On April 15, 2014, China’s MIIT issued long-awaited guidance on foreign-investment in value-added telecom platforms in the Shanghai Free Trade Zone. A full analysis of the new provisions is available here.
Since the establishment of the Shanghai Free Trade Zone (“Shanghai FTZ“), investors have been closely monitoring the liberalization policies in the telecommunications sector. Historically, given the highly sensitive nature of the telecommunications sector, foreign participation has been very limited in this highly regulated industry. In the People’s Republic of China (“PRC” or “China“), telecommunication services are divided for regulatory purposes into basic telecommunication services (“BTS“) and value-added telecommunication services (“VATS“). The provision of either BTS or VATS in China requires the service provider to obtain a BTS operating permit (“BTS Permit“) or a VATS operating permit (“VATS Permit“) respectively, each of which is issued by the Ministry of Industry and Information Technology (“MIIT”) at the central level or by its local branches. MIIT is the main regulator of the telecommunications and Internet industries in China. The types of telecommunication services falling under BTS and VATS are listed in the Circular of the Ministry of Information Industry on the Readjustment of the Classification Catalogue of Telecommunication Services (“Telecoms Catalogue“) issued by the predecessor of the MIIT, the Ministry of Information Industry (“MII“). The most recent version of the Telecoms Catalogue was issued on April 1, 2003 (“2003 Telecoms Catalogue“). MIIT has issued a draft version of the 2013 Telecoms Catalogue, but the final version has not been issued as of the date of this note.
Under existing telecommunications laws and regulations, in order to apply for a VATS Permit, a foreign investor must establish a foreign invested telecoms enterprise (“FITE“) in the form of a Sino-foreign equity joint venture (“EJV“) with a Chinese partner in which the foreign shareholding is capped at 50% (the foreign shareholder is capped at 49% in applications for a FITE holding a BTS Permit). Notwithstanding the letter of the law, MIIT and MII have historically taken a very protectionist stance in opening up the telecommunications industry to foreign investment. Since China became a member of the World Trade Organisation (“WTO“), it appears that only 20 or so FITEs have been formed, all in the VATS area. The reluctance of MIIT to open up the telecommunications sector to foreign investors accounts at least in part for the large number of Variable Interest Entity structures which have been adopted in this area.
Following the issuance of the Opinions on Further Opening Value-added Telecom Business Sector to Foreign Capitals in the Shanghai FTZ (the “Opinions“) by MIIT and the Shanghai municipal government on January 6, 2014 which removed the foreign shareholding caps for certain VATS (i.e. Internet Information Services delivered through app store platforms, store and forwarding services, call centres, domestic multi-party communications and internet service (access) provider services) and increased foreign shareholding caps in others (i.e. online data processing and transaction processing (operational e-commerce) and domestic IP-VPN) (the types of VATS specified in the Opinions being the “Liberalized VATS“), investors have been waiting patiently for specific rules to be issued by MIIT to clarify the requirements and procedures in order to apply for a VATS Permit in the Shanghai FTZ. The wait ended on April 15, 2014 when MIIT released the China (Shanghai) Free Trade Experimental Zone Foreign-Invested Operational Value-Added Telecommunications Services Administrative Procedures for Trial Operation (the “Pilot Measures“).
With the issuance of the Pilot Measures, the hope is that MIIT will finally open its doors to foreign participation in the VATS industry. Given the publicity and attention that the Shanghai FTZ has attracted worldwide, investors are optimistic that this will happen, particularly with the strong central government support which the Shanghai FTZ has received to date. Expectations are that at the very least, foreign investors will be able to set up FITEs in the Liberalized VATS sectors. We set out here an analysis on the key provisions under the Pilot Measures.
France’s broadcasting regulatory authority, the CSA, published in its April 14, 2014 annual report the details of a legislative proposal that would allow the CSA to claim jurisdiction over a broad swath of Internet content called “digital audiovisual services.” This new category of services would be subject to several of the most fundamental principles of French audiovisual law, such as protection of children and the prohibition of content inciting racial hatred. In addition to being subject to these obligatory principles, digital audiovisual services would have the option of agreeing to specific measures to promote other objectives of France’s audiovisual law, including measures to promote diversity of opinion, the rights of women or French and European content production. In exchange for these voluntary measures, the digital audiovisual service would benefit from the right to be featured prominently on digital distribution platforms. The voluntary measures would give the service provider a form of “must-carry” right with regard to digital distribution platforms, as well as improved access to films and subsidies.
The CSA’s proposals have not yet been adopted into the French law. They will likely be included in an audiovisual reform bill presented by the government to Parliament later this year. The CSA’s initiative is noteworthy because it attempts to extend the principles of French audiovisual law to certain Internet services that are normally not regulated under broadcasting regulations. Currently, the CSA’s regulatory jurisdiction is limited to traditional linear television and radio services, as well as to so-called “on-demand audiovisual media services.” Video exchange platforms, such as Dailymotion and YouTube generally fall outside the CSA’s jurisdiction, because they are not considered “on-demand audiovisual media services.” Moreover, the CSA only has jurisdiction over service providers established in France. Under the country of origin rule set forth in the Audiovisual Media Services Directive, service providers established in other member states of the European Union are subject to the audiovisual laws of their country of establishment, even if the service targets French users. French law may not discriminate against services established in other member states. The CSA and the French government would like to change the country of origin rule in the directive, and move toward a “country of destination” rule. A country of destination rule would permit the CSA to exercise its jurisdiction with regard to services established elsewhere, but targeting French users.
