British Internet service providers BT and TalkTalk lost a court appeal on online piracy on Tuesday, meaning they will have to identify and warn customers suspected of having illegally downloaded movies or music.
The ruling by Britain's Court of Appeal means that Internet service providers ISPs will have to send warning letters to customers suspected by film studios or record labels of having illegally accessed material to which they own the rights.
If the warnings alone are not found to be effective after a year of operation of the new scheme, new legislation could be brought in to punish persistent offenders by slowing down or suspending their Internet access.
In recent years, countries including France and New Zealand have adopted a so-called three-strikes policy in which repeat offenders can be disconnected after receiving three warnings.
But the tide may be turning as the Hollywood-led push for tougher penalties on copyright pirates faces a backlash. Media companies claim that piracy costs them billions of dollars in lost revenues every year.
In January, a massive online protest by consumers, activists and Internet companies including Wikipedia - which staged a 24 hour blackout - stopped U.S. anti-piracy legislation in its tracks.
Those protests show that governments might find it politically unattractive to protect rights holders in too draconian a way, copyright specialist Adam Rendle of international law firm Taylor Wessing told Reuters.
There's much greater mobilisation of the free Internet movement than there was 18 months ago.
BT and TalkTalk had argued that the British legislation -- which will entail costs, complexity and possible opposition from customers -- was incompatible with European law.
Now that the court has made its decision, we will look at the judgment carefully to understand its implications and consider our next steps, BT said in a statement.
TalkTalk said: We are reviewing this long and complex judgement and considering our options. Though we have lost this appeal we will continue fighting to defend our customers' rights against this ill-judged legislation.
British regulator Ofcom will now have to publish a code detailing how the process will work.
Ofcom must require a high standard of evidence from copyright owners to prevent innocent consumers being placed on a copyright infringement list, Mike O'Connor, chief executive of Britain's Consumer Focus, said in a statement.
We need to see the roll-out of innovative legal services which offer compelling alternatives to people looking to download games, films, music and books online.
(Editing by David Cowell)
(This story was corrected in the headline and first and third paragraphs to clarify that new legislation would be required to throttle or suspend Internet accounts)