating it 
would nevertheless be prohibited. 
Such a difference of approach impacts on the extent of the protection. As a rule, 
legislation based on the protection of signals against theft prohibits all preparatory 
activities, be they for commercial or for private purposes. Those, however, that deal 
exclusively with the preparatory activities do not cover the behaviour of individuals. 
26 
Table IV. Purpose of unlawful activities concerning decoding devices 
Commercial Non-commercial 
Austria 
Belgium x x 
Denmark 
Finland x x 
France x x 
Germany 
Greece ^ 
Ireland x x 
Italy x _____ 
Luxembourg 
Netherlands x x 
Portugal 
Spain 
Sweden x 
United Kingdom x x 
Depending on the circumstances, the preparatory activities, which may either be an 
ancillary target of the ban on reception or be the specific subject of the legislation, can be 
placed under the following headings: 
(a) Manufacture of decoding devices intended to enable reception of an encrypted 
service without payment of the subscription fee. 
To ensure that private individuals can only receive the programme by means of the 
equipment manufactured directly by the encryptor or on his behalf, all the 
regulations concerned prohibit the manufacture of devices intended solely to 
enable reception of an encrypted service without payment of the subscription fee 
(B, F, I, S, SF, NL, UK and IRL); 
(b) Importation of decoding devices intended to enable reception of an encrypted 
service without payment of the subscription fee. 
With the gradual elimination of border controls there is undoubtedly a greater risk 
that unauthorised devices manufactured in a Member State which does not 
prohibit their manufacture might subsequently be imported for the purpose of 
enabling reception of an encrypted service without payment of any charge. The 
laws of some Member States (B, F, I, UK, SF and IRL) accordingly prohibit the 
importation of decoding devices designed to enable reception of an encrypted 
service without payment of the subscription fee; 
(c) Distribution of decoding devices intended to enable reception of an encrypted 
service without payment of the subcription fee. 
The activity which constitutes, however, the most serious threat to encrypted 
service providers is without doubt the marketing of equipment intended to enable 
reception of their service without payment of the subscription fee. To guard 
against this possibility, national legislation normally prohibits the distribution of 
decoding devices designed to enable reception of an encrypted service without 
payment of the subscription fee (B, F, I, S, UK, IRL, SF and NL); 
(d) Possession, for commercial purposes, of decoding devices intended to enable 
reception of an encrypted service without payment of the subscription fee. 
27 
Possession for commercial purposes, in particular with a view to sale and/or rental, 
is another stage in the sequence of fraudulent activity leading to reception of an 
encrypted service without payment of the subscription fee; that is why some 
regulations (B, F, I, IRL, SF and NL) prohibit the possession, for commercial 
purposes, of decoding devices intended to enable reception of an encrypted service 
without payment of the subscription fee; 
(e) Possession, for private use, of decoding devices intended to enable reception of 
encrypted service without payment of the subscription fee. 
Although possession, for private use, of decoding devices intended to enable 
access to an encrypted service without payment of the subscription fee is 
intrinsically a less serious activity than possession for commercial purposes, some 
Member States (UK, NL, B, F and IRL) have taken the view that even the private 
possession of an unauthorised device should be prohibited; 
(f) Marketing of decoding devices intended to enable reception of an encrypted 
service without payment of the subscription fee. 
Where there are rules aimed at protecting the service provider against illicit 
reception, the laws of some Member States (B, F, UK, I, NL and IRL) also 
prohibit marketing activities for devices intended to enable reception of encrypted 
services without payment of the subscription fee; 
Table V. Unlawful activities concerning decoding devices 
Decoding devices 
Austria 
Belgium 
Denmark 
Finland 
France 
Germany 
Greece 
Ireland 
Italy. 
Luxembourg 
Netherlands 
Portugal 
Spain 
Sweden 
United Kingdom Manufacture 
X 
X 
X 
X 
X 
X 
X 
X Importation 
X 
X 
X 
X 
X 
X Distribution 
X 
X 
X 
X 
X 
X 
X 
X Marketing and 
advertising 
X 
x 
X 
X 
X 
X Possession for 
commercial 
purposes 
X 
X 
X 
X 
X 
X Possession for 
private use 
X 
X 
X 
X 
X 
X 
'Flemish Community only 
Most Member States also prohibit other ancillary activities, all of which are connected 
with the marketing of decoding devices. 
