Law comes to one of the Internet's Wild Wests

October 5, 2012: 1:10 PM ET

The question is, can drastic new penalties really curb Japan's rampant piracy?

By Michael Fitzpatrick, contributor

FORTUNE -- The Wild East of unregulated internet usage appears to be coming to a close -- in Japan, at least. At the beginning of this week, a law passed in June that made it illegal to download certain copyrighted media without permission received fangs in the shape of a potential two-year jail stretch or a fine of 2 million yen (about $25,500) for offenders.

The draconian move signals an end to the country's largely laissez-faire approach to the internet and possibly to a culture where downloading for free has long overtaken paid for media. Japan is now one of the few OECD countries, along with South Korea, with tough penalties for copyright infringement by individuals. Japan also filters some internet content by way of its "Internet regulation bill" aimed at preventing access of "harmful" content to the under aged. Critics claim this bill is also used to censor, as Japanese ISPs are now directly answerable to the government.

The new, additional law not only ushers in an era of increased government involvement it also greatly heightens user liability says Tokyo-based technology consultant Serkan Toto. "It's not just people who are uploading copyrighted material that are targeted; the new law also makes criminals out of people downloading such material. And the punishment, in theory, is brutal," he says. "The message here is clear -- deterrent. Pay for content or you will be punished."

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The law only applies to audio and visual content "knowingly" downloaded illicitly. Via a peer-to-peer program for example. While it is up to the copyright infringed to make a case. Police will not be knocking on doors demanding to see anyone's ITunes files. But the illegal download is far and away the most popular way Japanese now collect music and ringtones according to the Recording Industry Association of Japan (RIAJ).

The association represents Japan's largest record labels and has been lobbying for years for some sort of criminalizing deterrent to dissuade illegal media downloads. It claims there are 9 illegal media downloads for every legal one in Japan. According to research RIAJ conducted in 2010, 4.36 billion music files were pirated that year, leading to 668.3 billion yen in lost earnings for its members and musicians in what is now the world's biggest market for music recordings.

RIAJ also points out that while legal downloads of digital media in Japan started to rise from a low of 35 billion yen in 2005 to 86 billion in 2010 they were only worth 72 billion yen by 2011. "The new law is a win for the media industry lobby in Japan. First and foremost the Recording Industry Association of Japan," says Toto. "The biggest issues here are, a: that every web user in Japan is now a potential target for investigation by authorities and that, b: the damage done by downloading material and the potential punishment bear no relation to each other."

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RIAJ, whose company motto is "Respect our Music." welcomed the announcement in June that illegal downloads would be criminalized in October, stating on its website that such penalties are important to preserve what it calls "the cycle of music creation." Says the association's president Naoki Kitagawa, "we hope that the revised law will reduce piracy infringement on the Internet and lead to a healthier society and net culture."

The perception of many IP copyright holders in Japan is that Japanese regulations were too lax in the past. Japanese copyright expert, and lawyer for Creative Commons Japan, Yuko Noguchi points out that Japan is almost unique in allowing individuals until recently to hold one digital copy of just about any medium they wished.

The new law will only apply to uploaded and downloaded music and video files, while other medium, such as books, will still be permissible to copy and keep. Uploading content that infringed copyright has always been illegal in Japan, punishable by up to 10 years in prison or a fine of 10 million yen, but Noguchi questions why it is now required to go after individual copyright infringers.

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"It's not necessary," she says. "Of course illegal downloading is really bad, but we have to look at those uploading and we already have those measures in place to tackle uploads. I can't see this as a proper incentive (not to download)." YouTube and other streaming type services in Japan, although they also download content briefly onto user's computers, will not be subject to the new rules.

So far this week there have been no reports of any arrests over illegally downloaded media in Japan although there is a government body that monitors illegal uploads in Japan. It is unknown if the same agency will be monitoring downloads as well. "It remains to be seen, how exactly the new legislation will be interpreted and how aggressively it will be enforced," says Toto.

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