BT and Phorm have escaped legal action for carrying out a covert trial of Phorm's Web Wise information gathering software in 2006.
The software places cookies on users' computers and used to secretly gather selected information regarding their internet browsing habits, using the data to automatically target web-based advertisements at the user.
The case, which was brought to court because it was alleged that BT had not informed users of the activity, was dropped due to lack of evidence.
The Crown Prosecution Service (CPS) began investigating the case following a request to do so from a privacy campaigner.
However, after obtaining expert evidence on how the technology worked, the CPS decided not to consent to the request.
The CPS said that BT and Phorm received considerable legal advice concerning the use of this software and there was no evidence to suggest either company acted in bad faith. It also said that it could be argued that any offence was the result of an honest mistake or genuine misunderstanding of the law.
In addition, both companies co-operated with the police investigation and the CPS believes that the behaviour is unlikely to be repeated, as Phorm now requests the user's consent.
However, the case raises questions regarding how ISPs should use technology to implement the Digital Economy Act, as they will need to use software in order to monitor user browsing habits for compliance purposes.
The CPS said that each case will be judged on its own merits, and advised ISPs to seek legal advice before embarking on any software implementation to monitor users' habits.
"It's difficult to apply one of our decisions to any other company or any other software. Whenever we take decisions it's based on the particular case. The same public interest factors may not apply in every other case, so you can't really read too much into this case," said a CPS spokesperson.
"It's up to the ISP to seek legal advice as to what technologies they can and can't use," they added.
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