28 
Table VI. Other unlawful activities concerning decoding devices 
Decoding devices 
Austria 
Belgium 
Denmark 
Finland 
France 
Germany 
Greece 
Ireland 
Italy 
Luxembourg 
Netherlands 
Portugal 
Spain 
Sweden 
United Kingdom Adapt Sell 
X 
X 
X 
X 
X Rent 
X 
X 
X 
X Install 
X 
X 
X 
X Maintain 
X 
X Use 
X Buy 
X 
X Other 
2.2.2 Sanctions 
National regulations generally provide for criminal or administrative sanctions if the law 
is broken, as well as the possibility of civil proceedings to obtain damages and interest. 
On the latter point there are several possible scenarios. 
In the first case, no reference is made in the specific regulation to an action for damages 
and interest, which would normally mean that general principles should be applied (B, F, I 
and NL). 
In the second case, there may be a specific reference to rules covering actions for damages 
and interest (such as the Danish draft law). The explanatory memorandum to the draft 
Law states that both service providers and right holders of a broadcast should be able to 
claim damages and interest for the losses caused by the activities of unauthorised 
manufacturers. 
The third possibility is that of a provision that applies the civil remedies of copyright 
holders (UK). This includes the possibility of obtaining cessation of the fraudulent activity 
and the indemnisation of damages and interest. The final possibility is that of a provision 
containing specific civil remedies, that states who may bring proceedings and the possible 
types of actions (IRL). 
29 
Table VII. Sanctions 
Sanctions 
Austria 
Belgium 
Denmark 
Finland 
France 
Germany 
Greece 
Ireland 
Italy 
Luxembourg 
Netherlands 
Portugal 
Spain 
Sweden 
United Kingdom Fine 
BFR 26 to 100 000 
(ECU 0.7 to 650) 
fine 
FF 5 000 to 200 000 
(ECU 772 to 30 880) 
up to IRL 20 000 
(ECU 24 554) 
LIT 500 000 to 
6 million (ECU 220 
to 2 645) 
uptoHFL 100 000 
(ECU 48 670) 
fine 
up to UKL 5 000 
(ECU 6 045) Prison sentence 
up to two years 
up to two years 
up to two years 
3 months - 3 years 
up to three years 
up to six months 
up to two years Administrative provisions 
Confiscation of decoding 
equipment, forfeiture of 
profits 
Seizure of equipment, 
forfeiture of profit 
Seizure of the technical 
information, seizure and 
confiscation of devices and 
advertising material, 
• forfeiture of profit 
Seizure and forfeiture of 
equipment used in the 
commission of the offence 
Forfeiture of goods, 
forfeiture of profit 
Seizure of objects and 
equipment used in the 
commission of the offence, 
forfeiture of profit 
Copyright remedies Civil provisions 
Specific remedies 
Proceedings under 
copyright law 
2.2.3 Disparities between measures 
From the above, it is clear that there are major disparities between existing legislation, in 
particular as regards: 
scope (domestic services or services originating in other Member States; 
broadcasting services or any encrypted service, including services on individual 
demand); 
the degree of protection (ban on possession for private use and on marketing); 
the person who may bring proceedings for civil remedies (encryptor or any party 
concerned); 
the level of sanctions. 
These disparities are even more marked in the absence of specific legislation. 
Conclusion 
In the late 1980s some Member States began to adopt specific legislation aimed at 
protecting encrypted services against illicit reception by means of unauthorised decoding 
devices. In order to provide the same protection, other Member States apply existing 
general legislative provisions that are already included in their legislation (unfair 
competition, intellectual property laws). And yet another group of Member States 
provide no such protection at present. 
30 
This means that there are disparities between the legal treatment of the illicit reception 
of an encrypted service in the European Union: some activities may be prohibited in 
some Member States but be legal in others. 
Q 1: The Commission would like to have any additional information to enable it to 
examine national regulations in greater detail. 
31 
CHAPTER 4 : BARRIERS TO THE EFFICIENT OPERATION OF THE INTERNAL MARKET 
In view of the regulatory environment in the Member States, the Commission considers 
that the present legislative différencies can create obstacles to the free movement of goods 
and services and can thus damage the efficient operation of the Internal Market. 
