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The railway and roads opened up the first Industrial Revolution. Broadband and the internet are opening up the next one. Our internet service providers deliver excellent facilities that help so many people in so many ways. But we need to remember that one of the principal reasons for their popularity is that they search out information and creative content that people want. If internet service providers continually attract people to illegal sites, as they do now, and not to legitimate sources of content, then they are part of the problem, not part of the solution. These companies make billions in profits. In 2007, just one internet service provider made profits of £5.78 billion. That compares with the recorded music business's turnover in the UK which, as I mentioned, was £900 million. And yet these companies contribute nothing to the creative economies that they feed off and undermine. Forty per cent of their sales come from broadband and IT services, and P2P traffic is believed to account for an astonishing 60 per cent of all traffic on online networks.

Internet service providers can help themselves: they are able to control bandwidth traffic when it suits them. They are not going to change without regulation, otherwise the good players could lose customers to the bad players; but I wonder how long this can be tolerated.

People have got into the habit of talking glibly about “content providers” as if they are some sort of optional part of the process. The great wines of France are not content providers to the glass manufacturing

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business, and Britain's creative industries are not content providers for broadband. They are the experiences that bring consumers to the internet in the first place and they can only survive in a safe internet world. Lawlessness is not a model for any society and it cannot be a model for our digital future.

The cultural “free lunch” is not free because film, music, printed media and so on cannot be produced, marketed and distributed for nothing. Investment must be rewarded and performers, composers and authors must be paid. Otherwise how can they survive?

It is important to remember as well that pirates are bandwidth hogs who reduce the quality of service and raise costs to legal users. Illegal file-sharing spreads viruses and inappropriate, and unexpected, content for minors. There are even dire predictions that the internet will grind to a halt over the next few years. Dealing with piracy removes that threat.

Through various reviews, notably the Gowers review in December 2006, Creative Britain in February 2008 and the July 2008 consultation on file-sharing, I have been very encouraged by the Government's stated determination to act. The interim Digital Britain report gives life to that commitment and to the prospect of legislative action. However, I wish to raise the question of whether we are giving this crucial issue enough prominence and whether we are creating an outcome that is in the interests of a section of the economy where Britain leads the world and has the precious chance to create new jobs and new world-beating content for the future.

As I said, I do not have the answers. But I do have serious concerns as to whether the actions proposed to date will achieve the Government's aim, stated in July 2008, of reducing unlawful file-sharing by 70 to 80 per cent over two to three years. The Government would appear to be willing the ends but not the means. Proposing to legislate to require ISPs merely to write to infringers and leave rights-holders with the near impossible, deeply expensive and hugely unpopular task of suing those who persist is simply not going to produce the required deterrent effect. Internet service providers need to be made to do more to play their part in tackling infringement taking place on their networks.

It should also concern government because fairly monetising the demand for creative works in digital form represents a key opportunity to generate revenue that can help to repay substantial investment in new digital infrastructure. If the regulatory response is right then massive value can be derived by internet service providers from legal services and there will be an incentive to invest. Notwithstanding government's repeated calls to industry to adopt new business models, government must accept that taking valuable content for free is not a business model. It creates no value. Only if illegal downloading is properly addressed can new business models have the room to breathe and succeed.

As I said, I do not in any way oppose the laudable aim of improving networks. But next-generation networks need to be not just faster but smarter and safer, and they must work better as an ecosystem that allows

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information and creative businesses to prosper. I thought it crucial that we raise this issue in this House because we are at a point in history when our future will be set, and the world will look carefully at the direction that the UK takes. I look forward to hearing the contributions of noble Lords who follow me in this debate. I beg to move for Papers.

2.07 pm

Lord Birt: My Lords, I applaud the initiative of the noble Lord, Lord Lloyd-Webber, in prompting this debate, and I observe that the House is lucky to have one of the world's great composers in our midst. He made his case powerfully and I shall echo many of his concerns. I declare two relevant interests. I am chairman of EMI's holding company and a director of PayPal (Europe).

The new digital technologies have had a radical and transformational impact on almost every individual organisation and sector, from newspapers to retailers, from the betting industry to finance. The music industry in particular has been profoundly affected. Music can be more easily recorded, distributed, discovered and consumed. As a result, more music is listened to than ever before, but less is paid for.

We must be honest: the music industry has been slower than most to reinvent itself, both to take advantage of new opportunities for discovering talent and for better serving consumers and businesses, and to adjust and respond to unavoidable new realities. Piracy is certainly, therefore, not the only reason for the music industry's travails over the past decade, but it certainly does matter and it certainly should not be tolerated, for, quite simply, it is theft.

