Latest Event Updates
On March 18, 2014 the European Parliament (ITRE Committee) will take an important decision in the matter of Net Neutrality. Or maybe not.
Currently, 2 set of compromise amendments have been tabled, one from the main rapporteur Mrs. Pilar del Castillo (Spain, PPE), the other from shadow rapporteur Mrs. Catherine Trautmann (France, S&D). The difference between the 2 compromise amendments is minimal: the drafts are almost identical and basically pro-citizens*, while the Trautmann’s version include an explicit reference to the principle of net neutrality in the legal text – a reference that, in legal terms, means nothing and everything, therefore it must be considered just as a symbolic amendment:
(14) “internet access service” means a publicly available electronic communications service that provides connectivity to the internet in accordance with the principle of net neutrality, and thereby connectivity between virtually all end points of the internet, irrespective of the network technologies or terminal equipment used;
Trautmann also proposes a technical specification in order to distinguish specialized services from best effort Internet. The intention may be to reinforce the pro-citizens* flavour of the Net Neutrality reform, although the exact technical implications of this amendment are not completely clear:
(15) “specialised service” means an electronic communications service optimised for specific content, applications or services, or a combination thereof, provided over logically distinct capacity and relying on strict admission control from end to end. It is not marketed or usable as a substitute for internet access service; its application layer is not functionally identical to services and applications available over the public internet access service;
With so minimal differences, one would wonder why the ITRE Committee could not find an agreement on a common draft. It is therefore possible that this confrontation hides instead different political issues. A possible explanation could be that both rapporteurs, Del Castillo and Trautman, are fighting to be recognized as the “master” of the European Net Neutrality reform. This result would be quite relevant in the respective political constituencies in light of the incoming European elections in May 2014.
No doubt that Mrs. Del Castillo has made a Copernican overturn in the matter of Net Neutrality: while her initial report in November 2013 was basically endorsing the Commission’s proposal, and so reflecting the wishes of big telcos, the current position is much more citizens friendly*. This new approach made likely upset European and US big dominant operators, such as the members of ETNO and GSMA, which issued an incredibile PR on February 24, 2014 stating that the Parliament was going to create a 2-tier Internet. A statement that, according to the admission of various MEPs, strongly undermined the credibility of such associations when discussing Net Neutrality in Brussels.
Also Mrs. Trautmann made an important move in the direction of a pro-citizens* Net Neutrality reform. In addition, the fact that this well-respected, and telecom experienced, MEP will have to fight a lot in her country to be re-elected (apparently she will not be the first candidate in her French constituency) may explain the decision to keep an high level of visibility in this debate.
The liberals (ALDE) are likely supporting the substance of the ITRE compromise, although we do not know whether they will go for Del Castillo’s or Trautmann’s version.
Then, the Greens and the Pirates: they should be the moral winners of this game, because the most critical Net Neutrality provisions proposed by Commissioner Kroes in September 2013 have been completely dismanteled. However, rumours say that some of them would like to further analyze the drafts, stop the negotiations and postpone everything to the next elected Parliament. This move could be a mistake, however, because the new Parliament, without the pressure of soon incoming elections, will be less inclined to embrace pro-citizens Net Neutrality positions.
Finally, the industry: ETNO and GSMA would like the entire reform (i.e. the whole Connected Continet Proposal of Commissioner Kroes) to collapse. The approach is not only due the current status of the Net Neutrality reform in the Connected Continent package: the real problem for them is the roaming reform foreseen therein, since the ITRE Committee decided to go well beyond the European Commission’s proposal and to set the end of roaming surcharges by 2015. A perspective that most all mobile network operators, with the sole exceptions of MVNOs, “would like to avoid like the pest”.
PS: The ITRE Committee should have been voting the Net Neutrality provisions, in the frame of the Connected Continent proposal, already on February 24, however the relevant MEPs decided to postpone the voting because of some irregularities in the translation documents. This postponement has put at risk the approval of the entire proposal, and the Net Neutrality reform with this, because an approval on 18 March may not be sufficient to guarantee a place in the EP plenary assembly scheduled for April (the last one for this Parliament). If the EP plenary session in April will not approve the Connected Continent proposal in first reading, the entire process will be virtually finished: “abbiamo scherzato” (it was just a joke).
