Source: EURLEX
Language: en
Format: md

**COMMISSION OF THE EUROPEAN COMMUNITIES**

**Brussels, 06.03.1996**
**COM(96)** **76** **final**

**LEGAL PROTECTION FOR ENCRYPTED SERVICES**

**IN THE INTERNAL MARKET**

**CONSULTATION ON THE NEED**

**FOR COMMUNITY ACTION**

Commission Green Paper

**GREEN PAPER ON THE LEGAL PROTECTION**

**OF ENCRYPTED SERVICES**

**IN THE INTERNAL MARKET**

**Executive summary**

**Introduction**

**Chapter 1: The European market in encrypted services**

1. A buoyant market
2. A European market
3. A market exposed to piracy
4. A market threatened by regulatory fragmentation

**Chapter 2: International rules**

1. The Council of Europe

2. The World Intellectual Property Organization (WIPO)

**Chapter** **3:** **Member** **States'** **legislation**

1. Overview

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

1. Obstacles to the free movement of decoding devices (Article 30 _et seq.)_
2. Obstacles to the free movement of services relating to decoding devices
(Article 59 _et seq.)_
3. Obstacles to the free movement of encrypted services
4. Distortions of competition

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

1. Purpose of the action
2. Consistency with other Community policies
3. Choice of instrument and legal basis
4. Scope
5. Overall staicture

**List of questions**

_Executive summary_

Objective

In recent years the increase in the availability of frequencies and the use of new
technology have been accompanied by an increase in the number of television services
whose signal is encrypted with a view to restricting reception to subscribers. In order to
receive the programmes, viewers must have a decoding device that can reconstitute the
original picture.

The market is experiencing rapid growth particularly as a result of the advent of digital
technology, which permits an expansion in the capacity for communication. These
television services will increasingly be compelled to adopt a transnational and often even
European dimension due to their specialised nature. However, growth is being
jeopardized by piracy: a flourishing unofficial decoder manufacturing industry is emerging
in parallel to that of authorised manufacturers. Devices enabling access to a service
without payment of the subscription or fee are produced and marketed without the
permission of service operators. This results in considerable losses for the service
provider and indirectly adversely affects the potential market of programme suppliers and
official manufacturers.

In the light of these developments, the Commission already emphasised the need for
effective protection of coded signals against their illegal reception in its Strategic
Programme for the Internal Market of 22 December 1993 (COM(93)632 final).

Such a requirement is all the more urgent in the run-up to the Information Society: as
more and more encrypted services become available in the future, measures will need to
be adopted to ensure the protection of these services, whatever their content, against
illicit reception.

Accordingly, in its Communication of July 1994 entitlted "Europe's Way to the
Information Society: An Action Plan" (COM(94) 347) the Commission announced the
preparation of a Green Paper on the Legal Protection of Encrypted Services in the
Internal Market with the aim of examining problems raised both by the absence of
specific legislation on the legal protection of encrypted services in some Member States
and by disparaties between existing legislation in others.

The current regulatory environment

A comparison of the regulatory methods chosen by legislators in the Member States
reveals appreciable differences in the approach to the problem of illicit reception of
encrypted services.

Whereas some Member States adopted _specific legislation_ ensuring protection against
the illegal reception of encrypted services in the late 1980s, others (A, P, E, GR, DK, D
and LUX) have no such legislation to date.

_The_ _general_ _rules_ (e.g. on unfair competition, telecommunications and copyright)
sometimes applied in Member States belonging to the second group are often unable to

provide effective protection against the illegal reception of encrypted services. This has
allowed the development, in some of those Member States, of a flourishing industry that
manufactures, markets, installs and maintains pirate devices. A specialist press has also
developed, providing targeted publications and commercial promotion networks for pirate
decoders. The repercussions of this situation extend to other Member States, where such
devices are introduced on to the market in spite of restrictive measures.

Among the Member States which have adopted specific legislation, _the differences_
_between the solutions adopted_ are substantial, in particular as regards scope, the activities
prohibited (commercial promotion, private possession) and the level of sanctions.

**Need for Community action**

In view of this situation, _Community action could well he justified._ The fact that the
Member States do not all have an equivalent level of legal protection _prevents the Internal_
_Market from operating correctly._ This creates a number of obstacles to the free
movement of encrypted services and decoders and numerous distortions of competition
between operators in the various Member States. The present differences between the
regulatory solutions and the resulting extra costs and legal uncertainty are viewed by the
profession as a _major barrier to the_ _development_ _of a European market of new encrypted_
_services._

Such an initiative would also be useful in preparation for the _Information_ _Society,_ in
which encrypted services could be called upon to play a major role. It would also
eliminate the fragmentation of the Internal Market and would simultaneously take other
existing Community objectives into account such as those persued by the _industrial_
_audiovisual,_ _cultural_ _and consumer protection policies_

Operators have overwhelmingly expressed support for a Community measure. In this
regard, the _DVB (European_ _Digital_ _Video Broadcasting Group)_ has adopted a
recommendation emphasizing the need for a clear and uniform EU-wide regulatory
framework. This view was shared by the _European_ _Parliament,_ which proposed inserting
in the Directive on the Use of Standards for the Transmission of Television Signals a
recital underlining the need to introduce and apply efficient anti-piracy legislation at
European level; the Directive, along with the recital, was adopted by the _Council_
on 24 October 1995.

Before proposing an initiative, however, the Commission would like to consult interested
parties on the course of action described below.

The Commission could propose an _initiative harmonizing national legislation._ Taking
into account the principle of proportionality and subsidiarity, the proposed initiative could
provide for minimum harmonisation, leaving Member States free to adopt stricter
principles while ensuring a _minimum level of equivalent_ _protection_ within the Union. The
proposed initiative could thus prohibit the production, sale, possession for either
commercial or personal use, installation and commercial promotion of decoders designed
to enable access to encrypted services without the encryptor's authorisation. Such a
course of action would both ensure EU-wide equivalent protection against illicit access to
encrypted services and afford legal certainty to the interests concerned.

**Next step**

**The Commission is keen to ensure that the Green Paper is the subject of** _**open**_
_**consultations',**_ **any person,** **firm,** **body or authority is free to take part. This will be a**
**twin-track consultation process, in that it is addressed not just to trade associations and**
**federations but also to individual operators. The Green Paper will be sent to the European**
**Parliament, to the Economic and Social Committee, to the Committee of** **the** **Regions, to**
**the Member States, to the European Economic Area and to the countries of Central and**
**Eastern Europe.**

**The time-limit for submitting comments** **is** **31 May 1996. In the summer of 1996 the**
**Commission will, in the light of the comments received, decide whether an initiative at**
**Community level is called for.**

_**Introduction**_

**I. The problem of illicit reception**

The use of _signal encryption_ in broadcasting has been on the increase in recent years. In
the 1980s systems characterised by varying degrees of security began to appear employing
a form of scrambling in which the standard picture and/or sound signals are altered before
transmission in such a way that a normal receiver cannot reconstitute the original
programme. In order to recover the original picture the viewer needed a _special decoding_
_device_ (decoder, smart card or computer programme-normally issued on the payment of a
subscription fee) which could interpret the instructions accompanying the encrypted
signal.

Originally used by cable companies to modulate the number of channels available to the
viewer under the terms of his subscription agreement, the technology rapidly spread to
terrestrial pay-television stations and evolved dramatically with the satellite broadcasting
of encrypted channels. The use of encryption will, however, increase sharply with the
advent of digital technology and the development of Information Society services (such as
interactive teleshopping, tele-information services, on-line professional services and
interactive games) since they will all, in varying degrees, need to rely on encryption to
ensure their viable development.

Encryption is used for a variety of reasons: _on top of commercial strategy requirements._
i.e. the need to find _fresh sources of_ _revenue,_ copyright holders can require to use
encryption to _protect and exploit the covered programmes. The protection of minors._
particularly in the case of adult channels, as well as the improved identification of the
audience to allow for targeted maketing, can also be major factors.

A flourishing _unauthorised manufacturing_ industry has, however, sprung up alongside
that of official producers of decoding devices. This pirate industry manufactures and
markets decoding devices enabling _illicit reception of the service without the service_
_provider's authorisation_, usually at prices below those of official devices.

It is estimated that unauthorised devices currently represent about _5 to 20%_ of the total
number of devices in circulation and generate turnover of several million Ecus annually.
Moreover, a specialised press developed around this pirate market, providing targeted
publications and thus also a medium for the marketing of unauthorised devices. An
after-sales service market also developed, providing maintenance and even sometimes the
replacement of the device in the event that the operator would change system.

The sale of these unauthorised devices has, first of all, an adverse effect on the _operators_
_ofenctypted_ _services._ As well as suffering losses in terms of potential market and profits,
they bear additional costs as a result of having to adopt expensive distribution systems for
their decoder devices (which are usually rented out) in order to control their use.

For _the suppliers of the_ _programmes_ _contained in the_ _broadcasts,_ the marketing of the
unauthorised devices represents a loss of profits, as in the negotiations concerning the
price payable for the rights, no account will have been taken of the individuals who
receive the programmes via an unauthorised device.

For those _applying_ _**the**_ _technology,_ **the marketing of unauthorised devices undermines**
confidence in their system **and** results **in lost profits** connected **with the potential market**
taken over by such equipment.

For the consumers, the marketing of **the** unauthorised devices constitutes **a** risk as **they**
could be mislead about **the** origin of **the** decoding device they are purchasing and **thus**
believe they are buying authorised device, whereas it is in fact a pirated decoder. In this
case, if the operator modifies the encryption system for security reasons, the device
purchased would be of no use to **the** consumer, who would have to pay for another
decoder. Moreover, the service providers pass on the losses they suffer from piracy onto
the price of, or rental charges for, authorised devices made available to consumers.

