The Digital Economy Act (DEA) allows for regulations to be made that force internet service providers (ISPs) to disconnect users if intellectual property right holders believe the user is violating their rights.
Internet service providers BT and TalkTalk challenged the plans in a judicial review by the High Court, challenging the parts of the Act that they said could make ISPs responsible for the copyright infringement of users.
Copyright holders could be entitled to force ISPs to disconnect users if such a provision is written into new regulations, which are currently being worked on by media regulator Ofcom. Ofcom is expected to publish a new code shortly.
"From the point of view of both copyright owner and subscriber, the DEA represents a more efficient, focused and fair system than the current arrangements. Although it is difficult to predict the effect of measures such as those contemplated by the DEA, there are reasons for believing that such measures may well have a positive effect [on reducing illegal filesharing]," Mr Justice Kenneth Parker said in his judgment.
Justice Parker did rule that the DEA was unlawful in making ISPs responsible for some costs. ISPs will no longer have to pay for Ofcom to establish an appeals body, although it does have to pay a share to help the appeals system run. ISPs are still responsible for a quarter of the cost of letters written to users identified as potential copyright infringers. Rights holders that lodge complaints will pay the rest of that cost.
BT and TalkTalk had argued that the DEA breached users' rights to the protection of personal data.
EU directives on data protection and electronic privacy control how organisations gather, process and use information online. They also govern what information can be gathered from electronic communications and say that ISPs should not be responsible for material sent over their network unless informed about infringements of the law.
Justice Parker said that information obtained from IP addresses to identify users was personal data but said it was acceptable for copyright holders to use this information to seek redress for copyright violation.
BT and TalkTalk said that the DEA only allowed copyright holders to use the information if they were certain that they would proceed with legal action, but Justice Parker ruled against that view.
"In my view, the copyright owner might not in a particular case decide to pursue legal proceedings, but that does mean that the action that he took under the DEA was not for the purpose of establishing or exercising such a claim," judge Parker said.
BT and TalkTalk also argued that the DEA restricted internet users' freedoms. Judge Parker said that Parliament had found the correct balance between protecting intellectual property rights and giving the public the right to access content freely.
"Parliament, through current copyright legislation, has already struck a balance between, on the one hand, the aim of providing incentives to actual and potential creators of audio-visual material, and, on the other, the potential welfare loss to those consumers who would, in the absence of copyright protection, enjoy such material either free of charge or at substantially reduced prices but who, as a result of copyright restrictions, are either deprived of the material or are required to pay higher prices for it," Justice Parker said.
"Existing copyright legislation may strike that balance in a way that is controversial or open to criticism. However, in my view, Parliament, when considering measures such as the contested provisions, which could be expected to enhance copyright protection, is entitled to proceed on the basis that existing copyright law does strike a fair balance between the interests referred to," the judge said.
The Government's Department for Culture, Media and Sport (DCMS) said it was pleased with the ruling.
"We are pleased that the court has recognised these measures as both lawful and proportionate. The Government remains committed to tackling online piracy and so will set out the next steps for implementation of the Digital Economy Act shortly,” a DCMS spokesman said.
"The judge ruled ISPs could be made to pay a share of the cost of operating the system and the appeals process but not Ofcom’s costs from setting up, monitoring and enforcing it. The Government will now consider changes to the statutory instrument," DCMS said.
TalkTalk said that it may pursue a challenge to the ruling in the European courts.
“We’re disappointed that we were unsuccessful on most of the Judicial Review. On the question of the proportionality of the Act, we’re pleased the judge identified issues but disappointed that he felt that the evidence of the futility of the measures imposed by the Act, and the cost and harm they will cause, is not sufficiently definitive enough at this stage to uphold our claim," a TalkTalk statement said.
"We are reviewing this long and complex judgment and considering our options, which may include an appeal to the Court of Appeal, or a request that the Court of Appeal make a reference to European Court of Justice. Though we may have lost this particular battle, we will continue fighting to defend our customers’ rights against this ill-judged legislation,” TalkTalk said.
Peter Bradwell, a campaigner at Open Rights Group which lobbies to protect public freedom, said:
"It is important to remember that this is not a judgement on whether the Digital Economy Act is good public policy. We still believe that if enacted the Act will hurt people's privacy and access to the Internet for no proven gain. We hope that BT and TalkTalk will appeal and we will support them if they do."
Technology law news is also available from Bootlaw, a free resource for technology start-ups, with regular events hosted by Pinsent Masons.