* Saying that the current ITRE proposal on Net Neutrality is “pro-citizens” is just a synthetic evaluation, because there are still parts of the draft that would need to be reconsidered, for instance in the matter of data caps and price discriminations. However, there is no doubt that the current ITRE draft is much more advanced with respect to the proposal tabled by Commissioner Kroes in September 2013 which, in fact, had been welcomed by dominant telcos.
The Competition directorate of the European Commission, lead by Joachim Almunia, has started an in-depth analysis of the proposed merger between the German mobile branches of Telefonica and KPN. The procedure, so called “Phase II” under the merger rules, will analyze in details the effects of the merge in the German market and may bring to whatever result, including banning the transaction or imposing some remedies (including structural or access remedies). The Commission will have to take a decision by May 14.
No official news are available by the European Commission.
The start of the Phase II is not a good news for big telcos in Europe that, by contrast, are going around asking for relaxation of merge rules, in order to allow more consolidation. According to them (recently Vodafone’s CEO Mr. Colao in Barcelona) an enhanced concentration of the telecom market will allow more investments.
The move from Almunia is not surprising. The EU institutions are not against consolidation in the mobile market, if this is a result of efficient market dynamics. However, merge rules have to contrast mergers aiming at reducing competition in a given market. This is why Mr. Almunia is considering seriously mobile mergers taking place within members states, because such deals end up simply with the reduction from 4 to 3 operators and subsequent reduction of competition. Instead, the offices of DG Comp will see favorably cross-borders mergers (i.e. deals concerning companies operating in different countries) because such transactions would lead to the creation of big pan-European operators able to compete at international level. By contrast, the simple merge between national players is not going to provide any benefit to European integration: rather, it will be a deal permitting the operators left to better coordinate their commercial policies to the detriment of consumers and competition. This is particularly true when the acquired company is the so-called “Maverick” operator, i.e. the company being more dynamic from competitive point of view. The disappearance of such operator may be seen as a move to make stop competitive offers in the market, rather then looking for synergies or cost reductions.
Because of the above, the European Commission took a serious approach vis-à-vis a merge in Austria between Orange and Hutchison in 2011, which was approved only after deep analysis and imposition of remedies. For the same reasons, last year the US antitrust authorities objected the possible merge between T-Mobile and AT&T in the US market.
European telcos will probably complain about the approach taken by Almunia, however they should recognize the the path indicated by European institutions is clear: green light for cross-border merges and M&A, likely stop for pure national consolidation transactions.
Today the press is reporting about a deal between Netflix and Comcast, which will allow the movie provider to connect directly to the network of the broadband provider. I understand that this is a direct peering agreement, but not for free (as it often happens in the peering environment), since Netflix has committed to pay Comcast for the disturb (details of the price are not public).
By virtue of this agreement, Netflix’s subscribers will enjoy a better quality when watching their movies. In fact, Netflix stream services will be conveyed to subscribers directly to them and will not pass through other networks and long routing – unlike now, since most of Netflix’s movies were normally transmitted via Cogent, a carrier which then delivered the traffic to Comcast.
The deal between Netflix and Comcast seems therefore a normal commercial transaction, since content providers may have the choice to connect directly to the network of their users or instead to deliver traffic to a carrier, which will do the rest directly (via own peering agreements) or via further carriers. As far as we know, this was a pure commercial decision, which had to take account of various factors: the coverage of the ISP and its customers base, the routing architecture, the price negotiated amongst the parties. Of course, Netflix will not make direct peering agreements with all ISPs of the world, because it will be impossible and insane. However, it make sense to negotiate such a deal at least with the main broadband providers, including Comcast – the latter being the main provider in the largest market for Netflix – if the price is fair. Comcast’s customers will have a benefit from that, because they will enjoy better quality when watching Netflix’s movies, as the streaming signal will be delivered directly to them without too many loops and routing.