**II.** **The Regulatory Environment**

In order to redress this problem, operators have asked that Member States adopt specific
rules providing _rapid_ _and_ _effective legal protection_ against the manufacture and
distribution of unauthorised decoding devices. While _technological_ _progress_ has improved
the security of encryption systems, purely technological solutions have often proved
ineffective. When choosing an encryption system the operator is faced with a trade-off
between the cost of the system and the level of security it provides. Experience has
moreover shown that piracy techniques have developed at the same rate as encryption
techniques and that there is no guarantee that new systems using digital technology will
not come under attack. It was therefore felt that, in order to deal with pirates, technology
had to be supplemented by legislation. However, the resulting _M>ave_ _of regulatory change_
_among Member_ _States,_ which has not as yet been completed, reveals a substantial
difference in approach.'

In this context, in its July 1994 Communication entitled "Europe's way to the Information
Society. An Action Plan" (COM(94) 347), the Commission announced the preparation of
a _"Green Paper on the_ _Legal_ _Protection of Encrypted Services in the Internal Market"_
aimed at analysing the problems raised both by the absence of specific legislation on illicit
reception of encrypted services in some Member States and by disparities between
existing legislation in others.

**III.** Services covered

The subject of the following analysis is _the_ _illicit_ _reception of an encrypted_ _service,_ i.e.
reception without payment and/or authorisation,by persons who are not authorised by the
service providers, and the solutions that have been found to this problem by
national regulations. _"Encrypted_ _services"_ is defined for the purposes of this Paper as
services whose _signal is_ _encrypted_ _in order to ensure_ _payment_ _of a fee._ This category
includes _traditional encrypted broadcasts_ (via a cable, hertzian waves or by satellite), the
_new broadcasting services_ (digital television, pay-per-view, near video on demand) and
_Information Society_ _services,_ namely electronic distance services provided on individual

See Chapter 3: Member States' legislation.

request of a service user (in particular video on demand, games supplied on request,
teleshopping and multimedia information services ).

Services encrypted for reasons other than ensuring the payment of a fee, i.e. those
**encrypted in order to guarantee the** _**integrity and confidentiality of the message**_
_transmitted,_ namely financial or telecommunications services (in particular mobile
telephone services using GSM technology) are not covered. This exclusion is based on the
fact that _the general interests_ involved in the event of interception of these services (i.e.
the integrity and confidentiality of the communication) differ appreciably from the
general-interest objective (i.e. the protection of the value of a service provides against
payment) threatened by the illicit reception of encrypted services as defined for the
purpuse of this Paper. As this difference has led to _appreciably different solutions in_
_terms of legislation_ both at national and international level particularly as regards action
and the level of sanctions, the joint treatment of both problems is not justified.

Moreover, the Green Paper does not cover questions concerning systems designed to
prevent the _copying_ of a work or other protected subject matter. These have been
addressed in the Green Paper on Copyright and Related Rights in the Information Society
adopted by the Commission in July 1995.

Lastly, this Green Paper does not deal with questions relating to the _standardization of_
_conditional access_ _systems,_ or with the conditions under which licences are granted for
such systems, since they are already covered by the Directive on the Use of Standards for
the Transmission of Television Signals, [2] or _with the control by national authorities_ of
coding systems. The latter question, which is closely linked to the the problem of
_security,_ is currently being studied by the Commission in the context of its work on the
security of information systems. Other studies could furthermore be launched at a future
date if the efficient operation of the Internal Market would be threatened or jeopardized
by the implementation of national rules.

IV. Preparatory work

In preparation for the Green Paper, the Commission asked three independent firms to
examine the technological, economic and legal aspects of the market in encrypted
services. [3 ]

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](mailto: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
Signals [4] proposed inserting a recital emphasizing that, in a digital environment, the scope
for piracy in the European audiovisual market will increase, with negative consequences
for both operators and programme providers, and that it is becoming increasingly
necessary to introduce and apply efficient anti-piracy legislation at European level. The
recital was adopted along with the Directive by the _Council_ on 24 October 1995.

Directive 95/47/EC (see above).

**Chapter 1: The European market in encrypted services**

**1.** **A buoyant market**

The recent past, _technological developments_ (e.g. satellites and fibre optic cables) have
produced rapid changes in the European audiovisual landscape and allowed for a steady
expansion of the supply of services. As more operators have increasingly engaged in
_targeted commercial strategies,_ the encryption of their signals has proved essential for
their viability.

The traditional structure for financing private channels, based exclusively on advertising
income, is often no longer a viable proposition for new entrants. As the number of
broadcasting stations increases, the contribution of income per channel from traditional
television advertisers becomes smaller. Simultaneously operators attempt to distinguish
themselves from this growing number of potential competitors by catering to the needs of
specific _market_ _niches,_ i.e. by focusing on the tastes and interests of particular user groups
(thematic film, music or sports channels, etc.). An operator can thus profile himself from
his mass market competitors by targeting a demand that had previously been satisfied only
in part or not at all. Comparing identical geographical areas, however, niche service
audiences are invariably more closely targeted and, by the same token, smaller. Operators
of specialised media cannot, therefore, rely on income from mass market advertisers, [5] who
express less or little interest a media strategy that is not aimed a mass audience.

JUL Reasons for using encryption:

The main reasons for encrypting signals can be summed up as follows:

_To ensure the financial contribution of the beneficiaries of the service:_ the
concept of niche services is based on the ability to provide added value to certain
categories of users as compared to those aimed at the mass market. Users can
therefore be asked to contribute to the financing of this specialised service which,
as a result of encryption, cannot be received by non-subscribers;

_The_ _possibility of increasing advertising revenue per audience unit:_ by encrypting
the signal, the operator will find it easier to sell advertising space to, or strike
sponsorship deals with, firms interested in the targeted market niche. Advertisers
will therefore be asked to pay for the targeted market only and not for the entire
equivalent geographical market. They will therefore be willing to pay more per
audience unit since the audience will be regarded as being of a higher quality
compared to a mass audience.

_The ability to target supply more accurately:_ increased knowledge of the user of
the service will help the operator to fine-tune his service to the exact requirements
of the target market.

In this document, "advertisers" means firms that make use of commercial communication. This
includes all forms of publicity, commercial promotion, direct marketing, sponsorship and public
relations. This general approach is preferred since it can take into account recent and possible future
changes in the use of marketing tools in the wake of developments in the media field.

_Simplifying the acquisition of broadcasting rights:_ satellite broadcasting has
considerably increased the potential reception area. Traditionally, however,
broadcasting rights are granted on a territorial basis, which means access often has
to be limited to viewers within a specific geographical or common language area.
Encryption allows the operator to restrict the reception of the signal exclusively to
those territories for which rights have been acquired. Moreover, as suggested in
the "Cable and Satellite" Directive, [6] encryption will enable the use of the actual
audience (e.g. the number of subscribers and not the geographical area) as a basis
for the negotiation of satellite broadcasting and cable retransmission rights,
thereby reducing the acquisition cost of programmes intended for the development
of a niche service.

_The creation of a new window in the chronology of media distribution:_
encryption allows rightholders to add a new window to the pattern of media
distribution; operators of an encrypted service often carry programming before H
is broadcast to a mass audience and, in order to secure exclusive rights in respect
of those works, they are prepared to pay large sums, thereby creating a new
source of income for the rightsholders.

_Regulatory requirements:_ on grounds of public policy, in particular _the protection_
_of minors_ (e.g. in the case of broadcasting channels aimed at adult audiences), the
authorities may, as forseen in the Television Without Frontiers Directive [7 ]

(Article 22, second sentence), allow certain services to operate on condition that
they are encrypted so that reception can be limited to specific groups of viewers.

1.2 Encrypted services

The European market in encrypted services consists mainly of _pay-television_ _channels*._
Initially tranmsitted via cable and hertzian waves, this service especially expanded when
medium powered and high powered satellites were introduced allowing broadcasts to be
received anywhere within the footprint of the satellite using an individual satellite dish.

The development of technology has, however, enabled more sophisticated pay
broadcasting services to be launched, e.g. _pay-per-view broadcasts,_ _[9]_ which must be paid
for before they can be seen by viewers. Pay-per-view is technically possible without digital
compression, but it requires a sophisticated subscription management system.

Council Directive 93/83/EEC of 27 September 1993 on the Coordination of Certain Rules
Concerning Copyright and Rights Related to Copyright Applicable to Satellite Broadcasting and
Cable Retransmission (OJ No L 248. 6.10.1993, p. 15).

Council Directive 89/552/EEC of 3 October 1989 on the Coordination of Certain Provisions Laid

Down by Law, Regulation or Administrative Action in Member States concerning the pursuit of
television broadcasting activities (OJ No L 298, 17.10.1989, p. 15).

"Pay television" is a term used to define a situation in which a viewer pays to receive a particular
station hertzian, by satellite and/or by cable.

In the United States, 35% of the homes that subscribe to cable (i.e. about 20 million) are equipped
with devices enabling them to receive these services. In France, Multivision offers two pay-per-view
services to 220 000 homes.

**10**

Pay-per-view could involve the viewer paying to see one particular event (e.g. a concert
or a boxing match) or a series of events (e.g. the right to see ten football matches). In the
latter example the broadcaster cannot presently identify exactly which events have been
viewed by a particular viewer. Technological progress is however allowing systems to be
developed that will allow rights holders to be remunerated in line with the actual
"consumption" of their programmes.

The next stage will probably be _near video on demand,_ which involves the broadcaster
transmitting the same programme (usually, but not necessarily, a film) at different starting
times. A viewer can thus choose not only the programme he wants to see but also, within
certain limits, the time at which he wants to see it. This stage will be followed by the
commercial development of actual _video on demand,_ which gives the viewer complete
flexibility over starting times, as they would no longer be pre-determined by the
broadcaster.

