Estimating The Cost of a Three-Strikes and You’re Out System

Canadian officials travel to Guadalajara, Mexico this week to resume negotiations on the still-secret Anti-Counterfeiting Trade Agreement.  The discussion is likely to turn to the prospect of supporting three-strikes and you’re out systems that could result in thousands of people losing access to the Internet based on three allegations of copyright infringement. Leaked ACTA documents indicate that encouraging the adoption of three-strikes – often euphemistically described as "graduated response" for the way Internet providers gradually send increasingly threatening warnings to subscribers – has been proposed for possible inclusion in the treaty.

My weekly technology law column (Toronto Star version, homepage version) notes that while supporters claim that three-strikes is garnering increasing international acceptance, the truth is implementation in many countries is a mixed bag.  Countries such as Germany and Spain have rejected it, acknowledging criticisms that loss of Internet access for up to a year for an entire household is a disproportionate punishment for unproven, non-commercial infringement.

Those countries that have ventured forward have faced formidable barriers.  New Zealand withdrew a three-strikes proposal in the face of public protests (a much watered-down version was floated at the end of last year), the UK's proposal has been hit with hundreds of proposed amendments at the House of Lords, and France's adventure with three-strikes has included initial defeat in the French National Assembly, a Constitutional Court ruling that the plan was unconstitutional, and delayed implementation due to privacy concerns from the country's data protection commissioner.

Much of the three-strikes debate has focused on its impact on Internet users, yet the price of establishing such systems have scarcely been discussed.  That may be changing due to the UK government's own estimates on the likely costs borne by Internet providers and taxpayers in establishing and maintaining a three-strikes system.

Initial government estimates peg the expense to Internet providers alone at as much as 500 million pounds (C$850 million) over ten years.  This includes the costs of identifying subscribers, notifying them of alleged infringements, running call centres to answer questions, and investing in new equipment to manage the system.  As a result, the UK government estimates that 40,000 people could lose Internet access due to anticipated increases in subscriber fees.

The UK recording industry has challenged these numbers, but there is reason to believe they actually understate the actual economic impact. The UK estimates focus exclusively on the Internet provider costs, but provide no accounting for actual enforcement of the system.  When court and regulatory costs are factored into the equation, the taxpayer burden runs into the hundreds of millions.

Moreover, the UK estimates are consistent with a 2006 Industry Canada commissioned study on the costs of Internet provider notification schemes.  The study concluded that the cost of a single notification was $11.73 for larger Internet providers (more than 100,000 subscribers) and $32.73 for smaller Internet providers.  Considering the sheer number of notifications – last summer Bell Canada acknowledged receiving 15,000 notifications each month – the costs quickly run into the millions of dollars.

The disparate impact between big and small Internet providers highlights another hidden cost of three-strikes systems – the negative effect on the competitive landscape for Internet services.  The UK estimates that the costs on small Internet providers are so great that consideration should be given to exempting them entirely, since the additional burden would result in decreased competition.  The same report identifies the disproportionate harm to wireless carriers, who would face massive capital costs and be placed at a competitive disadvantage.

Reducing competition and increasing consumer costs runs counter to Industry Minister Tony Clement's commitment to improving the Canadian competitive environment for wireless and Internet services. Yet the ACTA talks seemingly move in that direction, potentially leading to huge costs for an unproven system that could lead thousands to conclude they can no longer afford access to the Internet.


  1. Wizard Prang says:

    More externalities
    Seems that the Copyright mob are once again trying to get everyone else to do their dirty work for them. Let them pay for it – require the ISPs to bill them for each notification. This would have the added bonus of discouraging “fishing trips”.

  2. Well, if this idiotic crap actually gets passed, I suggest everyone should send notifications against every member of the RIAA and MPAA.

  3. Captain Hook says:

    Waste of money
    Meh. It’s a waste of money, but what they cost me through their silly and ineffective enforcement efforts I will more than make up for through totally risk and cost free media downloads.

    Just sign up with the Hong Kong based VPN on your choice, then download via P2P till your heart is content. Remain secure in the knowledge that hell has a better chance of freezing over then you and your 5 million closest p2p friends have of ever getting caught. (anybody get the irony of that statement)

    As the old saying goes “If you can’t change the system, then go around it” That’s right isn’t it?

  4. Ummm
    Umm since we already pay a levy on blank recordable media which compensates the “artists” how can we have a three strikes you’re out law?

  5. Atwood ttending World Economic Conference

    Looks like copyright will be on the agenda. Why else would she attend.

  6. Hey Arek….
    You can count on the levy and fees staying or even going up with all the rights stripped away. They’ll likely consider it a “recoup” fee on all living kind.

  7. Its a shakedown
    These people’s goal is to get as much money out of as many people as possible. The actual individuals who write and perform actually get relatively little out of it.

  8. Basilisk, you are correct. The argument will be that the levy covers the cost to them of personal copies (that a large portion of the recordable CDs used in Canada are not used in an “infringing” manner is beside the point). Three strikes covers distributing copies. That they want to get rid of our ability to make a personal copy (but still keep the levy system) is a similar, but separate, matter.

    Wizard has it correct. The person making a claim should pay the costs, not the taxpayer. This is a civil matter, not criminal. As he put it, at the very least it will discourage fishing trips. I would also argue that, if given a right such as this, then there needs to be a corresponding punishment for abusing it; for instance, a $500K fine, per infraction (an infraction being a false claim of being the rights holder on a single work to a single person or organization and using this to attempt to get the internet connection terminated) plus another $500K in punitive damages payable to the person or organization named.

  9. I like that
    Anon-K, although I’d rather it never come to that, I agree. There should be some sort of consequence for fishing and attempting to wast the court and the accused time. At the very least, it would equalise the risks a little.

  10. As soon as we allow these “fishing expeditions” without proper due process and severe consequences to the recording companies involved when found unsubstantiated, we might as well kiss the justice system goodbye.

    It would only be fair then, once the accused be found “not guilty”, the plaintiffs then not only reimburse the accused’s costs, but the sought damages demanded by the plaintiff be multiplied 10 times and automatically awarded to the accused as penalty for the harassment.

    Looks like the British are starting to rethink ACTA. This demand of secrecy during these talks with no other input than recording companies to governments and government lobbyists is the total destruction of democracy.

  11. Hindgrinder says:

    Positive vibes @ Anon-K + KosephK + Basiisk
    I dunno about you guys but I intend to make the wind and waters as cold and rough as possible for any secret “fishing trips” in my home private internet waters. I wonder what will happen if the ISPs stand up and start demanding compensation from the government and IP/Copyright holders for lost revenue due to forced customer disconnections? Seems only fair that they should get financial compensation for the lifetime of the banned internet user + an additional 20 years. -_-

  12. I agree with that. There will be some sort of consequences. It is truly a waste of money i can say..
    accoutning softwares

  13. I agree with that. There will be some sort of consequences. It is truly a waste of money i can say..Serious action should be taken against the accused.

  14. shoes
    Seems only fair that they should get financial compensation
    the lifetime of the banned internet user + an additional 20 years. -_