International In-house Counsel Journal Vol. 4, No. 14, Winter 2011, 1

Pay-TV Piracy in Europe and Why Media Piracy is Still a Serious Problem, Growing Throughout the World

CHRISTINE MAURY PANIS Vice President of the European Anti-Piracy Association AEPOC and Executive VP, General Counsel, Digital Pay-TV technology provider Viaccess - France Telecom

"The First could become last" Precedent in Belgium: For the first time a court sentenced Pay-TV pirates to severe imprisonment and heavy fines – Sky Deutschland will receive over 2 million Euros in damages. A great success. Nevertheless, Europe could soon fall behind, because the methods of the pirates are developing ever faster and the existing EU legislation is barely able to keep pace. Directive 98/84/EC of the European Parliament and of the Council of 20 November 1998 on the Legal Protection of Services based on, or consisting of, Conditional Access – this is the full title of the European key legislation to protect pay-TV by an own dedicated legal basis. In 1998, the EU was one of the first major economic areas to approve such a decree. In essence, the Directive – which was meant to be implemented into national law by mid- 2000 – punishes the illegal decrypting of pay-TV services using so-called circumvention devices and forbids the commercial trade of pirate equipment. In Germany the national implementation of the Directive is called "Zugangskontrolldiensteschutz-Gesetz", short ZKDSG – and became operative in March 2002 only. Many other EU countries needed even longer to complete the implementation of the Directive. In Germany commercial piracy can be punished by imprisonment of up to one year or a fine – which underlines the differences between the EU member countries and their individual, national legislation: A Belgian court recently punished pirates with up to 18 months in prison and payment of more than two million Euros in damages. "A verdict that would have not been possible in Germany, since only up to 12 months in prison are foreseen on the basis of the ZKDSG," added Andreas Rudloff, Director of the Security Department at Sky Deutschland. "Has a case like this ever been brought to court in the EU before?" The 1998 Directive was all in all a very important step in the right direction. However, the delayed and partly incomplete transposition into national law prevented for years to see first court rulings. Often the first question of a judge was, whether such a case had already been dealt with in the EU before. Likewise, many Pay-TV operators struggled to pull the offensive in court and thereby raise public awareness on the topic of piracy – in some cases even despite rampant piracy levels. As a consequence few judgments occurred only during the first years of the Directive. Additionally, in every single case it has to be proven that a circumvention device is specifically purposed for decrypting Pay- TV or is facilitating the illicit access in a targeted way – and cannot be used for other, eventually legal purposes as well.

International In-house Counsel Journal ISSN 1754-0607 print/ISSN 1754-0607 online 2 Christine Maury Panis & Ansgar Gerber

