December 2, 2009 | By Danny O'Brien

Destabilizing the UK's Digital Economy

Much of the coverage of the UK's proposed Digital Economy bill has centered, and rightly so, on the damaging consequences to civil liberties for Britons caused by its Internet termination provisions. Less documented is quite how damaging these regulations are for the bill's own namesake: Britain's present and future digital economy.

The history of Net businesses shows that an integral feature of the digital economy is decentralized innovation and the creation of generative new markets by individuals or small, loosely-affiliated groups. These generators of wealth often begin as end-users of the Net, unconnected with established companies. When they start, they don't have lobbyists, and their entrepreneurship is not yet recognized as part of the country's vital digital infrastructure or core creative industries — or even a business interest at all.

So how does the Digital Economy Bill treat Britain's present and future engines of digital growth?

First, it burdens the digital industries with the demands of older incumbent sectors. The Digital Economy Bill has an open-ended requirement that ISPs pay for and implement record-keeping and technical measures against subscribers, as lobbied for by the entertainment industry: costs and red-tape that the ISP industry has strongly protested.

But it's not just established ISPs that suffer. The repeated demand by the entertainment industry that intermediaries should police their networks has been expanded by the bill to include the subscribers on the edge of the network. If you're not an ISP, but other people use your network to get their net access — if you run an open Wi-Fi spot, for instance, like the British Library — you'll now be vulnerable to being terminated or constrained by the actions of those users.

The MP in charge of ferrying the Digital Economy Bill through the House of Commons assures us on Twitter that it's "still possible to have open networks whose settings protect the host from unlawful activity on the network." But in a digitally networked environment, where forwarding an email might be infringement, and downloading a music album may just be two artists using the Net to work together, effective policing of nebulous violations of infringement by the intermediaries is absurd.

Open Wi-Fi nodes are currently the most common scenario where subscribers at the edge are also providers. But in future network topologies, communities at the edge may play a more widespread role in distributing Net access. Decentralised mesh networking is still experimental, but is already used in locales from San Francisco to the Scottish Islands, and could yet emerge as a viable complement to centralized broadband providers. Except in United Kingdom under the Digital Economy Bill, that is, where independent mesh nodes might now be responsible for all the traffic that passes through them. The potential for a new competitor in the world of bandwidth provision has been sacrificed to the powers invested in Britain's status quo.

Another indication that the Digital Economy's drafters don't seem to understand the immediate future of the digital economy is the section on internet domain registries. The ostensible reason for this section is to stabilize the private organization that runs the ".uk" top level domain (TLD), by allowing the UK government to take over DNS registries, and change their charters. But the language of the bill now means that "instability" could mean be interpreted as being insufficiently responsive to corporate trademark complaints. And the current draft allows the UK government to take over *any* TLD provider, including other countries' TLD registries and non-geographic TLDs based in the UK. The end result? Profitable registries will move away from Britain's unstable regulatory regime where any registry might be seized by the local government and set up shop in friendlier markets. It seems that the UK's Department of Business either ignores or is ignorant of the fact that this digital economy sector is due to expand significantly as ICANN pursues its plans to open up the top level domain space in the next few years.

As we've described previously, the bill notoriously proposes that a British secretary of state can change the entirety of British copyright law, except for its criminal provisions, through secondary legislation. The legal uncertainty created in such an environment, when copyright policy is fundamental to the digital economy, is in itself irresponsible.

Note though, that he or she can only do change the law for one reason; for "preventing or reducing the inf.ringement of copyright by means of the Internet". The result is a one-way ratchet on British copyright law, forsaking innovative new products and services whose business models are disruptive to the market dominators. From the piano roll to Betamax, vested interests in the creative industries have always defined potential new competitors as "infringement". They have done so to the search engine and caching businesses (as characterised by the newspaper industry), the iPod and MP3 player sector (ripping music from CDs to MP3s will remain illegal in the UK), and, as Mandelson himself wrote when advocating for this power, online file storage companies. This new power can never be used to create new fair use exceptions or confirm the legality of a new Internet service or products: they can only be used to outlaw and impose new restrictions on them.

Less than twenty years ago in the UK, the first Internet connections were enthusiasts grouping together on a BBS for common benefit; a decade ago, the idea that two of Britain's richest individuals would run a blogging network and the distributor of an operating system initially built by "hobbyists" would have seemed bizarre to many at the time. But that's how the digital economy works: when left free to grow and change their roles, those at the leading edge innovate, and help establish the multi-billion dollar industries of the future.

The success of the digital economy in Britain, as elsewhere, is not served by segmenting the multi-faceted roles of Net users into exclusive legal castes of subscriber, provider, and rightsholder. The fanatic emphasis on stricter IP enforcement as deterrence belies the legal flexibility which allow new industries to grow. This is a bill which is not only offensive to civil liberties, but a powerful disincentive to the innovators setting the keystones of the digital economy, and creating the tools that make us all more free.

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