Intellectual or creative products available digitally have to be invented, designed, conformed and invested in, just like physical products. Individuals and companies involved in making music are entitled to a fair return for their risk and for their labour. Stealing music in digital form is just as immoral as stealing a CD from Tesco. When high-speed broadband becomes the norm, as the noble Lord, Lord Lloyd-Webber, suggested, it will also be easier and easier to steal high-quality video and film, with potentially severe consequences for the film and television industries more widely.

Crime of all kinds in the online world—not just copyright theft—is burgeoning. Child pornography is multiplying; phishing trickery is rife; sophisticated high-tech online fraud is growing; personal computers are infiltrated remotely to steal personal data; and mass attacks are organised on major online entities and governmental bodies. Governments need to bring order to this lawless environment rapidly if serious damage to society and to the economy is to be avoided and if a moral relativism is not to become entrenched.

Internet service providers—ISPs—control access to the digital highway for content providers and for consumers alike. ISPs have the technical capability of blocking access to unlawful sites and of detecting illegal activity by consumers and by organised criminal networks. ISPs should be regulated and licensed. I can see why, at the moment, any individual ISP is not volunteering to police the internet. It would be costly, it would deter customers, and there would be few rewards for going first. However, if helping to counter

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every kind of online crime were an obligation on all ISPs, the cost of compliance would become a price of doing business for all providers and no single ISP would be at a competitive disadvantage. I accept that it would be disproportionate as well as expensive to criminalise all copyright theft by individuals, but we have introduced perfectly effective mechanisms for pursuing people who do not pay their TV licences or who park illegally. An internet regulator could enforce an appropriate regime for tackling online crime and place obligations on ISPs to assist it.

Those issues are global but the creative industries in the UK are not just a jewel in our cultural crown but, as the noble Lord, Lord Lloyd-Webber, suggested, a high-performing part of our economy, particularly in London and the south-east, where it is the second sector, after business services, and a vital part of our national wealth-creating capacity and of the tax base for the whole of the UK. It is now time for the Government to be bold and to offer full and proper protection for the music and other content-producing industries in the UK.

2.13 pm

Lord Luke: My Lords, I thank my noble friend Lord Lloyd-Webber for giving us this opportunity to debate this important issue. As he has so clearly highlighted, Britain's creative industry contributes a remarkable amount to our culture and our economy. To sit back and do nothing while online piracy sucks the profitability out of such a productive sector at any time would clearly be irresponsible, even more so during the current disastrous economic situation. However, I am optimistic that there is an answer, and it lies in empowering the private sector to do what it does best, innovate.

Recent months have seen a new provider burst on to the scene, offering a novel, perfectly legitimate way for people to listen to music that they do not want to buy. I am talking, of course, about Spotify, where in exchange for listening to the occasional advertisement interspersed through the playlist, users have access to an enormous library for free. As networks become faster and more reliable, as portable devices capable of maintaining a cheap and constant link to the internet become more common, services such as this can only become more popular.

Those creating the music have also found ways to reduce their losses. In October 2007, Radiohead released the album “In Rainbows”online, asking only for whatever those downloading it chose to pay. A third of those taking advantage of this offer paid nothing at all but, importantly, two-thirds paid and the average was about £4, chosen, it appears, partly because that is what the public believe an artist generally receives from the sale of a CD through more traditional channels. It clearly ispossible to charge for music despite the availability of a free illegal version.

So perhaps we are not looking at an outbreak of criminality among the online population; perhaps it is merely that the internet has given them the opportunity to move on from an out-of-date system, where large companies take the huge majority of the revenue leaving the creative talent with pennies. People who

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are not willing to pay £15 to a high-street chain for a CD are apparently willing to pay a proportion of that directly to the artist.

Of course, Radiohead is an established band, with a brand and a fan base of sufficient size to dispense with the support of a record label which a marketing department can provide. But online-only production is not confined to the big names. There is a rash of small independent websites offering online-only music sales from little known bands. The internet represents an enormous opportunity for creative types who are unable to find a record label willing to give them a contract to reach out and find a market for themselves. It is not just music. There are websites available for people to invest in independent films. People can pay to receive blog updates, software improvements, games, anything that anyone with a creative bent is able to develop and put up on the internet.