It is interesting to note that this kind of deal has nothing to do with Net Neutrality arrangements: it is exactly the opposite, it is an alternative to a solution altering the neutrality of the net. In fact, Netflix’s traffic will not be prioritized, privileged or favored, therefore net neutrality remains “safe”. By contrast, some “quality” effects will be perceived by the users because of the network solution in place permitting to the video stream to reach households with less potentially congestion points. Thus, this kind of deal demonstrate that most of the arguments against net neutrality are fake or inconsistent, because:
(i) in order to provide enhanced quality to end-users, it is not necessary to prioritize, discriminate, impose bandwidth caps ecc ecc; it is sufficient to arrange the Internet traffic via different routing or peering agreements;
(ii) it is a pure commercial matter – if the price is fair it may be done. No need to regulate;
(iii) it is up to the content provider, OTT or end-users to decide whether a given quality may be desirable, and then the market will provide offers and solutions. By contrast, the entire net neutrality debate in Us and especially in the EU is whether specific “specialized” services should be guaranteed or recognized by regulation, even when nobody in the market is asking for that!
One could therefore argue that this kind od deal may be desirable and become an effective alternative to scenarios affecting net neutrality. The answer is: NI (in Italian: maybe yes, maybe not). One should consider why Netflix decided to close this deal. If it was a free commercial decision, aimed just at ameliorating the quality experience of subscribers, the answer is positive. By contrast, if the deal was forced because of traffic congestions artificially created by Comcast, the scenario becomes darker. Interesting to see, there are news that also At&T may be interested to close the same kind of deal with Netflix.
In addition, one should consider potential problem deriving from the changing landscape in the US ISP market. If Comcast will succeed in buying the competitor Time Warner, then it may become dominant in the Internet access market in US and it may be tempted, as a consequence, to abusively rise peering fees (to Netflix or any other content provider or carrier) or discriminate. In such a case, a competition or regulatory issue may arise.
The Court of Justice of the European Union released today a sentence (Judgment in Case C‑466/12 Nils Svensson and Others v Retriever Sverige AB) which may have unpredictable impact onto the Internet environment.
The parties in front of the Court discussed whether publication of clickable internet links (so-called hyperlinks) referring to protected content should be subject to the authorization by the person owning the concerned copyright. The European judges dismissed the request of the plaintiff (i.e. a rights-holder claiming that his authorization was due to refer his content via hyperlink) stating that:
(i) the owner of a website may, without the authorisation of the copyright holders, redirect internet users, via hyperlinks, to protected works available on a freely accessible basis on another sit;
(ii) this is so even if the Internet users who click on the link have the impression that the work is appearing on the site that contains the link.
While this reasoning may be seen as a positive outcome for some (libertarians, ISP) and not for others (content industry), a more deep analysis of the decision shows that the legal background can give rise to more controversial effects. This is why the various stakeholders waiting for the outcome of this proceeding may have, at the end, different views whether the final decision is favorable or not. For sure, a battle, not a war, was wan - however it is not sure who wan the war and who wan the battle.
To clarify: hyperlinks are a reference to data that the reader can directly follow to find an already available content and their function is therefore to link any given information to other information over the Internet. Hyperlinks are therefore tools inherent and necessary for the functioning of the World Wide Web. In my opinion, an hyperlink should not amount to a transmission or communication of the work but a reference to an already available work. Fact is, sharing hyperlinks on the Internet is one of the most common activities amongst people surfing in the Internet. In this light, requiring the authorisation of a rights-holder before sharing a hyperlink would not only be cumbersome for the Internet but would also undermine the fundamental right of freedom of speech.
By contrast, the European Court took a different legal approach, holding that the provision of clickable links to protected works constitutes an act of communication under the Copyright Directive (Directive 2001/29/EC). According to the European judges, such an act is defined as the making available of a work to the public in such a way that members of the public may access it. This means that an authorisation from the rights-holder should be required in principle, save for the exceptions.
