COMMISSION GREEN PAPER - Legal protection for encrypted services in the internal market - Consultation on the need for community action
Date: 1996-03-06
Institutions: European Commission
Subjects: EU action, audiovisual piracy, broadcasting, intellectual property, single market

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. 
2. 
3. 
4. 

A buoyant market 
A European market 
A market exposed to piracy 
A market threatened  by regulatory  fragmentation 

Chapter 2: International  rules 

1. 

2. 

The Council of Europe 

The World  Intellectual Property Organization  (WIPO) 

Chapter 3: Member States'  legislation 

Overview 
1. 
Regulatory environment  in the Member States  (summary) 
2. 
Chapter 4: Obstacles  to the efficient  operation  of the Internal  Market 

1. 
2. 

3. 
4. 

Obstacles to the free  movement  of decoding devices (Article 30 et seq.) 
Obstacles  to  the  free  movement  of  services  relating  to  decoding  devices 
(Article 59 et seq.) 
Obstacles to the free  movement  of encrypted  services 
Distortions  of competition 

Chapter 5: The need  for and  potential  types of Community  action 

1. 
2. 
3. 
4. 
5. 

Purpose of the action 
Consistency  with other Community  policies 
Choice of instrument  and  legal basis 
Scope 
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 
this  problem  by 
the  solutions  that  have  been  found 
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 

to 

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 

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). 

3 

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 
in  the  Television  Without  Frontiers  Directive7 
authorities  may,  as  forseen 
(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 
system. 
compression,  but 

subscription  management 

requires  a  sophisticated 

it 

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 

A 

B 

CH 

D 

DK 

E 

Eir 

F 

Fui 

I 

L 

NL 

P 

S 

UK 

Caiial  Plus 

Sky  Movies 
Movie  Chamiel 

Sky  Sports 

Canal  Plus  Esp. 

Première 

35 

850 

3700 

893 

2587 

2579 

150 

100 

160 

230 

650 

Flluiuet 

Telepiu 

Sky  Multichannel 

TV  1000 

Adult  Channel 

45 

5 

5 

5 

Canal  Plus  TVCF 

152 

Canal  Satellite  France 

Filiiunax 

Tele-TV 

Telechib 

90 

Canal  Satellite  Esp. 

10 

142 

8 

230 

481 

167 

80 

41 

31 

Lumière  TV 

Multichoice 

Total 

35 

302 

90 

855 

145 

903 

0 

142 

8 

655 

0 

162 

0 

612 

5814 

2 

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: 

the  service.  With 

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 
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. 

increase 

the 

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. 

incorporation  of  audiovisual  service  distribution  systems  by 

The  evolution  of  technological  applications.  Constant  improvements  and  the 
the 
continuous 
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 
that  are  more  and  more  sophisticated  and  secure.  After  all,  the 
be  developed 
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 
the  legal  protection  of  encrypted  television  services }%  The 
Recommendation  on 
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; 

is  designed,  for 
the  possession  of  decoding  equipment  where  possession 
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 

on the  protection  of encrypted  services 

Specific  legislation 

General  legislation 

Broadcasting 

Telecommunications 

Intellectual  property 

Criminal law 

Unfair  competition 

Intellectual 
property 

X 

X 

Austria 
Belgium 
Denmark 
Finland 
France 
Germ any 
Greece 
Ireland 
Italy 
Luxembourg 
Netherlands 
Portugal 
Spain 
Sweden 
United 
Kingdom 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

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, 
the 
communication  sector  in  the  late  1970s.  Following  the  wave  of  illicit  decoding  devices 

technological  development  seen 

resulting  from 

the 

in 

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 

Broadcasting 
Satellite 

Other 

Radio 

Other 

Against pay only 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 
Only for services 
originating in the 
UK 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

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 

Interception 

Use 

Transmission 

Organise/allow reception 
by third parties 

Austria 
Belgium' 
Denmark 
Finland 
France 
Germ any 
Greece 
Ireland 
Italy 
Luxembourg 
Netherlands 
Portugal 
Spain 
Sweden 
United Kingdom 

French-speaking Community only 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

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 
Denmark 
Finland 
France 
Germany 
Greece 
Ireland 
Italy 
Luxembourg 
Netherlands 
Portugal 
Spain 
Sweden 
United Kingdom 

^ 

x 

x 
x 

x 
x 

x 

x 
x 

x 

x 
x 

x 

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 
in  a  Member  State  which  does  not 
that  unauthorised  devices  manufactured 
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 

Manufacture 

Importation 

Distribution 

Marketing and 
advertising 

Possession for 
commercial 
purposes 

Possession for 
private use 

Austria 
Belgium 
Denmark 
Finland 
France 
Germany 
Greece 
Ireland 
Italy. 
Luxembourg 
Netherlands 
Portugal 
Spain 
Sweden 
United Kingdom 

'Flemish  Community only 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

x 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

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 

Adapt 

Sell 

X 

X 

X 

X 

X 

Decoding devices 
Austria 
Belgium 
Denmark 
Finland 
France 
Germany 
Greece 
Ireland 
Italy 
Luxembourg 
Netherlands 
Portugal 
Spain 
Sweden 
United Kingdom 

2.2.2  Sanctions 

Rent 

X 

X 

X 

X 

Install 

Maintain 

Use 

Buy 

Other 

X 

X 

X 

X 

X 

X 

X 

X 

X 

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 

Fine 

Prison sentence 

Administrative provisions 

Civil provisions 

BFR 26 to 100 000 
(ECU 0.7 to 650) 

fine 

FF 5 000 to 200 000 
(ECU 772 to 30 880) 

up to two years 

up to two years 

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 

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) 

up to two years 

3 months - 3 years 

Seizure and forfeiture of 
equipment used in the 
commission of the offence 

Specific remedies 

up to three years 

Forfeiture of goods, 
forfeiture of profit 

fine 

up to six months 

United Kingdom 

up to UKL 5 000 
(ECU 6 045) 

up to two years 

2.2.3 Disparities  between measures 

Seizure of objects and 
equipment used in the 
commission of the offence, 
forfeiture of profit 
Copyright remedies 

Proceedings under 
copyright law 

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 
(Article 59 et seq.) 

to  the  free  movement  of  services  relating  to  decoding  devices 

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 

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, 

33 

34 

35 

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  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 

the  Court,39 

in 

(Case 76/90  Manfred  Sàger  v  Dennemever  and  Co.  Ltd 

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 
[1991]  ECR 1-4221). 
similar  services". 
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 
the  restrictive  effect  entailed  by  the 
for  the  Member State  to  assess,  may  justify 
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 
frontiers"  Directive 
audiovisual  sector  established  by 
(89/552/EC) and the "Cable andsatellite'Virective 

the  "Television  without 
(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 
In  addition,  the  losses  suffered  by  the  service  providers  have  a 
devices. 
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 
legislation  COM(95)  162 final  of 
in 
3 May  1995. 

implementing  Community 

Internal  Market 

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 

The Commission  would like to  have any additional information  to  enable  it  to 

Q1: 
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