During the early years of the until then young jurisprudence it was therefore relatively easy for pirates to declare their "products" as neutral hardware, serving no illegal purpose, although digital receivers or smart cards could be turned into a fully functional circumvention devices in combination with software available on the Internet. Only since about 2003 the number of successful litigation leading to the conviction of Pay-TV pirates increased, also thanks to the fact that circumstantial evidence was increasingly allowed within the pleadings. Up to 18 months in jail and more than 2 million Euros in damages for commercial trading of 5,700 illegal TV cards Within the court decision in Belgium, that was imposed in September 2010, AEPOC member Sky Deutschland have won a law suit against several pirates, who sold illegal viewing cards to Germany and Austria during the years 2006 to 2008. The First Instance Court of Tongeren sentenced two of the accused to 18 and 8 months in prison, respectively. Two more individuals received suspended sentences while one defendant was found not guilty. In addition, Sky Deutschland is to receive a groundbreaking sum of more than 2 million Euros in damages. The judgment is appealable. It is the first ruling of this scale, punishing pay-TV pirates to a serve prison sentence as well as strong payment for damages that have realistically occurred. This clearly shows how detrimental piracy is to the Pay-TV industry. The high compensation to be paid within this single case alone underlines the strong criminal nature of Pay-TV piracy, which is nothing less than organized crime. However, the vast majority of judgments in the EU show significantly lower prison sentences or fines. This is because until so far courts had hardly followed the argumentation that operators should be recouped according to lost subscription revenues in relation to the quantity of piracy devices sold. In the Belgium case it was though realistically assumed that at least some of the buyers of the illegal cards would have alternatively subscribed to the pay-TV offering of former provider "Premiere". The threat posed by piracy is not something happening in “Virtual Reality” – it is a very real problem in the Real World. Nevertheless, the topic of Pay-TV piracy receives too little attention in the EU – which has dangerous consequences for the media industry. The entire ecosystem of the audiovisual sector can only prosper as long as intellectual property is guaranteed. This can only happen through a joint effort between the various private stakeholders and the Government Authorities – who can provide consistent protection by legislators and law enforcement bodies. Without such protection, the roots of creation in the motion picture and television sectors will be threatened. In addition, business opportunities will vanish since investors will quickly withdraw when the fundamentals are threatened. The threat posed by piracy is not something happening in “Virtual Reality”. It is a very real problem in the Real World. Therefore AEPOC works inside the EU for the harmonization of laws and law enforcement as well as the introduction of minimum thresholds for sanctions, including punishing the private possession of piracy equipment. Accordingly, the existing Directive needs to be revisited. Presently the EU is examining the functioning of the existing Directive. Although today many Pay-TV providers use advanced technologies that provide maximum protection, the by now 12-year-old EU Directive covers newer, technically more savvy forms of piracy in an insufficient way only: For example the so-called “card sharing” technique, where codes are read-out from an active smart card and distributed via internet to a whole network of users, that have all access to the data of the one official card.

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The music industry suffers more from piracy than Pay-TV Due to the rapid technological development in general, increasing bandwidth and increasing performance of computer networks, it can be expected that the problem of piracy will aggravate. Therefore the EU should act quickly and provide a better Pay-TV legislation before the next wave of piracy will hit the markets. The Pay-TV industry has though been less affected than the music industry during the past decade. After years of intense struggles, which saw the most massive drop of revenues, the music industry could indeed bring down almost all major file-sharing sites like Napster & Co. and "The Pirate Bay". The essence of the problem: The product of the music industry itself, namely relatively small sized and virtually unprotected MP3 files, could be distributed very easily by computers within file-sharing networks. This was the main reason for the soaring dimensions of piracy in the music industry since the late 1990ies. However, illegal peer-to-peer distribution of music or video content remains a massive problem today. This is because peer-to-peer networks vanish into thin air by functioning without a central server. Here, each participant of the network is both client and server at the same time. This results in decentralizing the complete network, which makes it very complicated to identify a legally responsible entity in case of illegal traffic. Or file- sharing servers simply reside in nations with no tangible legal system. Within the EU it is in particular France aiming to enforce stronger copyright protection by controlling end users. After intense debate the "Creation and Internet law” HADOPI has been adapted lately, yet in a weakened form. According to this legislation the Internet access of an individual can be blocked with a judge taking this decision when the individual has repeatedly violated copyrights. The success of HADOPI remains to be seen as the law has just entered into force. Users could bypass HADOPI’s control logic by making their IP address anonymous. Classical Pay-TV piracy is declining – yet the next wave is threatening the markets The technical effort was always significantly higher to gain illegal access to encrypted Pay-TV content than it was the case for obtaining copyright protected music files or DVD content for free. For accessing Pay-TV special hardware needed to be purchased. In most cases this hardware was activated by obtaining a separate software and was kept alive by consecutive software updates. While a music title once downloaded from the Internet is basically available for an unlimited time, piracy equipment for Pay-TV often turned out to be highly unreliable; for example when a TV provider changed the codes just to name one of the simplest ways to make piracy devices useless for some time. Also, piracy equipment was mostly rather highly priced and together with its unpredictable performance, some users were certainly disappointed after a while and became instead regular pay-TV subscribers. Nevertheless, this classical form of piracy, meaning the availability of hacked smart cards, was a massive and widespread phenomenon leading to significant revenue losses for many providers in the EU and elsewhere during the past years. This came to an end when providers introduced new, more secure encryption systems. Yet even today many operators in the world still suffer from this traditional form of Pay-TV piracy. This is mainly due to legacy conditional access systems still in use, providing little protection only. In such cases the encryption system itself has been hacked, so that illegal smart cards or other hardware can be produced. In combination with up-to-date Internet software they give access to the Pay-TV offerings. Thanks to the new security features of advanced technologies this form of classical Pay-TV piracy will continue to decline.