The explosion of encryption applications will only take place, however, with the
development of the other services of the Information Society: not only audiovisual
services, but all the other applications (e.g. _interactive teleshopping, tele-information_
_services, professional on-line services, interactive games,_ _etc.)_ _will, to a varying degree,_
_have to rely on encryption for their viable development._ Moreover, as encryption will
often be essential for security purposes (e.g. for electronic payment in the case of
teleshopping), synergy between these two encryption applications (control/security being
enhanced by the subscription system) would - under conditions of legal certainty - make
its use even better suited to promoting the development of all services in the Information
Society .

The development of these new services will depend to a large extent on the establishment
of a regulatory framework which simultaneously takes account of the legitimate
requirements of operators and users of the services. In this respect, great importance will
be attached to the solution found on the international and worldwide level to the multitude

of security problems implied in the use of electronic transactions. These include in
particular the regulatory restrictions on the use of encryption systems, public authorities'
control over encrypted communications for reasons of national security, and the
identification and verification of the respective parties. At present, the Commission, in the
framework of its activities on the security of information systems, is analysing the
possibility of establishing, at European level, organisations which would be responsible for
the control and certification, and totally independent from public authorities.

2. The European market

Europe currently has a total of 180 television channels, transmitted via 27 satellites. [10 ]

Many of those channels (79) use some form of encryption (see Table 1) and are thematic
rather than general (e.g. children's programming, sports channels, movie channels, etc.).

European Audiovisual Observatory: 1994/95 Statistical Yearbook on cinema, television, video and
new media in Europe, Strasbourg (1994).

**11**

Table 1: Number of subscribers to the main pay-television stations ('000 viewers) [11 ]

B

150

152

302

NL

160

2

162

CH

90

90

L

0

P

0

S

230

230

80

41

31

612

I

650

5

655

UK

2587

2579

481

167

5814

DK

100

45

145

Fui

8

8

D

850

5

855

Eir

0

F

3700

5

142

142

Caiial Plus

Sky Movies

Movie Chamiel

Sky Sports

Canal Plus Esp.

Première

Flluiuet

Telepiu

Sky Multichannel

TV 1000

Adult Channel

Canal Plus TVCF

Canal Satellite France

Filiiunax

Tele-TV

Telechib

Canal Satellite Esp.

Lumière TV

Multichoice

Total

A

35

35

E

893

10

903

In the future, a sharp increase in the supply of encrypted services can be expected at the
European level. The launching of new, completely digital satellites (e.g. Astra le and If)
and the spread of fibre optic networks will enable existing operators presently on the
market to increase their supply. Several operators have already announced details of their
plans to launch packages of digital channels. The Nethold Group, for instance, which
controls Filmnet, will soon launch 150 digital channels, 50 of them offering films on
demand. BSkyB plans to launch between 16 and 32 pay-per-view stations towards the
end of 1996 as an initial step towards the launch of genuine video-on-demand services.
Canal Plus will also soon provide a package of over 20 digital channels. In addition to the
services already available they will provide a pay-per-view service, video games and
digital radio services. Furthermore a number of French channels, including TF1, Arte
and La Cinquième, will cooperate in the launch of a package of digital channels using the
same satellite. Lastly, TF1 will launch a package of services ranging from video on
demand to interactive programmes via five Eutelsat-based transponders.

Source: European Audiovisual Observatory: 1994/95 Statistical Yearbook on cinema, television and
new media in Europe, Strasbourg (1994); Libération "Les comptes décryptés de Canal+",
L'Evénement (4 November 1994).

New operators, in particular telecommunications companies, can also be expected to eiucr
the market of Information Society services: British Telecom has already set up a pilot
project in which 2 500 homes can, on demand, receive teleshopping, video-on-demand,
video games and other services.

At present, many channels still cover a particular common language or geographical
market. Nevertheless it is clear that, in the future, national markets will increasingly prove
too limited. There will therefore be a growing need for easy cross-border access, for this
and the following reasons:

_As the number of encrypted services rises,_ operators will increasingly have to
provide more finely targeted services to satisfy the needs of the market. Since
these particular demands will not satisfactorily be catered for yet, a niche market
could be drawn around a population segment prepared to pay for the added value
offered by the service. With the increase in general-interest programming
broadcast "in clear", encrypted services have developed to satisfy an increasingly
specialized demand, therefore justifying the need for their remuneration by the
final user. Nevertheless, the development of viable, targeted services requires a
market of a certain size, and as for identical geographical areas, a niche-service
market is smaller than a mass-service market, // _can often only be constituted by_
_exploiting a larger_ _geogi'aphical_ _market._

_The ability to better satisfy linguistic_ _and cultural_ _requirements._ By means of the
new technology, the same channel can be broadcast simultaneously in several
languages by providing separate soundtracks. In addition, the strategy of
interactive services will increasingly be based on specialized services and/or the
supply Of packages of services. The first will often satisfy the demand of
transnational niches, i.e. demand based on factors other than purely national
culture, while the second will allow the user to choose what he wants to see. Thus,

with the incorporation of advanced information technology, the service provider
will be able to offer the widest possible choice including in his package of services
films or programmes that take account of national differences.

_The evolution of technological_ _applications._ Constant improvements and the
continuous incorporation of audiovisual service distribution systems by the
commercial application of new technologies (satellite broadcasting, optical fibres,
the development of the ISDN network (Integrated Services Digital Network) at
European level so as to link up with IBC (Integrated Broadband Communication
networks) make these services increasingly independent of the distance between
the service provider and the user.

All the regulatory work aimed at the _gradual liberalization_ of telecommunications
(in particular for satellite and cable) and the _harmonisation_ of cross-border rules
on the carrying of signals in Europe (especially for television signals in the field of
programme content and copyright) is just beginning to have a positive impact on
the freedom to provide existing audiovisual services between Member States and
the development of new services, a growing proportion of which will be provided
in encrypted form.

**13**

_Changes in the practice of granting broadcasting rights:_ at present only a small
**proportion of** the output **of encrypted stations can be broadcast across frontiers,**
because of the **traditionally national** systems **of granting broadcasting rights.**
Encryption will **enable** future **rights to be granted on the basis of the actual number**
of users rather than according to national frontiers.

_Obtaining the best possible return on transponder costs:_ since transponder costs
are high, it is economically sensible for the operator to offer **his** service in as many
areas as possible within the area covered by the satellite.

The development of these services in response to the growing needs of cross-border
markets is, however, being jeopardized by a major problem at European level: piracy.

**3.** **A market exposed to piracy**

3.1 Technological development

Due to advanced technology, it is in theory now possible to use a conditional access
system providing such a high level of security that pirates would be incapable of breaking
it. In practice, however, these systems also have to comply with certain economic and
regulatory realities, namely:

Systems must be produced and distributed at a _reasonable_ _price,_ since consumers
will be unwilling to pay more than a certain amount to buy a decoder, [12] depending
on the extent to which they find the programmes interesting or the selection of
channels that can be picked up with the system in question.

The _cost of operating_ the system must not exceed the amount of revenue (i.e. the
income the operator stands to lose if illicit decoding devices are put on sale) at
risk.

Systems must comply with _regulatory requirements_ imposed by certain Member
States on the use of encryption for commercial purposes.

As the need to achieve an acceptable cost for the conditional access system means that
they cannot be made completely secure, manufacturers of illicit decoding devices have
taken advantage of this situation, and are now even able to keep up with the pace of
technological developments.

The way in which the systems have evolved illustrate this phenomenon. _The simplest_
_conditional access system_ causes a mix-up of the position of the synchronous pulses that
form part of the broadcast signals, so that a standard receiver can no longer lock its line
(horizontal) or field (vertical) timebases. The picture waveform is transmitted unchanged,
but without normal synchronous pulses, the screen displays only a jumble of picture
components. The synchronizing information is transmitted in a disguised form (algorithm)

12 Some encryptors have preferred to rent, rather than sell, decoding equipment to their subscribers.
This allows them to distribute the devices at a price which is within the reach of more people and to
ensure the return of the equipment when the subscription expires.

**14**

which can be detected by the official decoder and used to reconstruct standard
synchronous pulses. This system has already been widely pirated. [13 ]

_Second-generation_ encryption systems work differently. Two of these are now
particularly common:

in the _"active line rotation"_ method the line stays in place, but is cut at randomly
chosen points for each line and the ends are swapped over;

in the _"line shuffle"_ method the lines that make up the picture are reconstituted in
a totally different order. This method is more effective than the first, but also more
expensive, as it needs more storage in the decoder.

The great advantage of both systems is that they completely destroy the structure of the
picture. They can, moreover, be used in conjunction with a _"smart_ _card"_ that "reads" the
incoming signal and issues instructions to the decoder telling it how to decode it. The
three most widely used encryption systems in Europe (Videocrypt, Syster and Eurocrypt)
belong to this second generation.

Research is still being carried out, however, into systems that provide even more security.
The current process of the convergence of telecommunications and audiovisual services
and the application of digital technology to broadcasting will allow encryption systems to
be developed that are more and more sophisticated and secure. After all, the
decomposition of content into bytes is in itself a form of encryption. [14 ]

Moreover, in order to allow the introduction of interactive services, decoders themselves
will gradually become "set-top boxes", i.e. actual computers controlled by a smart card
that will both identify the user and activate encryption functions for the incoming and
outgoing signals. These devices will thus make it possible to pick up the signal, decode it,
perhaps change its contents and incorporate it into another medium, record it and print it.
They will also be able to interact with traditional equipment (video tape recorders,
computers, CD and the new video disc players), and to send back to the operator an
encrypted signal, perhaps with confidential financial data, designed to help analyse
demand.

