What's the problem?
The government claims that online copyright infringement is a barrier to growth in the creative industries. It cites reports finding that a third of the UK population accesses music content unlawfully, and one in 10 consumes infringing TV programmes and movies.
It claims that 1.2 billion tracks are downloaded unlawfully each year (compared to legitimate online sales of 370 million) and that the movie and TV industries lose £535 million ($850 million) a year to piracy.
The Digital Economy Act, passed after considerable debate last year, introduces measures designed to combat piracy, in particular peer-to-peer file sharing.
What powers are brought in by the Digital Economy Act?
The main innovation in the Act is the mass notification system, which requires internet service providers (ISPs) to notify users ("subscribers" in the Act) who are suspected of infringing copyright.
Contrary to popular belief, the Act does not introduce a three-strikes system, leading to internet access being cut off.
What does a copyright owner have to do?
Once the Act is in force, if a copyright owner suspects that an internet user has either infringed its copyright, or has allowed someone else to do so, it can make a "copyright infringement report" to the relevant ISP.
The provision appears to be drafted to cover situations such as those where children illegally share files using their parents' internet account.
The report must describe the alleged infringement and provide evidence including the user's IP address. It must be sent to the ISP within one month of the evidence being compiled.
What happens next?
On receiving a report, the ISP must send a notification to the relevant subscriber by email or post within one month.
As well as providing details of the copyright owner and the alleged infringement, the notification must provide information on appeals, information about copyright law, details about how to obtain lawful access to copyright works and how to prevent unauthorised use of the internet.
It is likely that ISPs and their lawyers will draw up standard letters that can be sent en masse.
Each ISP also needs to keep a database of infringing subscribers and must provide a copyright owner with a copyright infringement list, setting out anonymised information on which reports relate to each subscriber, if requested.
The copyright owner can apply to a court to learn the subscriber's identity and in the case of repeat offenders bring proceedings for copyright infringement.
Media regulator Ofcom must also provide annual reports on copyright infringement based on information collected.
Who pays?
The government has revised the cost-sharing arrangement, following a judicial review of the Act.
The so-called qualifying costs, which include the costs of setting up and administering the system, will be met 100% by participating copyright owners.
Other costs will be split 75%-25% between copyright owners and ISPs.
Can users appeal?
Yes. An independent appeals body will be set up and there will be standard forms to appeal notifications.
Grounds for appeal include that there was no copyright infringement and that the report does not relate to the subscriber's IP address at the time of the apparent infringement.
The burden of proof is on the copyright owner or ISP.
If the appeal is upheld, the notification and report are invalidated. If it is rejected, the subscriber will be added to a Serious Infringers List after three notifications in one year.
What does an appeal cost?
The user will have to pay £20 ($32). The government says this fee should deter vexatious appeals.
The fee will be refunded if the appeal is successful.
Won't ISPs have to block access to pirate sites too?
Sections 17 and 18 of the Act provided that ISPs could be required to block access to copyright-infringing sites, using similar technology to that used to block child pornography.
This aspect of the legislation was particularly unpopular with ISPs, as they said they did not want to be responsible for policing the internet.
Following recommendations from Ofcom, this week the government said it would not implement these aspects of the Act at this stage. Minister Ed Vaizey described them as "unworkable", but said he did not rule out implementing them in the future.
A spokesman for the ISP Association (ISPA) welcomed this concession, telling Managing IP: "We don't think site blocking is very effective in addressing online copyright infringement."
However, earlier this month the High Court ordered Britain's biggest ISP BT to block access to the notorious pirate site Newzbin. The decision suggests that, even under existing law, where there are clear cases of piracy and other legal avenues have been exhausted, the courts will be able to require ISPs to block access to some sites.
When do the changes come into force?
The first notifications are expected to be sent out by the end of 2012 or beginning of 2013.
The delay in implementation is partly due to the fact that certain aspects of the legislation need to be cleared with the European Commission and partly to give Ofcom time to draw up the relevant regulations.
Will the notification scheme work?
The government says it expects the scheme to "have a significant impact in tackling unlawful file sharing online".
But it also believes that ways need to be found to tackle illegal MP3 sites, MP3 search engines and cyber-lockers, and to "educate users, promote effective markets and modernise copyright laws". Measures being considered include banning advertising on these sites, withdrawing payment facilities and relegating them in search engine rankings.
Clearly the success of the notification system will depend heavily on the cooperation of ISPs.
Responding to the latest announcements, the ISPA said it was disappointed that the government is pressing ahead with implementing the Act, as the costs would be "a significant burden" on ISPs, and may be passed on to consumers.
A spokesman told Managing IP the measures would be particularly burdensome on smaller ISPs "who don't have the resources to deal with the administrative burden".
Nevertheless, ISPs have won some concessions from the government and are likely to comply with the Act to the extent they are required to do so.
It will only be clear how effective the scheme is once it has been operating for a year or two.