Some of these obstacles seem incompatible with the principles of the Treaty and will 
therefore have to be removed. This applies, first, to certain national regulations which 
make a distinction, for the purposes of legal protection against illicit reception, based on 
the origin of the service. Under such rules, services originating from other 
Member States are sometimes protected against illicit reception only if the national 
authority has first issued a certificate which entitles them to such protection26 
Secondly, other regulations simply make it impossible for some services to obtain 
protection, because of the means of transmission used, e.g. when only hertzian services or 
services carried by cables are protected against illicit reception, whereas encrypted 
satellite services, all of which are of foreign origin, do not enjoy such protection.27 This is 
consequently disguised discrimination. 
In these cases the transfrontier provision of services, such as that which exists between the 
subscriber and the encryptor, would be rendered more difficult than the provision of 
national services. The latter would be automatically protected, whereas services 
originating from other Member States would not be so protected or would have to obtain 
prior authorisation in order to enjoy such protection. These measures do not seem 
justifiable in the light of European Court of Justice case-law. Indeed discriminatory 
measures affecting the freedom to provide services are compatible with Community law 
only if they can be brought within an express derogation, such as that contained in 
Article 56 of the Treaty, which refers to grounds of public policy, public security or public 
health.28 In these particular cases, it would appear that none of the grounds in question 
could justify such discrimination. In this regard, the Commission may put an end to such 
discrimination as part of its monitoring of the application of Community lenv. 
By contrast, the analysis of national regulations has identified a number of obstacles to the 
free movement of goods and services which might be justified by a public interest 
objective, and therefore compatible with the principles of the Treaty. For these 
obstacles, an initiative to ensure the operation of the Internal Market might be necessary. 
1. Obstacles to the free movement of decoding devices (Article 30 et seq.) 
Article 30 of the Treaty states that quantitative restrictions on imports and all measures 
having equivalent effect shall be prohibited between Member States.29 Manufacturing and 
26 See British regulations. 
27 
28 
29 See Irish regulations. 
Case C-288/89 ''MefeveT [1991] ECR 1-4007. 
In this context it should be remembered that the Court of Justice traditionally defines quantitative 
restrictions as prohibitions or limits on imports, and measures having equivalent effect to quantitative 
restrictions as "all trading rules enacted by Member States which are capable of hindering, directly or 
32 
marketing prohibitions are indistinctly applicable regulations30 which have restrictive 
effects on trade, in so far as they erect barriers to the importation and marketing of 
products originating in other Member States. 
In the light of the case-law of the Court, these prohibitions are justified because they 
pursue public interest objectives. First, they aim to protect the encryptor against those 
who might fraudulently profit from his activities (namely manufacturers and distributors 
of unauthorised decoding devices), and to protect the consumer against the marketing of 
devices which, as they are not official, would no longer guarantee reception of the service 
if the operator were to change the system. This objective, which aims to ensure that trade 
is conducted within a framework of equity and fairness, is one of the general or public 
interest objectives which, according to the Court, may justify an obstacle to the free 
movement of goods. The protection of consumers and the fairness of commercial 
transactions have on several occasions been recognized by the Court as justification for 
barriers to the free movement of goods.31 
Secondly, these prohibitions aim to ensure the right to remuneration of the intellectual 
property right holders of encrypted broadcasts and industrial and intellectual property 
indirectly, actually or potentially, intra-Community trade" (Case 8/74 Procureur du Roi v Benoît and 
Gustave Dassonville [1974] ECR 837). 
However, within this last category the Court makes a distinction. On one side, it places trading rules 
which constitute measures having equivalent effect to quantitative restrictions and are incompatible 
with Article 30 since they impose conditions applicable solely to imported products or make their sale 
or use more difficult or costly than the disposal of domestic production (measures that are applied 
distinctly). Where such measures, like quantitative restrictions, are discriminatory, they may, 
according to the Court, be justified only on the basis of the grounds listed in Article 36. 
On the other side, as regards trading rules which have identical effects on imported and domestic 
products, the Court has stated that, even if they are equally applicable to domestic and imported 
products (measures that are indistinctly applied), these national mles may not create barriers to a 
product lawfully produced and/or marketed in another Member State unless they are necessary to 
satisfy mandatory requirements (in which the Court includes, in addition to the grounds of public 
interest listed in Article 36, public health, consumer or environmental protection, the fairness of 
commercial transactions, etc.) (Case 120/78 "Cassis de Dijon" [1979] ECR 649; Case 216/84 
Commission of the European Communities v French Republic [1988] ECR 793). 