3.2 The consequences of piracy

In some Member States, however, the manufacture and marketing of unauthorised
decoding devices and the manipulation of authorised devices so as to allow access to a
service in breach of the conditions laid down with regard to time (duration of the
subscription) and quantity (number of channels) have now become highly lucrative. [15] In

The pirate decoders are believed to reconstnict the sequence of delays by monitoring the start point of
successive active lines. A decoder design was even published some years ago in the French press.

The standardization of encryption systems for digital broadcasting that has taken place in the context
of the work of _DVB (Digital Video Broadcasting Group)_ is a major step towards the general use of
encryption technology and an increase in the level of security.

It is estimated that unauthorized decoding equipment now accounts for 5-20% of the total market.

**15**

those Member States, they have given rise to parallel activities, such as the publication of
specialized magazines and the setting-up of maintenance and after-sales services.

The fact that they allow _illicit reception of encrypted services_ has several adverse

consequences:

the encryptors are deprived of the subscription revenue they would have obtained
if the customer had purchased a lawful device (about ECU 200-250 annually for
each unauthorised receiver);

in some cases it is necessary to replace the pirated system. Operators spend vast
sums each year (from ECU 60 000 to more than ECU 1.2 million per operator,
according to the survey) on system protection (controlling distribution, making
improvements, changing cards, etc.). Even control systems based on removable
smart cards, which seemed more immune than most, have been compromised. It
was at first claimed that if a system was pirated, it could be safeguarded simply by
a new issue of cards. In fact, when the number of subscribers is very large, the
cost of replacing all the cards can be a significant drain on earnings. On top of the
cost of each smart card, [16] there are the code development costs, postage and other
costs (the survey revealed that making pirated systems secure again can cost more
than ECU 45 million);

_the time needed to develop a new system._ Turning once again to the example of
the smart cards, an operator wishing to replace its card would need some time to
develop a new one. Meanwhile, the only available course of action would be to
engage in a series of temporary electronic countermeasures until it can issue a new
smart card. This is a risky situation, especially since pirates anticipate the
countermeasures and take appropriate avoiding action. In addition, there would
inevitably need to be a period of time in which both the old card and the new card
would remain operational. This means that the pirate cards in circulation would
also last through the transition period, giving pirates enough time to develop a
new pirate card. With the assistance of private investors, pirates can now produce
their own cards and chips almost as quickly as the broadcasters. Other techniques
aimed at disabling pirate cards (e.g. sending de-activating signals that disconnect
only unauthorised cards) have proved short-lived (in this particular case, because
pirate manufacturers themselves distribute devices specifically designed to block
out the de-activating signal).

financial harm to _those holding rights in the programmes._ Since the _fees paid to_
_rightholders_ generally also take into account the _potential_ _audience,_ the fact that
encrypted programmes are picked up via illicit reception deprives rightholders of
the income they would have received from subscription revenue if the customer
had purchased an authorised decoder instead. Moreover, when negotiations take
place regarding rights in respect of subsequent (in clear) broadcasts, rightholders
will find it more difficult to secure high levels of remuneration because of illicit
reception which had already occurred when the material was broadcast on the
encrypted channel;

Between ECU 5 and ECU 25.

**16**

the loss of income and credibility for _suppliers of_ _the_ _technology._ When selecting
an encryption system, operators will want to be sure that the system chosen is the
most secure, so that they can provide those holding the rights in the programmes
with a guarantee that a broadcast they have authorised will not be pirated; a high
incidence of illicit decoding devices might be construed as evidence that a system
is not very effective;

the fact that _market confidence in the system would be undermined._ The market
requires confidence in encryption if the notion of exclusiveness associated with the
services is to be maintained and if the window created in the media chronology is
to be justified. Illicit reception erodes that confidence in such a manner that
rightholders will become reluctant to license first-run programming, broadcasters
will not be prepared to pay high licence fees and consumers will be reluctant to
pay subscription fees.

the consumers could be mislead about the origin of the decoding device they are
purchasing and thus believe they are buying authorised device, whereas it is in fact
a pirated decoder. In this case, if the operator modifies the encryption system for
security reasons, the device purchased would be of no use to the consumer, who
would have to pay for another decoder. Moreover, the service providers pass on
the losses they suffer from piracy onto the price of, or rental charges for,
authorised devices made available to consumers.

As well as these direct consequences there are indirect effects on the development of the
market in new encrypted services. Clearly, development will be possible only if an
adequate level of security is guaranteed for operators to be willing to engage in activities
requiring heavy initial investment.

4. A market covered by fragmented rules

In order to deal with the pirate industry, technology has had to be supplemented by
legislation as part of a regulatory process at Member State level. This process has
followed different approaches and is still not complete. The legislation will be examined in
Chapter 3.

According to the media industry, such _regulatory fragmentation_ could well entail
difficulties for the development of encrypted services at European level and adversely
affect the proper operation of the Internal Market. Since the transnational dimension will
become increasingly necessary for the growth of a truly European encrypted services
industry, the absence of an equivalent level of legal protection against piracy could well
have an adverse effect on the development of those services on a European scale.

As confirmed by the consultation, operators could, because of the absence of legal
protection in one or more countries where reception is possible, decide not to cover a
Member State, for fear of the consequences of piracy in that country. Effective legal
protection weighs heavily in an operator's decision to market his service in a given
Member State.

**17**

In addition, the cost of research into national laws and of possible legal proceedings in the
event of piracy in the various Member States means additional costs to operators and to
their activities, thus adversely affecting the development of the service.

When negotiations covering programme rights take place, the absence of equivalent legal
protection in every Member State where reception is possible will make it more difficult to
secure those rights since (especially in the case of recent works) operators cannot
guarantee that there will be no illicit access in other Member States. It will also be more
difficult to determine what remuneration the rightholders should receive, given that the
actual audience in the signal reception area cannot be determined accurately. Operators
will thus find it more difficult to secure rights at a reasonable price, and this will have
repercussions on their cross-border activities in particular.

Since certain methods of transmission are more exposed to illicit access than others (in
particular off-air or satellite transmission as compared with cable distribution, which is
generally more secure due to the physical link with the viewer), operators may well
choose not to use some of those methods feeling that the risk of piracy is higher. Thus, in
the absence of effective legal protection, certain transmission systems, in particular those
with the strongest transnational potential, might be used less often than others.

The absence of equivalent legal protection in Member States will also have negative
consequences if illicit equipment is imported from third countries. Such equipment will be
able to enter the Community via a Member State which does not prohibit its marketing or
distribution and can then easily arrive in another Member State, making the latter's efforts
to combat illicit reception ineffective.

What is more, the disparity between rules on illicit reception will result in distortions of
competition between operators in different countries. Those who transmit signals in
Member States providing a high level of legal protection will have a competitive
advantages (this will be reflected in their programme-purchasing ability, for instance) over
those who distribute their signal in a State where there is no legal protection, since they
will have to bear additional costs through having to use a particularly secure encryption
system.

Lastly there is a risk that, as a result of differences between solutions in the
Member States, the opportunities afforded by the Directive on the Use of Standards for
the Transmission of Television Signals [17] will be lost. The use of increasingly standardized
systems will be hindered by the fact that the level of legal protection against illicit access is
not the same in all the Member States from which the programmes are broadcast. This
means that the level _of_ security of the system and the means used to distribute decoding
equipment will have to vary with the Member State of reception, leading to further
fragmentation in an audiovisual area which, to some extent, ought to be standardized. In
this respect, _DVB (European Digital Video Broadcasting_ _Group,_ which is at the origin of
the digital television standards partly reproduced in Directive 95/47/EC has, in the context
of its experts' group on the piracy of encrypted services adopted a recommendation
underlining the need to provide operators throughout the Union with a clear and uniform

Directive 95/47/EC (see above).

regulatory framework that can be relied upon in the event of illicit access to encrypted
services.

**19**

**Chapter** **2:** **International rules**

**1.** **Recommendations of The Council of Europe**

In September 1991 the Council of Europe adopted and addressed to its Member States **a**
**Recommendation on** **the** _**legal protection of encrypted television**_ _**services**_ _**}**_ _**%**_ **The**
Recommendation was later updated by another, adopted in January 1995, on measures
against sound and audiovisual piracy. [19 ]

In the preamble, the Council of Europe emphasizes the benefits of the development in
Europe of pay television on the European audio-visual production sector. The Council of
Europe recognizes that encrypted broadcasting services contribute to the diversity of
programmes offered to the public, increase the possibilities of exploitation of protected
works and are likely to increase the sources of financing of works and programmes in
Europe.

The Recommendation goes on to highlight the adverse consequences of illicit access to
encrypted broadcasting services and sets out the range of activities which are to be
considered unlawful:

the manufacture of decoding equipment where manufacture is designed to enable
access to an encrypted service by those outside the audience determined by the
encrypting organization;

the importation of decoding equipment where importation is designed to enable
access to an encrypted service by those outside the audience determined by the
encrypting organization;

the distribution of decoding equipment where distribution is designed to enable
access to an encrypted service by those outside the audience determined by the
encrypting organization;

the commercial promotion and advertising of the manufacture, importation or
distribution of decoding equipment referred to above;

the possession of decoding equipment where possession is designed, for
commercial purposes, to enable access to an encrypted service by those outside
the audience determined by the encrypting organization.

Member States are free to determine that possession of equipment for private use is also
to be considered as an unlawful activity.

The Recommendation defines an _encrypted_ _service_ as "any television service, transmitted
or retransmitted by any technical means, the technical characteristics of which are

18 Recommendation No R(91) 14 of the Committee of Ministers to Member States on the legal
protection of encrypted television services.

**19** Recommendation No R (95) 1 of the Committee of Ministers to the Member States on measures
against sound and audiovisual piracy.