The interim Digital Britain report correctly identified the danger that oppressive regulation could prevent the development of new business models. A dynamic investment climate must, of course, seek to protect the intellectual property of those who have spent their time and money on their creations but, above all, it must provide a clear base for the industry to innovate. The Government must take the greatest care that their concern for the lost revenue from illegal file-sharing does not cause them to suffocate the solution. The answer is surely not stringent penalties and regulation, as the public will always be one step ahead of those; it is allowing and supporting the development of a better alternative.

2.19 pm

Lord Clement-Jones: My Lords, I congratulate the noble Lord, Lord Lloyd-Webber, on initiating today’s debate and on making such a powerful introductory speech. This debate is much more about means than ends. In the context of online copyright piracy or infringement, I am sure that there is general agreement in the House today about our objectives.

As the Gowers report, referred to by a number of noble Lords, which reported in 2006, and the interim Digital Britain report acknowledged, knowledge or creative capital in this country is increasingly important. The creative industries in the UK form a higher proportion of GDP than in the US, Canada, France or Australia. Of course, the creative industries have been growing significantly faster than other sectors in this country.

One of the biggest threats to that growth and, indeed, further investment in creative industries is copyright infringement. All the evidence, referred to by the noble Lord, Lord Lloyd-Webber, is that with higher speeds and greater penetration of broadband, piracy is growing. The loss to rights owners could represent at least half a billion pounds a year in royalties, if the Ipsos figures are correct—they have been referred to in a number of subsequent reports—and the loss is probably split at present between audio-visual and music rights holders. Many people say that that figure is an underestimate.

The Gowers report made a number of recommendations. Even though the monsters of Napster, Grokster and Kazam may have been slain, Napster as

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long ago as 2001, new threats constantly emerge. Just this week I was reading about the Scribd website, which allows copyright books to be downloaded. On these Benches, we are very strong defenders of intellectual property rights. We have strongly supported the proposition that good copyright protection is vital for the encouragement of creativity. My honourable friend Vince Cable promoted a Private Member’s Bill in 2001, which became the Copyright, etc. and Trade Marks (Offences and Enforcement) Act 2002. It increased the maximum penalty for copyright theft to 10 years’ imprisonment.

The Gowers report pointed out in 2006, however, that there can be a tension between the data protection obligations of the ISPs and the desirability of protecting the copyright of rights holders. The problem is whether or not we expect ISPs to be policemen. The Gowers report recognised the problem of piracy and suggested matching penalties for digital infringement to those for physical infringement, raising the maximum penalties and enabling fast-track litigation. None of those suggestions has yet been implemented. Subsequently there has been consultation by the Department for Business, Enterprise and Regulatory Reform on tackling illicit file sharing and the recent government response to that consultation. The Creative Britain report was published in February last year. Last July, the memorandum of understanding between the major ISP and rights holders was designed to lead to agreed codes of practice in this area.

More recently, the Digital Britain interim report and the consultation over proposals for a rights agency have seen the light of day. In all of this, although the Government have tried to steer an even course, there is no doubt that views have become very polarised, which makes going forward by consensus extremely difficult. ISPs believe that rights holders are asking them to be copyright policemen, a role which they do not want.

One of the most crucial areas of contention is whether ISPs, once they have given notice to persistent infringers, should be obliged to throttle their broadband service or cut them off. This approach was originally suggested by the Government and is still favoured by President Sarkozy as part of his “three strikes and you’re out” policy, involving setting up a new body in France called Hadopi, and by a number of UK rights holders. The French Government are pressing for amendments to the EU telecoms package as a result. I am as sympathetic as anyone to rights holders, but I do not believe that this is the right approach.

I take some comfort from some very prescient words of the noble Lord, Lord Puttnam, in a speech some three years ago. He said:

“In fact some of the anti-piracy policies pursued by different sectoral interests can look remarkably like a continuation of war by other means—hardly an effective strategy for winning the hearts and minds of consumers and citizens”.

We should be mindful of that. The BPI and others say that few people believe that the answer lies in suing individual consumers. I agree with that, but a court order should be required to terminate services when inevitably evidence will be somewhat contested in those circumstances.

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We broadly agree, therefore, with the Government’s stated approach in the rights agency paper and the response to consultation that a voluntary approach through codes of practice would be preferable. In terms of the first compulsory step of notification by the ISP, all the evidence is that a significant number of infringers, some two-thirds, would change their behaviour once they had been written to by their ISP. As an alternative to penalising individuals and legal enforcement against non-persistent infringers, as Gowers and subsequent reports have said, it is clear that investment in education of the public is vital, together with creating alternative lawful distribution channels. The Culture Media and Sport Select Committee report in 2007 on the new media and the creative industries emphatically agreed with that proposition.

