Imagine a country hosting the Olympic Games where internet content is routinely monitored for material that irks the powerful; material that must be stopped, and whose recipients must suffer the force of the law. China, this year? Yes; but also, perhaps, Britain in 2012. That is, if some parts of a strategy paper - emphatically not a Green Paper, as those map out the path to legislation - to be published jointly tomorrow by the Department of Culture, Media and Sport and the Department for Business, Enterprise and Regulatory Reform (DBERR) are implemented.

The part that has drawn the most attention is the government's threat - which is understood to be repeated in the document - that if internet service providers (ISPs) and "content producers" cannot agree how to regulate and control illicit downloading of copyrighted content by Britons, then ministers create new legislation that will force ISPs to police what passes through their systems.

The announcement marks a victory for the record industry in Britain, which has struggled for years to find a response to the explosion in illegal downloading since the first peer-to-peer filesharing program, Napster, appeared in 1999. It has tried lawsuits against filesharers; though it won every one of the dozens of cases brought, piracy has continued to grow. The 2007 Digital Music Survey by Olswang, which interviewed 1,700 people, found that in 2007, 43% of respondents had carried out "unauthorised downloading" - compared to 36% in 2006, but 40% in 2005. Possibly the new broadband users in 2006 hadn't figured out file-sharing systems; but they have now. The survey also found in 2007 that 18% of those asked said they'd do it more often in the future: only one-third cited fears of prosecution as a reason for downloading less.

Three strikes, you're off

Now, the music industry has used its lobbying muscle with the government - which is always happy with an industry that employs thousands and generates millions of pounds in taxable revenue - to force ISPs to sit down and create a new framework to choke downloading.

Under the scheme, the British Phonographic Industry (BPI), representing the record industry, will gather evidence about people suspected of downloading material illicitly and pass it on to the relevant ISP, which will then send a warning letter to the customer. The third warning will mean termination of the account. There are even proposals that ISPs should create a central database naming people who have been warned or cut off.

"The three-strike process is far better then landing someone with a great big lawsuit," says Matt Phillips of the BPI. "Surveys we've done suggest that 70% of consumers would stop sharing on their connection if they knew it was being done illicitly. And it's got to be better than taking them to court, where they'll face a legal bill of at least £3,000."

For the BPI, too, such a system is far preferable because it transfers the apparent responsibility for taking action from them to the ISPs - who until now have taken a hands-off role, insisting they are merely conduits for whatever data passes over their connections. Indeed, that "conduit" status gives them exemption from all sorts of legal comeback by content creators under the Electronic Commerce Regulations of 2002.

But ISPs are uneasy about the move, whose gaps have already been demonstrated by Tiscali, one of the major ISPs with about 2 million UK customers. Last year it began implementing precisely the scheme that the BPI wants. The BPI identified 21 IP addresses of Tiscali customers suspected of file-sharing and passed them to Tiscali, which warned the users; four were subsequently cut off.

Who pays the pipe owner?

But then the two sides began disagreeing: Tiscali became uneasy about the legal implications if it were challenged; would the BPI be prepared to take joint liability? And would the BPI share the costs of identifying and contacting the accused users, since most ISPs operate on very low margins: every support call loses money (Making a play for customers, August 30 2007). The two sides couldn't agree, and the BPI has sent Tiscali no more IP addresses since October.

The BPI says that such details are not immediately important: "If somebody is being banjacked [having their connection hijacked], then the three-stage process is far more reasonable than having a lawsuit arrive one morning," says Phillips.

ISPA, the organisation which represents ISPs, sounds frustrated by the corner it is being forced into. It has little lobbying power, being a relatively new industry - it barely existed 15 years ago - that employs relatively few people and doesn't generate exports. Those qualities don't endear it to the government, even if ISPs have enabled the explosion in internet use that has led to roughly 90% of home connections being broadband.

"Using bittorrent [a file-sharing protocol used to distribute both legal and illicit materials] isn't illegal," points out ISPA. "We prefer to go with self-regulation because it's generally seen to be more nimble than legislation. And it has proved effective - look at what we've managed to do with the Internet Watch Foundation to get abusive images of children off the internet in Britain." By contrast, ISPA says, legislation such as the Computer Misuse Act takes a long time to implement and leaves loopholes, while also criminalising activities that some need to do (such as scanning systems for weaknesses).

The complications are increased by the fact that legitimate organisations now use filesharing. The BBC, Channel 4 and Sky all use the Kontiki peer-to-peer software for their "watch anytime" services; some users have been surprised to find that they are uploading material from their computers while watching it. Equally, BitTorrent - the commercial company built around the bittorrent protocol - distributes music and film from its site via filesharing. Can the BPI and ISPs be certain that they are challenging someone who is really breaking the law? And where is the burden of proof? Will accused filesharers be able to see the evidence against them, and where will they be able to challenge it?

ISPA says that such discussions are "ongoing", but the government has started the clock ticking. In an interview last month Lord Triesman, the (first ever) minister for intellectual property at DBERR, hinted that if there was no agreement between the two sides, he might aim to add proposals for legislation to the Queen's Speech, due in November. That would probably mean legislation would come into force in 2009 or 2010 - a prospect that ISPs do not find edifying. There are many "what ifs?" outstanding: what if someone uses someone else's unsecured Wi-Fi connection? What if someone uses a shared space such as an internet cafe or university? Or, what if filesharers begin using encryption and "tunnelling" to hide from view?

But imagine, finally, that a rigorous self-regulation procedure is in place, and that the internet populace knows about it. Does the BPI think its members' sales will grow? For once, Phillips hesitates. "That's really hard to answer. But it would send out the message that copyright is to be respected, that creative industries are to be respected and paid for," he says. "It would mean that the people who are paying for content wouldn't be subsidising those who don't. But I can't say to you now that it would make sales grow, or by how much."