In this case, obstacles to the free movement of goods resulting from disparities between the national 
laws will be justified where there is a direct link between the laws and the mandatory requirement 
(causality criterion), where the laws are appropriate and not excessive in relation to the requirement 
(proportionality criterion), where there is no equivalent legislation in the country of origin, and where 
there are no alternative solutions which would enable the objective to be attained while creating less 
disturbance for trade flows (substitution criterion). 
Consequently, even though a national law is applicable without distinction, it could still be a measure 
having equivalent effect when the restrictive effects it entails on intra-Community trade, though 
justified by a mandatory requirement, go beyond what is necessary for the attainment of the result. 
30 They do not have the effect of favouring domestic production and entail the same restrictions for both 
domestic and imported products. 
Case 22/71 "Bequelin" [1971] ECR 970:; Case 58/80 Dansk Supermarked a/s v a/s Immerco [1981] 
ECR 181. 
33 
right holders in respect of devices.32 However, the objective of ensuring the right to 
legitimate remuneration, whether it is the remuneration of the right holders for 
programmes or that of the right holders for the technology contained in unauthorised 
devices, is one of the rights which, under the case-law of the ECJ, is the specific aim of 
industrial and intellectual property^ 
These rules also respect the proportionality criterion, since they confine themselves to 
prohibiting the marketing of devices manufactured without the prior authorisation of the 
encryptor, irrespective of their domestic or foreign origins; therefore they do not go 
beyond what is necessary for the attainment of the objective.34 Finally, they also respect 
the substitution and equivalence criterion, since there are no alternative and less 
restrictive measures that would ensure the desired protection. 
In conclusion, an obstacle to the free movement of decoding devices manufactured and 
marketed in the State of origin, without the prior consent of the encryptor. may be 
justified by consumer protection and the fairness of commercial transactions, as well as 
by the protection of industrial or intellectual property. 
2. Obstacles to the free movement of services relating to decoding devices 
(Article 59 et seq.) 
The analysis of national regulations has shown that some laws prohibit activities which are 
ancillary to the manufacture and marketing of illicit decoding devices. This applies to 
regulations which prohibit the marketing, installation, maintenance and replacement of 
illicit decoding devices. 
These activities constitute the provision of services within the meaning of Articles 59 and 
60 of the Treaty. Although these prohibitions are indistinctly applicable, they nevertheless 
do have restrictive effects on the free movement of services. Marketing activities and/or 
after-sales services carried out by service providers established in other Member States 
would be prohibited. 
Nevertheless, according to the case-law of the Court,35 these restrictive effects may be 
justified; in fact these laws pursue public interest objectives such as the protection of 
33 
34 
35 This is why some national regulations refer to copyright provisions. Indeed they give the parties 
concerned (normally the encryptors) the same rights as are given to the right holders of a work 
protected against an unauthorised copy of the work itself. In both cases, the unauthorised copy, 
whether of a work or of a decoding device which permits reception of a service, deprives the right 
holder, or the supplier, of his legitimate remuneration. 
Case 78/70 "Deutsche Grammophon" [1971] ECR 502. 
By contrast, if the prohibitions in question were applied to the import and marketing of devices 
manufactured and marketed in the Member State of origin with the consent of the encryptor. they 
would be liable to result in economic barriers which would be disproportionate to the objective, and 
therefore incompatible with the principles on the free movement of goods as interpreted by the Court. 
The ECJ has drawn a distinction between discriminatory' restrictions and those applicable without 
discrimination. The former could be justified by one of the grounds listed in Article 56 (public policy, 
public security or public health). However, with regard to measures which would result in 
restrictions which are applicable without discrimination, the ECJ has held that Article 59 requires not 
only the elimination of all discrimination against a service provider on the grounds of his nationality, 
34 
consumers26 and industrial and intellectual property.31 In addition, these restrictive 
effects do not go beyond what is necessary for the attainment of the objective, and may 
therefore be regarded as proportionate.38 
In conclusion, prohibitions on the marketing, installation, maintenance and replacement 
of decoding devices manufactured and marketed in the State of origin without the prior 
consent of the encryptor may be justified by the need to protect consumers and industrial 
and intellectual property. 