In the present case, the Court decided for the exception. Thus, the judges found that the authorization was not needed because of the specific circumstances: whether or not the public accessing the protected content was “new” and whether the hyperlinks may be used to circumvent restrictions from a right holder. However, the general principle stated by the Court remains valid. If an hyperlink is an act of communication under the Copyright Directive, every company or citizens sharing content and information in the Internet via hyperlinks could potentially face uncertainty and risks. In fact, the lawfulness of their behavior will depends on the law, rather on some exceptions indicated by the jurisprudence, which by the way could be challenged case by case by rights-holders. This delicate situation may have a relevant impact on business and also on fundamental rights, including freedom of speech. I do not know whether the European Court understood the deep implications of their reasoning, some under-estimation is possible
About the concrete case: press articles written by several Swedish journalists were published on a freely accessible basis on the website of the Göteborgs-Posten. Retriever Sverige, a Swedish company, operates a website providing its clients with hyperlinks to articles published on other websites, including the site of the Göteborgs-Posten. Retriever Sverige did not, however, ask the journalists concerned for authorisation to establish hyperlinks to the articles published on the site of the Göteborgs-Posten. Thus, the question was whether the provision of such links constitutes an act of communication to the public within the meaning of EU law. If so, the establishment of hyperlinks would not be possible without the authorisation of the copyright holders.
In this respect, the Court pointed out that the “communication” (pursuant to the Copyright Directive) must be directed at a “new public”, that is to say, at a public not covered at the time the initial communication was authorised. According to the Court, since the works offered on the site of the Göteborgs-Posten were freely accessible, then the users of Retriever Sverige’s site must be deemed to be part of the public already taken into account by the journalists at the time the publication of the articles on the Göteborgs-Posten was authorised. Therefore, the owner of a website, such as that of Retriever Sverige, may, without the authorisation of the copyright holders, redirect internet users, via hyperlinks, to protected works available on a freely accessible basis on another site. However, according to the Court the position would be different should hyperlink permit users of the linking site to circumvent restrictions put in place by the site on which the protected work appears in order to restrict public access to that work to the latter site’s subscribers only: in that situation, the users would not have been taken into account as potential public by the copyright holders when they authorised the initial communication.
A positive interpretation of this reasoning would lead to conclude that any time the “hyperlinked” content is available for free, the hyperlink referral is valid (i.e. an authorization is not needed). However, most of protected content in the Internet is available for free, since the remuneration is provided by other means (mostly advertising). Therefore, some stakeholders will continue to maintain that hyperlink may be infringing copyright of third parties, even when referring to “free” content. The solution of the Court will not be sufficient for this problem and further litigations will follow, for sure.
Thanks to Joshua Porter for the use of the cartoon on the top!
Today the European court of justice released an interpretative decision (case C-355/12 Nintendo / PC Box srl) which may have an important effect for the development of copyright legislation in Europe. In a case between Nintendo and a small software company and others (pending before the commercial courts of Milan), the judges declared that technological measures deemed to protect copyright could be eluded when this is done for scopes which are not foreseen by the Copyright Directive (i.e. Directive 2001/29/EC). In other words, while copyright protection (and related legitimate protection technological measures) shall cover unauthorized acts of reproduction, communication, making available to the public or distribution of works for which authorization is required of the holder of a copyright, such protection – however – cannot be extended to prevent further activities, because this would adversely affect business freedom and innovation.
In the case at stake, Nintendo claimed that the opponents were commercializing devices and software permitting to run non-agreed games and applications over Nintendo’s consoles. Nintendo maintained that the business of the opponents was based on the elusion of the technological measures established to protect its copyright. The opponents did not deny that they were “cracking” such technological measures. However, they claimed that they were not doing with the scope to infringe copyright under the ambit protected by the Copyright Directive. The European court supported the latter reasoning.
Although the ruling of the Court of Justice concerns a very specific case, the potential of this legal interpretation is enormous. The judges are clearly giving an important signal to the European institutions which, with the next 5-years mandate starting in 2015, will commence the revision of the European copyright framework. According to the court, not everything is piracy and legislator should look at business, social behaviours and consolidated rights with new eyes : some activities that are regarded to be illicit on the basis of traditional copyright schemes, should be considered legitimate and lawful instead. Thus, copyright protection should be balanced and in line with the development of technologies and consumer demand, so as to not undermine the potentials of innovation and business development.
A public consultation, expiring on February 5th, 2104, is already in progress.
Here the PR of the court.
(SEE THE 2014 UPDATE BELOW)
In December 2013 Italy passed a controversial law provision whereby online advertising services directed to the Italian market shall be subject to the condition that the provider is registered with Italian VAT. Technically speaking, the obligation concerned the Italian citizens and businesses, which are obliged to buy online advertising services only from service providers holding an Italian VAT registration number.