Pending revision of the directive, the CSA’s proposal is a first step toward extending broadcasting regulation to Internet services that fall outside the classical definition of on-demand audiovisual media services. The CSA’s proposal does not appear to be limited to digital audiovisual services established in France. Thus, the CSA is also attempting to extend its regulatory authority to non-French based services. The CSA’s proposal takes a light-handed regulatory approach, applying only the most fundamental principles of French audiovisual law — principles that few (in France at least) could argue with, such as the protection of children and the prohibition of content inciting racial hatred. The additional (and more controversial) regulatory obligations, such as promoting French content, would only kick-in to the extent a service provider agrees to assume additional obligations.
The CSA’s proposal would provide market-access benefits to services that voluntarily agree to comply with certain French broadcasting rules. An open question is whether this constitutes hidden discrimination against service providers established in other member states. An argument can be made that those services are disadvantaged unless they agree “voluntarily” to apply French rules. If this amounts to a hidden form of discrimination, the CSA’s proposal would run afoul of the AVMS Directive.
The CSA’s position is influential in other European member states. In addition to chairing the French CSA, Olivier Schrameck also chairs the newly-created group of European audiovisual regulators, the ERGA. The CSA’s attempt to extend its regulatory reach into the Internet space will be watched closely by regulators throughout Europe.
In a judgment handed down yesterday, the Court of Justice of the European Union (“CJEU“) struck down the Data Retention Directive as a measure amounting to a disproportionate interference with fundamental rights protected by the Charter of Fundamental Rights of the European Union (the “Charter“).
The European Parliament adopted on April 3, 2014 a series of amendments to the European Commission’s proposed “Connected Continent” regulation. Among the most controversial amendments are those strengthening net neutrality. The legislative process is far from over. It is unlikely that the European Parliament’s amendments will survive “as is” in the final regulation. Nevertheless, the European Parliament’s vote establishes a political reference point against which future legislative debates on net neutrality will be measured.
France adopted the Law No. 2014-315 of 11 March 2014 to strengthen the fight against counterfeiting.
This new law aims at significantly strengthening the French anti-counterfeiting legal framework, in particular following the Law n°2007-1544 of 29 October 2007 on the fight against counterfeiting (implementing Directive 2004/48/CE of 29 April 2004 on the enforcement of intellectual property rights) and at harmonizing the provisions applicable to the various of intellectual property rights.
On 12 March 2014 the Legislative Decree no. 21 of 2014 implementing the EU Consumers Directive 2011/83/UE (the “Decree“) has been published on the Italian Official Journal. The new provisions will enter into force on June 13, 2014 and will apply to contracts concluded after such date, replacing articles 45-67 of the Italian Consumer Code.
Continue reading for a summary of the main changes
Earlier this month, the U.K. took a small but significant step towards a future in which spectrum is shared rather than reserved for a particular use. The U.K.’s Department for Culture, Media, and Sport (“DCMS”) released its 2014 Spectrum Strategy, which committed to “a gradual move” from exclusive to shared use of spectrum, in line with the European Commission’s promotion of spectrum sharing. As unencumbered airwaves become a thing of the past, “sharing will be crucial,” it said. “Technical and regulatory innovations to enable such sharing must be prioritized.”
DCMS anticipates that the benefits of such a shift will be enormous. In particular, DCMS predicts that such an approach can help double spectrum’s annual contribution to the U.K. economy by 2025. It also states that such new and innovative forms of spectrum use will be necessary to keep up with developments such as 5G, Big Data, and the Internet of Things.
For starters, DCMS recommends making additional portions of government-owned spectrum available for public use. Among other things, DCMS states that that the creation of a central public sector spectrum database should help generate sharing opportunities, and that new technologies such as geolocation databases and white space devices could add to these opportunities. It also mentions that the Ministry of Defense is in the process of preparing additional bands for sharing and has already agreed to share the 2025-2070 MHz band with wireless cameras on a more formal basis. Additionally, DCMS notes that it plans to apply the same core principles across all frequencies, to modify its regulatory framework to better support geolocation databases, and to meet with experts and publish additional conclusions by July 2015.
Time will tell whether sharing is an effective and practical way of easing (and perhaps overcoming) the current spectrum crunch. The U.S. President’s Council of Advisors on Science and Technology (“PCAST”) recently considered the same set of issues, and it recommended a similar approach.
According to the CJEU ruling handed down today in the case of UPC Telekabel Wien GmbH v Constantin Film Verleih GmbH and Wega Filmproduktionsgesellschaft, internet service providers (“ISPs”) can be ordered to block access by customers to websites making available infringing content. Such blocking orders do not need to specify the measures that must be taken by the ISP however the injunction must ensure a fair balance between the fundamental rights concerned.