3. Obstacles to the free movement of encrypted services 
Obstacles to the free movement of encrypted services may also result from the absence of 
legal protection in certain receiving States. The consultation conducted by the 
Commission has confirmed that operators consider effective legal protection against illicit 
reception of the service to be an important factor when deciding whether to distribute the 
service in a country. The absence of such legal protection certainly makes marketing 
more difficult and more haphazard. Operators will have to bear additional costs due not 
only to the use of a particularly secure system, but also to the need to adopt particularly 
costly distribution systems for the decoding devices (normally rental). 
A legal void of this kind gives rise to restrictive effects on the movement of encrypted 
services in the Internal Market, since their distribution in countries without legal 
protection against illicit reception is made more difficult. 
However, this restrictive effect is not contrary to Community law because, as has been 
recognized by the Court,39 in the absence of any Community harmonisation, 
Member State are free to regulate economic activities in their territory in line with the 
principles of the Treaty. They may therefore decide, whilst respecting the proportionality 
but also "the abolition of any restriction, even if it applies without distinction to national providers of 
services and to those of other Member States, when it is liable to prohibit or otherwise impede the 
activities of a provider of services established in another Member State where he lawfully provides 
similar services". (Case 76/90 Manfred Sàger v Dennemever and Co. Ltd [1991] ECR 1-4221). 
According to the Court it follows that a prohibition, which is applicable without discrimination could 
nevertheless constitute a restriction on the freedom to provide services insofar as it established 
obstacles which were not justified by overriding reasons relating to the public interest, insofar as that 
interest is not already protected by the rules to which the services provider is subject in the State of 
establishment, and insofar as the same result cannot be obtained by less restrictive niles. The Court 
includes among these overriding reasons relating to the public interest the protection of consumers 
and workers, industrial and commercial property etc. 
36 
37 
38 
39 Case 220/83 Commission v France [1986] ECR 3663. 
Case 62/79 Coditel [1980] ECR 881. 
The solution would probably be different in the case of devices manufactured and marketed in the 
State of origin with the consent of the encryptor. In this case, these restrictions would in fact create 
barriers to trade between Member States which were disproportionate in relation to the objectives to 
be achieved, and therefore incompatible with the principles of the Treaty on the freedom to provide 
services, as interpreted by the Court. 
Case 52/79 Procureur du Roi v Marc J. V. C. Debauve and Others [19801 ECR 833. 
35 
criterion, whether or not to prohibit certain activities on the grounds of general interest 
objectives. 
In conclusion, regulatory policy considerations relating to economic activities, which are 
for the Member State to assess, may justify the restrictive effect entailed by the 
regulatory void in the absence of any Community harmonisation. 
4. Distortions of competition 
Disparities between national regulations or the absence of such regulations in some 
Member States may also lead to distortions of competition in the Internal Market. An 
operator who distributes his decoding devices in a State with strong legal protection will 
have competitive advantages (which will for example be reflected in his programme 
purchasing capacity) over the operator who has to distribute his service in a State without 
effective legal protection, since the latter will have to bear additional costs resulting for 
example from the choice of a particularly secure distribution system. 
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 
European Union. 
In conclusion, disparity between regulations may lead to distortions of competition which 
might make it more difficult to develop encrypted services. 
Q 2: The Commission would like to know the opinion of the parties concerned on the 
existence of restrictions and restrictive effects other than those identified above. 
36 
CHAPTER 5: THE NEED FOR AND POTENTIAL TYPES OF COMMUNITY ACTION 
The preceding analysis demonstrates that there are a number of obstacles to the efficient 
operation of the Internal Market: some of these obstacles may prove to be incompatible 
with Community law and would have therefore to be removed. This would apply to those 
obstacles caused by the application of national legislation which on the grounds of 
protecting encrypted services, make a distinction between the nature (hertzian or by 
satellite) or the origin of the service. 
Other obstacles could however be justified by general interest objectives such as the 
protection of consumers, and intellectual and industrial property rights where they 
respect the principle of proportionality. This applies to obstacles to the free movement of 
decoding devices and other services linked to them flowing from the disparity in national 
regulations relating to the manufacture and marketing of these decoding devices. 
Furthermore, from an economic point of view, consultations have shown that the current 
differences between regulatory solutions together with the additional costs and legal 
insecurities which they cause, are peceived by the market leaders as a major impedement 
to the development of new encrypted services. Effective legal protection against illicit 
reception is a fundamental factor in persuading an investor to develop an encrypted 
service and to launch it in other Member States. 