**20**

modified or altered in order to restrict its access to a specific audience". The Comic- of
Europe emphasizes in the explanatory memorandum that the definition (and, by the same
token, the protection arising therefrom) applies to all organizations offering encrypted
services, whether at local, regional, national or transnational level, irrespective of the
country of origin of the broadcast.

The protection guaranteed by the Council of Europe is not subject to the requirement of
reciprocity. As the Council of Europe emphasizes in the explanatory memorandum,
non-application to services originating from other countries could well give rise to
problems for services originating from the country of reception.

The Recommendation defines _decoding equipment_ as "any device, apparatus or
equipment designed or specially adapted, totally or partially, to enable access in the clear
to an encrypted service, that is to say without the modification or alteration of its
characteristics". [20 ]

Finally, _distribution_ is defined as the sale, rental or commercial installation of decoding
equipment, as well as the possession of decoding equipment with a view to carrying out
those activities. This covers commercial, not private activities.

The Recommendation urges Member States to provide for criminal or administrative
_sanctions_ in respect of all of the above-mentioned activities, with one exception. The
marketing and advertising of the manufacture, importation or distribution of unlawful
equipment does not give rise to criminal or administrative sanctions. [21 ]

The _civil remedies_ proposed in the Recommendation provide that, in addition to the
criminal sanctions, the injured encrypting organization should be able to take action
against those involved in unlawful activities to obtain damages, or a share of the profits.

_There are no rights of action for the rights owners of programmes included in the_
_services._ The Council's view, as expressed in the explanatory memorandum, is that
although holders of the rights in broadcast programmes may suffer if illicit access occurs,
this damage is indirect. The explanatory memorandum also states that a rights holder can
ensure its interests are protected contractually by requiring the broadcaster to take legal
action against illicit access. [22 ]

**20** As stated by the Council of Europe in the explanatory memorandum, the principles of the
Recommendation are to apply exclusively to the part of the decoder that enables the signal to be
decrypted. Thus, in the case of a system using smart cards, the part covered would be the card only
and not the decoder as such since the latter cannot, on its own, decrypt the signal.

The Council of Europe justifies the exception on the grounds that sanctions should be aimed
exclusively at manufacturers, importers and distributors of unlawful decoding equipment, and not at
organizations that simply carry material used for commercial promotion or advertising (advertising
agencies, newspapers and magazines).

While it is true that rightholders may include such clauses in contracts, this does not obviate the need
to protect interests specific to the rights holder independently of those of broadcasters. When the
unlawful activity affects the rights holder and not the broadcaster the broadcaster may have little
incentive to act swiftly against those activities. Admittedly, the rights holder could take legal action
against the broadcaster to enforce the original contractual provisions, but this acts as a further delay
in the action against the pirate.

**21**

Finally, the Recommendation does not provide for any sanctions, either civil or criminal,
in respect of private possession of unlawful equipment.

The Recommendation has played a major role in the regulatory movement at
Member State level that began in the early 1990s: specific national regulations on the legal
protection of encrypted broadcasting services introduced at the time have often been
inspired by the principles enshrined in the Recommendation.

However, in view of the very nature of the text, which is not binding, there are substantial
differences between regulations, in particular with regard to scope, unlawful activities and
the level of sanctions. Moreover, a number of Member States have not yet transposed the
principles of the Recommendation into national law, thus giving rise to the present
regulatory fragmentation at European level.

2. The World Intellectual Property Organization (WIPO) Study

In the context of the current talks on the draft Protocol to the Berne Convention and on

the New Instrument for the protection of the rights of performers and producers of
phonograms, the draft memorandum drawn up by the International Bureau in April 1994 [23 ]

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" Directive [24 ]

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

Broadcasting

on the protection of encrypted services

Specific legislation

Telecommunications

**X**

**X**

General legislation

Intellectual property

**X**

Criminal law

X

X

X

Unfair competition

X

X

X

X

Intellectual

property

X

Austria

Belgium

Denmark

Finland

France

Germ any
Greece

Ireland

Italy
Luxembourg

Netherlands

Portugal
Spain

Sweden

United

Kingdom

**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, resulting from the technological development seen in the
communication sector in the late 1970s. Following the wave of illicit decoding devices

In this respect, an Austrian Court of Appeal recognised explicitly (Case Teleclub v Olbort) that actual
competition between parties is not required, where the goods are, by their nature, already competitive.

**24**

that flooded the market in countries where encrypted broadcasting was most developed
(F, UK), the first regulations were adopted in 1987 in France and in 1988 in the UK.

A second wave of legislation took place in the early 1990s, as encrypted stations spread
across Europe, viz. the legislation adopted in Ireland, Belgium (1991), Italy (1992),
Finland and Sweden (1994). This process is not yet over, as shown by the debate in
Denmark concerning the presentation of a draft law.

Where it exists, the legislation has traditionally been in the form of a _specific audiovisual_
_law_ which, modelling itself on copyright rules, provides for criminal sanctions for certain
activities relating to the illicit reception of encrypted services and gives operators, and in
some cases other interested parties, the right to claim damages from those responsible for
such activities.

Accordingly, the situation with regard to current national regulations on the protection of
encrypted services can be summarised up as follows:

_2.2.1_ _Objective of the measures: protecting encrypted services against illicit reception_

Although the national regulations concerned do not all have the same definition of illicit
reception - this is sometimes referred to as _receiving pay-television programmes without_
_paying the fee_ (B, F, UK) or _access to an encrypted system without the_ _encrypt or's_
_authorisation_ (S, I) - the objective is invariably the same: _to ensure that only authorised_
_people can receive the service._

There is, however, a _division_ between legislation which covers _only broadcasting and_
_cable distribution_ _services,_ i.e. where the same programme is communicated to the public
at large (I, F, B, IRL, S) and legislation that also covers _information services which are_
_carried on networks and function on_ _individual demand_ (SF, UK, NL); the latter makes
no distinction between services communicated to the general public and services sent on
demand.

Where legal protection against illicit reception of an encrypted broadcasting service is
available, it normally protects every type of broadcasting signal, whereas this is not always
the case for radio services. However, some Member States (UK, IRL) grant such
protection on the basis of the _origin_ (national or foreign) or _of how the service is_
_broadcast_ (by satellite or terrestrial).

**25**

**Table II: Types of protected services**

Protected signals

Austria

Belgium

Denmark

Finland

France

Germany

Greece

Ireland

Italy
Luxembourg

Netherlands

Portugal
Spain

Sweden

United Kingdom

Against pay only

X

X

X

X

X

X

Other

X

X

X

**Cable**

**X**

**X**

**X**

**X**

**X**

**X**

**X**

**X**

Broadcasting

**Satellite**

**X**

**X**

**X**

**X**

**X**

**X**

**Only for services**
**originating** **in the**

**UK**

**Other**

**X**

**X**

**X**

**X**

**X**

**X**

**X**

Radio

X

X

X

X

X

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

Organise/allow reception
by third parties

X

X

X

X

X

Encrypted television services

Austria

Belgium'
Denmark

Finland

France

Germ any
Greece

Ireland

Italy
Luxembourg
Netherlands

Portugal
Spain

Sweden

United Kingdom

_French-speaking Community only_

Interception

**X**

**X**

**X**

**X**

Use

**X**

**X**

**X**

**X**

Transmission

**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 x x

Denmark

Finland x x

France x x

Germany

Greece ^

Ireland x x

Italy x _____
Luxembourg

Netherlands x x

Portugal

Spain
Sweden x

United Kingdom x x

Depending on the circumstances, the preparatory activities, which may either be an
ancillary target of the ban on reception or be the specific subject of the legislation, can be
placed under the following headings:

(a) _Manufacture of decoding devices_ intended to enable reception of an encrypted
service without payment of the subscription fee.

To ensure that private individuals can only receive the programme by means of the
equipment manufactured directly by the encryptor or on his behalf, all the
regulations concerned prohibit the manufacture of devices intended solely to
enable reception of an encrypted service without payment of the subscription fee
(B, F, I, S, SF, NL, UK and IRL);

(b) _Importation of decoding devices_ intended to enable reception of an encrypted
service without payment of the subscription fee.

With the gradual elimination of border controls there is undoubtedly a greater risk
that unauthorised devices manufactured in a Member State which does not

prohibit their manufacture might subsequently be imported for the purpose of
enabling reception of an encrypted service without payment of any charge. The
laws of some Member States (B, F, I, UK, SF and IRL) accordingly prohibit the
importation of decoding devices designed to enable reception of an encrypted
service without payment of the subscription fee;

(c) _Distribution_ _of decoding devices_ intended to enable reception of an encrypted
service without payment of the subcription fee.

The activity which constitutes, however, the most serious threat to encrypted
service providers is without doubt the marketing of equipment intended to enable
reception of their service without payment of the subscription fee. To guard
against this possibility, national legislation normally prohibits the distribution of
decoding devices designed to enable reception of an encrypted service without
payment of the subscription fee (B, F, I, S, UK, IRL, SF and NL);

(d) _Possession,_ _for commercial_ _purposes,_ of decoding devices intended to enable
reception of an encrypted service without payment of the subscription fee.

**27**

Possession for commercial purposes, in particular with a view to sale and/or rental,
is another stage in the sequence of fraudulent activity leading to reception of an
encrypted service without payment of the subscription fee; that is why some
regulations (B, F, I, IRL, SF and NL) prohibit the possession, for commercial
purposes, of decoding devices intended to enable reception of an encrypted service
without payment of the subscription fee;

(e) _Possession, for private use,_ of decoding devices intended to enable reception of
encrypted service without payment of the subscription fee.