Constantin Film Verleih holds the rights to the films ‘Vicky the Viking’ and ‘Pandorum’ and Wega Filmproduktionsgesellschaft holds the rights to ‘The White Ribbon’. They took action in the Austrian courts to obtain an order against an Austrian ISP, Telekabel, to prohibit Telekabel from providing its customers with access to the website kino.to, which was making those films available for streaming and downloading. Telekabel argued that it did not have any relationship with the operators of kino.to and therefore its services could not be considered to be used to infringe copyright and that the various blocking measures are excessively costly and could be easily circumvented. As a result, the Austrian court stayed the proceedings and referred a number of questions to the CJEU.
The CJEU has ruled that an ISP is an intermediary whose services can be used to infringe copyright for the purposes of Article 8 of the InfoSoc Directive. It is not necessary for the intermediary to have a contractual relationship with the infringer (in this case kino.to). Secondly, a blocking order against an ISP does not need to specify the measures that need to be taken. An ISP can choose the measures best adapted to its resources and avoid liability for breach by showing it has taken all reasonable measures provided that the measures taken prevent unauthorised access to the copyright material (or at least seriously discourage users) but do not unnecessarily deprive users of the possibility of lawfully accessing information. In other words the measures must target the infringing works and not affect internet users who are lawfully using the ISPs services to access information, as this would be an unjustified interference with the users’ right to freedom of information.
The national courts must allow users to assert their right to freedom of information before the court once the implementing measures by the ISP are known.
According to the news service mlex, on 27 February 2014 the European Commission adopted a formal Statement of Objections against the Spanish operator Telefónica’s plan to buy E-plus of Germany, laying out concerns that deal could harm competition and lead to price increases. The contents of the Statement of Objections are not yet publicly available, and EC spokesman Antoine Colombani stressed that it marked only ”a preliminary step in an in-depth merger investigation”. The parties will have an opportunity to respond to the Commission’s objections and to request a hearing. The provisional deadline for the Commission to conclude the review of the transaction is May 14.
The transaction was notified to the Commission on 31 October 2013. Both parties are mobile network operators and provide mobile telecommunications services to end consumers in Germany, as well as in related markets such as the wholesale market of network access and call origination. In December 2013, the Commission opened an in-depth investigation. According to the Commission, its initial market investigation indicated that the transaction may reduce competition in the retail mobile telephony market as well as in the market for wholesale access and call origination on mobile networks in Germany, where Telefónica and E-Plus currently compete with each other. The transaction would combine two of the four mobile networks in Germany and create a player of similar size to the currently two largest operators, Deutsche Telekom and Vodafone. The Commission had concerns that the transaction could remove an important competitive force and change the merged entity’s incentive to exert significant competitive pressure on the remaining competitors. Moreover, it had concerns that after the transaction the remaining MNOs might have fewer incentives to grant access to their network to mobile virtual network operators (MVNOs) and service providers. Always according to the Commission, and on a preliminary basis, prospective and existing MVNOs and service providers would have less choice of host networks and hence weaker negotiating power to obtain favourable wholesale access terms.
In January 2014, the Commission rejected a request from Germany to refer the transaction to the German competition authority for assessment under German competition law. The Commission concluded that it was better placed to deal with the case because of its experience in assessing mergers in the mobile telecommunications sector and the need for a consistent application of the merger control rules in the EU.
The Statement of Objections puts pressure on Telefónica to offer remedies as soon as possible, given the time-consuming process of agreeing with the Commission on the most appropriate measures. In the event that Telefónica decides to do so, this might include the divestment of assets or giving rivals access to its network. Telefónica has until April 2 to propose remedies if it wishes to do so, with some possibility of improving those remedies subsequently. Alternatively, Telefónica might decide to rely entirely on rebutting the Statement of Objections and wait for the final decision of the Commission. If it wished, Telefónica would be able to challenge any adverse decision in Court.
This case is being followed closely in other European markets, such as France, where mobile consolidation is likely. The case will help determine whether a “four to three” merger of mobile operators is possible, and if so under what conditions.
On 14 January 2014 the Madrid Court of Appeals issued its decision No 11/2014 on YouTube v Telecinco, dismissing Telecinco’s claims and fully confirming the first instance decision. The original Spanish language version of the Court of Appeals decision appears here.
Telecinco, a Spanish broadcaster owned by the Italian Mediaset, brought an action in 2008 against YouTube LLC, alleging copyright infringement for video fragments apparently taken from Telecinco’s TV programmes and uploaded to YouTube by the users of such hosting platform.
In 2010, the District Court of Madrid issued its decision dismissing Telecinco’s claims. Pursuant to the Information Society Services and E-Commerce Act 34/2002, of 11 July 2002, which implemented the E-Commerce Directive 2000/31/EC (the “LSSI Act”, for its acronym in Spanish), the Court considered that YouTube, as an information society service provider in the meaning of the LSSI Act (“ISP”), was exempted from liability for user generated contents (“UGCs”). Telecinco appealed the first instance decision before the Madrid Court of Appeals, which has now dismissed Telecinco’s claims in the following terms. Continue Reading