Consequently, in respect of this last type of obstacles, an action to establish an equivalent 
level of protection amongst all the Member Slates could prove necessary to eliminate the 
obstacles identified and to complete the regulatory framework for the European 
audiovisual sector established by the "Television without frontiers" Directive 
(89/552/EC) and the "Cable andsatellite'Virective (93/83/EC). 
In this respect it should be emphasised that insofar as the objective sought 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, such an 
objective may be attained solely through Community harmonisation. Indeed, it seems 
implausible that the Member States would spontaneously carry out a rapprochement of 
national regulations which concern the legal protection of encrypted services. However, 
should the case arise, the fact that it would not be within the institutional framework of 
the Community legal order would render it ineffective and fail to grant the industry the 
necessary legal security for the development of encrypted services. 
However, before deciding in favour of a regulatory initiative, the Commission would like 
to know the opinion of the parties concerned on the initiatives which appear below. 
1. Aim of the action 
The general objective of the measure would be to enable media professionals, whether 
encrypted service providers, suppliers of programmes or manufacturers of devices, to 
benefit in full from the opportunities offered by the Internal Market. Indeed, in the 
perspective of the Information Society, there is a risk that the full potential of these 
opportunities will not be realised if these companies do not enjoy sufficient legal 
protection within the Union. 
37 
A clear regulatory framework, which would secure, throughout the Community, legal 
protection against illicit reception of the service and would thus ensure the free movement 
of services and of goods is a necessary precondition for the development of the new 
services. 
Moreover, considering the global nature of the problem of illicit reception, work should 
be launched on an international level, especially within the framework of bilateral 
agreements and the work of the WTO, in order to establish effective and efficent rules on 
a worldwide scale. Indeed, an initiative to establish a regulatory framework within the 
Internal Market would be incomplete if it did not include an external dimension aimed at 
resolving the problem on an international level and providing protection against imports 
from third countries. 
2. Consistency with other Community policies 
A regulatory initiative to ensure the legal protection of encrypted services would also be 
consistent with other Community objectives and policies. 
A regulatory framework providing a high level of legal protection at Union 
level would help to develop the European encrypted services and decoding 
equipment manufacturing industries. Without effective legal protection, illicit 
reception and the resulting loss of revenue could undermine the financial 
stability of encrypted service providers and make it more difficult to develop 
such services. Similar consequences would affect the decoding equipment 
manufacturing industry which, in the absence of legal protection, would not 
embark on an activity that was not protected against fraudulent actions. 
A regulatory intervention to ensure the efficient operation of the Internal 
Market would be coherent with the objectives pursued by the audivisual and 
cultural policy of the Union. Such a measure would ensure that greater 
advantage was taken of intellectual property rights for programmes broadcast 
by TV channels, which would lead to increased operating resources for 
audiovisual production. Indeed, the new encrypted services are important for 
the development and circulation of artistic creation, as well as for the growth 
of the Union's cultural and linguistic diversity; however, the right holders will 
be reluctant to assign their rights if encrypted services are not protected from 
illicit reception. If this means that encrypted services are deprived of 
programmes, they will be unable to develop, and audiovisual creation will 
have lost the opportunity of benefiting from a powerful broadcasting medium. 
A regulatory intervention to ensure the operation of the Internal Market 
would be consistent with the objective of consumer protection. In the absence 
of a secure regulatory framework, consumers could be mislead about the 
origin of the decoding device they are purchasing and thus believe they are 
buying authorised equipment, whereas it is in fact a pirated decoder. In this 
case, if the operator modifies the encryption system for security reasons, the 
device purchased will be of no use to the consumer, who will have to pay for 
another decoder. Moreover, unauthorised devices will not always be 
guaranteed by the pirate manufacturers: should the device breakdown, the 
consumer will have to bear the cost of repairs. In both cases, there are clear 
38 
disadvantages for the consumer from the marketing of unauthorised decoding 
devices. In addition, the losses suffered by the service providers have a 
negative effect on their financial stability; consequently, the development of 
encrypted services could be delayed by the lack of protection and this 
situation would represent a loss for the consumer, who would he unable to 
benefit from the service. 
3. Choice of instrument and legal basis 
In view of the analysis carried out, following consultation with the interested parties, the 
Commission could decide to adopt one of the following two measures. 