The initiative aimed at addressing the hot debate of taxation of Internet companies in Europe. Although concrete figures should be assessed cautiously, there is a wide perception that big Internet players are taking benefit of the opportunities opened by asymmetries and fragmentation of national taxation regimes in Europe (and in the world) in order to considerably reduce their VAT and tax income duties. To make few examples, the European operations of Google are located in Ireland, while Skype has headquarters in Luxembourg, and in both cases the selection of the location was clearly driven by tax optimization purposes. It should be noted, however, that any kind of companies, not only Internet OTT, are used to exploit the bugs offered by European dis-harmonization. The list of European companies established in Luxembourg, Ireland or in the Netherlands is almost unlimited, and the location decision is driven not only by favorable tax treatment, but also by other factors (which still escape to European harmonization) such as: lighter financial security regulation, banking discretion, flexible corporate costs and formalities, cheaper social contributions. A well-known case is the one of Ryan Air, the low-vost Dublin airline company who became an European giant while continuing to be subject to Irish taxation and social schemes.
Thus, the problem exists and in the case of Internet company may be particularly important because the level of income tax paid by such operators rarely reflect their profits and turnover in many European countries. Even if this situation is the result of a legitimate exploitation of puzzled tax regimes, a reaction from politicians is unavoidable at the end. Therefore, the taxation of digital company became part of the European Council in Brussels while various countries, in particular France, United Kingdom and Germany, have been considering possible solutions.
The case of Italy is a bit peculiar. Despite the fact that the Italian government wanted to stay cautious on the subject, the proposal obliging Internet companies to somehow pay taxes in Italy was brought ahead on the initiative of some members of the Parliament. The approved draft focused on advertising rather than Internet services in general, therefore it could be considered a “spot tax” rather than a “web tax”, as correctly mentioned by author Guido Scorza.
It is however unlikely that a provision such that will ever became effective, because of various reasons.
Firstly, because of the EU constraints: the VAT registration requirement is clearly against EU fundamental rules in the matter of free circulation of services and free establishment and the European institutions will rapidly take action when the norm will be finally approved. In addition, because of the potential impact on trade, the draft should have been notified to the European Commission pursuant to EC Directive 98/34, however it was not. The register of the notifications held by the Industry Directorate has currently no news of the Italian bill. Failure of due notification involves radical nullity of the provision. The Italian government should maintain, in this case, that this is a pure tax provision and therefore it escapes the ambit of application of Directive 98/34, however this is debatable. NB: the notification should occur before entry into force and during notification the validity of the provision is suspended for 3 months.
Then , there is a problem of actual enforcement. Transactions between Italian citizens and Internet companies deprived of Italian VAT registration will continue to occur. The Internet companies, established outside Italy, will lawfully refuse to adopt an Italian VAT registration number but they will continue to make business with whoever is contacting them from Italy. Applying sanctions upon Italian citizens and business would be very unpopular.
Finally, the Italian government will likely withdrew such a measure when the exact calculation about the taxable revenue will be done. The figures will likely be much lower than expected, also because of the application of double imposition treaties, and also because most of the supporters of the web-tax have been doing calculations on the basis of the theoretical profits of the Internet companies, whereas they should consider the revenue basis deprived of costs.
The debate, however, remains open, and it could be solved only when European countries will decide to tackle the problem at the roots: the lack of harmonization of European tax regimes, successfully exploited by US companies (but not only by them).
UPDATE February 28, 2014: while the Italian Parliament finally approved the web-tax on December 23, 2013, as a part of a general financial bill (so-called “Legge di stabilità”: Law n. 147 of December 27, 2013), the effects of that provision were immediately suspended until July 1st, 2014 by the government with an ad hoc decree (Law Decree n. 151 of December 30, 2013, art.1.1). The reasons for suspending is that the government wants to check whether the provision is compatible or not with EU law. On February 28, the new Italian premier, Matteo Renzi, announced via twitter that the provision is definitively abrogated, and that the question of taxation of OTT in Italy will be discussed an regulated within a “European framework”.