Although possession, for private use, of decoding devices intended to enable
access to an encrypted service without payment of the subscription fee is
intrinsically a less serious activity than possession for commercial purposes, some
Member States (UK, NL, B, F and IRL) have taken the view that even the private
possession of an unauthorised device should be prohibited;

(f) _Marketing_ of decoding devices intended to enable reception of an encrypted
service without payment of the subscription fee.

Where there are rules aimed at protecting the service provider against illicit
reception, the laws of some Member States (B, F, UK, I, NL and IRL) also
prohibit marketing activities for devices intended to enable reception of encrypted
services without payment of the subscription fee;

Table V. Unlawful activities concerning decoding devices

Importation

**X**

**X**

**X**

**X**

**X**

**X**

Decoding devices

Austria

Belgium

Denmark

Finland

France

Germany

Greece

Ireland

Italy.
Luxembourg
Netherlands

Portugal
Spain

Sweden

United Kingdom

Manufacture

**X**

**X**

**X**

**X**

**X**

**X**

**X**

**X**

Distribution

**X**

**X**

**X**

**X**

**X**

**X**

**X**

**X**

Marketing and
advertising

X

x

X

X

X

X

Possession for

commercial

purposes

X

X

X

X

X

X

Possession for

private use

X

X

X

X

X

X

'Flemish Community only

Most Member States also prohibit other ancillary activities, all of which are connected
with the marketing of decoding devices.

**28**

**Table VI. Other unlawful activities concerning decoding devices**

Decoding devices

Austria

Belgium

Denmark

Finland

France

Germany

Greece

Ireland

Italy
Luxembourg

Netherlands

Portugal
Spain
Sweden

United Kingdom

_2.2.2 Sanctions_

Adapt Sell

**X**

**X**

**X**

**X**

**X**

Rent

**X**

**X**

**X**

**X**

Buy

X

X

Maintain

X

X

Use

X

Other

Install

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**

Civil provisions

Specific remedies

Proceedings under
copyright law

Sanctions

Austria

Belgium

Denmark

Finland

France

Germany
Greece

Ireland

Italy

Luxembourg
Netherlands

Portugal
Spain

Sweden

United Kingdom

Fine

**BFR 26** **to 100 000**

**(ECU** **0.7** **to** **650)**

**fine**

**FF 5 000 to 200 000**

**(ECU 772 to 30 880)**

**up to IRL 20 000**
**(ECU 24 554)**

**LIT** **500 000 to**

**6 million (ECU 220**
**to 2 645)**

**uptoHFL** **100 000**
**(ECU 48** **670)**

**fine**

**up to** **UKL 5** **000**
**(ECU 6 045)**

Prison sentence

**up** **to** **two** **years**

**up** **to two years**

**up** **to two years**

**3 months - 3 years**

**up** **to three years**

**up** **to six months**

**up** **to two years**

Administrative provisions

**Confiscation of decoding**
**equipment, forfeiture of**
**profits**

**Seizure of equipment,**
**forfeiture of profit**

**Seizure of the technical**

**information, seizure and**
**confiscation of devices and**

**advertising material,**

**• forfeiture of profit**

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

**Forfeiture of goods,**
**forfeiture of profit**

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

_2.2.3_ _Disparities between measures_

From the above, it is clear that there are major disparities between existing legislation, in
particular as regards:

scope (domestic services or services originating in other Member States;
broadcasting services or any encrypted service, including services on individual
demand);

the degree of protection (ban on possession for private use and on marketing);

the person who may bring proceedings for civil remedies (encryptor or any party
concerned);

the level of sanctions.

These disparities are even more marked in the absence of specific legislation.

_Conclusion_

_In_ _the late 1980s some Member States began to adopt specific legislation aimed at_
_protecting encrypted services against illicit reception by means of unauthorised decoding_
_devices. In order to provide the same protection, other Member States apply existing_
_general legislative provisions that are already included in their legislation (unfair_
_competition, intellectual property laws). And yet another group of Member States_
_provide no such protection_ _at_ _present._

**30**

_This means that there are disparities between the legal treatment of the illicit_ _reception_
_of an encrypted service in the European Union: some activities may be prohibited in_
_some Member States but be legal in others._

_**Q 1: The Commission would**_ _**like**_ _**to have any additional information**_ _to enable_ _**it to**_
_**examine national regulations in greater detail.**_

**31**

CHAPTER **4** : BARRIERS **TO** THE EFFICIENT **OPERATION** **OF** **THE INTERNAL MARKET**

In view of the regulatory environment in the Member States, the Commission considers
that the present legislative différencies can create obstacles to the free movement of goods
and services and can thus damage _the efficient operation of the Internal Market._

_Some of these obstacles seem incompatible with the principles of the Treaty_ and **will**
therefore have to be removed. This applies, first, to certain national regulations which
make a distinction, for the purposes of legal protection against illicit reception, _based on_
_the_ _origin_ _of the service._ Under such rules, services originating from other
Member States are sometimes protected against illicit reception only if the national
authority has first issued a _certificate which entitles them to such protection_ _[26 ]_

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 regulations [30] which have _restrictive_
_effects_ on trade, in so far as they erect barriers to the importation and marketing of
products originating in other Member States.

In the light of the case-law of the Court, these prohibitions are justified because they
pursue public interest objectives. First, they aim to _protect the encryptor against those_
_who might fraudulently profit from his activities_ (namely manufacturers and distributors
of unauthorised decoding devices), and to _protect the consumer_ against the marketing of
devices which, as they are not official, would no longer guarantee reception of the service
if the operator were to change the system. This objective, which aims to ensure that trade
is conducted within a framework of equity and fairness, is one of the general or public
interest objectives which, according to the Court, may justify an obstacle to the free
movement of goods. _The protection of consumers and the fairness of commercial_
_transactions_ have on several occasions been recognized by the Court as justification for
barriers to the free movement of goods. [31 ]

Secondly, these prohibitions aim to ensure the right to remuneration of the _intellectual_
_property right holders_ of encrypted broadcasts and _industrial and intellectual property_

indirectly, actually or potentially, intra-Community trade" (Case 8/74 Procureur du Roi v Benoît and
Gustave Dassonville [1974] ECR 837).

However, within this last category the Court makes a distinction. On one side, it places trading rules
which constitute measures having equivalent effect to quantitative restrictions and are incompatible
with Article 30 since they impose conditions applicable solely to imported products or make their sale
or use more difficult or costly than the disposal of domestic production (measures that are applied
distinctly). Where such measures, like quantitative restrictions, are discriminatory, they may,
according to the Court, be justified only on the basis of the grounds listed in Article 36.

On the other side, as regards trading rules which have identical effects on imported and domestic
products, the Court has stated that, even if they are equally applicable to domestic and imported
products (measures that are indistinctly applied), these national mles may not create barriers to a
product lawfully produced and/or marketed in another Member State unless they are necessary to
satisfy mandatory requirements (in which the Court includes, in addition to the grounds of public
interest listed in Article 36, public health, consumer or environmental protection, the fairness of
commercial transactions, etc.) (Case 120/78 "Cassis de Dijon" [1979] ECR 649; Case 216/84
Commission of the European Communities v French Republic [1988] ECR 793).

In this case, obstacles to the free movement of goods resulting from disparities between the national
laws will be justified where there is a direct link between the laws and the mandatory requirement
(causality criterion), where the laws are appropriate and not excessive in relation to the requirement
(proportionality criterion), where there is no equivalent legislation in the country of origin, and where
there are no alternative solutions which would enable the objective to be attained while creating less
disturbance for trade flows (substitution criterion).

Consequently, even though a national law is applicable without distinction, it could still be a measure
having equivalent effect when the restrictive effects it entails on intra-Community trade, though
justified by a mandatory requirement, go beyond what is necessary for the attainment of the result.

**30** They do not have the effect of favouring domestic production and entail the same restrictions for both
domestic and imported products.

Case 22/71 "Bequelin" [1971] ECR 970:; Case 58/80 Dansk Supermarked a/s v a/s Immerco [1981]
ECR 181.

**33**

right holders in respect of devices. [32] However, the objective of ensuring the right to
legitimate remuneration, whether it is the remuneration of the right holders for
programmes or that of the right holders for the technology contained in unauthorised
devices, is one of the rights which, under the case-law of the ECJ, is the specific aim of
_industrial and intellectual_ _property^_

These rules also respect the _proportionality_ _criterion,_ since they confine themselves to
prohibiting the marketing of devices manufactured without the prior authorisation of the
encryptor, irrespective of their domestic or foreign origins; therefore they do not go
beyond what is necessary for the attainment of the objective. [34] Finally, they also respect
the _substitution and equivalence_ _criterion,_ since there are no alternative and less
restrictive measures that would ensure the desired protection.

_In_ _conclusion,_ _an obstacle to the free movement of decoding devices manufactured and_
_marketed in the State of_ _origin,_ _without the prior consent of the encryptor. may be_
_justified by consumer protection and the fairness of commercial_ _transactions,_ _as well as_
_by_ _the_ _protection of_ _industrial_ _or intellectual property._

2. Obstacles to the free movement of services relating to decoding devices
(Article 59 _et seq.)_

The analysis of national regulations has shown that some laws prohibit activities which are
ancillary to the manufacture and marketing of illicit decoding devices. This applies to
regulations which prohibit _the marketing, installation, maintenance_ _and_ _replacement of_
_illicit_ _decoding devices._

These activities constitute the provision of services within the meaning of Articles 59 and
60 of the Treaty. Although these prohibitions are indistinctly applicable, they nevertheless
do have restrictive effects on the free movement of services. Marketing activities and/or
after-sales services carried out by service providers established in other Member States
would be prohibited.

Nevertheless, according to the case-law of the Court, [35] these restrictive effects may be
justified; in fact these laws pursue public interest objectives such as the _protection of_

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.

