Governments, the music and film industries and internet service providers (ISPs) have been seeking a solution to the multibillion-pound problem of digital piracy for years. Warning letters, prosecutions and education campaigns have done little so far. The music industry estimates that 95 per cent of all music tracks are downloaded illegally, causing $12.5 billion (£8.7 billion) of losses a year, according to the Institute for Policy Innovation.

There are thought to be between six and seven million digital pirates in Britain. The Government has already signed a memorandum of understanding with the entertainment industry saying it wants to cut piracy drastically within three years. Lord Carter of Barnes’s proposals take Britain down the path of court action.

The memorandum required the six biggest ISPs — BSkyB, Tiscali, BT, Orange, Virgin Media and Carphone Warehouse — to send thousands of letters a week to subscribers engaged in illegal uploading or downloading of music. Now ISPs would also have to collect and pass on anonymous data on the worst offenders along with personal details, on receipt of a court order, so that rights holders have the option of taking legal action. Seven in ten consumers said that they would stop illegally downloading if told to do so by their ISP, according to research last year.

Lord Carter’s proposals appear to fall short of what rights-holders really want — a “three strikes and you’re out” policy, which is being implemented in France. There a draft law sets up a system of “graduated response” by which ISPs will write to persistent abusers to warn them and as a last resort cut their internet access for between one and 12 months.

New Zealand is also just about to require ISPs to implement a policy of terminating the accounts of repeat infringers. Similar legislation is being discussed in Italy, Australia, Japan, Hong Kong and South Korea. In the Irish Republic Eircom agreed yesterday to disconnect users who download music illegally in a settlement with four record companies. Other ISPs are expected to follow suit.

But in the US, the Recording Industry Association of America, which represents large music labels, is backing away from a six-year campaign of litigation against individual file-sharers, under which nearly 35,000 people have had action taken against them. The industry is looking to work out “three strikes” policies with individual ISPs but there is no government legislation to back this.

What many analysts want is for the music and video industries to concentrate on finding more flexible ways to make more money from legal downloads, rather than penalising or taxing music lovers. Last year there were several ventures in this direction that, in the long term, may prove more successful than court action. Nokia launched its “all you can download” phone and MySpace launched a music service where millions of free songs were made available, supported by advertising. Legal download sites such as iTunes and Amazon have been growing.

Warner Music has been studying a proposal for US university campuses, where students are prolific users of file-sharing services. ISPs would levy a fee on broadband connections in dormitories and libraries, in exchange for allowing students to download music without limits.

The Isle of Man has just put forward a similar solution, whereby broadband subscribers would have to pay a nominal fee of £1 a month to download unlimited amounts of music. The money collected by the ISPs would be sent to a special agency that would distribute the proceeds to the copyright owners, including record labels and music publishers.