A US proposal that software would have to contain embedded copy-protections schemes would have serious implications for Irish manufacturers, writes Denis Kelleher

Internet copyright piracy has not been as controversial in Ireland as elsewhere. One reason may be that the rarity of broadband connections to the Internet in Irish homes, which would allow users to download digital film and music quickly and cheaply using systems such as KaZaA and Morpheus.

This practice is popular with millions of Americans, Dutch and Australians. However, much of the material downloaded is also in breach of copyright, and this threatens the entertainment industry, which has reacted in a number of ways. One reaction has been to sue the sites that facilitate copyright piracy; this was very successful in the case of RIAA v Napster, and further action is being taken against the successor sites that have sprung up around the world.

Another has been to advocate the installation of copyright protection technologies in computers and other devices, which will prevent pirated songs or movies being played. If copyright protection is to be successful, then the law will have to change to facilitate it and this may directly affect Ireland and Irish industry.

One such proposal to change the law was introduced in the US last month in the form of the Consumer Broadband and Digital Television Promotion Bill. If this bill should become law, then within a few years only computer software that contained embedded copy-protection schemes approved by the federal government could be sold in the US.

This may have implications for a software-publishing firm such as Microsoft, but the definition of computer software in the bill might also apply to the code that is imprinted onto chips by Intel. If a company failed to comply with such a law it could be fined up to $25,000 per violation. If this were done in pursuit of "commercial advantage or private financial gain" then the directors could face a fine of $500,000 fine and five years in prison.

This would affect manufacturers of PCs and peripherals such as Dell and Hewlett-Packard, as they would only be able to purchase chips and other equipment that contained approved code. Implementing a law such as this might impose a number of costs on high-tech industry. In the short-term production lines and procurement would have to be revamped. In the longer-term the costs and technological constraints that would be imposed might limit consumer choice and the development of e-commerce. Manufacturers based in Ireland could face the choice of either changing their product lines or foregoing the US as an export market.

The changes contained in such proposed legislation are dramatic, but the entertainment industry would argue that they are justified by the threat that they face. Digital piracy may have caused the value of legitimate music sales in the US to fall from $14.3 billion in 2000 to $13.7 billion last year.

During this time the market for recordable CDs and CD rewriters expanded dramatically. Europe and Ireland's copyright laws have already changed to meet this threat, and the Copyright and Related Rights Act 2000 provides for the use of copyright protection technologies.

However, this Act did not fully implement the provisions of the European directive on harmonisation of copyright. A key issue is how article 5 of the directive - which provides for the "fair compensation" of copyright owners where their works are reproduced - is to be implemented. This may require the payment of copyright royalties on the sale of blank re-writeable CDs and the sale of CD rewriters.

Actions have been taken in Spain and Germany seeking the payment of copyright fees on sales of PCs that contain CD-rewriters. On a more mundane level, the directive may also provide for the charging of fees on sales of photocopiers and peripherals.

Changes in the law will have to take account of concerns that copyright law may be used to close down independent channels for music distribution. As the legal battle to close down Napster continued, the music industry set up its own internet distribution services: MusicNet and Pressplay.

If the music industry successfully closes down all other online music services, then these two would become a duopoly. This could have serious implications for the prices that consumers pay for digital music.

Last year both the EU and the US Department of Justice announced competition investigations into such services, the US courts have allowed Napster to argue that the record industry is ". . . attempting the near monopolisation of the digital distribution market . . ." But music companies do face a very real threat, as singles by popular artists find their way onto the internet before they go on legitimate sale.

Britney Spears I'm a Slave For You was illegally downloaded 200,000 times from the Fast track network before it was available in the shops. This threatens to exhaust the market for a single before the singer or writer have a chance to earn a penny.

Denis Kelleher is a practising barrister and co-author of Information Technology Law in Ireland (Butterworths : Dublin): http:// www.ictlaw.com