The Commission could propose a directive to harmonise national legislations (Option 1). 
In this respect, whilst taking account of the principles of proportionality and subsidiarity, 
the proposed Directive could provide for minimal harmonisation leaving the Member 
States free to adopt stricter measures, which would ensure a minimal level of equivalent 
protection within the Union. This option would have the advantage of securing legal 
protection for the sector concerned whilst leaving the Member States some flexibility to 
widen the scope of this protection. 
The Commission could, alternatively, propose a Council regulation (Option 2). This 
option would have the same objective as the option above and the advantage of securing a 
more effective harmonisation as it would be directly applicable in the Member States 
without being implemented by national law. 
Moreover the chosen option could be accompanied by a proposal to modify the existing 
Community law provisions in respect of the free circulation of counterfeit goods 
originating from third countries40, so that the measures could apply with equal force to 
decoding devices. It should nevertheless be noted that this measure alone is inadequate to 
ensure effective legal protection within the Union. In effect, the regulatory measures 
applicable to counterfeit goods are based on a voluntary agreement by operators and 
interested parties, and apply solely to goods orginating from third countries when they are 
imported into the Union. Trade between Member States is regulated by national and 
Community regulations. However, there is no real uniformity between national regulatory 
approaches to the manufacture and marketing of illicit decoding devices ; this results in 
divergences between possible solutions and in some cases there is a lack of protection. It 
therefore follows that an intervention to control imports from third countries should 
accompany any regulatory proposal to ensure protection against illicit reception within the 
Union. 
The appropriate legal basis would be Articles 57(2), 66 and 100a, taking into account the 
objective of ensuring the efficient operation of the Internal Market and of enabling the free 
movement of services and goods.41 
40 Council Regulation (EC) N° 3295/94 of the Council (O.J.E.C L 341 of 30.12.1994) laying down 
measures to prohibit the release for free circulation, the export, re-export or entry for a suspensive 
procedure of counterfeit and pirated goods. 
41 In the event that the counterfeit goods Regulation were to be amended, the legal basis would remain 
unchanged, i.e. Article 113. 
39 
4. Scope of application 
The harmonisation envisaged would cover the current national regidations in the field of 
the legal protection of encrypted services. These regulations, where present, may be 
found in copyright law, broadcasting law, civil law or administrative law. Consequently 
their location in national law is unimportant; what counts is their objective, i.e. the 
protection of encrypted services against illicit access. 
Such harmonisation could cover all encrypted services, for which encryption is used to 
ensure the payment of a fee, without being restricted to broadcasting services. This 
category would therefore include the traditional encrypted broadcasting sen>ices (cable, 
hertzian or satellite), the new broadcasting services (digital television, pay-per-view, near 
video on demand) and Information Society services, namely services provided 
electronically at a distance on the individual demand of a service receiver (video on 
demand, supply of games on demand, interactive teleshopping). 
Indeed, where a service is encrypted to limit its reception, it will need the same protection 
independent of the type of service concerned (broadcasting, on individual demand etc.). 
On the other hand, if harmonisation were confined to broadcasting services alone, it 
would not be possible to cover the new uses of encryption such as data transmission on 
individual demand or without images (e.g. a newspaper sent to a home via satellite), as 
well as video games delivered directly to a home, by satellite or cable. 
Consequently, all encrypted services, for which decoding devices are available to the 
public, should be able to enjoy the same protection. Looking ahead to the convergence 
of broadcasting and information technology services, the definition of "encrypted services" 
should cover any service which can be received by a television or computer screen, i.e. 
radio or television broadcasting services, as well as the other interactive Information 
Society services, which are defined in the proposal for a Directive on regulatory 
transparency in the Internal Market, namely distance services transmitted electronically on 
the demand of the service receiver. 
However, harmonisation should not cover the services which use encryption for reasons 
other than that of ensuring payment of a fee, such as services which are encrypted to 
ensure the integrity and confidentiality of the message transmitted, namely financial or 
telecommunications services. The reason for this exclusion is that the general interest 
objectives put at risk if they are intercepted, i.e. the integrity and confidentiality of the 
communication, differ significantly from the protection of the value of a service provided 
in exchange for a fee, which is the general interest objective threatened by illicit reception. 
This difference has led to regulatory solutions which differ significantly, both at national 
and international level, in particular as regards the action to be taken and the level of 
sanctions, and which do not justify joint treatment of the two problems. 