At the weekend I saw a superb example at the Science Museum of what is possible. The Intellectual Property Office and Aardman Animations are collaborating on the mounting of an exhibition, A World of Cracking Ideas. This exhibition, to which I took my 11 year-old son, is inspiring, shows some of the great inventions of our time and stimulates children’s enthusiasm for innovation and creativity; but it also gets the message across about the need to protect intellectual property. It was interesting to see how the exhibition explained the world of music copyright, including VPL, PPL, PRS, MCPS and so on; it was a noble attempt.

We need to combat the idea that copyright infringement is socially acceptable. Having said that, and that I agree with the overall approach of the Government, we have considerable doubts on these Benches about the rights agency proposed in the recent paper. It proposed that the agency should be industry-run, not run by the Government, and that the basis for funding should be a levy on broadband ISPs and users. But the basis for the operation seems to be somewhat flawed. It will not have statutory powers, even if it is responsible for dispute resolution and developments of the codes of practice. It is meant to have a role in standardisation of practice, but again on a non-statutory basis. Bringing together rights holders and others clearly has a role, but why not simply call it a forum? The notion of a rights agency seems somewhat mistaken. The question is rightly raised in the consultation paper: how will a rights agency achieve sufficient authority? It will be with difficulty. The appeal procedures envisaged in the paper are intended to be non-binding, which again is a problem.

There is also the question of how representative of all the different interests the agency would be. Rightly, consumer groups believe that they should be included; but so, too, should others such as visual artists who have important interests to represent and are often ignored in these debates. Is it not essential if the DRA is to be credible that it is properly representative? Ministers rather grandly claim in the proposals that the DRA will,

But the bottom line is whether it will reduce infringement and unlawful activity. The proposal is somewhat paradoxical, and I cannot see how the agency could operate without statutory powers.

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The educational role of the DRA is valuable, and I am sure that its representative nature will be useful, but at the end of the day, Ofcom will have and retain the power of regulation. A number of noble Lords mentioned the need for new models and innovative ways of exploiting copyright. I take on board the comments of the noble Lord, Lord Lloyd-Webber, in that context, but there need to be alternative distribution channels alongside better enforcement and education. We have heard a few examples. For instance, Nokia’s “Comes With Music” service was launched in 2008, followed closely by Sony Ericsson’s Play Now service and, as the noble Lord, Lord Luke, mentioned, Spotify, all of which are examples of how a new music service can happen when it is wholly legal and is provided in co-operation with the rights holders.

The different perspectives on online copyright piracy are difficult to reconcile, but generally we believe that the Government are getting the balance right. It is internationally where we think that greater effort should be made. Many rights are infringed by dedicated sites that move into another jurisdiction when challenged, and there are a number of countries that are seen as safe havens for that kind of activity. Such co-operation is needed not just between ISPs, rights holders, consumers and others but between countries. There is little point in having very effective systems here and finding that rights can be infringed at will by downloading from foreign sites. The Government need to engage in international discussion, debate and co-operation on that subject. I look forward to hearing the Minister’s reply.

2.30 pm

Lord De Mauley: My Lords, this is an important subject and I thank my noble friend Lord Lloyd-Webber warmly for raising an issue that he clearly, and rightly, feels strongly about. He spoke so compellingly about it and it needs to be dealt with. Before I speak further, I should disclose an interest as a substantial shareholder in an information technology support company.

I am sure that the Minister will say how much he too is in agreement with my noble friend. After all, there has been a succession of government announcements over the past few years assuring us how seriously they take illegal file sharing. Unfortunately, none of the announcements, reviews, consultations, issue papers or discussion papers appears as yet to have made a great deal of difference, which is particularly why I sympathise so much with my noble friend.

The statistic he gave us that over a quarter of online users illegally share files is startling and disturbing. That the number is growing shows clearly that the Government’s approach is just not working, which is not hugely surprising, since the Government’s approach has been, as my noble friend said, to avoid doing anything—if one does not count the endless consultations, reviews and papers as activity. That the lack of punitive levels of civil damages means that there is no real deterrent to, for example, online piracy was raised in the Gowers review in November 2006. That was consulted on throughout 2007 and then it dropped into oblivion, never to be heard of again.

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