The Attorney General of the Court of Justice Cruz Villalón has rendered an opinion regarding the compatibility of web-blocking measures with EU law (here the press release). This opinion is expected to warm-up the never-ending debate how to tackle piracy in the internet. In fact, in several European countries web-blocking is imposed on ISPs (Internet access providers) as an ordinary measure to prevent illicit activities by Internet users in different areas, such as online piracy, paedoporno material, counterfeiting, consumer protection, ecc.
While various European decisions have already considered the matter of online copyright enforcement (in particular, the famous SABAM cases originating from Belgium), this is the first time the ECJ is dealing specifically with web-blocking.
It is arguable whether the opinion of the Attorney General may be seen as a step in favor of copyright holders or, by contrast, in favor ISP/libertarians/consumers. Such evaluation may vary because web-blocking practices throughout UE vary considerably from country to country and therefore the views of the Attorney General, should they be confirmed by the ECJ, may have different implications.
On one side, rights-holders will welcome the fact that opinion recognizes that the web-blocking instrument is not per se incompatible with European law. On the other side, however, the opinion lists series of restrictions and guarantees suggesting that courts or authorities should be very cautious when considering the practical implementation of this measure. In other words, the solution indicated by the Attorney General will create concerns in those countries (for instance Germany and Austria) were web-blocking is not normally used, but it will have the opposite effect in countries where web-blocking is common practice (such as Italy and UK). In the latter countries the current web-blocking practice and jurisprudence should be likely revised.
The merits of the case concerned a web-blocking measure ordered by an Austrian judge upon local ISPs (including the cable operator UPC) in order to prevent access to a portal (kino.to) accused to distribute content in violation of copyright law. The Austrian judge imposed a combination of DNS and IP addresses blocks, while recognizing that such measures could be easily circumvented by users. UPC challenged the blocking measure and the case was brought to the attention of the European court to verify whether the Austrian legislation, allowing a national courts to block access to website as a measure to prevent infringement of copyright, was compatible with European law (namely the Copyright Directive 2001/29/EC and the Electronic Commerce Directive 2003/31/EC).
Firstly, the European Attorney is suggesting to the ECJ that access providers should be considered as “intermediaries” and, as such, could be subject to the relevant legislation in the matter of fights against online piracy. Secondly, he believes that, under certain conditions, European law allows – but it does not prescribe – national courts to force ISPs to block access to websites to prevent online piracy. However, the practical recourse to this measure should be subject to various caveat and therefore the national judge should take care of the following:
- the blocking measure must be balanced and take into account primary interests of other parties, such as fundamental rights, freedom of expressions, privacy, non-monitoring obligation, freedom of business ecc, which may even restrict and limit the actual enforcement of copyright law. As a consequence of that, national judges may even come to the conclusion that, in the concrete circumstances, web-blocking is an excessive and inadequate measure. The respect of privacy, in this context, will become particularly critical. EDPS (the European Data Protection Supervisor) has recently noted that network management practices, including blocking measures, should be balanced and proportionate also with regard to privacy; one should even wonder whether a blocking measure based on DPI (deep packet inspection) may be tolerated;
- the blocking measure must be specific and it cannot consist in the obligation to generically prevent access to a certain website. This is particularly relevant in countries like Italy where judges are used to impose web-blocking measures as a kind of “result obligation”, i.e. ISPs are obliged to prevent access to the locked website at all costs and conditions;
- the measure must be proportionate, i.e. should not prescribe more than what is necessary to achieve a certain objective. This is particularly relevant for cases where blocking of a website would impede access to both licit an illicit content (frequently with social networks and platforms);
- the blocking measure must be imposed by a court or should be subject to strict judicial review.
As stated above, the conditions envisaged by the Attorney General are quite strict and, if approved by the European court, will force various members States to review their tolerance to web-blocking. Nevertheless, some parts of the conclusion seem to help the recourse to web-blocking:
- even if web-blocking may be easily circumvented, such measure remains adequate in the eyes of the Attorney General. It is interesting to whether this evaluation will be finally retained by the European court;
- web-blocking may be imposed even if involve some costs upon ISPs. However, since the ECJ in previous cases (Sabam cases) have banned costly measures imposed on operators to protect third parties’ rights, it will be interesting to see how the final decision will elaborate this question.
The final decision of the ECJ is expected by the end of 2014.