If you own a small business it is likely that you have a wireless network and provide free Wi-Fi to your customers. A majority of Wi-Fi networks are password protected, however it is not unusual for businesses to have unprotected Wi-Fi networks in an effort to gain more customers.
Tobias McFadden, a German business owner selling and leasing lighting and sound systems, did exactly this.
Unfortunately for Mr McFadden in 2010 his unprotected Wi-Fi network was used by a third party to make a musical work available on the internet for free to the general public, without authorisation from the rights holder (Sony Music). Sony Music then gave Mr McFadden formal notice regarding its rights over the music, and Mr McFadden brought an action for a negative declaration. Sony Music made several counterclaims to obtain damages from Mr McFadden on the ground of direct liability for the infringement of its rights over the phonogram, an injunction and costs.
The central issue in this case was whether a Wi-Fi provider could rely on the “mere conduit” defence in Article 12(1) of the E-Commerce Directive, and if so did this preclude Sony Music from claiming an injunction, compensation and costs from Mr McFadden.
Article 12(1) of the E-Commerce Directive states that an ISS (information society service) provider (in this case the owner of the Wi-Fi network) is not liable for the information transmitted, on condition that the provider:
(a) does not initiate the transmission;
(b) does not select the receiver of the transmission; and
(c) does not select or modify the information contained in the transmission.
The ECJ ruled that if a free Wi-Fi network is provided as part of a business to advertise the business’ goods or services, it falls within Article 12(1) of the E-Commerce Directive ISS.
The ECJ concluded that making the Wi-Fi network available for free was an ISS as long as it was made available by the service provider (Mr McFadden) for the purposes of advertising the goods or services supplied by his business, and was not beyond the boundaries of a technical, automatic and passive nature.
As the Wi-Fi network was used by a third party it was found that it satisfied the three conditions of Article 12(1). Consequently, Mr McFadden could not be held liable for the information transmitted and therefore Sony Music could not claim compensation or reimbursement of the costs of formal notice trying to claim compensation.
However, it was still found that Sony Music could seek an injunction (in a national court) to have Mr McFadden prevented from allowing the infringement to continue. It was also found that Article 12(1) did not prevent Sony Music from seeking an injunction to prevent a third party from making the copyright protected work available again. The ECJ held that this injunction was allowed as long as it was able to strike a fair balance between the right to protect intellectual property and the freedom to conduct the business of a provider supplying the service of access to a communication network and the freedom of information. Therefore, the best measure would be password-protecting the internet connection, provided that users are required to reveal their identity in order to obtain the required password and may not therefore act anonymously.
What this means for businesses providing free Wi-Fi networks to their customers
The ECJ’s decision offers some security to business owners who provide free Wi-Fi networks to their customers by providing a clear decision in relation to their liability where users of the Wi-Fi network infringe copyright. However, the finding that Sony Music was unable to claim compensation or costs but was able to seek an injunction signifies the advantages of password protecting Wi-Fi networks and providing functionality which requires the user to identify themselves before use. In those circumstances users can continue to use the Wi-Fi Network for free, but they can be identified, should any infringing activity take place.