**33**

**34**

**35**

Case 78/70 "Deutsche Grammophon" [1971] ECR 502.

By contrast, if the prohibitions in question were applied to the import and marketing of devices
manufactured and marketed in the Member State of origin _with the consent of_ _the_ _encryptor._ they
would be liable to result in economic barriers which would be disproportionate to the objective, and
therefore incompatible with the principles on the free movement of goods as interpreted by the Court.

The ECJ has drawn a distinction between discriminatory' restrictions and those applicable without
discrimination. The former could be justified by one of the grounds listed in Article 56 (public policy,
public security or public health). However, with regard to measures which would result in
restrictions which are applicable without discrimination, the ECJ has held that Article 59 requires not
only the elimination of all discrimination against a service provider on the grounds of his nationality,

**34**

_consumers_ _[26]_ and _industrial and intellectual_ _property._ _[31]_ In addition, these restrictive
**effects do not go beyond what is necessary for the** attainment of **the** objective, and may
**therefore** be regarded as proportionate. [38 ]

_In_ _conclusion,_ _prohibitions on the_ _marketing,_ _installation,_ _maintenance and replacement_
_of decoding devices manufactured and marketed in the State of origin without the prior_
_consent of the encryptor may be justified by the need_ _to_ _protect consumers and industrial_
_and intellectual property._

**3.** **Obstacles to the free movement of encrypted services**

**Obstacles** to the free movement of encrypted services may also result from _the absence of_
_legal protection in certain receiving States._ The consultation conducted by the
Commission has confirmed that operators consider effective legal protection against illicit
reception of the service to be an important factor when deciding whether to distribute the
service in a country. The absence of such legal protection _certainly makes marketing_
_more difficult and more haphazard._ Operators will have to bear additional costs due not
only to the use of a particularly secure system, but also to the need to adopt particularly
costly distribution systems for the decoding devices (normally rental).

A legal void of this kind gives rise to _restrictive effects_ on the movement of encrypted
services in the Internal Market, since their distribution in countries without legal
protection against illicit reception is made more difficult.

However, this restrictive effect is not contrary to Community law because, as has been
recognized by the Court, [39] in the absence of any Community harmonisation,
Member State are free to regulate economic activities in their territory in line with the
principles of the Treaty. They may therefore decide, whilst respecting the proportionality

but also "the abolition of any restriction, even if it applies without distinction to national providers of
services and to those of other Member States, when it is liable to prohibit or otherwise impede the
activities of a provider of services established in another Member State where he lawfully provides
similar services". (Case 76/90 Manfred Sàger v Dennemever and Co. Ltd [1991] ECR 1-4221).
According to the Court it follows that a prohibition, which is applicable without discrimination could
nevertheless constitute a restriction on the freedom to provide services insofar as it established
obstacles which were not justified by overriding reasons relating to the public interest, insofar as that
interest is not already protected by the rules to which the services provider is subject in the State of
establishment, and insofar as the same result cannot be obtained by less restrictive niles. The Court
includes among these overriding reasons relating to the public interest the protection of consumers
and workers, industrial and commercial property etc.

**36**

**37**

**38**

**39**

Case 220/83 Commission v France [1986] ECR 3663.

Case 62/79 Coditel [1980] ECR 881.

The solution would probably be different in the case of devices manufactured and marketed in the
State of origin _with the consent of the encryptor._ In this case, these restrictions would in fact create
barriers to trade between Member States which were disproportionate in relation to the objectives to
be achieved, and therefore incompatible with the principles of the Treaty on the freedom to provide
services, as interpreted by the Court.

Case 52/79 Procureur du Roi v Marc J. V. C. Debauve and Others [19801 ECR 833.

**35**

criterion, whether or not to prohibit certain activities on the grounds of general interest
objectives.

_In_ _conclusion,_ _regulatory policy considerations relating to economic_ _activities,_ _which are_
_for the Member State to assess, may justify the restrictive effect entailed by the_
_regulatory void_ _in_ _the absence of any Community harmonisation._

4. Distortions of competition

Disparities between national regulations or the absence of such regulations in some
Member States may also lead to _distortions of competition_ in the Internal Market. An
operator who distributes his decoding devices in a State with strong legal protection will
have competitive advantages (which will for example be reflected in his programme
purchasing capacity) over the operator who has to distribute his service in a State without
effective legal protection, since the latter will have to bear additional costs resulting for
example from the choice of a particularly secure distribution system.

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

_In_ _conclusion,_ _disparity between regulations may lead to distortions of competition which_
_might make it more difficult to develop encrypted services._

_Q 2: The Commission would like to know the opinion of the parties concerned on the_
_existence of restrictions and restrictive effects other than those identified above._

**36**

**CHAPTER 5: THE** NEED **FOR AND POTENTIAL TYPES OF COMMUNITY ACTION**

The preceding analysis demonstrates that there are **a** number of _obstacles to the efficient_
_operation of the Internal_ _Market:_ some of these obstacles may prove to be _incompatible_
_with Community law_ and would have therefore to be removed. This would apply to those
obstacles caused by the application of national legislation which on the grounds of
protecting encrypted services, make a distinction between the _nature_ (hertzian or by
satellite) or the _origin of the service._

Other obstacles could however be _justified by general interest objectives such as the_
_protection of_ _consumers,_ _and intellectual and industrial property rights where they_
_respect_ _the_ _principle of_ _proportionality._ This applies to obstacles to the free movement of
decoding devices and other services linked to them flowing from the disparity in national
regulations relating to the manufacture and marketing of these decoding devices.

Furthermore, from an economic point of view, consultations have shown that the current
differences between regulatory solutions together with the additional costs and legal
insecurities which they cause, are peceived by the market leaders as _a major_ _impedement_
_to the development of new encrypted services._ Effective legal protection against illicit
reception is a fundamental factor in persuading an investor to develop an encrypted
service and to launch it in other Member States.

Consequently, in respect of this last type of obstacles, _an action to establish an equivalent_
_level of protection amongst all the Member Slates could prove necessary to eliminate the_
_obstacles identified and to complete the regulatory framework for the European_
_audiovisual sector_ _established_ _by the "Television without frontiers" Directive_
_(89/552/EC) and the "Cable andsatellite'Virective_ _(93/83/EC)._

In this respect it should be emphasised that insofar as the objective sought is _the removal_
_of obstacles to the_ _efficient operation_ _of the Internal Market_ caused by disparities
between national regulations for the legal protection of encrypted services, such an
objective may be attained solely through _Community harmonisation._ Indeed, it seems
implausible that the Member States would spontaneously carry out a rapprochement of
national regulations which concern the legal protection of encrypted services. However,
should the case arise, the fact that it would not be within the institutional framework of
the Community legal order would render it ineffective and fail to grant the industry the
necessary legal security for the development of encrypted services.

However, before deciding in favour of a regulatory initiative, the Commission would like
to know the opinion of the parties concerned on the initiatives which appear below.

1. **Aim** of the action

The general objective of the measure would be to enable media professionals, whether
encrypted service providers, suppliers of programmes or manufacturers of devices, to
benefit in full from the opportunities offered by the Internal Market. Indeed, in the
perspective of the Information Society, there is a risk that the full potential of these
opportunities will not be realised if these companies do not enjoy sufficient legal
protection within the Union.

**37**

_A clear regulatory_ _framework,_ which would secure, throughout the Community, legal
_protection_ against illicit reception of the service and would thus ensure _the_ _free movement_
of services and of goods is a necessary precondition for the development of the new
services.

Moreover, considering the global nature of the problem of illicit reception, work should
be launched on an international level, especially within the framework of bilateral
agreements and the work of the WTO, in order to establish effective and efficent rules on
a worldwide scale. Indeed, an initiative to establish a regulatory framework within the
Internal Market would be incomplete if it did not include an external dimension aimed at
resolving the problem on an international level and providing _protection against imports_
_from third countries._

2. Consistency with other Community policies

A regulatory initiative to ensure the legal protection of encrypted services would also be
consistent _with other Community objectives and policies._

_A regulatory framework providing_ _a_ _high level of legal protection at_ _Union_
_level would help to develop the European encrypted services and decoding_
_equipment manufacturing_ _industries._ Without effective legal protection, illicit
reception and the resulting loss of revenue could undermine the financial
stability of encrypted service providers and make it more difficult to develop
such services. Similar consequences would affect the decoding equipment
manufacturing industry which, in the absence of legal protection, would not
embark on an activity that was not protected against fraudulent actions.

_A regulatory_ _intervention_ _to ensure the efficient operation of the Internal_
_Market would be coherent with the objectives pursued by the audivisual and_
_cultural policy of the Union._ Such a measure would ensure that greater
advantage was taken of intellectual property rights for programmes broadcast
by TV channels, which would lead to increased operating resources for
_audiovisual production._ Indeed, the new encrypted services are important for
the development and circulation of artistic creation, as well as for the growth
of the Union's cultural and linguistic diversity; however, the right holders will
be reluctant to assign their rights if encrypted services are not protected from
illicit reception. If this means that encrypted services are deprived of
programmes, they will be unable to develop, and audiovisual creation will
have lost the opportunity of benefiting from a powerful broadcasting medium.

_A regulatory intervention to ensure the operation of the Internal Market_
_would_ _be_ _consistent with the objective_ _of consumer_ _protection_ . In the absence
of a secure regulatory framework, consumers could be mislead about the
origin of the decoding device they are purchasing and thus believe they are
buying authorised equipment, whereas it is in fact a pirated decoder. In this
case, if the operator modifies the encryption system for security reasons, the
device purchased will be of no use to the consumer, who will have to pay for
another decoder. Moreover, unauthorised devices will not always be
guaranteed by the pirate manufacturers: should the device breakdown, the
consumer will have to bear the cost of repairs. In both cases, there are clear

**38**

disadvantages for the consumer from the marketing of unauthorised decoding
devices. In addition, the losses suffered by the service providers have a
negative effect on their financial stability; consequently, the development of
encrypted services could be delayed by the lack of protection and this
situation would represent a loss for the consumer, who would he unable to
benefit from the service.