Protection against goods from third countries should cover all decoding devices imported 
from a third country which enable reception of an encrypted service without the prior 
authorisation of the encryptor. 
5. Overall structure 
40 
In view of the proportionality principle, the proposed provisions could prohibit the 
following activities; 
• the manufacture of decoding devices intended to permit access to encrypted 
services without the authorisation of the encryptor; 
• the sale of decoding devices intended to permit access to encrypted services 
without the authorisation of the encryptor; 
• the possession for commercial purposes of decoding devices intended to permit 
access to encrypted services without the authorisation of the encryptor; 
• the possession for private purposes of decoding devices intended to permit access 
to encrypted services without the authorisation of the encryptor; 
• the installation, maintenance and replacement of decoding devices intended to 
permit access to encrypted services without the authorisation of the encryptor; 
• the marketing of decoding devices intended to permit access to encrypted services 
without the authorisation of the encryptor; 
• the decoding of encrypted broadcasts without the authorisation of the encryptor. 
The proposed measure should also provide that Member States adopt effective, 
proportionate and deterrent penalties for the breach of these provisions. In this respect, 
as the Commission has stated in its communication on the role of penalties in 
implementing Community legislation,42 the Member States would remain free to determine 
the structure for these sanctions. The measure could therefore provide for a procedure 
whereby the Commission is notified of provisions which Member States intend to adopt. 
It should also enable any interested party to bring a claim/or damages and interest. 
As regards provisions on protection against the release into circulation of goods from 
third countries, the proposed measure should prohibit the importation of decoding devices 
intended to permit access to encrypted services without the authorisation of the encryptor. 
Q 3: The Commission would like to know the opinion of the parties concerned on 
the need for harmonisation at Community level. 
Q 4: The Commission would like to know the opinion of the parties concerned on 
the form of a possible harmonisation instrument from the options presented in the 
Green Paper. 
Q 5: The Commission would like to know the opinion of the parties concerned on 
the content of a possible harmonisation instrument, as envisaged above, in particular: 
Communication from the Commission to the Council and the European Parliament on the role of 
penalties in implementing Community Internal Market legislation COM(95) 162 final of 
3 May 1995. 
41 
i. the scope 
a. should this be limited to broadcasting sennces or extended to all sendees in 
which encryption is used to ensure payment of the subscription fee; 
b. if the scope were to be extended, would the criterion used be appropriate 
(services encrypted to ensure payment of the subscription fee), or should another 
criterion be used to determine the scope ? If so, would it be considered necessary 
for the harmonisation instrument to protect all sennces against illicit reception 
which use conditional access techniques, including for example passwords 
(whether they are encrypted or not)? 
ii. the desirability of including the possession by private individuals of unauthorised 
decoding devices; 
Hi. claims for damages and interest. 
42 
LIST OF QUESTIONS 
Q1: The Commission would like to have any additional information to enable it to 
examine national regulations in greater detail 
Q 2: The Commission would like to know the opinion of the parties concerned on 
the existence of restrictions and restrictive effects other than those identified above. 
Q 3: The Commission would like to know the opinion of the parties concerned on 
the need for harmonisation at Community level. 
Q 4: The Commission would like to know the opinion of the parties concerned on 
the form of a possible harmonisation instrument from the options presented in the 
Green Paper. 
Q 5: The Commission would like to know the opinion of the parties concerned on 
the content of a possible harmonisation instrument, as envisaged above, in particular: 
i. the scope 
a. should this be limited to broadcasting services or extended to all services in 
which encryption is used to ensure payment of the subscription fee; 
b. if the scope were to be extended, would the criterion used be appropriate 
(sennces encrypted to ensure payment of the subscription fee), or should another 
criterion be used to determine the scope ? If so, would it be considered necessary 
for the harmonisation instrument to protect all services against illicit reception 
which use conditional access techniques, including for example passn>ords 
(whether they are encrypted or not)? 
ii. the desirability of including the possession by private individuals of unauthorised 
decoding devices; 
Hi. claims for damages and interest. 
43 
ISSN 0254-1475 
COM(96) 76 final 
DOCUMENTS 
EN 15 10 
Catalogue number : CB-CO-96-102-EN-C 
ISBN 92-78-01335-8 
Office for Official Publications of the European Communities 
L-2985 Luxembourg ^1