4 Christine Maury Panis & Ansgar Gerber

The newer forms of piracy such as card sharing aim to provide whole groups of users, connected to a secret network, with illegal access to Pay-TV services. The individual user of these Internet-based, commercially driven networks frequently pay a monthly fee to the Pirate who is running the network. So the business model of the pay-TV operator becomes perverted. AEPOC and its member companies have successfully started extensive initiatives at both legal and technological level to specifically combat these forms of piracy – in order to counteract a possible new wave of piracy. In parallel AEPOC’s demand for a stricter EU Directive and increased attention of law enforcement bodies remains valid. Asia becomes the role model – demonstrating what the EU should also do Today, the international best example regarding moves for new legislation and effective industry cooperation is Asia. Here many completely independent countries and companies work closely together and support the development of strong anti-piracy laws and concerted actions. The TV industry association CASBAA is the leading organization, representing the interests of TV channels and Pay-TV providers in the Asian-Pacific region. As piracy tends to operate from countries showing the lowest threat of sanctions, the EU must be careful not to fall behind the worldwide development and turn into a hot spot for piracy. So the First could become last – if EU legislation does not tangibly develop in the very near future. Christine Maury-Panis, Executive VP & General Counsel of technology provider Viaccess and VP of the Anti-Piracy Association AEPOC Christine Maury-Panis is a French lawyer. She was appointed as legal counsel within the THOMSON consumer electronics business in 1986, dedicated to the Pay-TV activities, to the IP section and to the newly created licensing entity. Promoted to Deputy General Counsel, Europe for Thomson Multimedia, she headed a team of several lawyers. She then moved to the CANAL Group in 1996 to accompany the launch of the digital bouquet of CANAL+ and the creation of CANAL+ Technologies. She joined Viaccess in 2001 to set up the legal and IP department and is also Vice President of AEPOC. Christine is a graduate of the Paris Law University René Descartes in International Business law and of French Institute for Interpreters and Translators where she graduated as interpreter and translator in French, German and English. AEPOC stands for Association Européenne pour la Protection des Œuvres et services Cryptés – and is the European Anti-Piracy Association for the Protection of Encrypted Works and Services such as Pay-TV. Based in Brussels, the Association represents the interests of some 25 members, including industry heavyweights such as BSkyB or Liberty Global/UPC and the large hardware and software vendors, including Pace, NDS and Nagravision. AEPOC's goal is to eradicate Pay-TV piracy through legislation and industry cooperation and to coordinate relevant activities among its members. The AEPOC members are Boxer TV-Access, BSkyB, comvenient, Conax, Digiturk, Eutelsat, General Satellite, INSIDE Secure, Irdeto, Liberty Global, Multichoice Hellas, Nagravision, NDS, NTV-Plus, Opentech, Pace, Poverkhnost , Prisa, Showtime Arabia, Sky Deutschland, Sky Italia, Viaccess - France Telecom and ZON Multimedia. www.aepoc.org

Co-author: Ansgar Gerber (37) is a digital TV specialist and partner at communications firm Susbauer PR in Germany. He studied economics with a MA degree from SupdeCo Reims and ESB Business School Reutlingen.

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