**3.** **Choice of instrument and legal basis**

In view of the analysis carried out, following consultation with the interested parties, the
Commission could decide to adopt one of the following two measures.

The Commission could propose a _directive to harmonise national legislations_ (Option 1).
In this respect, whilst taking account of the principles of proportionality and subsidiarity,
the proposed Directive could provide for minimal harmonisation leaving the Member
States free to adopt stricter measures, which would ensure a _minimal level of equivalent_
_protection_ within the Union. This option would have the advantage of securing legal
protection for the sector concerned whilst leaving the Member States some flexibility to
widen the scope of this protection.

The Commission could, alternatively, propose a _Council_ _regulation_ (Option 2). This
option would have the same objective as the option above and the advantage of securing a
more effective harmonisation as it would be directly applicable in the Member States
without being implemented by national law.

Moreover the chosen option could be accompanied by a proposal to modify the existing
Community law provisions in respect of the free circulation of counterfeit goods
originating from third countries [40], so that the measures could apply with equal force to
decoding devices. It should nevertheless be noted that this measure alone is inadequate to
ensure effective legal protection within the Union. In effect, the regulatory measures
applicable to counterfeit goods are based on a voluntary agreement by operators and
interested parties, and apply solely to goods orginating from third countries when they are
imported into the Union. Trade between Member States is regulated by national and
Community regulations. However, there is no real uniformity between national regulatory
approaches to the manufacture and marketing of illicit decoding devices ; this results in
divergences between possible solutions and in some cases there is a lack of protection. It
therefore follows that an intervention to control imports from third countries should
accompany any regulatory proposal to ensure protection against illicit reception within the
Union.

The appropriate legal basis would be Articles 57(2), 66 and 100a, taking into account the
objective of ensuring the efficient operation of the Internal Market and of enabling the free
movement of services and goods. [41 ]

40 Council Regulation (EC) N° 3295/94 of the Council (O.J.E.C L 341 of 30.12.1994) laying down
measures to prohibit the release for free circulation, the export, re-export or entry for a suspensive
procedure of counterfeit and pirated goods.

41 In the event that the counterfeit goods Regulation were to be amended, the legal basis would remain
unchanged, i.e. Article 113.

**39**

**4.** **Scope of application**

The harmonisation envisaged would cover the _current national regidations in the field of_
_the legal protection of encrypted services._ These regulations, where present, may be
found in copyright law, broadcasting law, civil law or administrative law. Consequently
their location in national law is unimportant; what counts is their objective, i.e. **the**
protection of encrypted services against illicit access.

Such harmonisation could cover _all encrypted_ _services,_ for which _encryption is used to_
_ensure the payment of a_ _fee,_ without being restricted to broadcasting services. This
category would therefore include the _traditional encrypted broadcasting_ _sen>ices_ (cable,
hertzian or satellite), the _new broadcasting services_ (digital television, pay-per-view, near
video on demand) and _Information Society services, namely services provided_
_electronically at a distance on the individual demand of a service receiver_ (video on
demand, supply of games on demand, interactive teleshopping).

Indeed, where a service is encrypted to limit its reception, it will need the same protection
independent of the type of service concerned (broadcasting, on individual demand etc.).
On the other hand, if harmonisation were confined to broadcasting services alone, it
would not be possible to cover the new uses of encryption such as data transmission on
individual demand or without images (e.g. a newspaper sent to a home via satellite), as
well as video games delivered directly to a home, by satellite or cable.

Consequently, _all encrypted_ _services,_ for which decoding devices are available to the
public, _should be able to enjoy the same protection._ Looking ahead to the convergence
of broadcasting and information technology services, the definition of "encrypted services"
should cover any service which can be received by a television or computer screen, i.e.
radio or television broadcasting services, as well as the other interactive Information
Society services, which are defined in the proposal for a Directive on regulatory
transparency in the Internal Market, namely distance services transmitted electronically on
the demand of the service receiver.

However, harmonisation _should not cover_ the services which use encryption for reasons
other than that of ensuring payment of a fee, such as services which are encrypted to
ensure _the integrity and confidentiality of the message_ _transmitted,_ namely financial or
telecommunications services. The reason for this exclusion is that _the general interest_
_objectives_ put at risk if they are intercepted, i.e. the integrity and confidentiality of the
communication, differ significantly from the protection of the value of a service provided
in exchange for a fee, which is the general interest objective threatened by illicit reception.
This difference has led to _regulatory solutions which differ significantly,_ both at national
and international level, in particular as regards the action to be taken and the level of
sanctions, and which do not justify joint treatment of the two problems.

Protection against goods from third countries should cover all decoding devices imported
from a third country which enable reception of an encrypted service without the prior
authorisation of the encryptor.

5. Overall structure

**40**

In view of the proportionality principle, the proposed provisions could prohibit the
following activities;

 - the manufacture of decoding devices intended to permit access to encrypted
services without the authorisation of the encryptor;

 - the sale of decoding devices intended to permit access to encrypted services
without the authorisation of the encryptor;

 - the possession for commercial purposes of decoding devices intended to permit
access to encrypted services without the authorisation of the encryptor;

 - the possession for private purposes of decoding devices intended to permit access
to encrypted services without the authorisation of the encryptor;

 - the installation, maintenance and replacement of decoding devices intended to
permit access to encrypted services without the authorisation of the encryptor;

 - the marketing of decoding devices intended to permit access to encrypted services
without the authorisation of the encryptor;

 - the decoding of encrypted broadcasts without the authorisation of the encryptor.

The proposed measure should also provide that Member States adopt _effective,_
_proportionate and deterrent penalties for the breach of_ _these_ _provisions._ In this respect,
as the Commission has stated in its communication on the role of penalties in
implementing Community legislation, [42] the Member States would remain free to determine
the structure for these sanctions. The measure could therefore provide for a procedure
whereby the Commission is notified of provisions which Member States intend to adopt.

It should also enable any interested party to bring a claim/or _damages and interest._

As regards provisions on protection against the release into circulation of goods from
third countries, the proposed measure should prohibit the importation of decoding devices
intended to permit access to encrypted services without the authorisation of the encryptor.

_Q 3:_ _The Commission would like to know the opinion of the parties concerned on_
_the need for_ _harmonisation_ _at Community level._

_Q 4:_ _The Commission would like to know the opinion of the parties concerned on_
_the form of a possible harmonisation instrument from the options presented in the_
_Green Paper._

_Q 5:_ _The Commission would like to know the opinion of the parties concerned on_
_the content of_ _a_ _possible harmonisation instrument, as envisaged above, in particular:_

Communication from the Commission to the Council and the European Parliament on the role of
penalties in implementing Community Internal Market legislation COM(95) 162 final of
3 May 1995.

**41**

_**i. the scope**_

_**a. should this be limited to broadcasting sennces or extended to all**_ _**sendees**_ _**in**_
_**which encryption is used to ensure payment of the subscription fee;**_
_**b.**_ _**if the scope were to be extended, would the criterion used be appropriate**_
_**(services encrypted to ensure payment of the subscription fee), or should another**_
_**criterion be used to determine the scope ? If**_ _**so,**_ _**would it be considered necessary**_
_**for the harmonisation instrument to protect all sennces against illicit reception**_
_**which use conditional access techniques, including for example passwords**_
_**(whether they are encrypted or not)?**_

_**ii. the desirability of including the possession by private individuals of unauthorised**_
_**decoding devices;**_

_**Hi.**_ _**claims for damages and interest.**_

**42**

_**LIST OF QUESTIONS**_

_**Q1:**_ _**The Commission**_ _**would**_ _**like to have any additional information to enable it to**_
_**examine national regulations in greater detail**_

_**Q 2:**_ _**The Commission would like to know the opinion of the parties concerned on**_
_**the existence of restrictions and restrictive effects other than those identified above.**_

_**Q 3:**_ _**The Commission would like to know the opinion of the parties concerned on**_
_**the**_ _**need**_ _**for harmonisation at Community level.**_

_**Q 4:**_ _**The Commission would**_ _**like**_ _**to know the opinion of the parties concerned on**_
_**the form of a possible harmonisation instrument from the options presented in the**_
_**Green Paper.**_

_**Q 5:**_ _**The Commission would like to know the opinion of the parties concerned on**_
_**the content of**_ _**a**_ _**possible harmonisation instrument, as envisaged above,**_ _**in**_ _**particular:**_

_**i. the scope**_

_**a. should this be limited to broadcasting services or extended to all services in**_
_**which encryption is used to ensure payment of the subscription fee;**_
_**b.**_ _**if the scope were to be extended, would the criterion used be appropriate**_
_**(sennces encrypted to ensure payment of the subscription fee), or should another**_
_**criterion be used to determine the scope ? If**_ _**so,**_ _**would it be considered necessary**_
_**for the harmonisation instrument to protect all services against illicit reception**_
_**which use conditional access techniques, including for example**_ _**passn>ords**_
_**(whether they are encrypted or not)?**_

**ii.** _**the desirability of including the possession by private individuals of unauthorised**_
_**decoding devices;**_

_**Hi. claims for damages and interest.**_

**43**

##### **ISSN 0254-1475**

### **COM(96) 76 final**

# **DOCUMENTS**

#### **EN 15 10** **Catalogue number : CB-CO-96-102-EN-C** **ISBN 92-78-01335-8**

**Office for Official Publications of the European Communities**

**L-2985** **Luxembourg**
## **^1**