Earlier this year the Government backed a recommendation to establish a DCE. The recommendation was made by university professor Ian Hargreaves in a review of the UK's intellectual property framework. He said that a copyright exchange should be set up to enable owners of copyrighted material to licence the use of their material to users through an online mechanism.

Hargreaves said a DCE could benefit the UK economy by up to £2 billion and said the system would make it easier for users of copyright material to obtain the right licences and encourage legal use of copyrighted content. Hargreaves also said that a DCE would improve the prospects for the UK's creative industries across the world and make it easier for small companies and new entrants to the copyright market to establish themselves.

In August the Government announced its support for the proposed new licensing system, vowed to make state-owned copyrighted works available through the new exchange and said it would encourage public bodies to do likewise.

The Government has now appointed former Ofcom deputy chairman Richard Hooper to lead a feasibility study into a DCE. Hooper said his study would involve information gathering from industry and an attempt to form a "common understanding" on how a DCE would work.

"There are people all across the creative sector trying to develop ways of licensing works using new digital technologies," Hooper said in a BIS statement.

"We need to bring that enthusiasm and talent together to create a universal system that benefits everyone. This work is about helping the industry to do more, to do it quicker and grow the economy," he said.

"My work will be in two distinct phases. First I want to talk to people across and outside the sector to find out how they see the licensing challenges facing them. As part of that process, I'll be looking to meet the key players and to provide opportunities for all those interested to air their views. We will then be able to forge some common understanding so that I can look to produce appropriate industry-led solutions which respond to the spirit of Hargreaves’ vision," Hooper said.

BIS said that individuals within and outwith the copyright industry would be welcome to assist Hooper in his study. Business Secretary Vince Cable said that there are issues with how the DCE could work that the feasibility study would need to resolve before a DCE could become operational.

"A digital copyright exchange would be a global first and could unlock significant growth potential in the creative sector benefiting consumers and businesses alike," Cable said.

"This is an exciting project which could really open up the UK’s intellectual property systems. But the solutions are not straightforward and there are a number of issues that need to be worked through to establish its feasibility, so I am delighted to have someone of Richard Hooper’s stature to lead this important work," he said.

The Hargreaves report called on Government to help facilitate a DCE which would comprise "a network of interoperable databases to provide a common platform for licensing transactions". He said the DCE should be voluntary for rights holders to sign up to, but that Government should consider offering incentives to do so.

Claire Smith, expert in copyright law at Pinsent Masons, the law firm behind Out-Law.com, said that a DCE would have to give rights holders control over the use of their works in order to incentivise them to use the system.

"There has got to be something more sophisticated than an 'all or nothing' approach to using the exchange and must give rights holders discretion over how their content is made available," Smith said.

"Rights holders are unlikely to be interested in making material available through a DCE if they do not have proper control over who can and cannot download it. Sufficient technical solutions will need to be found to prevent a DCE being open to infringement and could include a system whereby all downloading is logged and use of material tracked in order to make sure it is legitimate," she said.

Hargreaves said incentives could include increasing the level of damages for infringement of works made available through a DCE compared to other copyrighted material. Hargreaves also suggested that the Government could give content creators the right to withdraw from publisher/record company contracts if the companies did not make their works available through the exchange. The Government could also pay the costs of establishing an exchange and encourage internet service providers to "highlight" legitimate websites that are part of the licensing system, Hargreaves said.

Hargreaves said that a properly incentivised DCE could quickly become "self-propelling" and that a "code of practice" around its use would need to be established at the start.

Copyright law expert Iain Connor of Pinsent Masons previously said that the Government would have to resolve how a DCE would be paid for before working on incentivising rights holders to use it.

"The Government has not yet announced exactly how the new digital copyright exchange will be paid for," Connor said. "Conducting a study into how the new system could work without that detail will make it very difficult for it to gain enough support for it to be introduced in 2012, which is when Professor Hargreaves had recommended the system be established by."